Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow.

CAMBRIDGE – The mighty US dollar continues to reign supreme in global markets. But the greenback’s dominance may well be more fragile than it appears, because expected future changes in China’s exchange-rate regime are likely to trigger a significant shift in the international monetary order.

The End of the Oil Age

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The West’s Crisis of

In the near term, markets should not be too worried about a possible spike in demand driving up inflation and interest rates, causing asset prices to fall across the board. But longer-term inflation risks are skewed much more to the upside than many investors and policymakers seem to realize.

CAMBRIDGE – Massive fiscal and monetary stimulus programs in the United States and other advanced economies are fueling a raging debate about whether higher inflation could be just around the corner. Ten-year US Treasury yields and mortgage rates are already climbing in anticipation that the US Federal Reserve – the de facto global central bank – will be forced to hike rates, potentially bursting asset-price bubbles around the

Heightened global economic risks mean that many poorer countries could take years to return to their pre-pandemic growth trajectories. And if higher inflation leads the US Federal Reserve to raise rates somewhat sooner than it currently plans, emerging markets will be hit particularly hard.

CAMBRIDGE – Economic recovery, like COVID-19 vaccines, will not be evenly distributed around the world over the coming two years. Despite enormous policy support provided by governments and central banks, the economic risks remain profound, and not just to frontier economies facing imminent debt problems and low-income countries experiencing an alarming rise in poverty. With the coronavirus far from tamed, populism rife, global

Global carbon pricing is an essential part of any long-term solution to the climate crisis. But advanced economies also need to provide the developing world with highly concessional financing and technical expertise to help it decarbonize – all guided by a World Carbon Bank.

CAMBRIDGE – With US President-elect Joe Biden’s incoming administration promising a fresh, rational approach to climate change, now is an ideal time to make the case for a World Carbon Bank that would transfer and coordinate aid and technical assistance to help developing countries decarbonize. The proposed Green New Deal in the United States and the European Commission’s European Green Deal have laudable environmental goals but are too

Super-fast computer programs and massive databases have had a profound impact on professional chess in recent years. But, despite the threat of cheating, the game is currently in remarkable creative and economic health – not least because it is fantastically suited to the online world.

CAMBRIDGE – In the brilliant and hugely successful 2020 Netflix miniseries The Queen’s Gambit, the chess prodigy Beth Harmon (played by Anya Taylor-Joy) polishes off her male opponents with style and speed. Because the story is set in the 1950s and 1960s, there are no cell phones, social media, or computer chess programs. Life was slower then, as it again seems to be nowadays during the pandemic.

How Might COVID-19 Change

Macroeconomists broadly agree that productive infrastructure spending is welcome after a deep recession, especially when interest rates are at record lows. But in advanced economies, any new project typically requires navigating difficult right-of-way issues, environmental concerns, and objections from apprehensive citizens.

CAMBRIDGE – Encouraging news about more effective anti-viral treatments and promising vaccines is fueling cautious optimism that rich countries, at least, could tame the COVID-19 pandemic by the end of 2021. For now, though, as a brutal second wave cascades around the world, broad and robust relief remains essential. Governments should allow public debt to rise further to mitigate the catastrophe, even if

Core dollar exchange rates have so far been surprisingly stable during the pandemic, most likely because major central banks’ policy interest rates are effectively frozen at or near zero. But although the current stasis could last awhile, it will not last forever.

CAMBRIDGE – With alternative assets such as gold and Bitcoin thriving in the pandemic, some top economists are predicting a sharp fall in the US dollar. This could yet happen. But so far, despite inconsistent US management of the pandemic, massive deficit spending for economic catastrophe relief, and monetary easing that Federal Reserve Chair Jerome Powell says has “crossed a lot of red lines,” core dollar exchange rates have been eerily calm. Even the

This week in Say More, PS talks with Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University.

Project Syndicate: The current disconnect between stock-market valuations and the real economy, you recently explained, is rooted in the fact that “small businesses and individual service proprietors,” rather than publicly traded companies, are bearing the brunt of the COVID-19 crisis. You also noted that, as government support lapses, many “otherwise viable businesses” will fail, “leaving large publicly traded companies with an even stronger market position.” Yet when US President Donald Trump announced that he had ended negotiations with Congress over a new stimulus bill, the stock market immediately

Policymakers’ most important task is to try to reduce the massive lingering uncertainty regarding COVID-19 while continuing to provide emergency relief to the hardest-hit individuals and economic sectors. But the insecurity fueled by the pandemic is likely to weigh on the global economy long after the worst is in the past.

CAMBRIDGE – The next few months will tell us a lot about the shape of the coming global recovery. Despite ebullient stock markets, uncertainty about COVID-19 remains pervasive. Regardless of the pandemic’s course, therefore, the world’s struggle with the virus so far is likely to affect growth, employment, and politics for a very long time.

The Post-Pandemic Economy’s

The COVID-19 pandemic is accelerating the long-term shift away from cash, and monetary authorities risk falling behind. A recent report from the G30 argues that if central banks want to shape the outcome, they need to start thinking fast.

CAMBRIDGE – As the COVID-19 crisis accelerates the long-term shift away from cash (at least in tax-compliant, legal transactions), official discussions about digital currencies are heating up. Between the impending launch of Facebook’s Libra and China’s proposed central-bank digital currency, events today could reshape global finance for a generation. A recent report from the G30 argues that if central banks want to shape the outcome, they need to start moving fast.

The COVID-19 crisis is likely to bring about further rapid and far-reaching shifts in the economic ground beneath us. But we need not view these changes with dread if the pandemic also propels a transition to better and more universal higher education.

CAMBRIDGE – Will COVID-19 finally trigger a long-overdue technological disruption of higher education? Throughout the world, sudden mid-semester lockdowns aimed at combating the pandemic forced universities to switch to distance learning almost overnight. But while this rapid transition has been tough for faculty and students alike, some good might yet come of it.

Priorities for the COVID-19 Economy

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Even if the United States turns a blind eye to deglobalization’s effects on the rest of the world, it should remember that the current abundant demand for dollar assets depends heavily on the vast trade and financial system that some American politicians aim to shrink. If deglobalization goes too far, no country will be spared.

CAMBRIDGE – The post-pandemic world economy seems likely to be a far less globalized economy, with political leaders and publics rejecting openness in a manner unlike anything seen since the tariff wars and competitive devaluations of the 1930s. And the byproduct will be not just slower growth, but a significant fall in national incomes for all but perhaps the largest and most diversified

Only monetary policy addresses credit throughout the economy. Until inflation and real interest rates rise from the grave, only a policy of effective deep negative interest rates, backed up by measures to prevent cash hoarding by financial firms, can do the job.

CAMBRIDGE – For those who viewed negative interest rates as a bridge too far for central banks, it might be time to think again. Right now, in the United States, the Federal Reserve – supported both implicitly and explicitly by the Treasury – is on track to backstop virtually every private, state, and city credit in the economy. Many other governments have felt compelled to take similar steps. A once-in-a-century (we hope) crisis calls for massive government

Policymakers and too many economic commentators fail to grasp how the next global recession may be unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp drops in production, generalized shortages, and rapidly rising prices.

CAMBRIDGE – It is too soon to predict the long-run arc of the coronavirus outbreak. But it is not too soon to recognize that the next global recession could be around the corner – and that it may look a lot different from those that began in 2001 and 2008.
Solidarity Now

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Many leading central bankers now argue that, instead of just playing its traditional role of deciding the allocation of government spending, investment, taxes, and transfers, fiscal policy must substitute for monetary policy in economic fine-tuning and fighting recession. That would be a big mistake.

LONDON – Will the next recession be worse than you think? With the major central banks having little space for further interest-rate cuts, might the next cyclical downturn become a crash? In theory, fiscal policy can go far in filling the void. The past decade has seen a rise in fiscal evangelism among many economists and policymakers, and it is indeed likely that fiscal fine-tuning will be widely tested in the next downturn. Are

The scientific evidence increasingly indicates that the world may soon reach a point of no return regarding climate change. So, rather than worrying almost exclusively about economic and political inequality, rich-country citizens need to start thinking about how to deal with global energy inequality before it’s too late.

CAMBRIDGE – While denizens of the world’s wealthiest economies debate the fate and fortune of the middle class, over 800 million people worldwide have no access to electricity. And more than two billion have no clean cooking facilities, forcing them to use toxic alternatives such as animal waste as their main cooking fuel. Furthermore, per capita carbon dioxide emissions in Europe and the United States are

With borrowing costs at multi-decade lows, governments seemingly can take on much more debt without any great concern about long-term consequences. But the real risks and costs of higher public borrowing may be hidden.

CAMBRIDGE – With interest rates on government debt at multi-decade lows, a number of leading economists have argued that almost every advanced economy can allow debt to drift up toward Japanese levels (over 150% of GDP even by the most conservative measure) without any great concern about long-term consequences. Advocates of much higher debt might be right, but they tend to downplay or ignore everything that can go wrong.
Mapping the Digital Economy in 2020

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Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests. The real challenge for the United States isn’t Facebook’s proposed Libra; it’s government-backed digital currencies like the one planned by China.

SOUTH BEND – Facebook CEO Mark Zuckerberg was at least half right when he recently told the United States Congress that there is no US monopoly on regulation of next-generation payments technology. You may not like Facebook’s proposed Libra (pseudo) cryptocurrency, Zuckerberg implied, but a state-run Chinese digital currency with global ambitions is perhaps just a few months away, and

Despite the severity of the climate-change crisis, much of the debate in advanced economies is entirely inward-looking, without recognizing that the real growth in carbon dioxide emissions is coming from emerging Asia. In fact, Asia already accounts for a higher share of global emissions than the United States and Europe combined.

CAMBRIDGE – Barring the discovery of a substance like vibranium (the fictional metal in the Marvel Comics universe that can absorb and release large amounts of kinetic energy), the earth is set to experience a sharp rise in global temperatures by the end of this century. Given the severity of the crisis, it is remarkable how much of the debate in advanced economies is entirely

It’s high time to ask how to refocus the International Monetary Fund’s mandate for dealing with emerging-market debt crises. How can the IMF be effective in helping countries regain access to private credit markets when any attempt to close unsustainable budget deficits is labeled austerity?

CAMBRIDGE – In case you blinked, the Argentine government built up a pile of debt out of almost nothing with surprising speed, and then proceeded to default on it almost as quickly. Compared to the country’s slow-motion 2002 default, the latest crisis feels like 60-second Shakespeare. But in both cases, default was inevitable, because the country’s mix of debt, deficits, and monetary policy was unsustainable, and the political

Many economists already favor a consumption-based tax system for raising revenue on grounds of efficiency and simplicity. In an environment where wealth inequality is rising inexorably, the case for doing so has become increasingly compelling.

CAMBRIDGE – Is it time for the United States to consider switching from income tax to a progressive consumption tax as a way of addressing growing wealth inequality? Many economists have long favored a consumption-based tax system for raising revenue on the grounds of efficiency and simplicity. However, despite occasional vocal adherents, it has never gained political traction. Is it time to think again?
The Trump Narrative and the Next

There is much to be celebrated in the rise of modern megacities, especially in developing countries. But if the trend persists in advanced economies, which is by no means certain, greater public and private innovation will be required to strike a better regional growth balance.

SANTIAGO – The rise of megacities as centers of strong job creation is one of the defining characteristics of the twenty-first-century global economy. But it is not always a positive feature.
What’s Next for China’s Political Economy?

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Their Faintest Hour

To the dismay of many energy experts, the World Bank recently rather capriciously decided to stop funding virtually all new fossil-fuel plants. But phasing out readily available coal is a move that most major developing countries simply cannot afford without adequate incentives.

CAMBRIDGE – Although much derided by climate-change deniers, not least US President Donald Trump, Alexandria Ocasio-Cortez’s Green New Deal hits the nail on the head with its urgent call for the United States to lead by example on global warming. But the sad truth is that, for all the needless waste produced by American’s gluttonous culture, emerging Asia is by far the main driver of the world’s growing carbon dioxide emissions.

In the space of a year, populists with autocratic tendencies have taken office in Mexico and Brazil, and laid the groundwork to return to power in Argentina. With the three largest economies in Latin America destined for further mismanagement, the prospects for growth in the region are dim.

LONDON – Though US President Donald Trump tends to grab most of the headlines, he is hardly a global exception. Populist autocrats have enjoyed a breathtaking rise to power in countries around the world, and nowhere is the trend more pronounced than in Latin America following the elections of Mexico’s leftist president, Andrés Manuel López Obrador (AMLO), and Brazil’s right-wing president, Jair Bolsonaro.

Since the world’s major central banks came to the global economy’s rescue in 2008, they have had more and more tasks foisted upon them, even as some politicians question their expanded role and others seek to undermine their policymaking autonomy. To escape this dilemma, monetary authorities must get back to doing what they do best.

CAMBRIDGE – With the global rise of populism and autocracy, central-bank independence is under threat, even in advanced economies. Since the 2008 financial crisis, the public has come to expect central banks to shoulder responsibilities far beyond their power and remit. At the same time, populist leaders have been pressing for more direct oversight and control over

A potential agreement could contain many “win-win” elements, notably concerning intellectual property rights and export subsidies. But pushing China to commit to a more stable exchange rate risks creating major problems when the next big Asian recession hits.

CAMBRIDGE – Will a possibly imminent US-China trade agreement exacerbate global business cycles or even plant the seeds of the next Asian financial crisis? If the eventual agreement – assuming there is one – forces China to hew indefinitely to its outmoded, overly rigid exchange-rate regime, then the answer may be yes.
The Economy We Need

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Brexit Fever is Breaking

Artur

After years of mounting polemics against austerity policies, Keynesian dogma has become something close to a secular religion in popular economic-policy debates. But a new study of 16 advanced economies shows that, as with all dogmas, righteousness is no substitute for empirical facts.

CAMBRIDGE – In Austerity: When It Works and When It Doesn’t, the central conclusion reached by economists Alberto Alesina, Carlo Favero, and Francesco Giavazzi is one that most modern-day Keynesians and progressives will hate. In cases when circumstances have forced a country into fiscal retrenchment, the authors show, cutting government spending has cost less than tax increases in terms of foregone output and employment.Readers should

The debate about how to regulate the tech sector is eerily reminiscent of the debate over financial regulation in the early 2000s. Fortunately, one US politician has mustered the courage to call for a total rethink of America’s exceptionally permissive merger and acquisition policy over the past four decades.

CAMBRIDGE – Displaying a degree of courage and clarity that is difficult to overstate, US senator and presidential candidate Elizabeth Warren has taken on Big Tech, including Facebook, Google, Amazon, and Apple. Warren’s proposals amount to a total rethink of the United States’ exceptionally permissive merger and acquisition policy over the past four decades. Indeed, Big Tech is only the poster child for a significant

A number of leading progressive US politicians advocate using the Federal Reserve’s balance sheet to fund expansive new government programs. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions, and could have unpredictable and potentially serious consequences.

CAMBRIDGE – Just as the US Federal Reserve seems to have beaten back blistering tweets from President Donald Trump, the next battle for central-bank independence is already unfolding. And this one could potentially destabilize the entire global financial system.

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Despite improvements in the financial system since the 2008 crisis, the piecemeal reforms that have been enacted fall far short of what is needed. And an inexorably growing financial system, combined with an increasingly toxic political environment, means that the next major financial crisis may come sooner than you think.

CAMBRIDGE – A decade on from the 2008 global financial crisis, policymakers constantly assure us that the system is much safer today. The giant banks at the core of the meltdown have scaled back their risky bets, and everyone – investors, consumers, and central bankers – is still on high alert. Regulators have worked hard to ensure greater transparency and accountability in the banking industry. But are we