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Willem H. Buiter

Articles by Willem H. Buiter

Restructuring the Debt-Restructuring Process

November 24, 2020

While the world has come a long way since the days when sovereign defaults where settled with gunboats, Argentina’s recent restructuring shows that we still have not arrived at a sensible, orderly process. Beyond tweaks to the contractual framework, an entirely new governing mechanism is urgently needed.

LONDON – Sovereign default is common. Ecuador and Venezuela each defaulted ten times between 1800 and 2010, and Greece defaulted five times between its war of independence (1821-1830) and 1932. Russia, Ukraine, Ecuador, Uruguay, and Argentina have all defaulted since 1998.

America’s Political Crisis and the Way Forward

PS OnPoint

Elijah Nouvelage/Getty Images

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The Market’s Best of All Possible Worlds

November 6, 2020

To electoral observers who are heavily invested in the partisan outcome of the US elections, the delays in counting and free-wheeling allegations of fraud are enough to make November 2020 feel like the apocalypse. So why have stock prices gone on another tear?

NEW YORK – Even though uncertainty about the outcome of the US presidential election is likely to drag on, the stock market has been rallying. Provided that the election is decided within weeks – rather than months – and that both candidates ultimately accept the outcome as legitimate, business sentiment and household optimism can be expected to remain robust. Indeed, the only surprise this week is how close the Electoral College contest turned out to be. The

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Why Punish Corporations for Their Employees’ Crimes?

November 3, 2020

Punishing corporations for crimes committed by their employees is not unlike the ritual sacrifice of inanimate objects under early English common law. One would think that after so many centuries, we would have made more progress in the rational administration of justice.

LONDON – Under English common law from the eleventh century until 1846, an inanimate object or an animal that caused a person’s death would be forfeited, becoming what was referred to as a “deodand.” Thus, when William Swan fell into a well and drowned in Wigston, England in 1397, the coroner ordered the destruction of the well. Likewise, chattels that caused a person’s death were given to God or to his representative on Earth, the monarch.

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An Interview with Willem H. Buiter

September 22, 2020

This week, PS talks with Willem H. Buiter, a visiting professor at Columbia University who was formerly Chief Economist at Citigroup.

Project Syndicate: In May, you argued that, when economies face a liquidity trap at the effective lower bound for the nominal policy interest rate, monetized increases in public spending or tax cuts are an appropriate policy response. But once interest rates return to “normal,” governments “will have to adjust their fiscal position and its financing accordingly.” Let’s apply this logic to the United States, which, as you’ve acknowledged, “faces fewer constraints than other countries on the federal government’s ability to borrow and to monetize public debt.” What risks do you see

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Recovering from the EU’s Recovery Fund

August 5, 2020

Amid the celebrations following European leaders’ deal on a €750 billion recovery fund, many seem to have forgotten that both the European Union and the eurozone remain under constant threat of sovereign-debt crises. Until that fundamental weakness is addressed, the champagne corks should stay in their bottles.

NEW YORK – After arduous negotiations between member states’ governments last month, European Union leaders are celebrating their agreement on a €750 billion ($886 billion) rescue package for EU countries hit hard by the COVID-19 crisis. But it is too soon to pop open the champagne. The plan for the “Next Generation EU” recovery fund has two major weaknesses that will make it not only ineffective but also a

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A Stronger Recovery Through Better Accounting

June 26, 2020

Given that the COVID-19 crisis demands unprecedented levels of stimulus spending, policymakers should use the occasion to adopt a more flexible form of public-sector accounting. Insofar as public-sector assets like infrastructure add to the state’s "net worth," they should be put to use generating new revenue flows.

NEW YORK – One effect of the COVID-19 lockdowns this year is that many young adults have returned home temporarily to stay with their parents, subletting their apartments to others in need. For those who have lost their jobs, the rent paid by these tenants has doubtless provided a welcome and necessary safety net. Thanks to the modern gig economy, victims of the downturn can operate like corporations,

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Time for a Selective Debt Jubilee

May 21, 2020

With a global depression looming, no country will be able to avoid the need for massive stimulus spending and the explosion of debt that will come with it. While advanced economies have creative options for managing these claims, it is already obvious that developing countries will need a more radical solution.

NEW YORK – The COVID-19 crisis will leave many private and public borrowers saddled with unsustainable debt. We are still in the “pre-Keynesian” supply-shock-cum-derived-demand-shock phase of what is likely to be a global depression. But once the virus is mostly vanquished, households will engage in precautionary saving, and businesses will be reluctant to commit to capital expenditures, driving a further

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Germany’s Judges Declare War on the ECB

May 6, 2020

In a new ruling, Germany’s highest court has threatened to throw a wrench into the European Central Bank’s efforts to extend liquidity and other forms of assistance to distressed eurozone governments. Coming amid a deep economic crisis, the court’s decision could force one or more countries to crash out of the monetary union.

NEW YORK – Germany’s Federal Constitutional Court has just set in motion a process that could culminate in the unraveling of the European Economic and Monetary Union. The court has ruled that, following a transitional period of no more than three months, the Bundesbank may no longer participate in the eurozone’s Public Sector Purchase Program (PSPP), unless the European Central Bank demonstrates

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The Problem With MMT

May 4, 2020

With governments searching for ways to manage the unprecedented economic fallout of the COVID-19 pandemic, the policy agenda implied by Modern Monetary Theory has become all the more appealing. Yet, insofar as MMT ignores the demand for money, it is a risky guide for policymakers.

NEW YORK – Modern Monetary Theory (MMT) offers a dangerous half-truth that has become particularly seductive now that governments are desperate for tools with which to keep their economies afloat. A recent statement by MMT proponent Stephanie Kelton to the Financial Times is a case in point. Referring to the United Kingdom’s current Conservative government, she argues that, “They’re going to have massive deficits. And it’s fine.”

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Pandemic Socialism

April 9, 2020

By introducing a uniquely disruptive shock to both supply and demand, the COVID-19 pandemic has upended longstanding ideological debates almost overnight. Suddenly, far-reaching state intervention in the economy has become necessary to save market capitalism, which is unlikely to emerge unchanged.

NEW YORK – Ironically, just as the “democratic socialist” Bernie Sanders has suspended his presidential campaign in the United States, many of his policy proposals are becoming necessary around the world. Social-distancing measures to mitigate the COVID-19 pandemic have disrupted production and household income streams alike. But the effectiveness of social distancing could be undermined by workers who lack proper health

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The Helicopters Are Coming

March 26, 2020

With the economic situation in many advanced economies rapidly deteriorating, policymakers are rolling out unprecedented stimulus programs, setting the stage for what amounts to a massive experiment with hitherto unorthodox Modern Monetary Theory. Today’s extraordinary problems, it would seem, require extraordinary solutions.

NEW YORK – With the COVID-19 pandemic intensifying, the United States has just adopted a $2 trillion economic-rescue package (equal to 9.2% of 2019 GDP). The legislation follows unprecedented actions by the US Federal Reserve, which will engage in open-ended quantitative easing, and has introduced new mechanisms to backstop businesses and keep credit flowing.
Insuring the

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When “Whatever It Takes” Isn’t Enough

March 17, 2020

The US Federal Reserve’s surprise weekend announcement of a large interest-rate cut, renewed quantitative easing, and other expansionary measures is a welcome response to the COVID-19 pandemic. But as markets were quick to note, monetary policy cannot save us from this crisis.

NEW YORK – When interpreting the US Federal Reserve’s weekend announcement of new measures to mitigate the fallout from the COVID-19 pandemic, it is important not to confuse motion with action.
The Three Essential Questions about COVID-19

Ina Fassbender/AFP via Getty Images

Piketty’s Latest Charge

PS OnPoint

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Piketty’s Latest Charge

March 13, 2020

By offering a comprehensive history of "inequality regimes" around the world, French economist Thomas Piketty offers a deeply informative and rewarding overview of one of today’s most pressing economic issues. But his own historical narrative suggests that his vision of global participatory socialism is a non-starter.

NEW YORK – French economist Thomas Piketty’s latest doorstop tome tries to fuse two distinct research efforts. The first is a history of inequality since around 1700, with occasional excursions into earlier periods. Upon reaching the nineteenth century and the industrial era, the analysis deepens and grows more detailed, taking us up to the present. Unlike Piketty’s previous opus, Capital in the

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The Wealth and Health of Nations

March 10, 2020

The COVID-19 outbreak’s implications for the global economy are highly uncertain but potentially disastrous. To understand the risks, one should remember Adam Smith’s insight about the true engine of wealth creation, the division of labor, which itself is dependent on the size and extent of markets.

NEW YORK – COVID-19’s implications for the global economy are highly uncertain but potentially disastrous. As of March 5, the World Health Organization had identified 85 countries and territories with active COVID-19 cases – an increase from 50 countries the previous week. More than 100,000 cases and 3,800 deaths have been reported worldwide, and these figures almost certainly understate the scale and scope of the outbreak.

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The New Normal Should Be Cashless

February 25, 2020

The central bankers and economic policymakers who doubt that deep negative interest rates would prove effective in the next recession have not given that policy a fair chance. The fact is that in an environment of persistently low inflation and negative nominal interest rates, we need to rethink the effective lower bound entirely.

NEW YORK – In December 2019, the Swedish central bank departed from a negative-interest-rate policy that it had maintained for almost five years. The Riksbank’s repo rate (the rate at which it lends to commercial banks), which reached a low of -0.5% in February 2016, had risen to 0% by January. The latest rate hike comes despite signs that the Swedish economy is slowing, with inflation running below

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Is Global Climate Solidarity Impossible?

February 10, 2020

Although plenty of people around the world still refuse to accept climate science, denial is not the main obstacle impeding the urgent global action needed to save the planet. The bigger problem is that the economic measures that could prevent catastrophic climate change are political non-starters.

NEW YORK – Despite the buzz around climate action at this year’s World Economic Forum meeting in Davos, Switzerland, the world’s current environmental prospects look grim. There are three obstacles: climate-change denial; the economics of reducing greenhouse-gas (GHGs) emissions; and the politics of mitigation policies, which tend to be highly regressive.
Has the “Great Decoupling” Gone Viral?


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The Real Brexit Negotiations Start Now

January 30, 2020

It is not an exaggeration to argue that the real negotiations about the future relationship between the United Kingdom and the European Union are starting only now. The UK can now look forward to painful grind of negotiations and policy implementation, probably lasting many years.

NEW YORK – With the United Kingdom set to withdraw from the European Union at 23:00 GMT on January 31, Prime Minister Boris Johnson will finally achieve the Brexit he has championed for the last four years. But, as the saying goes, be careful what you wish for.
Britain Enters the Unknown

Peter Summers/Getty Images

A Global Economy Without a

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Past Interest Rates and Future Growth

January 13, 2020

In studying the roots of macroeconomic trends across the advanced economies in recent decades, it is tempting to conclude that a declining rate of output growth is the inevitable result of deeper historical forces and intractable structural factors. But secular stagnation is well within our power to reverse.

NEW YORK – A new chapter has been written in the history of risk-free global interest rates. In a recent study, Paul Schmelzing of the Bank of England tracks global real (inflation-adjusted) interest rates over the period from 1311 to 2018. Despite temporary stabilizations during the periods 1550-1640, 1820-1850, and 1950-1980, he finds that global safe real rates have persistently trended downward over the past five

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When Central Banks Go Green

January 2, 2020

On a challenge as large as climate change, there are financial risks associated with making the shift to a low-carbon economy, and there are risks tied to inaction. Central banks thus have no choice but to focus more closely on the issue, with or without an expansion of their traditional policy mandates.

NEW YORK – Central banks confronted with the issue of climate change face a number of questions. Should monetary policymakers (and other financial regulators and supervisors) focus on the implications of climate change for financial stability? Should they treat climate change as a potential threat to their ability to pursue their macroeconomic mandates of full employment and/or price stability? Should mitigating the adverse

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Making the Best of a Bad Brexit

December 27, 2019

The United Kingdom has avoided the disaster of Labour Party leader Jeremy Corbyn’s radical socialism, but remains on track for a long grind through and after the post-Brexit transition period. Negotiating a new trade relationship with the European Union – not to mention the wider world – will take years.

NEW YORK – The United Kingdom’s general election this month not only settled the question of Brexit, but also put paid to Labour Party leader Jeremy Corbyn’s extreme vision of socialism. Corbyn’s electoral demise comes as a relief to all who reject the Venezuelan economic model: if it moves, regulate it; if it still moves, tax it; and if it’s still twitching after that, nationalize it. The UK has been spared a very costly

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Financial Stability Should Be Central Banking’s Prime Objective

December 11, 2019

It has become fashionable to worry whether central banks still have the tools with which to pursue price stability, full employment, and other objectives. But policymakers should not lose sight of the fact that a central bank’s primary job is to maintain financial stability as a lender and market maker of last resort.

NEW YORK – Most modern central banks regard macroeconomic stability – meaning price stability or, in some cases, price stability alongside full employment – as their main goal. But the Bank of Japan and the European Central Bank seem to be running out of tools with which to pursue this goal effectively. And the Bank of England and the US Federal Reserve could soon find themselves in a similar position.

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