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Inflation fears and the Biden stimulus: Look to the Korean War, not Vietnam

The debate among economists over the size of President Joseph R. Biden Jr.’s proposed $1.9 trillion stimulus package has drawn attention to past cases of inflation spurred by big government spending. Both sides have cited the Vietnam War of the 1960s as a precedent of an outbreak of inflation that would be difficult to reverse. Looking to the past can be misleading, however. The spending boom of the late 1960s—fueled not only by the war but by the Great Society programs—was long-lasting,...

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Saving in US dollars doesn’t yield highest returns in inflation targeting countries

For more than 30 years, dozens of countries around the world have experienced painful episodes of rampaging inflation. Many have adopted a monetary policy known as inflation targeting (IT) requiring them to ramp up interest rates that have decelerated inflation at the cost of sometimes drastic economic slowdowns. Separately, policymakers have generally accompanied inflation targeting with often large fluctuations in exchange rates as they have had to choose between stabilizing inflation or...

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Novel viral variants: Why the world should prepare for chronic pandemics

Even with the alarming spread of variants of SARS-CoV-2, the virus that causes COVID-19 (short for coronavirus disease 2019), most economists, most policymakers, and perhaps most people have been assuming that at some point the pandemic will end, and life will resume as before. But what if it does not? Experience with HIV/AIDS and other precedents indicates that these disease events can turn from acute to chronic without going away. The reason lies in the extraordinary mix of virus...

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In defense of concerns over the $1.9 trillion relief plan

Those economists (like myself) who agree with Treasury Secretary Janet Yellen about the need to “go big” on a protection and stimulus package, but who have misgivings about the size of the Biden administration’s $1.9 trillion coronavirus relief plan, are getting criticized as overly concerned about overheating and inflation. A healthy debate has erupted. This blog post addresses three main issues in that debate and explains why I am concerned: first, the size of the output gap—i.e., the gap...

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Bond yields are not good predictors of inflation

President Joseph R. Biden Jr.’s audacious proposal for $1.9 trillion in additional stimulus this year has generated concern among some, including former Treasury Secretary Lawrence H. Summers, that the package may overheat the US economy and cause inflation. Yet the bond market, often a place where such concerns are registered, does not seem worried. Current changes in bond yields suggest only a tiny rise in future inflation.[1] Could the markets be telling us something? In fact, bond market...

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Startups boom in the United States during COVID-19

Despite a health catastrophe and one of the worst economic downturns in modern history, startup business activity grew in the United States last year—business startups[1] grew from 3.5 million in 2019 to 4.4 million in 2020, a 24 percent increase. The number of new businesses also increased in Chile, Turkey, and the United Kingdom. Other economies were not so vibrant: New business formation declined by a quarter in Portugal and Russia. Startup activity in China barely budged, growing by 3...

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Myanmar’s military staged a full comeback, and it is deeply worrying

The largest city in Myanmar, Yangon (formerly Rangoon), was a lively place to be in the winter of 2018. City residents and tourists thronged the streets, restaurants, shops, and parks. Tourists and other visitors ambled around the city’s gilded Buddhist pagodas. Gleaming new buildings were going up, flanking the crumbling colonial structures of old. Getting internet and cell phone connections was easy. Myanmar’s economic liberalization under the civilian government led by Aung San Suu Kyi...

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Unemployment continues to fall but workers still not returning to the labor force

The labor market was essentially unchanged at the start of 2021 as employers added 49,000 jobs in January. Overall, the economy is 11.6 million jobs below its pre-pandemic trend with the unemployment rate elevated and the employment rate having fallen even more as millions of people have left the labor force. Unusually, while the unemployment rate has fallen steadily from 11.1 percent in June 2020 to 6.3 percent this past month, this has not been accompanied by a return of people to the...

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Why some experts got pandemic readiness wrong

The Global Health Security Index, released in 2019, was intended to identify which countries would perform best at addressing pandemic disease—and seemingly at precisely the right time. Yet the countries that experts thought were best positioned to deal with pandemic diseases like COVID-19 included the United States and the United Kingdom, which have been failing to contain the spread of the virus. How did the experts get it so wrong? The apparent failure of this well formulated and funded...

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It’s taking too long to get vaccine doses from refrigerators into arms

The emergence of dangerous new coronavirus variants underscores the urgency of administering available doses of vaccine quickly. To date, however, that effort has fallen short. Too many jurisdictions appear to be allowing too much vaccine to sit idle for too long before getting it into the arms of residents. The data in this posting show which jurisdictions have been putting their doses to work most quickly and which have been lagging behind. Speed of vaccine administration does not tell the...

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