Which view is correct—that which attributes the likelihood of a weak economy in 2015 to the unfortunate concurrence of transitory problems in a number of the world's largest economies, or that which warns of secular stagnation due to the declining productive potential of innovation?
In the UK's 2016 referendum on EU membership, young voters were more likely than their elders to vote Remain. Applying new methods to a half century of data, we show that this pattern reflects both ageing and cohort effects. Although voters become more Eurosceptical as they age, recent cohorts are also more pro-European than their predecessors. Much of the pro-Europeanism of these recent cohorts is accounted for by their greater years of education. Going forward, the ageing of the electorate will thus be offset at least in part by the replacement of older cohorts with younger, better-educated and more pro-European ones. But we also document large nationwide swings in sentiment that have little to do with either seasoning or cohort effects. Hence these demographic trends are unlikely to be the decisive determinants of future changes in European sentiment. Rather, nationwide changes in sentiment, reflecting macroeconomic or other conditions, and the age-turnout gradient will be key.
IMF forecasts and the EU's Fiscal Compact foresee Europe’s heavily indebted countries running primary budget surpluses of as much as 5 percent of GDP for as long as 10 years in order to maintain debt sustainability and bring their debt/GDP ratios down to the Compact’s 60 percent target. We show that primary surpluses this large and persistent are rare. In an extensive sample of high- and middle-income countries there are just three (non-overlapping) episodes where countries ran primary surpluses of at least 5 per cent of GDP for 10 years. Analyzing a less restrictive definition of persistent surplus episodes (primary surpluses averaging at least 3 percent of GDP for five years), we find that surplus episodes are more likely when growth is strong, when the current account of the balance of payments is in surplus (savings rates are high), when the debt-to-GDP ratio is high (heightening the urgency of fiscal adjustment), and when the governing party controls all houses of parliament or congress (its bargaining position is strong). Left wing governments, strikingly, are more likely to run large, persistent primary surpluses. In advanced countries, proportional representation electoral systems that give rise to encompassing coalitions are associated with surplus episodes. The point estimates do not provide much encouragement for the view that high-debt European countries will be able to run a primary budget surplus as large and persistent as officially projected.
As Professor Balderston notes in his introduction to this volume, history is necessarily written in terms of a model, whether implicitly or explicitly, and a model invariably suggests counterfactuals. In this note, we first review our model of the Great Depression (“the ET model ” as it is referred to by Balderston) and then explore the counterfactual that flow from its application to the monetary, macroeconomic and political history of the 1930s. 1. The Depression as It Was It is necessary to understand the causes of the Great Depression in order to answer the question of whether things could have turned out differently. The simultaneous fall in production and prices in the early 1930s strongly suggests that the initiating factor for the Great Depression was a series of negative aggregate demand shocks. But how could so many countries have experienced a negative demand shock at the same time? The answer is that all of these countries, faithful to the dictates of the gold standard, pursued deflationary policies at the same time. The essence of the gold standard was the free flow of gold between individuals and countries, the maintenance of fixed values of national currencies in terms of gold and therefore one another, and the absence of an international coordinating and lending organization like the International Monetary Fund.2 Under these conditions, when the United States and Germany adopted deflationary policies,
Read moreFrom the standpoint of international economic relations, the key implications of the Versailles Treaty were as follows. Signatories committed their countries to reconstructing a free and open multilateral trading system such as had existed before the First World War. Other economic institutions and arrangements, as distinct from the trading system, were noteworthy only to the extent that they worked towards this paramount goal. Moreover, in so far as those other arrangements, starting with the gold standard and international financial relations, had been integral to the success of the prewar trading system, there was a presumption that they too should be reconstructed along prewar lines. This approach was subject to multiple conflicts and contradictions. It did not take account of how the economic world had changed, creating a mismatch between prewar institutions and postwar circumstances. It enshrined—indeed, it gave legal content to—the conventional wisdom that to the victor go the economic spoils by imposing that self-same reparations burden on Germany and the other defeated Central Powers. It highlighted the conflicted nature of American attitudes towards management of the international economic system. And it did not give the Soviet Union, ultimately to emerge as the second of the twentieth century's two Great Powers, a seat at the table. While seeking to avoid exaggerating the parallels, I argue that the structure of international economic relations in the wake of the Cold War resembles in important respects the structure of those relations after the First World War.
Read moreWhat will be the political legacy of the coronavirus pandemic? A new study shows that epidemic exposure in an individual’s “impressionable years” (ages 18-25) has a persistent negative effect on trust in political institutions and leaders, especially in democracies. Combined with other evidence that trust is important for limiting the spread of infection, Cevat Giray Aksoy (King’s College London), Barry Eichengreen (Berkeley) and Orkun Saka (LSE) say this raises the spectre of a circular, self-reinforcing spiral in which poor public health policy leads to deeper distrust, further undermining its effectiveness.
Read moreAbstract What are the origins and nature of today’s most prevalent forms of Western populism? Where do they carry the most risks? This essay offers a brief survey and outlook for populism in Europe and the United States.
Read moreAbstract In these highly uncertain times, flexibility has value.
Read moreDeflation has replaced inflation as the principal challenge for monetary policy in many countries. But influential voices question whether deflation is properly seen as a problem for economic growth and financial stability. They question whether recent experience with deflation is more than a transitory phenomenon associated with the aftermath of the financial crisis and record-low oil prices. And they doubt whether monetary policy can be used to address the deflation problem without creating even more serious risks. Historical experience as I read it generally confirms that deflation is a problem whose solution should be a priority for central banks. Japan's experience in particular suggests that deflation problems do not solve themselves. The jury is still out on whether, once deflation is underway, concerted monetary policy action can return inflation to its positive target levels. My own view is that it can. If the policies to date have not achieved their goal, then the central bank or banks in question need to do more. If doing more threatens financial stability, then tools other than monetary policy -- so-called macroprudential tools -- are appropriate for addressing these risks. If a central bank runs out of government securities to buy or worries about dangerously reducing the liquidity of the government bond market, then it can buy other assets. The policy response to deflation is straightforward. The only question is whether the relevant authorities will pursue it.
Read moreThe COVID-19 pandemic increased remote working, online shopping, and telehealth, with important differences across socioeconomic groups in their ability to use such new technologies. Orkun Saka, Barry Eichengreen, and Cevat Giray Aksoy investigate past epidemics and find that they significantly increase the likelihood that individuals do their banking using the internet, mobile banks, and automated teller machines (ATMs). But inequality plays a role. Individuals who already have internet coverage are more likely to shift toward online banking during an epidemic.
Read moreAppreciation of the Keynesian synthesis was enhanced by the events of the last decade. The global financial crisis highlighted the fragility of financial markets and the capriciousness of animal spirits. The depth of the downturn pointed to the value of not just automatic stabilizers but also discretionary fiscal policy as tools of macroeconomic management. Keynesian models and not their New Classical challengers provided the practical analytical framework for policy design. Models of the anti-Keynesian effects of fiscal consolidation received little support from actual consolidation experience. The secular-stagnation debate that followed the crisis lent legitimacy to the view that policy-makers with fiscal space were wise to use it.
Read moreSouth Africa was one of the fastest growing economies of the 1930s. This paper seeks to identify the roots of this macroeconomic outperformance and reconcile it with the country's delayed departure from the gold standard, such departure having typically been the event inaugurating recovery from the slump. It emphasizes South Africa's dependence on gold production, which gave the economy an additional boost from currency depreciation, over and above that felt in other countries, when depreciation finally took place. This highlights the paradox of South African policy makers' resistance to currency depreciation, as epitomized by the report of the Select Committee on the Gold Standard in 1932.
Read moreSix months into Joe Biden's presidency, a Google search for "Bidenomics" returns 256,000 hits.Unfortunately, such a search does not tell us the meaning of the term, or even whether a coherent concept exists.At root, President Biden and his team envisage a more expansive economic role for government.Biden was elected to the Senate in 1972, having come of political age in the era of Lyndon Johnson's "Great Society" of spending programs on education, healthcare, urban renewal and anti-poverty.Biden's infrastructure proposal envisaged $2.3 trillion of new spending on roads, bridges, broadband and climate change abatement.This was twinned with his $1.8 trillion American Families Plan for healthcare, childcare, eldercare and education programs.Over the summer, the infrastructure package was downsized to $600 billion of new spending.The revision was deemed necessary to bring Republican legislators on board and retain the support of moderate Democrats from heavily Republican states, such as Senator Joe Manchin of West Virginia.
Read more
