Blog - Views on the Economy and the World

Views on the Economy and the World

A blog by Jeffrey Frankel

For more information on this publication: Belfer Communications Office
For Academic Citation:Views on the Economy and the World,” Views on the Economy and the World, https://www.belfercenter.org/publication/views-economy-and-world.

311 posts

As Joni Mitchell sang, “you don’t know what you’ve got ‘til it’s gone.”   Classroom education was often deemed boring by students and obsolete by tech visionaries.  Then the coronavirus made it difficult or impossible to meet in person.  The result:  We yearn for the irreplaceable in-class experience.
Perhaps the same is true of international economic cooperation. It was never especially popular. The theory, first formulated in a 1969 paper by Richard Cooper, said that countries could agree to coordinated bargains that achieved better outcomes, relative to the “Nash non-cooperative equilibrium.”  But economists thought of plenty of reasons to be skeptical.  The multilateral institutions of cooperation such as the World Trade Organization, the International Monetary Fund, and the United Nations agencies, were downright unpopular among the public.  Many Americans regarded them as invading US sovereignty, while other countries viewed them as an invasion of their sovereignty by the US.

In few elections has one been able to assess such a big difference between the two candidates in the likely quality of their economic policies.  Biden’s are better.

The price of gold reached an all-time record high of $2,000 per ounce this month.  Mainstream economic thinking has treated gold as a side-show since the world went off the gold standard. Nevertheless, the recent spiking in the price signals some important trends. It is not merely “sound and fury signifying nothing,” as sometimes seems true of financial markets.

There are three ready explanations for the historic increase in the price of gold: (i) monetary policy, (ii) risk, and (iii) a spreading desire for an alternative to the dollar as a safe haven.  Each of these explanations contains some truth.

The Business Cycle Dating Committee of the National Bureau of Economic Research declared on June 9 that US economic activity had peaked in February 2020, formally marking the start of the recession.

We all knew about the recession already and even the likely date when it started.  Looking at the numbers gave the same answer as “looking out the window.”  Measures of employment had fallen sharply from February to March.  Real personal consumption expenditures (PCE) and real personal income less transfers (which are numbers that the NBER Committee looks at) both peaked sharply in February as well.  Official measures of GDP only exist on a quarterly basis, but the economic freefall in late March was enough to pull first-quarter GDP growth down to an annual rate of -4.8 %  (relative to the last quarter of 2019). Why did the NBER wait until now to declare something that had already been so clear?

The World Bank on May 19, as it does every six years, released the results of the most recent International Comparison Program (ICP), which measures price levels and GDPs across 176 countries.  The new results are striking.  It is surprising that they have received almost no attention so far, perhaps overshadowed by all things coronavirus.

For the first time, the ICP shows China’s total real income as slightly larger than the US.  It reports that China’s GDP was $19,617 billion in 2017, in Purchasing Power Parity (PPP) terms, while the United States’ GDP stood at $19,519 billion.

Risk of Rapid Re-opening

| May 11, 2020

This interview by Associated Press is the basis of quotes in a story today: “Risk of reopening US economy too fast: A W-shaped recovery.

In the GFC of 2008/2009 the world fell into recession for a while (one year), but the emerging world almost didn’t suffer: they kept growing, mostly thanks to commodity prices. Now, the story looks pretty different: even emerging countries will experience negative growth in 2020… It seems to be a truly global crisis. Should this worry us more?