Blog - Views on the Economy and the World

Views on the Economy and the World

A blog by Jeffrey Frankel

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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.

272 posts

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Inequality has been on the rise within the United States and other advanced countries since the 1980s and especially since the turn of the century.  The possibility that trade is responsible for the widening gap between the rich and the rest of the population has of course become a major political preoccupation

The Republicans, it is said, absolutely must pass a massive tax bill by Christmas, in order to have some major accomplishment to show for 2017, the first year in which they control all branches of government. Having apparently failed in their seven-year campaign to deprive some 20 million Americans of health insurance, they dare not fail in their Scrooge-like campaign to transfer billions of dollars to the ultra-rich.

What does international trade have to do with US jobs?  Surely the US trade deficit in manufacturing has reduced employment?  Not as much as you would think, on net.  Especially with regard to overall employment, which in the long run is determined by the size of the labor force.  But even if manufacturing jobs are considered more important than service jobs, trade policy has not been the main reason for their decline.  Perhaps the raw statistics can be made more intuitively convincing if one makes comparisons with other sectors.

The Next Fed Vice-Chair

| Nov. 01, 2017

There has been speculation that after Trump picks one of the five candidates to be chair of the Federal Reserve (with Jay Powell now apparently the front-runner), he could pick another one of them to be Vice-chair.  This latter position is the one that, sadly, Stanley Fischer is now vacating.

The Trump Administration has said it will announce its choice for the new Chair of the Federal Reserve Board by November 3. Subject to Senate confirmation, the chosen candidate will succeed Janet Yellen, whose term ends February 3.

The White House has said it views five candidates as front runners. Two are eminent economists with unusually impressive records — both in academic research, mostly at West Coast universities, and as practitioners of macroeconomic policy. That would be Yellen herself, who is a strong candidate for reappointment, and Stanford’s John Taylor. The other three front-runners are not professionally trained as economists, but rather come from financial backgrounds: Gary Cohn, Jerome Powell, and Kevin Warsh. They worked, respectively, for Goldman Sachs, Dillon Read, and Morgan Stanley; all three also have important government experience.

The VIX is too low!

| Sep. 28, 2017

During most of this year, the VIX — the Volatility Index on The Chicago Board Options Exchange — has been at the lowest levels of the last ten years.  It recentlydipped below 9, even lower than March 2007, just before the sub-prime mortgage crisis. It looks as though, once again, investors do not sufficiently appreciate how risky the world is today.

Known colloquially as the “fear index,” the VIX measures financial markets’ sensitivity to uncertainty, in the form of the perceived probability of large changes in the stock market.  It is inferred from the prices of option on the stock exchange (which pay off only when stock prices rise or fall a lot).   The low VIX in 2017 signals that we are in another “risk on” environment, when investors move out of treasury bills and other safe haven assets and instead “reach for yield” by moving into riskier assets like stocks, corporate bonds, real estate, and carry-tradecurrencies.

Explaining Dodd-Frank

| Sep. 08, 2017

Nine years ago this month, the US sub-prime mortgage crisis morphed into a severe global financial crisis.  Many Americans across the political spectrum angrily demanded financial reform, by which they meant a tightening of financial regulation.  Indeed, important reforms were subsequently enacted, in particular the 2010 Dodd-Frank bill.

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Americans have under-estimated the nuclear threat from North Korea and misunderstood what policies would reduce it.  At the same time they have over-estimated the importance of bilateral trade deficits with China and misunderstood what policies would reduce them.  Now these two different issues intersect.

My preceding post discussed the Chinese trade aspect of the problem.  Here I review the geo-politics and history of the North Korea nuclear problem.

Trump has threatened new trade barriers against China while simultaneously depending on Beijing’s help to rein in North Korea’s alarming nuclear weapons program. These two aspects of US policy toward China are at odds.

It feels inappropriate to write a column that treats the two issues on a par. To state the obvious, the stakes are vastly higher in a potential US-North Korean military conflict, especially when it comes to the real danger that nuclear weapons will be used, but even if they are not. But we need to consider the Chinese trade issues together with the Korean nuclear issues because the Trump White House does. (Chief strategist Steve Bannon, for example, had the priorities reversed. Just before he was fired he said that the Korea issue was a “side show” compared with the all-important “economic war with China.”)