Research

 Americans will go to the polls November 8.  It appears probable that they will give the Republican party majority control of the House of Representatives, and possibly the Senate as well.  The same for Secretaries of State and other statewide offices.  The consequences could be enormous. Especially worrying is the future of US electoral democracy, if the result is further distortions of voter eligibility rules, congressional redistricting, the electoral college, and other structural features.  How could such an outcome of the mid-term elections be explained, seeing as how the Republican party is now dominated by its extremist MAGA faction?

The dollar is sky-high.  Since May 2021, it has risen 19% against Europe’s euro, even reaching 1-to-1 parity in recent weeks. The dollar has appreciated 20% against Britain’s pound.  And it is up 28% against Japan’s yen, provoking the Bank of Japan to sell dollars on September 22, essentially the first foreign exchange intervention by a G-7 country since 2011 and the first in the direction of supporting a currency’s value against the dollar since the euro in 2000.

Project Syndicate asked, “Is a Global Recession Inevitable?”   Steven Roach says, “yes”;  Anne Krueger says, “Depends…Certainly not inevitable”; & Jim O’Neill says, “Quite possible.”

My answer to the question, Is a global recession inevitable:

No. A global recession is entirely “evitable.”

True, the odds of a downturn are high in Europe, hard-hit by the need to manage winter without Russian natural gas; China, where Covid shutdowns already turned growth negative last quarter; and Emerging Market and Developing Economies, many of which have debt troubles.

Among the most salient of economic developments in the last two years have been big movements in the prices of oil, minerals, and agricultural commodities.  It was hard to miss the big rise in commodity prices.  The Brent oil price increased from a low $20 a barrel in April 2020, during the first Covid-19 wave, to a peak of $122, in March 2022, after Russia invaded Ukraine.  But it was not just oil. The price of copper doubled over this period.  Wheat more than doubled. And so on. Global indices of commodity prices almost tripled from April 2020 to March 2022.

On July 28, the US Bureau of Economic Analysis will release its advance estimate of economic growth, as measured by GDP, in the just-completed second quarter of the year.  The announcement is attracting more than the usual eager anticipation.  The reason is that many observers predict that the Q2 GDP number will be negative and that this will officially confirm widespread beliefs that the economy went into recession in the first half of 2022, figuring that growth in national output is already determined to have been negative in the 1st quarter of the year. After all, isn’t a recession defined as two consecutive quarters of negative growth?

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 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.

“Those who do not study history are condemned to repeat it.”  And the rest of us are condemned to repeat George Santayana.

Will the Coronavirus Recession of 2020 be V-shaped?  Or U-shaped?  If we fail to heed the lessons of history it is likely to be W-shaped, with incipient recovery followed by successive relapses into sickness and recession.

As has been widely noted, we would have been better prepared to cope with the Covid-19 pandemic in the first place if everyone had paid more attention to the past history of epidemics. Be that as it may, the world is now deep into the pandemic and its economic consequences, the most severe such events since the interwar period, 1918-1939.  As decision-makers in every country contemplate their next steps, they would do well to ponder the precedents of that interwar period.

The Fed has some reasons for cutting interest rates at its meeting July 31, or subsequently if the US economy weakens. (And there are some good arguments on the other side as well, if growth remains as strong as it has been over the last year.)  But I find less persuasive one argument for easing: a perceived imperative to get inflation up to 2.0% or higher.

Federal Reserve Chairman Ben Bernanke set a 2% target for the US inflation rate in January 2012.  Some other countries had already done the same.  Japan followed suit a year later. Indeed Shinzo Abe’s successful accession to prime minister in late 2012 was predicated on the promise that monetary policy would raise inflation (Japan having previously suffered from negative inflation).

Of the two men whom Donald Trump had intended to nominate to empty seats on the Federal Reserve Board, Herman Cain has now withdrawn his name.  This leaves the other one, Stephen Moore.

The Senate would have to decide whether to confirm Moore. He has some problems roughly analogous to Cain’s:  he is considered to be under an ethical cloud and he often gets his economic facts wrong.  Cynics might respond that he would thereby fit right in with the roster of Trump nominees throughout the government.  But Trump’s earlier appointments to the Fed have been people of ability and integrity and have been doing a good job, Chair Jerome Powell in particular. Perhaps Trump did not start paying attention to Fed appointments until recently.