12 Items

Blog Post - Views on the Economy and the World

History Advises Biden to Match Signals with Actions in Ukraine

Dec. 24, 2021

As Russian troops mass along the border with Ukraine, the White House has been calibrating its response. President Joe Biden has warned that in the event of an invasion, the US and allies would make Russian President Vladimir Putin pay a heavy price. Likely measures would particularly include economic sanctions such as a cut-off from the SWIFT payments system and turning off the new Nord Stream 2 pipeline.  Good. It is possible that such threats will deter Putin.

Blog Post - Views on the Economy and the World

Will the GameStop Game Stop?

| Feb. 06, 2021

Whether one thinks that the overall equity market is currently valued properly or not, something very unusual happened in the last week of January to GameStop stock.  Its price rose 323 percent for the week, and 1,700 percent for the month (that is, an 18-fold increase). This was a speculative bubble. That is, the price departed from fundamentals.

Some investors who got in early and got out early made a lot of money. Just as many people, who got in too late or stayed in too long, lost a lot of money, as valuations came back to earth.

We focus on GameStop, an ailing bricks-and-mortar retailer of video games and consoles, for concreteness.  But a similar phenomenon has affected the prices of a number of other assets.

Participating in a speculative bubble is like playing roulette in a casino.  The role of “the house” in this casino is played by brokers such as retail-investment platform Robinhood or financial-services company Charles Schwab.  So far, not so unusual. Speculative bubbles happen from time to time.

Blog Post - Views on the Economy and the World

How China Compares Internationally in New GDP Figures

| May 31, 2020

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.

Blog Post - Views on the Economy and the World

Black Swans Like COVID-19 are Predictable

| Mar. 30, 2020

Events like the COVID-19 pandemic of 2020, the US housing crash of 2007-09, and the terrorist attack of September 11, 2001, are called “black swans”: in each case, few people were able to predict them reliably, at least not with precision.  But they were known unknowns, not unknown unknowns.  That is, in each case, knowledgeable analysts were fully aware that such a thing could happen, even that it was likely to happen eventually.  They could not predict that the event would happen with high probability in any given year.  But the consequences of each of these events were severe, and predictably so.  Thus, policymakers should have listened to the warnings and should have taken steps in advance. They could have helped avert or mitigate disaster if they had done so.

Blog Post - Views on the Economy and the World

Let’s Go Back to Good Old Tariff-Cutting

| Dec. 02, 2019

The “bicycle theory” used to be a metaphor for international trade policy.  Just as standing still on a bicycle is not an option — one has to keep moving forward or else the bike will fall over – so it was said that international trade negotiators must continue to engage in successive rounds of liberalization, or else the open global trading system would be pulled down by protectionist interests.  I don’t know if the theory was ever right.  (And, to be honest, I don’t entirely understand why forward movement keeps a bicycle from falling over.)  But if we had stood still on trade policy over the last three years we would be a lot better off than where we are now.

Blog Post - Views on the Economy and the World

RMB Reaches 7.0; US Names China a Manipulator

| Aug. 12, 2019

The US-China trade war heated up in the first week of August.  On August 1, Donald Trump abruptly announced plans to impose a 10 % tariff on the remaining $300 billion of imports from China that he had not already hit with earlier tariffs.   The Chinese authorities then allowed their currency, the renminbi (RMB), to fall in value below the highly visible line of 7.0 RMB/$.  The US Administration promptly reacted on August 5 by naming China a “currency manipulator” — the first time any country had been given that designation in 25 years.   Pundits declared a currency war, while investors responded by immediately sending stock markets down.

Blog Post - Views on the Economy and the World

Moore on Gold and Commodities

| May 01, 2019

A century ago, the gold standard was considered a guarantor of monetary stability.  That golden era is long-gone.  (If it ever really existed at all.  The general price level fell 53% in US and 45% in the UK during 1873-1896 due to a dearth of gold deposit discoveries.)

Continuing my thoughts on the Fed candidacy of Stephen Moore: he has said several times that he favors a return to gold.  In true Trumpian fashion, he recently denied having said it despite the clear video evidence.