41 Items

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

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

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.

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Blog Post - Belfer Center for Science and International Affairs, Harvard Kennedy School

Trade and Inequality Within Countries

| Jan. 05, 2018

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

Blog Post - Views on the Economy and the World

The Sugar Swamp

| June 26, 2017

As the United States, Mexico, and Canada prepare to renegotiate the North American Free Trade Agreement, as US President Donald Trump’s administration has demanded, much attention is being devoted to one item in particular: sugar. The negotiations will probably produce a sweet deal for the US sugar industry, highlighting the emptiness of Trump’s promises to “drain the swamp” of special-interest influence over policymaking.
Sugar producers’ political clout is nothing new, in the US or other industrialized countries. They have often received trade protection, in the form of import tariffs and quotas, to ensure that domestic sugar prices far exceed those in supplier countries like Australia, Brazil, the Dominican Republic, the Philippines, and Mexico.

Blog Post - Views on the Economy and the World

The Case Against Subsidizing Housing Debt

| May 29, 2017

Economists hesitate to explain to people that they should borrow less. The advice sounds too “schoolmarmish.” It seems to lack sympathy for those whose incomes are not keeping up with the standard of living that they had expected based on historical trends. But for those concerned with the reach of the nanny state, the state is precisely what encourages citizens to borrow. And it does nobody any favors to get them overly indebted, as the millions of homeowners who went underwater in the housing crisis ten years ago discovered.