The Eurozone’s Japanification–Nov 4

The eurozone has some worrying Japan-like qualities—potential growth is weak, demographics are unfavorable and the European Central Bank has extended its foray into unconventional monetary policy to not only buy up bonds but to impose negative rates as well. With most investors and analysts convinced the worst of the euro crisis is behind us, will we look back when the next downturn hits and think “what a wasted recovery?” What does the eurozone need to avoid Japanification and put the euro crisis behind it for good, and what are the prospects for any of that happening? In answering these questions, we’ll take a look at the new leadership in Europe not only in national capitals but in Brussels at European institutions and in Frankfurt at the ECB as well.

This talk will be held at the Harvard Kennedy School with Carsten Brzeski (The Minda de Gunzburg Center for European Studies’ John F. Kennedy Memorial Policy Fellow 2019 and Chief Economist, ING Germany) and myself. Come join!

November 4, 4:00-5:30, M-RCBG Conference Room, B-503

Don’t Hold Your Breath for Fiscal Stimulus

From the Federal Reserve’s Jackson Hole Conference to the IMF/World Bank Annual Meetings, the policy takeaway of this year is that coordinated monetary easing is not going to be enough when the next recession comes. Fiscal stimulus will be necessary to maintain global growth. The economics are sound, but the politics are problematic. Here’s my latest in the Financial Times on why I wouldn’t hold my breath for fiscal stimulus.

Strong labor market, despite GM

I co-hosted Bloomberg’s Daybreak Americas with Alix Steel and we broke down the jobs data. The labor market continues to look strong, despite a GM strike that distorted the numbers. There was an overall drop in manufacturing jobs–high wage, high hour jobs (the good kind that we want to be adding)–but not as many as we expected given the GM strike. This means other manufacturers added about 20k jobs to the labor force last month–that isn’t a bad result!

Here is a clip from the segment dissecting the jobs data:

Here is another clip with Kristin Dziczek (Center for Automotive Research) discussing the nitty gritty of the GM strike and the implications for the US economy:

Why inflation is stubbornly weak

The U.S. economy is in its longest expansion on record. As unemployment touches historic lows, a striking feature of this expansion is that contrary to what economic theory would predict, inflation too remains strangely low. Here is a video I recorded with Michael Klein explaining why the traditional theory doesn’t seem to be working. Michael is the Executive Editor at Econofact, a nonpartisan organization that seeks to cut through fake news by addressing timely and relevant issues with just the facts. If you aren’t using them as a resource already, you should be!

Greece’s Economy: Resurgent, but Still Fragile

Describing the Greek economy these days as a phoenix ascendant from the ashes of crisis is, given the country involved, an apt metaphor. Yet it may be too early to mythologise the Greek economy. Fast money has done well investing in Greece, but the stickier long-term investors that Greece so desperately needs remain sceptical. Until the fundamentals improve, this phoenix still has one wing tied down. Click here for my latest column in the Financial Times.

Agents of Change: the Economics and Politics of Reforms

I had the great pleasure to teach a course on structural reforms and sovereign debt crisis at the European University Institute near Florence, Italy on Sep 16-17. My partners in crime were George Papaconstantinou (the Greek finance minister when Greece was pushed into its first bailout), Bob Traa (former IMF senior representative in Greece) and Nicola Giammarioli (Secretary General of the ESM).

The course covered the economics behind structural reforms and sovereign debt crises, how to design a reform programme, how to rehaul government budgets and how to devise multiannual budgets. First hand examples were sprinkled throughout, with the teachers representing a bailout country (Greece), the institutions (IMF and ESM) and the markets.

A million thanks to George Papaconstantinou for organizing the course and inviting us to take part!

Consumers cannot carry the US economy for ever

They don’t call us dismal scientists for nothing. Nearly 75 per cent of economists surveyed in July by the National Association for Business Economics see a US recession by the end of 2021. But ask for data supporting that forecast and you get no real consensus. There are plenty of theories about trade wars. US growth has slowed. But the usual bubbles and imbalances that trigger recession aren’t yet evident. With consumption accounting for nearly 70 per cent of growth, a recession has to be transmitted through the US consumer. See my latest in the Financial Times for what that might look like.