Unlike many other European countries, Italy still has not restored economic growth to its pre-crisis level – a fundamental failing that lies at the heart of many of its political problems. Now that a new anti-establishment government is taking power, it remains to be seen if the economy will be remade, or broken further.
Economists who assure us that advanced-economy debt is completely “safe” sound eerily like those who touted the “Great Moderation” – the supposedly permanent reduction in cyclical volatility – a generation ago. In many cases, they are the same people.
Financial markets have finally woken up to the fact that Italy could soon be ruled by a populist government with designs to take the country out of the eurozone. And, given Italy's tepid economic performance since adopting the single currency a generation ago, there is little reason to think that the current crisis is a one-off event.
Severe political uncertainty, chronic slow growth, and a sovereign-debt level currently hovering around 160% of GDP already is enough for Italy to trigger a debt crisis. And there is no plausible resolution that would not generate additional risks and complications.
The federal government’s debt has risen from less than 40% of GDP a decade ago to 78% now, and the Congressional Budget Office predicts that the ratio will rise to 96% in 2028. While many blame the tax cuts enacted last year, the real reason lies elsewhere.
The May 19 deal between the US and China seems to have reduced tensions between the two countries. But, given the global nature of America's trade deficit, any effort to impose a solution focusing on one country will likely backfire.
Practically no one, outside of computer science departments, can explain how cryptocurrencies work, and that mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.
The sanctions against Iran reinstated by US President Donald Trump raise two all-important questions that have no convincing answers. But they also raise a third question, about which financial markets are likely to be wrong.
Some may view the US dollar’s appreciation as consistent with a longer-term rebalancing of the global economy. But, as Argentina’s recent request for IMF financing starkly demonstrates, a sharp and sudden dollar appreciation risks unbalancing things elsewhere.
There are now nearly 1,600 cryptocurrencies, and the number continues to rise. It is time to start recognizing their issuers' utopian rhetoric for what it is: self-serving nonsense meant to separate credulous investors from their hard-earned savings.
How has a country of under five million people become a world leader in developing holistic policies that promote democratic, sustainable, and inclusive economic growth? The answer lies in its people's belief that focusing on the welfare of all citizens not only enhances wellbeing, but also increases productivity.
For now, Fed appointees have been treated almost as well as generals in the US president's universe. In a crunch, however, the Fed’s much-vaunted independence could prove more fragile than most people realize.
With economic conditions returning more or less to normal around the world after a decade of financial crises, nationalist populism is now seen as the biggest threat to global recovery. But is it possible that this consensus has emerged just as the populist wave has crested?
The US Trade Representative appears to have made an ironclad case against China in the so-called Section 301 report issued on March 22. But the report – now widely viewed as evidence justifying the Trump administration's recent tariffs and other punitive measures against China – is wide of the mark in several key areas.
History is less likely than game theory to provide useful insights into where the latest trade dispute between the US and China may be heading. The question, ultimately, is whether new tariffs will eventually lead to a more cooperative game, or to a competitive one in which everyone loses.
US President Donald Trump's recently announced import tariffs on steel, aluminum, and $60 billion in other goods that the US imports from China each year are in keeping with his record of responding to nonexistent problems. Unfortunately, while Trump captures the world's attention, serious real problems go unaddressed.
As artificial intelligence reshapes the global economy, economists who once argued that China's massive population would propel it to superpower status should rethink that assumption. In fact, as the global economy reaches higher stages of development, China's labor advantage today could become a handicap tomorrow.
The US will be paying for its current fiscal excesses with the promise of future payments. But inefficient economic stimulus now will not give future generations the productive resources needed to make good on it.
With the entire global economy becoming inextricably linked to the Internet and digital technologies, stronger regulation is more important than ever. But if that regulation is fragmented, clumsy, heavy-handed, or inconsistent, the consequences for economic integration – and, in turn, prosperity – could be severe.
Economists may warn that the combination of Trump’s protectionism, big tax cuts, and uncontrolled government borrowing, coming at a time when the US economy is already near full employment, will ultimately fuel inflationary pressure. But financial markets simply do not believe this message.
From the anchoring role in society of the middle class to the agility and resilience of mid-size firms, the middle has long been regarded as consistent with both individual and collective wellbeing. Yet, in recent years, the middle has become less stable, less predictable, and more elusive.
The removal of presidential term limits in China sent shock waves around the world. But the real issues that should be confronted – not just in China, but also in the US – concern the quality of a country's leadership.
The crises that erupted in countries like Ireland and Greece a decade ago would not have been so severe had their debt been linked to their economic performance. And the same is true today: Investors around the world will continue to accept the risk, given the unlimited upside to investing in entire economies.
The Trump administration's proposed tariffs on steel and aluminum imports will target China, but not the way most observers believe. For the US, the most important bilateral trade issue has nothing to do with the Chinese authorities' failure to reduce excess steel capacity, as promised, and stop subsidizing exports.
Economic commentators are better at rationalizing past exchange-rate movements than at forecasting future trends. So, when it comes to explanations for the dollar’s decline over the past year, we are confronted by an embarrassment of riches.
In 1968, the year after riots erupted in cities throughout the US, the Kerner Commission, established by President Lyndon B. Johnson, famously concluded that the country was “moving toward two societies, one black, one white – separate and unequal.” Sadly, it is conclusion that still rings true.
Even after a sharp correction earlier this year, the price of Bitcoin and other cryptocurrencies has remained unsustainably high, and techno-libertarians have continued to insist that blockchain technologies will revolutionize the way business is done. In fact, blockchain might just be the most over-hyped technology of all time.
Artificial intelligence researchers and conventional economists may have very different views about the impact of new technologies. But right now, and forgetting the possibility of an existential battle between man and machine, it seems quite plausible to expect a significant pickup in productivity growth over the next five years.
Major central banks’ fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next – the battle against too-high inflation.
Building support for a new unifying economic paradigm to replace the discredited Washington Consensus will be an analytically challenging, politically demanding, and time-consuming process. In the meantime, both economists and policymakers must ensure that the existing paradigm doesn't cause more damage than it already has.
Did February’s equity-price reversal mark the end of the bull market, or was it just a temporary correction? In addressing this question, one must look not just at the stock market, but also at oil prices, long-term US interest rates, and currencies.
The recent correction in the US stock market is now being characterized as a fleeting aberration – a volatility shock – in what is still deemed to be a very accommodating investment climate. In fact, for a US economy that has a razor-thin cushion of saving, dependence on rising asset prices has never been more obvious.
While there is no shortage of challenges facing economies and societies today, they should not be allowed to obscure positive long-term trends. The best remedies for undue pessimism are practical: effective fact-based policymaking, shaped by scientific inquiry and social solidarity.
It takes significant effort to assert and defend what John Stuart Mill called the freedom of mind. And there is a real chance that, once lost, those who grow up in the digital age – in which the power to command and shape people’s attention is increasingly concentrated in the hands of a few companies – will have difficulty regaining it.
Universities pride themselves on producing creative ideas that disrupt the rest of society, yet higher-education teaching techniques continue to evolve at a glacial pace. Given education’s centrality to raising productivity, shouldn’t efforts to reinvigorate today’s sclerotic Western economies focus on how to reinvent higher education?
The CEOs of Davos were euphoric this year about the return to growth, strong profits, and soaring executive compensation. Economists reminded them that this growth is not sustainable, and has never been inclusive; but in a world where greed is always good, such arguments have little impact.
The decline in the dollar’s exchange rate seems to have gathered momentum, in part because the person who has his signature on US currency, Treasury Secretary Steve Mnuchin, seems unperturbed by its weakness. If it continues, will energy costs spiral upward?
Boosters of blockchain technology compare its early days to the early days of the Internet. But whereas the Internet quickly gave rise to email, the World Wide Web, and millions of commercial ventures, blockchain's only application – cryptocurrencies such as Bitcoin – does not even fulfill its stated purpose.
The US economy has experienced nine recessions during the last 50 years. What makes the current situation unusual and more worrying than in the past is the low level of short-term interest rates and the high (and rising) level of federal debt, which will limit policymakers' ability to provide the stimulus needed to counter a recession.
It is impossible to pin down the full cause of the high price of the US stock market. That alone should remind all investors of the importance of diversification, and that the overall US stock market should not be given too much weight in a portfolio.
Unless there is a notable geopolitical shock, traditional oil producers should treat the recent oil-price gains as a temporary windfall, not a permanent state of affairs. To prolong the price recovery as long as possible, they should reinforce their collective production discipline.
Economists have endless debates about whether culture or institutions lie at the root of economic performance. But there is every reason to be concerned that the recent wave of populism is a threat to both.
Several positive macroeconomic trends suggest that the global economy could finally be in a position to achieve sustained and inclusive growth. But whether that happens will depend on whether governments can muster a more forceful response to changing economic and technological conditions.
There is nothing about the GOP’s recently-passed tax package that lives up to its proponents' promises; it is neither a reform effort nor an equitable tax cut. Rather, the bill embodies all that is wrong with the Republican Party, and to some extent, the debased state of American democracy.
Given its own policies, and those of the US, China is on track to become the world’s innovation leader. By the end of 2018, it will likely be apparent to all just how quickly and easily this latest chapter in the Chinese success story will be written.
The US government should focus on combating foreign governments’ trade policies – such as technology theft, non-tariff barriers to US exports, and forced technology transfers – that hurt American firms without any offsetting benefits to American consumers.
As the European Central Bank pursues monetary-policy normalization in 2018, it should proceed with caution. It will need to balance mounting pressure from Germany for faster normalization with a realistic assessment of the durability and breadth of the unfolding recovery.
Changes in tax, regulatory, or budget policy can be rescinded – albeit with difficulty – by a subsequent administration. A perception that the US is no longer prepared to stand up for its allies in the international community is much less reversible.
As the advanced economies’ post-2008 recession fades into the distant past, global prospects for 2018 look a little better than in 2017. The shift from fiscal austerity to a more stimulative stance will reduce the need for extreme monetary policies, which almost surely have had adverse effects not just on financial markets but also on the real economy.
