Biden Avoids Mistake of Insufficient Fiscal Stimulus

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March 27, 2021It has been a year since the US and the world went into recession.  Because of its origins in the sudden pandemic, it was possible to reliably discern the advent of the recession before it was reflected in any of the standard economic statistics, which is rare.  (I hope it shocks no one to learn that economists can’t normally predict recessions.)

By the end of the second quarter of 2020, US GDP had fallen 11 %. This record plunge took the US economy from a level that is estimated to have been 1.0% above potential output at the end of 2019, to a level 10 % below potential in mid-2020.  Potential output is the level of GDP that is produced when unemployment is at its so-called natural rate, the capital stock is operating at the capacity for which it was designed, buildings have their normal occupancy rates, etc. read more

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Remembering George Schultz at a 1983 Reagan cabinet meeting

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February 8, 2021 — In early November 1983, President Ronald Reagan was meeting with his entire cabinet, as Secretary of State George Schulz walked him through each step of an upcoming visit to Japan and Korea.  I was there as the “plus one” staff aide to Martin Feldstein, Reagan’s top economic adviser.

On the occasion of Schultz’s passing, February 6, at age 100, I offer two remembered anecdotes from this meeting.

Reagan and Whales

Reagan said very little during the lengthy briefing and it wasn’t clear whether he was taking it all in.  At one point, Schultz was talking about the disagreement between the US and Japan over whaling. read more

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Will the GameStop game stop?

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February 6, 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 per cent 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. read more

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