Now that Janet Yellen is to be Chair of the US Federal Reserve Board, attention has turned to the candidate to succeed her as Vice Chair. Stanley Fischer would be the perfect choice. He has an ideal combination of all the desirable qualities, unique in the literal sense that nobody else has them. During his academic career, Fischer was one of the most accomplished scholars of monetary economics. Subsequently he served as Chief Economist of the World Bank, number two at the International Monetary Fund, and most recently Governor of the central bank of Israel. He was a star performer in each of these positions. I thought in 2000 he should have been made Managing Director of the IMF.read more
The International Economy magazine (Winter 2013) asks 16 authorities, “Can Changes in Exchange Rate Valuations Affect Trade Imbalances?” It is referring to the claim in a recent book by Stanford economist Ron McKinnon that pressure on China to let the renminbi appreciate against the dollar is fundamentally misconceived because such a movement in the exchange rate would not reduce China’s trade surplus nor American’s trade deficit. This is part of an old debate that pre-dates the rise of the China trade problem. Ron has long claimed that exchange rates don’t determine trade balances because they are “instead” determined by national saving versus investment. I thought Paul Krugman demolished the argument pretty effectively 25 years ago, with a textbook graph of internal balance versus external balance. But evidently many still fall for the argument (including some of the experts in the TIE symposium). So I try again:read more
The Queen of England during the summer asked economists why no one had predicted the credit crunch and recession. Paul Krugman points out that, inasmuch as economists can almost never predict the timing of recessions (and don’t claim to be able to), the real questions are worse. The real questions are, rather how macroeconomists (most) could have gotten it so wrong as to believe that:
(i) a severe recession was not even looming ahead as a potential danger, and
(ii) a breakdown of many of the world’s most liquid financial markets, in New York and London, was impossible to imagine.
Secretary Tim Geithner announced today the long-awaited details on the financial repair plan that he promised on February 10. Some reactions have been negative, both from the left and the right. Paul Krugman, for example, argues that the plan does not go far enough in forcing banks to recognize the fallen value of their assets.
But the stock market was “dazzled” by Geithner’s explanation of the PPIP proposal, with prices up strongly. The plan has no shortage of defenders. Brad DeLong makes some good points, and responds to Krugman. The Geithner Plan is an improvement over the Paulson plan in that when “toxic assets,” now called “legacy assets,” are bought from the banks, their prices are set by private bidding (from hedge funds and private equity companies), rather than by an overworked Treasury official pulling a number out of the air and risking that the taxpayer grossly overpays for the assets. On similar grounds, Nouriel Roubini has surprised the cynics by giving (qualified) support for the plan, and points out that its design appears to follow a recent proposal by my Harvard colleage Lucien Bebchuk.read more
The Yale Book of Quotations provides a useful service: It tabulates well-known sound-bites, but tries to get the exact quote and citation right, which is rare. (P.T. Barnum in fact never said “There is a sucker born every minute.” Richard Nixon never said “But it would be wrong.” Etc.) The editor also compiles an annual list of Top Ten Quotes of the Year. In the second week of December he released the list for 2008. Number 1, for example, is “I can see Russia from my house” (carefully attributed to the Tina Fey parody rather than precisely what Sarah Palin originally said).read more
I wish to add my heart-felt approval to many others, regarding the awarding of the Nobel Prize in Economics to Paul Krugman. For those readers of the New York Times who can only think of him as a columnist, let me assure you that long before he ever wrote a newspaper opinion piece, Krugman had become the leading international economist of my generation. I leave it to others to explain the trade theory research that earned the ultimate accolade. I will only say that (together with Elhanan Helpman) Krugman took traditional trade theory – which ever since David Ricardo had assumed perfect competition, constant returns to scale, and unchanging technology – and made it more realistic by assuming imperfect competition, increasing returns to scale, and endogenous technology.read more