Guest Contribution: “What Three Economists Taught Us About Currency Arrangements”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy  School of Government, and formerly a member of the White House Council of Economic Advisers. A shorter version appeared at Project Syndicate.


A generation of great international economists is passing from the scene.  Richard Cooper died on December 23. An American, he was teaching his classes at Harvard until the very end. Robert Mundell, passed away on April 4.  Originally Canadian; he was a winner of the Nobel Prize in economics.  And John Williamson, on April 11. Originally British, he had been the first scholar hired by the Peterson Institute for International Economics.

As a personal note, I was fortunate to know all three.  I explored national parks with Cooper, experienced bird-watching with Williamson, and once visited Mundell in the then-crumbling Renaissance villa that he had bought outside Siena.

All three made important contributions on a variety of topics in international economics through their careers.  (They were all in their 80s.)  Interestingly, all three coined memorable phrases that are still in common use, though not always precisely as these scholars had originally intended.

More specifically, all three played roles in the ongoing debate over the best currency arrangements. Should countries allow their foreign exchange rates to be determined freely by the private market, floating as the dollar, yen, pound and most other major currencies do?  Each of these three economists was unhappy with floating and made proposals for reform of the system.  Should central banks, then, fix their exchange rates, or even give up their independent currencies entirely, as the individual members of the euro have done?  Or should they do something else?

Williamson and intermediate exchange rate regimes

John Williamson led the “something else” camp.  He believed in intermediate exchange rate regimes, that is, arrangements that give more flexibility than fixed rates but are more stable than free floating.  Intermediate regimes are viable ways to achieve some  degree of partial exchange rate stability together with some degree of partial monetary independence. Contrary to common mis-interpretations of Mundell’s Impossible Trinity, this is true even for countries fully open to international capital flows.

One intermediate regime is a “crawling peg,” a phrase that Williamson contributed to the lexicon of international monetary economics in 1965.  Under this arrangement, especially popular in Latin America in the 1980s and early 1990s, countries decide to live with inflation by undertaking monthly mini-devaluations that keep their producers price-competitive on world markets. (Even today, some developing countries like Nicaragua continue to use the crawling peg.)

Williamson also championed another intermediate regime, the target zone, under which countries keep their exchange rates within pre-specified bands.  He repeatedly refined and updated his proposals to apply the target zone even to the dollar, euro, yen and other major currencies.   In 1987, at the time of the Louvre Accord, a “reference range” version of this proposal was secretly adopted by the G7. But it was short-lived.

These intermediate exchange rate arrangements found their greatest popularity among Emerging Markets.  Many of these countries mixed and matched Williamson features, falling under the rubric of Band-Basket-Crawl (BBC). Botswana and Singapore still do it today.

Williamson’s greatest claim to fame stemmed from another expression that he coined, in 1989: the “Washington Consensus.”  He listed ten economic policies for developing countries that he judged had the support of the IMF, World Bank, and US administrations.

He utterly lost control of his own invention, however.  He had explicitly excluded one item from the list: the removal of financial controls. (While pursuing the goal of keeping developing-country exchange rates competitive, he said, “there is relatively little support for the notion that liberalization of international capital flows is a priority objective.”)  Many subsequently would talk about the “Washington Consensus,” but most of them assumed that it entailed the opposite, the free movement of capital, typically in eager attacks on perceived “neoliberalism.”

 

Cooper, cooperation, and currencies

Richard Cooper can be judged to have favored fixed exchange rates.  His 1971 paper pointed out the adverse balance sheet effect that devaluation can have in developing economies.

Further,  he predicted that business would eventually find the high volatility of floating rates “intolerable.”  In 1984, he made an uncharacteristically radical proposal for “the creation of a common currency for all of the industrial democracies,” beginning with the U.S., Europe, and Japan. To be sure, he emphasized that his plan was only a vision for the long term.  But his notion of the long term was the 21st century.  We are here. Yet the political appetite in each part of the world for giving up this sort of national sovereignty is even more miniscule now than it was when he made the proposal.

Perhaps Cooper was unrealistically optimistic about the practical prospects for international coordination in general.  He had started the academic field of international  macroeconomic interdependence and cooperation (while avoiding the use of game theory, which later came to dominate the field).

But he drew practical lessons from the history of international cooperation in fighting contagious diseases, an especially relevant example today.  And, after all, he had accomplished the rare feat of taking his scholarly contributions and helping put them into practice on the world stage, as U.S. Under Secretary of State for Economic Affairs in the Carter Administration (1977-1981).  The most salient example was the 1978 Bonn Summit of G7 leaders, in which Cooper played an active role. There, Germany and Japan agreed with the United States that the three would act as locomotives simultaneously pulling the rest of the world economy out of economic stagnation. (In the global economy of 2021, the US and China are the locomotives.)

Indeed, Cooper in this episode gave the world the phrase “locomotive theory,” which refers to fiscal expansion that is coordinated across countries in periods when the global economy is suffering from a deficiency of demand. The story is that Cooper on a visit to Japan described the three big economies as “engines” pulling the global train; the word “locomotive” came from a translation back into English of coverage in Japanese sources.

 

Mundell and the postlapsarian desire for exchange rate stability

When Bob Mundell was awarded the Nobel Prize in 1999, the committee specified two contributions that still remain indispensable tools for thinking about the advantages of fixed versus floating exchange rates.  One was the 1962-63 MundellFleming model (so christened by Rudiger Dornbusch).  The model was far ahead of its time in assuming high cross-border financial integration.  A key finding was that monetary policy attains high power to influence income if the country’s exchange rate is floating, but loses power if the exchange rate is fixed.  Even though Denmark retains its own currency, for example, its peg to the euro means that it has little control over its own monetary policy.

What happens when a country or region gives up its own currency altogether, thereby renouncing monetary independence by definition?  Mundell’s other prize-winning article was his 1961 “Theory of Optimum Currency Areas.”  The phrase is another that is prominent in the lexicon of international macroeconomics. Mundell’s analysis began with the observation that there was no reason why national political boundaries should necessarily coincide with the boundaries between independent currencies.

Luxembourg, for example, is too small and its economy too dependent on its neighbors to justify having its own monetary policy.  It should instead, tie its currency tightly to one or more of its neighbors, as Luxembourg has indeed historically done.  It is content to have its interest rates set in Brussels or Frankfurt.  It is like one of the 50 U.S. states, which is sufficiently integrated with its neighbors that the benefits of sharing a common currency outweigh the costs.

Countries like the United Kingdom or Norway, on the other hand, are more likely to experience different macroeconomic conditions from mainland Europe, and to need the freedom to respond by cutting their interest rates and depreciating their currencies independently of what monetary policy is set in Frankfurt. These two northerners never joined the euro.

As Paul Krugman has pointed out, it is essential to distinguish between pre-1971 Mundell and post-1971 Mundell.  (1971 was the year that the Bretton Woods system of pegged exchange rates broke down, and the year that Mundell left the University of Chicago.)  His post-1971 ideas were broad-brush, and at odds with the ideas in his pre-1971 writings.

He is sometimes called the intellectual father of two big and consequential ideas: supply-side economics, which bore fruit in Ronald Reagan’s 1981 tax cuts, and a common currency for Europe, which came to life in the form of the euro in 1999.  The two movements were very different.  But both were associated with a relatively unconditional faith, which Mundell had not shown before, in the virtues of restoring the exchange rate stability that the world had lost in 1971.

His fundamental change of world view was most likely due to a new belief that the prices of goods and services were so flexible as to equilibrate markets automatically, regardless of currency policy.

From the viewpoint of post-1971 Mundell, the Optimum Currency Area concept that he had invented has been mis-used by others. Many American economists liked his framework for judging the advantages and disadvantages of a common currency, but argued that European countries did not meet the OCA criteria.  They found that individual European countries generally had greater need for monetary autonomy, in that their business cycles had relatively low correlations and their unemployed workers had low ability to adjust to shocks by moving to where the jobs were (compared to US states, for example).

Mundell’s first choice was a single global currency. His second choice was currency unions within Europe or within other regions.  He felt that, since he had originated the Optimum Currency Area criteria, he should get to say whether proposed unions qualified.  But subsequent events seem to confirm others’ warnings that even Europe is too large to qualify, if taken as a whole, let alone the entire world.

 

Intellectual influence

Let’s take stock, as of 2021.  Freely floating rates suit most large countries better than Mundell, Cooper and Williamson felt.  One could call these three the Bretton Woods generation.  But at the same time, some countries do well with firmly fixed exchange rates, especially economies that are small and highly-integrated with neighbors.

At least half the countries of the world fall in between the two poles.  But in most cases, their intermediate exchange rate regimes don’t obey such well-defined rules as Williamson’s BBC plans.  Many of the larger Emerging Market countries, including South Korea, India and China, follow “systematic managed floats.”  The central bank regularly responds to changes in total exchange market pressure by allowing some fraction to be reflected as a change in the exchange rate and the remainder to be absorbed as a change in foreign exchange reserves.

As we mourn the passing of these three giants, their careers serve as a reminder of a famous quote from Keynes: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”  But perhaps the dictum needs to be amended to reflect that the influence of powerful ideas can exceed what their originators foresaw.

 


This post written by Jeffrey Frankel.

46 thoughts on “Guest Contribution: “What Three Economists Taught Us About Currency Arrangements”

  1. Barkley Rosser

    I appreciate Jeffrey empahaszing Williamson’s work on the intermediate forms of exchange rate management, which are indeed used by many nations. People should be more aware of this than his link with the “Washington Consensus,” which was a flawed set of policy recommendations. As Jeffrey notes, Williamson himself was not as closely tied to the package as most have thought. Besides the matter of financial controls the other matter involves social safety nets, with it increasingly clear that having or maintaining solid social safety nets can aid growth as well as broader social stability.

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  2. macroduck

    When do often in comments on this blog we see assertions about the economy, economic history, institutions, thinkers and theories which are simply factually wrong, we are seeing the kind of minds Keynes was describing – people are much surer that they are right in their views than they are about the reasons for their views. Bias is just so much easier than research.

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    1. Moses Herzog

      Let me introduce you to the Clothes Trilemma:

      •Wear the same clothes continuously throughout the entire week.
      •Have the freedom to be naked at anytime.
      •Let your wife choose your office clothes for you each day of the week.

      You cannot have all 3 of these conditions at the same time. Maybe two though. Try it, I dare you. Is that amazing or what?? Isn’t that an amazing phenomena?? I just floored you didn’t I??

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  3. Moses Herzog

    You would have thought that our “usual band of suspects” would have been on here to make some murmurs about the virtues of Mr. Mundell. Hmmmmm?? How “strange”…….. They “must have been” busy reading Margie Noonan editorials in WSJ (insert scornful laugh here). I myself had missed the fact the man had died. I assume Mundell was busy in his latter years, scurrying around soup kitchens to hand minuscule small crumbs out from “large pies”. Now that last sentence is a real man’s “legacy”.

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    1. pgl

      Robert Mundell certainly had a lot of diverse contributions and views. The WSJ headline tribute says Mundell was a rock star in China because he advocated fixed exchange rates. WTF? Well it is the WSJ so hey.

      Worse yet is Business Insider who argues that the U.S. still has a $7.25 per hour minimum wage because of Mundell’s Optimal Currency Area idea. Now the Business Insider does write Bruce Hall level stupid stuff.

      But this is a bit better:

      https://www.britannica.com/biography/Robert-A-Mundell

      We still teach the Mundell-Fleming version of IS-LM. But yea he did advocate for the EU with all its warts.

      https://www.britannica.com/biography/Robert-A-Mundell

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      1. Moses Herzog

        It appears Mundell was a proponent of China having a relatively fixed exchange rate, around the year 2006. I can’t find a solid link for this, but it appears at first glance to be true. We’ll have to pester Menzie and see if he was at any HK conferences around 2006.

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      2. Moses Herzog

        https://www.yahoo.com/lifestyle/doj-considers-charging-derek-chauvin-153600288.html

        From writer Zack Linly of “The Root”

        “The hits just don’t stop coming for ex-Minneapolis Police Officer Derek Chauvin. Now that he’s been convicted of murdering George Floyd, the Department of Justice is considering the possibility of charging him in connection to a 2017 incident where the man who knelt on Floyd’s neck for more than nine minutes also allegedly knelt on a Black teenager for a whopping 17 minutes.

        ABC News reports that when prosecutors were preparing for the case that would bring Chauvin to justice, they received several videos of the incident with the Black teen and said they were shocked by what they saw. Of course, this evidence wasn’t allowed at trial because the defense successfully argued that jurors should be barred from hearing about Chauvin’s history of neck and body restraints on suspects. (Which is wild considering the fact that defense attorneys also argued that Floyd’s past arrests should be admissible and some of that “evidence” was allowed in.) ”

        Funny how that works isn’t it?? A Black man who has been murdered, his past arrests can be allowed in as evidence by the judge (as the victim, remember all this talk about “victim’s rights”?? Don’t expect Tucker Carlson to complain about the victim of a murder having their rights violated here, because the victim and his family are Black, which makes them “sub-human” to Tucker Carlson). But if you are the white policeman committing the murder, well your past history of unnecessary violence just really “isn’t relevant evidence”. Funny how it works out that way……

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        1. pgl

          Chauvin had a history of excessive force but that could not be admitted as evidence. Go figure. Remember how Dr. Fowler just misrepresented reality to argue that this should not have been called a homicide. Well now his past work as the medical examiner is being reviewed.

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  4. pgl

    Anyone watching how Dr. David Fowler declare that the death of George Floyd was not a homicide had to realize he had extreme thin blue line bias. His testimony was incredibly pathetic including that death by CO nonsense which was clearly at odds with the known medical evidence. And of course he thought having Chauvin’s knee on Floyd’s neck was not an excessive use of force. Like he did not explode a nuclear bomb.

    He has been Maryland’s medical examiner so one would hope his past reviews of deaths by police actions should undergo scrutiny and it looks like will happen:

    https://www.baltimoresun.com/news/crime/bs-md-ag-office-review-20210423-l2oamj3ixnhwznd4545f7pjcau-story.html

    There should be standards of integrity and professional conduct for medical examiners and it seems Dr. Fowler may not have lived up to those standards.

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    1. Moses Herzog

      I’m guessing this would be found among a decent percentage of state medical examiners. That is~~David Fowler would be in the majority rather than the minority of opinion of those with his same job title at a state or large city level.

      Isn’t it strange how large lawsuits against the employer providing your paycheck can affect a person’s opinions?? I’ve always thought respecting a medical examiner’s opinion in a court/legal case to be humorously preposterous. If you went into an MD’s private practice office place and asked his nurses and office staff if he should be up for medical malpractice what would they tell us?? Yet somehow the medical examiners’ opinion of how his own employer handled the arrests of criminals and enforcement of procedures is supposed to be from the mouth of God?? And who also employs the judges who tell courtroom juries medical state/city medical examiners’ opinion is reliable testimony?? I suppose the next time some regional manager at Home Depot murders his wife, they’ll bring in the Home Depot forklift operator employed by that same regional manager to tell us the manager’s wife’s death by skull injuries was caused by her weekend hobby of racing stock cars. Well, the forklift operator watches the NASCAR every weekend, so, really, who his employer is, is besides the point.

      Reply
  5. ltr

    https://voxeu.org/article/mundell-difference
    April 12, 2021

    The Mundell difference
    By Paul Krugman 

    The opening sentence of Robert Mundell’s 1963 paper “Capital mobility and stabilization policy under fixed and flexible exchange rates” — one of the two most influential in a series of pathbreaking papers he published in the late 1950s and early 1960s — is curious: “The world is still a closed economy, but its regions and countries are becoming increasingly open.”

    “Still”? Was Mundell thinking of a future with interplanetary trade, so that eventually the world as a whole wouldn’t be a closed economy? OK, he probably wasn’t, but if he was, it would have been in character. Mundell, who passed away on 4 April, was an economist ahead of his time.

    Specifically, those seminal papers were written in an era when many of the restrictions imposed on international transactions during the Depression and WWII were still in place. Britain’s foreign exchange controls persisted until Margaret Thatcher came to power; France didn’t abolish its controls until 1989. Yet in those papers Mundell envisaged a world with high mobility of capital and perhaps other factors of production; indeed, his stabilisation paper made the strategic assumption of perfect capital mobility, with money flowing instantly to equalise rates of return across countries.

    And over the decades that followed, as capital flows surged and fixed exchange rates gave way to floating rates, Mundell’s work provided an essential guide.

    In what follows, I’ll try to explain Mundell’s contribution to economic thought and policy.

    Let me admit from the outset that the trajectory of Mundell’s ideas makes this a tricky project. Most of his influence within the economics profession comes from a handful of brilliant papers written when he was very young; most of his public prominence came from arguments he made later in his career, which often seemed to conflict with his earlier work.

    Now, great economists often change their views over time, as they should when new information arrives. Mundell, however, changed his whole intellectual style; if you were to read his Nobel lecture without knowing who wrote it, you might never have guessed that it was the same man who devised those crisp little models several decades earlier.

    But let me begin with those models, which remain the foundation of modern international macroeconomics.

    Loonie tunes

    When Mundell was awarded the Nobel Prize, I was among a number of economists who noted that his most influential work seemed inspired by Canadian experience. In retrospect I may have understated the case: the Canadian model arguably underlay all three of Mundell’s key contributions to international macroeconomics.

    As I already pointed out, in the late 1950s and early 1960s capital movements were in general circumscribed by extensive controls. Yet Mundell found it useful to posit a world of perfect capital mobility, partly for analytical clarity, but also because it was “a stereotype towards which international financial relations seem to be heading.” And Canada, “whose financial markets are dominated to a great degree by the vast New York market,” was, he suggested, already pretty much there.

    It seems plausible, then, to guess that Canadian experience contributed to Mundell’s consistent early focus on the role of capital mobility, and factor mobility in general, in the international economy. This focus was already apparent in 1957 when he published “International trade and factor mobility”, a still widely read paper arguing that trade could substitute for factor movements and vice versa.

    Canada’s openness to capital flows wasn’t its only distinctive feature. In a world of fixed though adjustable exchange rates, it stood out for having spent an extended period allowing the loonie — the Canadian dollar — to float freely, something it had to do if it was to have any monetary independence. Surely this distinctive Canadian experience helps explain why Mundell focused so early on macroeconomic policy under a floating-rate regime, which was academic speculation for most countries at the time but lived reality for his home nation.

    And Canada’s decision to let the loonie float also offered a concrete example of the Impossible Trinity implied by his 1963 paper. A country can’t have free movement of capital, a fixed exchange rate, and effective monetary policy – it must choose two out of the three.

    There was also one more thing about Mundell’s home nation that was special in the 1960s and that remains special today — the country’s unusual economic geography. Although Canada’s land area is huge, its climate ensures that the vast bulk of its population lives in a fairly narrow but very long strip just north of the US border; Vancouver and Toronto are 2,000 miles apart. Canada is in effect closer to the US than it is to itself.

    Canadian geography clearly influenced Mundell’s vision in the 1961 paper that rivals his stabilisation paper in influence, “A theory of optimum currency areas”. He worried that a flexible exchange rate wouldn’t do much for Canada, both because the economic bases of the country’s east and west were so different and because, he argued, they didn’t constitute a single labour market. This led naturally to the idea that factor mobility is a key determinant of whether or not nations should have their own currencies and/or allow their currencies to float.

    So, Mundell in effect used Canadian experience to motivate questions about how open-economy macroeconomics would work in a world where markets were being freed up. What did we learn from his answers?

    Open-economy macroeconomics ….

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    1. ltr

      https://www.journals.uchicago.edu/doi/full/10.1086/669188

      2012

      Revenge of the Optimum Currency Area
      By Paul Krugman

      The creation of the euro was supposed to be another triumphant step in the European project, in which economic integration has been used to foster political integration and peace; a common currency, so the thinking went, would bind the continent even more closely together. What has happened instead, however, is a nightmare: the euro has become an economic trap, and Europe a nest of squabbling nations. Even the continent’s democratic achievements seem under threat, as dire economic conditions create a favorable environment for political extremism. Who could have seen such a thing coming?

      Well, the answer is that lots of economists could and should have seen it coming, and some did. For we have a long-established way to think about the prospects for currency unions, the theory of optimum currency areas—and right from the beginning, this theory suggested serious concerns about the euro project.

      These concerns were largely dismissed at the time, with many assertions that the theory was wrong, irrelevant, or that any concerns it raised could be addressed with reforms. Recent events have, however, very much followed the lines one might have expected given good old fashioned optimum currency area theory, even as they have suggested both that we need to expand the theory and that some aspects of the theory are more important than we previously realized.

      In what follows, I’ll start with a very brief and selective review of what I consider the key points of optimum currency area theory, and what that theory seemed, some two decades ago, to say about the idea of a single European currency. Next up is the crisis, and the continuing refusal of many leaders to see it for what it is. Finally, some thoughts on possible futures….

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      1. Barkley Rosser

        Regarding the euro the problem is not that it was created or exists, but that it was extended to too large a set of nations inappropriately. The Greek debt crisis from a decade ago is the poster boy for this, not to mention the relative success of some EU nations back then that stayed out of the euro, such as Sweden and Poland, which was the only nation in Europe not to have negative economic growth in 2009.

        The idea that Mundell is closely associated with that looks the least defensible, and to which he continued to adhere even to the end, and what I think Krugman was referring to when he commented on the disjuncture between his insightful earlier views and some questionable ones (and also< I suspect, Moses Herzog's getting in a snit over Mundell) was the matter of supply side economics.

        Now I do not think it was necessarily ridiculous to argue that cutting certain taxes might aid in increasing supply, but I think he also bought into the Laffer Curve part. Now in the end both of these become empirical matters as indeed the Laffer Curve is theoretically reasonable: tax rates of 0% and 100% will raise zeto tax revenue (or not much in the latter case). There is some tax rate in between 0 and 100% that will max tax revenues, so if the tax rate is above that cutting it will increase revenues. The empirical question becomes what is that rate and how do actual rates in nations compate. We now think that right might be in the neighborhood of 70%. The US is and has been nowhere near that. So Laffer's and more recent Republicans including under Trump, claiming that "tax cuts will pay for themselves" were out to lunch. What I am not clear on regarding Mundell is the extent to which he went along with these ridiculous forecasts by Laffer and others. And it also appears that hsi optimism about how cutting taxes will bring about surges of investment and supply side growth also do not seem to hold up al that well empirically, but I have never seen him comment on all that, just throw out general support for all this.

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  6. ltr

    https://en.wikipedia.org/wiki/Washington_Consensus

    The term Washington Consensus was coined in 1989 by English economist John Williamson to refer to a set of 10 relatively specific economic policy prescriptions that he considered constituted the “standard” reform package promoted for crisis-wracked developing countries by Washington, D.C.–based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department. The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy.

    Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;

    Redirection of public spending from subsidies toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;

    Tax reform, broadening the tax base and adopting moderate marginal tax rates;

    Interest rates that are market determined and positive (but moderate) in real terms;

    Competitive exchange rates;

    Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;

    Liberalization of inward foreign direct investment;

    Privatization of state enterprises;

    Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;

    Legal security for property rights.

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    1. ltr

      Williamson’s greatest claim to fame stemmed from another expression that he coined, in 1989: the “Washington Consensus.” He listed ten economic policies for developing countries that he judged had the support of the IMF, World Bank, and US administrations.

      He utterly lost control of his own invention, however. He had explicitly excluded one item from the list: the removal of financial controls. (While pursuing the goal of keeping developing-country exchange rates competitive, he said, “there is relatively little support for the notion that liberalization of international capital flows is a priority objective.”) Many subsequently would talk about the “Washington Consensus,” but most of them assumed that it entailed the opposite, the free movement of capital, typically in eager attacks on perceived “neoliberalism.”

      — Jeffrey Frankel

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      1. Barkley Rosser

        I have been digging on Mundell’s most questionable intellectual contribution, his being a “guru” for supply side economics. I shall post in more detail later on Econospeak about this, but will note a couple of points here. Apparently he first posed the idea in a Princeton University International Finance Discussion paper in 1971, never published in a journal that called for a combination of tight monetary policy to combat inflation in combination with tax cuts to offset the contractionary effect of that, but emphasizing that the latter would increase the supply of goods, apparentlyi discounting any impact on aggregate demand of it, thus supposedly also aiding fighting inflation.

        In 1974 he published another discussion paper on this and he got attention from Jude Wanniski at the Wall Street Journal as well as Jack Kemp in the House, having already apparently influenced Arthur Laffer while still at Chicago (he moved to Columbia U. about that time). He even pushed this on the Ford administration in late 1974, without much effect, although this led to the famous column in the WSJ by Wanniski that coined the term and popularized the ideas, which indeed became Reaganomics policy in the first part of his presidency.

        I have been unable to find if he went along with Laffer to actually forecast that the Reagan tax cuts (or later ones in the US) would “pay for themselves” through increased revenues, which they failed to do. But he did early on support the idea of the Laffer Curve before Laffer drew it on a napkin, that tax rates can be so high that cutting them could increase revenues, which is correct. It is probably from Mundell that Laffer got his curve, and laffer and Wanniski all cited Mundell as the key source of their ideas.

        The earliest sign of this from Mundell was that one of the last things he did as editor of the JPe was to accept a paper that was published there in 1971 on the economic ideas of Ibn Khaldun, a medieval Arab philosopher, historian, geographer, and economist. At one point in his al Maqqudinah ibn Khaldun wrote that overly high taxes had contributed to the decline of certain ancient empires and even put forward the essential Laffer Curve argument that tax rates could be so high that cutting them could raise revenues. Mundell made his followers aware of this argument of ibn Khaldun’s and apparently it got sptead so far down the intellectuall chain that apparently Reagan himself cited ibn Khaldun on this 10 times on this during his presidency. This latter stuff comes from a column Bruce Bartlett put out on April 11 about Mundell, whom he admired.

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    2. Barkley Rosser

      Indeed, if one looks at his first two items, keeping budget deficits under cotnrol and redirecting spending away from “subsidies” (a not clearly defined term) and towards supposedly “pro-growth policies” like primary education, primary health care, and infrastructure, except for the health care part this suggests possibly taking funding away from other parts of the social safety net such as old age pensions and support for poor people like food stamps. Indeed, Jeffrey Sachs was following this line as late as 1994 when he denounced the Poles (and that is not too strong a word) for not being willing to cut their old age pensions.

      I think Williamson also later figured out that this part of “his” Consensus was not necessarily such a good idea, and indeed this sort of argument largely stopped being made by economists at the World Bank and the IMF after some years.

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  7. pgl

    Macroeconomic Policy Adjustment in Interdependent Economies, Richard N. Cooper, The Quarterly Journal of Economics, Volume 83, Issue 1, February 1969

    Interdependence introduced as early as 1969. Truly a seminal paper. Then again I have to wonder how much of this idea made into the writing of Keynes and Joan Robinson.

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    1. Barkley Rosser

      Joan Robinson for sure beat him to the punch on some of it, if not all of it, in her 1937 paper on “Beggar they Neighbor” policies.

      Reply
  8. ltr

    https://www.ft.com/content/fa1e0d22-71f2-401f-9971-fa27313570ab

    April 25, 2021

    Vaccine makers say IP waiver could hand technology to China and Russia Proposal to suspend patent rights comes as poorer countries struggle to obtain Covid doses
    By Hannah Kuchler and Aime Williams – Financial Times

    London and Washington – Vaccine makers have warned US officials that temporarily scrapping patents for Covid-19 shots would risk handing novel technology to China and Russia, according to people familiar with the talks.

    As industry lobbying has escalated in Washington, companies have warned in private meetings with US trade and White House officials that giving up the intellectual property rights could allow China and Russia to exploit platforms such as mRNA, which could be used for other vaccines or even therapeutics for conditions such as cancer and heart problems in the future.

    J&J, Pfizer, Moderna and Novavax did not respond to requests for comment….

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  9. Moses Herzog

    I just read in NYT that Chloe Zhao won the best director Oscar. When you add that in with a Japanese gentleman winning at the Masters this year, aside from arguments that society has been late to make these things possible/attainable, the timing of these two things happening in 2021, immediately after the MAGA nightmare, in my personal opinion it couldn’t be more perfect of timing. But the best part is it’s not a “token” thing. These things were well-earned, and cannot be argued in terms of their legitimacy.

    Reply
  10. ltr

    https://www.nytimes.com/2021/04/09/world/asia/india-covid-vaccine-variant.html

    April 9, 2021

    Complacency and Missteps Deepen a Covid-19 Crisis in India
    The new wave will hurt global efforts and vaccine supplies, experts say. Researchers are scrambling to assess whether new coronavirus variants are playing a role in India.
    By Mujib Mashal and Hari Kumar

    https://www.nytimes.com/2021/04/23/world/americas/covid-brazil-hunger.html

    April 23, 2021

    Ravaged by Covid, Brazil Faces a Hunger Epidemic
    Tens of millions of Brazilians are facing hunger or food insecurity as the country’s Covid-19 crisis drags on, killing thousands of people every day.
    By Ernesto Londoño and Flávia Milhorance
    Photographs by Victor Moriyama

    https://www.nytimes.com/2021/04/24/world/asia/india-coronavirus-deaths.html

    April 24, 2021

    As Covid-19 Devastates India, Deaths Go Undercounted
    Fatalities have been overlooked or downplayed, understating the human toll of the country’s outbreak, which accounts for nearly half of all new cases in a global surge.
    By Jeffrey Gettleman, Sameer Yasir, Hari Kumar and Suhasini Raj
    Photographs by Atul Loke

    Reply
  11. pgl

    Marjorie Taylor Greene and Faux News want to inform you that Biden will steal your hamburgers and ban other forms of red meat:

    https://talkingpointsmemo.com/news/biden-fox-news-red-meat-climate-boebert-greene

    Where did these nutcases get this idea. Well there is some study from the University of Michigan noting the impact of reducing red meat consumption. We need the Michigan Faux News ace reporter Bruce Hall to get the facts on this horrible socialist plot!

    Reply
  12. Barkley Rosser

    This is off-topic, but then a lot of other comments here are too. At least this one is about Econbrowser itself, or at least some of its people.

    So I just spotted a thread on the infamous ejmr that actually started a year ago but is back up with people adding to it. It is about “Nobel Prize Losers” and the OP opening post list ten people who supposedly think that they will get the econ Nobel Prize but will not, thus making them “Nobel Prize losers.” Among those 10 is our own James Hamilton. I note that a few comments later, somebody said that he would in fact get it some day, no further comments on him.

    But this is also a reminder of how many people out there might be candidates. So I counted how many names have been mentioned in this now quite long thread that is lengthening some more. Beyond the original 10, another 47 names have been mentioned, 3 of them dead (Gordon Tullock, William Baumol, and Benoit Mandelbrot) and one who has actually gotten the prize, Robert Wilson. That leaves another 43 supposed “Nobel Prize losers,” although several of them look to me to be likely candidates to get it at some point, as well as some on the original list of 10, but I am not going to list any of them or make forecasts.

    I shall note 4 names that have not been listed in this thread: John Cochrane, Menzie Chinn, Bob Flood, and yours truly.

    Reply
    1. Moses Herzog

      I should actually have bias to Baumol, because he co-wrote my undergrad textbook, which I enjoyed very much and learned so much from. I’m willing to listen, but I don’t think any of the last 4 you mentioned have done what could be said as “groundbreaking work”. I have heaps and tons of respect for Menzie, so I don’t say that lightly. “Groundbreaking” to me has to be something pretty monumental. The only guy I saw on your list (mentioned in this thread by name) that would even deserve consideration, is Mandelbrot. And the way the committee is bending towards social justice messaging (or should I say massaging??) and wanting to make women feel good about themselves, that’ll probably take another 5 years before they decide they can get around to giving Mandelbrot that award. There are women who deserve it, but it’s a pretty small group. I think Gopinath’s work on currency is pretty interesting, is it “groundbreaking”?? I think Menzie could define that term in Economics better than I can, and knows “groundbreaking” when he sees it better than I do. Menzie can filter this, but it’s my honest opinion, and I’m not speaking absolutes here, just generalities, I think Gopinath’s math skills far exceed most women, and if Economics wants to be seen as more a “true” science than a “social science” the math has to be strongly in there.

      Reply
    2. Moses Herzog

      My understanding is Helene Rey has gotten a lot of awards. Nakamura strikes me as talented and my understanding is she got some award from Toulouse very recently. “Groundbreaking” enough for Nobel?? I have no idea.

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    3. Moses Herzog

      I forgot, Menzie told me/us before, you can’t get the Nobel posthumously. I don’t know why I can never remember this fact. Mandelbrot died in 2010. Over a decade ago. Pretty unbelievable.

      Reply
      1. Barkley Rosser

        I would have been fine with Baumol.

        As it is, I was once sitting next to a member of the committee at a lunch who asked me whom I thought should get it. I said Mandelbrot.

        I knew him personally. He had the largest head, I am speaking literally physically, of anybody I ever met. He also had a very large ego, but at least had a lot to back it up.

        Reply
        1. Moses Herzog

          I wonder if they (the Nobel committee) might make a kind of “secondary award”, in which it would be some kind of similar deal as an “honorary Oscar” or “lifetime’s work” Oscar for film making. What would be so bad about that exactly for guys like Mandelbrot, Alan Krueger, etc?? I don’t know why they have that rule, I have some sneaky suspicions it might be related to some depressing topic, where a Prof/researcher did something extreme, in order to get a sentimental vote for the Nobel. That’s my own suspicion in this weird thing I call my mind, but I don’t think it’s an altogether bad theory on why they don’t give the award posthumously.

          Reply
          1. Moses Herzog

            If the Nobel Committeee are worried about the look/optics, similar to Hopkins absent at the Oscars, they could ask nuclear family members to choose an Economist/peer to give the speech for them. I think say for example, Paul Krugman would be happy to give the Nobel event speech for Krueger. What would the harm be, say if done some years later after more time for their research work to be considered??

          2. Barkley Rosser

            Well, none of the Nobel committees for any of the Nobel Prizes gives out anything to dead people, and they never have. Given the secondary status of the econ prize, “not really a Nobel” according to many, having been created in 1969 by the Swedish Central Bank rather than by Alfred Nobel, it is highly unlikely the econ committee would do something none of the others do, even if maybe a good idea.

            As it is, there have sometimes been sub speakers. The obvious case involved the late William Vickrey (whom I also knew) who died three days after it was announced he was getting the prize. He had a heart attack in his car while driving to an econ conference (pulled over to the side of the road in time to have it without causing any traffic problems). He still received it, and his longtime friend and colleague at Columbia, C. Lowell Harriss, spoke at the ceremony in his place.

    1. Moses Herzog

      I think he was banned, at the very least temporarily. Though I can testify to Menzie’s tolerance and kindness, if PeakTrader showed a certain amount of contrition and decided to clean up his act I wager Menzie would let him back onto the blog. People don’t tend to change much after they’ve reached adult age though, so……..

      California and New York are always getting these type of insults around election time and on a.m. conservative radio, similar to the “in the beltway” comments by people who voluntarily of their own volition decide to live in D.C. Peak probably picks this up from his favorite FOX hosts and radio hosts.

      Reply
  13. Moses Herzog

    I am watching “A Touch of Zen” tonight. As much as I like and am enjoying this movie, I am keeping to my insistence that I do not want to be a 宦官. And that’s that.

    Reply
  14. Moses Herzog

    If one is reading, and digesting, some of these thoughts from a pretty good journalist located in South Delhi, and also thinks about what has happened in Michigan in relatively recent weeks, one has to ask the “wiseness” of the CDC preparing to tell Americans it’s ok not to wear masks again.
    https://www.nytimes.com/2021/04/27/world/asia/India-delhi-covid-cases.html?action=click&module=Spotlight&pgtype=Homepage
    I have gone after Fauci for at least two reasons. I thought it was incredibly dumb for him to tell the general public masks were unnecessary at the very beginning of the virus, (I’m thinking roughly March-April 2020, as far as when Fauci made those statements, I’m happy to be corrected). The other major mistake he made was not resigning his job when he was forced to attend donald trump pressers in which he stood silent as the American people were being misled. And Menzie has talked about what happens “when good men do nothing”, “when good men stand silent”. Where does Fauci’s standing at donald trump pressers like some deaf mute fit in that quote?? I’d love to know.

    Does Fauci, as one man, dictate CDC policy?? NO, obviously not~~he works for NIH not CDC. But this is Fauci’s chance to exhibit he has learned something and come out verbally loudly AGAINST the CDC advising Americans not to wear masks when variants and mutations are cooking up, certainly in India (how long does that stay “contained” in India without finding a way to America, or mutations “cooking up” in Michigan or elsewhere?!?!?!?! This is DUMB, and if Fauci wants to be proved wrong TWICE those deaths are partly on his hands.

    Reply
    1. Moses Herzog

      For the record. I was listening to Fauci on NPR tonight Tuesday late afternoon. Fauci said that for himself personally he will still wear a mask outside to set the example. So I owe Fauci a half-apology. I’d give Fauci a full apology but that would imply I was wrong, and that’s never happened before.

      Reply
    1. Mosses Herzog

      Which brings us to one of my favorite personal cliches, that if I live long enough and Menzie never gets around to banning me you’ll see a lot on this blog: “Human beings are a strange lot”

      Reply
  15. pgl

    Maybe there should be a post on having the IRS enforce the tax code re the very rich. Oh wait – Kevin Drum did just that:

    https://jabberwocking.com/finally-biden-plans-to-start-auditing-the-rich-again/

    Never mind what Kevin thinks and check out his two links. The 2nd one goes to some Tax Notes posts from of all people Lawrence Summers et al. who detail how much revenue this could raised. And better – the news (in the 1st link) is that this is part of the Biden plan to pay for his progressive spending plans.

    Reply

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