Update on sanctions, oil prices, and recession

I gave an updated talk on this topic for the Better Policy Project yesterday. Slides available at
this link, video link below.

23 thoughts on “Update on sanctions, oil prices, and recession

  1. Steven Kopits

    So, Biden says the deficit will decline by $1.5 trillion. Isn’t that contractionary fiscal policy to the tune of 7% of GDP? Wouldn’t a decline of 7% of GDP represent a stiff recession? But does it take us below potential GDP, or just back to around potential GDP? That is, what does a recession look like when we remain strikingly short on housing and automobile inventories?

    I welcome constructive thoughts.

    1. pgl

      Ahem. A little basic macroeconomics. First of all the actual deficit should be seen as a combination of the full employment deficit and the loss of tax revenues from being below full employment. Fiscal policy should never be measured by the actual deficit but rather something like the full employment deficit. We all knew this from a 1954 AER paper by E. Cary Brown. Try reading it since you once again said something that flunks Econ 101.

      Secondly fiscal restraint need not lead to a recession if offset by things like expansionary monetary policy (more investment demand) or a rise in net exports (some of us know this as expenditure switching policies).

      So we need to know in context why Biden is saying this (if he really did), And need to take a course in basic macroeconomics.

      1. Steven Kopits

        “The FY2022 cumulative deficit continues to more closely track pre-pandemic deficits, in contrast to the record-high levels of the past two years. Through the first seven months of FY2022, the federal government ran a deficit of $295 billion, $1.58 trillion (84%) less than at the same point in FY2021.”


        There’s your $1.5 trn right there. Already in the bag.

      2. Steven Kopits

        By my count, the trade deficit in the last twelve months was about $400 bn higher than pre-pandemic. I think we might see a rapid contraction in the deficit in the coming months, from an incredible $110 bn in March back to the $45 bn monthly pace pre-stimulus.

        That means about $1.1 trn of economic adjustment would be anticipated to come from non-trade related effects.

        1. pgl

          Ahem! So higher economic growth led to more imports. Dude – could you at least TRY to understand basic economics? Such bean counting does not cut it.

          1. Steven Kopits

            This was not economic growth, it was the debt-fueled stimulus. And that’s reversing now. I personally would be interested in Menzie’s take on the matter. He has argued in the past for fiscal stimulus. This is clearly highly contractionary fiscal policy that we are seeing. What should we expect? Are recession? A return to pre-pandemic economics? Or something else?

          2. pgl

            “This is clearly highly contractionary fiscal policy that we are seeing.”

            You still have not read E. Cary Brown’s 1954 AER paper? The actual deficit is generally considered a poor measure of fiscal stimulus. You have not in the least addressed my first comment. OK – you have no clue what the comment was referring to but then we have always known your knowledge of basic macroeconomics is nonexistent.

          3. pgl

            “This was not economic growth, it was the debt-fueled stimulus.”

            I just checked and it seems real GDP increased by 5% from 2020QIII to 2021QIII. But Princeton Steve declares that none of the reduction in the Federal deficit was from economic growth?

            Seriously Steve – this thread of yours is stupid even for you.

          4. Steven Kopits

            It’s the change in the deficit that matters, and that’s what I am talking about.

      3. Anonymous

        tossing about $1.5 t….. there was this administration econ advisor on bloomberg tv this pm…. being retired has its burdens. or was it cnbc, i flip back and forth.

        the deficit the first half of calendar 2022 is way low, he did not elaborate but: no trillion dollars borrowed for stimulus and quite large tax receipts in apr 2022. as well as continuing resolution delays increased spending.

        this makes the tiny quant tightening going on now palatable.

        when the tax receipt fix wears off….. and $60b per month maturing treasuries (about $1 t in short durations on the fed sheet) coming off the balance sheet insist on face value redemption….

        sometime next fall the federal deficit looks very different, borrowing each auction expands and taxing billionaires won’t happen in time.

        claims of deficit reduction and reality are never tracked and scored!

    1. Moses Herzog

      The fact that he subliminally saw the resemblance in the two invasions has me thinking his mistake unveils intelligence I never faintly conceived of “W” as having.

  2. pgl

    ‘Former President George W. Bush may have just accidentally likened himself to Russian President Vladimir Putin. The 41st president spoke Wednesday night for an event at his presidential center at Southern Methodist University in Dallas …’

    Who editted this? George W. Bush was the 43td President. His father was the 41st President.

  3. pgl

    Elon Musk and Mike Pence join the MAGA crowd attacking Wall Street’s growing efforts to consider factors like long-term environmental risk in investment decisions:


    For right-wing activists who previously brought criticisms of critical race theory (CRT), diversity, equity and inclusion (DEI) and social emotional learning (SEL) to the forefront, it’s the latest acronym-based source of outrage to find a home at rallies, in conservative media and in legislatures. ESG has yet to take hold as mainstream political messaging, but backlash against it is gaining steam. This week, former Vice President Mike Pence attacked the concept during a speech in Houston. And on Wednesday, the same day he said on Twitter he planned to vote Republican, Elon Musk attacked it after Tesla lost its place on the S&P 500′s ESG Index. He called it a scam “weaponized by phony social justice warriors.”

    Culture warriors who will do anything to stop sound economic policy.

    1. Anonymous

      they took away tesla’s esg rating…..!!!

      don’t under estimate the talent of politicians to throw a wrench in the gears….

  4. Barkley Rosser

    Thanks, Jim, a very comprehensive coverage of a lot of relevant material here. Only loose end is not pinning down what some of those elasticities of substitution are that will determine real output impacts in various countries, but at least you have highlighted what the likely zones of possible response are.

    1. pgl

      Maybe you get this as I have not followed a word from Glenn Greenwald in a long time but is up with his intense hatred of Nicolle Wallace?


      I don’t mind the term he Typhoid Mary of Disinformation but shouldn’t it be applied to those Trump supporters? Did someone steal Glenn’s meds or what?

  5. Anonymous

    Thank you for the excellent run down!

    As a survivor of both the 1973 and 1979 oil disruptions it brings back ‘memories’.

    Today the house voted on a measure that might imply meddling in the gasoline/diesel/gas supply and distribution process.

    That is unfortunate because in summer of 1973 we ‘enjoyed’ a preview of the spring 1974 gasoline crisis over political rumblings that caused local gasoline shortages w/o any constraint in crude deliveries.

    Do not underestimate the talent of politicians to gum up the works of complex sensitive set of physical relationships.


      Meh, adjusted prices are 12-14 bound. Oil is ramping up globally. These prices are toast.

Comments are closed.