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.
Category Archives: budget
“Will Joe Biden’s fiscal stimulus overheat the American economy?”
That’s the title of a new article in the Economist:
There are three main reasons to suspect overheating might be on the cards: emerging evidence that the downturn may prove temporary; generous stimulus; and the Federal Reserve’s monetary-policy strategy.
Spreads and Risk over the Past Week (and Months)
I’ve been amazed at how little the last week’s political turmoil has shown up in financial markets. The only thing that seems to have moved anything is the apparent control of the Senate moving to the Democrats.
The Current Administration’s Current Official Economic Forecast
Illustrated (red squares):
Macroeconomic Policy, Midterm 2 (Nov 18) – Revisiting the Tax Cut & Jobs Act
How would you answer Question 2?
Guest Contribution: “The Fiscal Effects of the Covid-19 Pandemic on Cities: An Initial Assessment”
Today we are fortunate to present a contribution written by Andrew Reschovsky, Professor Emeritus of Public Affairs and Applied Economics at the University of Wisconsin-Madison.
Open Letter to Lawmakers: “On Recovery Policy”
From Scholars Strategy Network, an open letter:
Economists’ Letter on Recovery Policy
Dear National Lawmakers,As you consider a new package of aid to support the nation during the ongoing COVID-19 pandemic, now is an appropriate time for the federal government to consider economic research carefully in order to provide well-targeted, significant relief to state governments and to individuals experiencing economic hardship. Support for state budgets, and for safety net programs, most notably funding for the Supplemental Nutrition Assistance Program (SNAP) and for Unemployment Insurance, are wise ways to do this.
Lessons from the Past (i.e., the Last Recession)
Remember “austerity” and “expansionary contraction” stories? Well, if you don’t, then gird yourself for another round of claims (primarily by non-macroeconomists) about how state and local governments need to tighten up their finances, by cutting spending (and cutting taxes to necessitate further spending cuts). Perhaps, we should consider expanding federal transfers to the states and localities…From the fourth round survey of the IGM/Fivethirtyeight Covid-19 panel:
The Hill: “White House to forgo summer economic forecast amid COVID-19, breaking precedent”
That’s from an article today:
The White House will not release an updated round of economic projections this summer, breaking from precedent as the U.S. faces its deepest downturn since the Great Depression, two administration officials familiar with the decision confirmed to The Hill on Thursday.
Ma, Rogers, Zhou: “Global Economic and Financial Effects of 21st Century Pandemics and Epidemics”
Addendum, A new paper by Chang Ma, John H. Rogers and Sili Zhou:
We provide perspective on the possible global economic and financial effects from COVID-19 by examining the handful of similar major health crises in the 21st century. We estimate the effects of these disease shock episodes on GDP growth, fiscal policy, expectations, financial markets, and corporate activity. Simple time-series models of GDP growth indicate that real GDP is 2.57 % lower on average across 210 countries in the year of the official declaration of the outbreak and is still 2.96 % below its pre-shock level five years later. The negative effect on GDP is felt less in countries with more aggressive first-year responses in government spending. Consensus forecast data suggests a pessimistic view on real GDP initially that lasts for two months, an effect that is larger for emerging market economies. Stock market responses indicate an immediate negative reaction. Finally, using firm-level data, we find a fall in corporate profitability and employment, and an increase in debt, the last of which is further reflected in higher sovereign CDS spreads.
Addendum, 4/1:
Impact on GDP growth expectations are illustrated in Figure 3:
One interesting (among many) policy relevant findings:
In countries with large responses of government expenditures, real GDP initially falls by 2.68% but the effect dies out in the second year. For the low government expenditure response countries, real GDP initially falls by 2.84%, an effect that is very persistent. Meanwhile, responses in government tax revenues do not make much of a difference.