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Monday, November 30, 2020
CHRISTINE LAGARDE has been an outsider before. Speaking to The Economist, she relishes the memory of shaking up bureaucrats—“men in grey suits”—when she took over as France’s finance minister in 2007. She even installed a “psychedelic” carpet in her office, to get them to look up from the floor. Now Ms Lagarde, who then went on to run the IMF, is shaking up the idea of what it is to be a top central banker. The main prerequisite used to be a degree of nerdiness: just think of Janet Yellen, a former chairwoman of the Federal Reserve and Joe Biden’s choice for treasury secretary (see article); Ben Bernanke, her predecessor at the Fed; or Mervyn King, a former governor of the Bank of England. All spent decades in academia. By contrast Ms Lagarde, who has been the head of the European Central Bank (ECB) for just over a year, is not an economist but a lawyer and a former executive and politician. She brings a glittering CV and a high public profile to the job, but is probably more comfortable rubbing shoulders with heads of state than participating in a research seminar. On the
IN 2005 BEN BERNANKE, then a governor of America’s Federal Reserve, noted a “remarkable reversal in the flows of credit” to several emerging economies, especially those in East Asia. These countries had begun to save more than they invested at home, becoming a “net supplier of funds” to the rest of the world. Their “saving glut”, as Mr Bernanke called it, was helping finance America’s widening current-account deficit, allowing the world’s richest country to buy more goods and services from others than it sold to them. Mr Bernanke wondered whether this arrangement could, or should, persist. Some economists later blamed the glut for America’s housing bubble. Similar concerns are resurfacing. In the second quarter of this year, America’s net national saving rate dipped below zero, as Stephen Roach of Yale University pointed out in the Financial Times last month. Lacking saving of its own, America instead borrowed “surplus saving from abroad”, he wrote. Its current-account deficit widened faster in the second quarter than ever before recorded. This sort of reasoning is quite common, not least in these pages. But a number of economists, including Michael Kumhof of the Bank of England, Phurichai Rungcharoenkitkul of
Finance, economics and psychology all come into it
Edward P. Lazear, a pioneering labor economist at Stanford University who advised President George W. Bush during the financial crisis, died on Monday. He was 72.The cause was pancreatic cancer, the university said. It did not say where he died.Professor Lazear may be best remembered as the founder of a field that has come to be known as personnel economics, which seeks to understand how businesses hire, retain and pay employees. He also founded the Journal of Labor Economics and the Society of Labor Economists.But perhaps his most critical job was as chairman of President Bush’s Council of Economic Advisers when the American financial system buckled after a housing and debt bubble had burst, forcing the federal government to spend hundreds of billions of dollars to bail out financial institutions and rescue a sinking economy.“Eddie Lazear was a rare combination — an extraordinary academic economist and a dedicated public servant who brought that intellect and skill to the solution of big policy problems,” said Condoleezza Rice, director of Stanford’s Hoover Institution, where Professor Lazear held a senior fellowship.In a statement, Mr. Bush called him “a trusted confidant” and “a beloved colleague.”Edward Paul Lazear was born in New York City on
They gather unloved in jars and under cushions, unearthed only when laundry needs doing. They rattle in coat pockets, music to some ears and a nuisance to others. They sink into fountains and lurk in wells, a fortune in wishes but a nightmare to sort and count.Coins are everywhere until they’re nowhere, and at the moment they’re hard to find. By upending normal habits, the pandemic has dropped them out of circulation and accelerated a trend toward cards, apps and other cashless payments that could eventually make coins obsolete.China has plans for a digital currency, and the U.S. Federal Reserve is doing “research and experimentation.” Facebook has a currency in the works, and Bitcoin’s evangelists are still preaching. Millions of Americans are skipping right over coins by paying with their phones — or shopping on them.“There’s a battle for the future of money going on,” said Alex Tapscott, a co-founder of the Blockchain Research Institute, a Canadian firm. Governments, banks, credit card companies and online communities are among the factions trying to change how people make payments, he said.“As for cash,” he added, “an elegy is in order.”How the coronavirus sidelined coinsA funeral for cash has not yet been scheduled,
IN THE FIRST instalment of the “Harry Potter” series, the protagonist stumbles across the Mirror of Erised. Anyone who looks into the mirror sees the “deepest, most desperate desire” of their hearts reflected back at them. There is a touch of Erised about President-elect Joe Biden’s decision to nominate Janet Yellen as America’s next treasury secretary, reported on November 23rd. No economist is more qualified than Ms Yellen, a former chair of the Federal Reserve and a respected academic, for the job. Perhaps more important, however, for what is a political role as much as an economic one, people from the progresive left to the conservative right can find something to like about her. In today’s political configuration, that matters. Mr Biden must bridge a split in the Democratic Party between run-of-the-mill centrists and tear-it-down millennial socialists. And before she becomes treasury secretary, Ms Yellen must be confirmed by the Senate, which Republicans currently control. That hurdle ruled out candidates such as Elizabeth Warren, a senator from Massachusetts whom many Republicans would never confirm because she is seen as too hostile to free markets and the financial industry. In the days before the announcement Washington
WASHINGTON — President-elect Joseph R. Biden Jr. is expected to nominate Janet L. Yellen, the first woman to lead the Federal Reserve, to be the next Treasury secretary, according to people familiar with the decision.If confirmed, Ms. Yellen would be the first woman to lead the Treasury in its 231-year history. She would also be at the forefront of navigating an economic crisis — while growth is recovering from pandemic-related lockdowns earlier in the year, coronavirus infections are climbing and local governments are restricting activity again, likely slowing that rebound. Ms. Yellen, 74, is likely to bring a long-held preference for government help for households that are struggling economically and for slightly tighter financial regulation with her to the Treasury. But unlike the independent Fed, Ms. Yellen would find herself in a much more political role — one that will likely require negotiating with a Republican-controlled Senate. With Mr. Biden expected to push for additional economic aid, Ms. Yellen will be thrust into trying to broker a stimulus deal in a politically divided Congress that has so far failed to agree on another round of economic aid.She may be well placed to do so, as one of the most recognizable
WASHINGTON — Treasury Secretary Steven Mnuchin said he does not plan to extend several key emergency lending programs beyond the end of the year, a decision that could hinder President-elect Joseph R. Biden Jr.’s ability to use the Federal Reserve’s vast powers to cushion the economic fallout from the virus.Mr. Mnuchin on Thursday said he would not extend the Fed’s programs that support the markets for corporate bonds and municipal debt, as well a program that extends loans to mid-sized businesses. The programs expire at the end of 2020.The pandemic-era programs, which are run by the Fed but use Treasury money to insure against losses, have provided an important backstop that has calmed critical markets since the coronavirus took hold in March. Removing them could leave crucial corners of the financial world vulnerable to the type of volatility that cascaded through the financial system in March. And by asking the Fed to return unused funds, Mr. Mnuchin could prevent Mr. Biden’s incoming Treasury secretary from restarting the efforts in 2021.“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable
WHAT IS IT like to lose to a machine? In 1997 the world’s best chess player, Garry Kasparov, was beaten by Deep Blue, a $10m super-computer made by IBM. Twenty years later he wrote “Deep Thinking”, a book about the experience. What comes across vividly is how exhausting each game was. Chess players, even great ones like Mr Kasparov, get tired and frustrated. Doubts begin to creep in. By contrast, Deep Blue just needed the occasional reboot. Now turn the tables. What is it like to win against the machines? By New Year’s Eve the least smart buy-and-hold investor in an index fund might be able to boast of such a victory. For 2020 has been rotten for “quant” funds, which use powerful computers to sift market data for patterns that might predict future prices. “Long-short” momentum—buying recent winners and selling recent losers—had been one of quant’s better strategies this year. Yet on November 9th, when news broke of an effective vaccine for covid-19, it had its worst ever day. Quants rely on history. If something happens that is without precedent, such as a vaccine in a pandemic, they have a problem. No doubt
IT TOOK EIGHT years of gruelling negotiations to agree on the Regional Comprehensive Economic Partnership (RCEP), which was signed by 15 countries in Asia and the Pacific on November 15th. The world’s newest and biggest regional trade deal is not the deepest. It eliminates fewer tariffs than normal, and some only after two decades. Its coverage of services is patchy, as is that of agricultural goods. India is not a member. Still, when leaders met virtually to sign on the dotted line, they hailed the pact as a triumph. RCEP began as a tidying-up exercise, joining together in one overarching compact the various trade agreements in place between the Association of South-East Asian Nations (ASEAN) and Australia, China, Japan, New Zealand and South Korea. That limits how much trade will be newly affected. Of the $2.3trn in goods flowing between signatories in 2019, 83% passed between those that already had a trade deal. Some trade will be newly affected, though. China had no existing deal with Japan, for instance; nor did South Korea. So RCEP’s economic impact will be more than a rounding error. Peter Petri of the Peterson Institute for International Economics, a
KATHLEEN O’DONNELL is a 23-year-old Australian law student whose holdings of her government’s bonds mature in 2050, by which date carbon emissions may well have pushed global warming past the 1.5°C goal enshrined in the UN Paris agreement. In July Ms O’Donnell filed a court case against the Australian government for failing to disclose climate-change risks to investors. In 2018 Mark McVeigh, another young Australian, sued his pension fund, the Retail Employees Superannuation Trust (Rest), for allegedly failing to adequately manage the risks that climate change poses to its investments. The fact that Mr McVeigh and Ms O’Donnell are both Australian may reflect their government’s laggardly approach to climate change. But their court cases are also part of a growing willingness among green investors to see legal action as an alternative to divestment. “Unless the corporate sector switches quickly to meet investor expectations, I think we are inevitably going to see increasing shareholder litigation,” says Peter Barnett, a lawyer with ClientEarth, an NGO. The approach can yield results. On November 2nd, with Mr McVeigh’s case due back in court that day, Rest, which manages assets worth A$57bn ($42bn), agreed to settle, stating that “climate
Economic uncertainty and government handouts explain why the velocity of money has plummeted