The Unassuming Economist

See here a PPT by Torsten Slok, Rajvi Shah, and Shruti Galwankar on quantifying the impact of DOGE and tariffs on GDP and inflation.

From a paper by Angela Okeke and Constantinos Alexiou:

“This paper examines the relationship between public debt levels and income inequality during periods of fiscal consolidation (austerity). Specifically, it investigates two key questions: (a) whether high public debt during fiscal adjustments exacerbates income inequality, and (b) whether the composition of these adjustments influences the debt–inequality link. To address these issues, we apply a panel threshold methodology using annual data from 16 OECD countries over the period 1980–2019. Our findings reveal that public debt significantly affects income inequality, with the impact intensifying during fiscal adjustments, particularly at moderate debt thresholds (30–60%). Furthermore, when comparing the effects of tax-based versus spending-based adjustments, the evidence shows that tax-based consolidations tend to produce more persistent negative effects on income inequality.”

From a post by Claudia Sahm:

“Narratives about the U.S. economic outlook have darkened in the past month as concerns about lower growth and higher inflation mount. A stream of headlines on the federal government layoffs and contract cancellations from the Department of Government Efficiency (DOGE) have contributed to the unease.

The threat of DOGE to essential government services and those workers most directly affected by its actions is real, but is it a threat to the overall economy? Could DOGE cause a US recession? It’s unlikely. The scale is too limited, though it will weigh some on overall growth and employment this year. Even so, by moving quickly and maximizing the uncertainty, DOGE amplifies its aggregate risks.

A recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” according to the National Bureau of Economic Research. Size, breadth, and duration are important.

The U.S. labor force — people working or looking for work — is currently about 170 million people. It would require nearly 200,000 more unemployed workers to raise the unemployment rate by 0.1 percentage point. (It is worth noting that not all laid-off workers end up unemployed. Some retire or otherwise leave the labor force; some will find new employment quickly.) There is no official threshold for the unemployment rate in a recession, but historically, as reflected in the Sahm rule, the unemployment rate rises at least a half percentage point early in a recession. That’s an increase of almost one million more unemployed.

It is unlikely that DOGE triggers a recession.

Civilian federal employment (including the Post Office) is currently 3 million or less than 2% of the labor force. Changes in federal employment normally have little to do with the business cycle. There are temporary spikes every ten years due to the collection of the Census. Reductions in federal employment, such as during the Clinton administration in the 1990s, tend to occur in expansions.”

Continue reading here.

From a paper by Pierre-Hugues Verdier:

“The return of great power competition is transforming international economic law as trade and investment patterns fragment along geopolitical lines and longstanding legal regimes come under stress. The implications of the “return of geopolitics” for international financial governance, however, remain largely unexplored. This article argues that geopolitical competition generates fundamental and pervasive challenges for that regime. As states weaponize financial infrastructure, adopt security-based restrictions on capital flows, and attempt to direct funds away from their adversaries towards allies and strategic industries, they strain the regime’s foundational norms, principles, and procedures: institutional informality, multilateralism, nondiscrimination, and expert regulation. These challenges to the IF regime threaten to undermine cooperation to protect global financial stability and address other common policy concerns raised by financial globalization, such as market integrity, investor and customer protection, crime control, and protecting competition. The regime’s weakening or fragmentation could also impede effective management of future financial crises.”

From a paper by Maitreesh Ghatak, and Rishabh Kumar:

“This paper addresses the lack of official data on Indian poverty between 2011-12 and 2022-23, a
period known as the “missing decade”. It critiques two major attempts to estimate poverty during
this time: one using national account growth rates and the other using a private survey. These
methods are criticised for their assumptions and data limitations. The paper proposes a new
method, imputing consumption from official labour force surveys using a wage-based model. The
authors find that poverty reduction was not as dramatic as previously suggested, with about 20%
of Indians living in poverty on the eve of the pandemic. The paper’s analysis aligns with the fact
that India’s structural economic transformation was limited, with agriculture output stagnant and
regional convergence lacking. The paper concludes that while poverty may have gone down, but
its rate of decline has been slow in the decade after 2011-12.”