The Unassuming Economist

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.”

From a paper by Olumide O. Olaoye, Mulatu Fekadu Zerihun, and Mosab I. Tabash:

“The study finds the structural transformation of the SSA economy will engender sustainable development. Specifically, the study finds that knowledge exerts a positive and statistically significant impact on sustainable development in SSA. Similarly, we found that technology (mobile cellular subscription and fixed telephone line subscription) promotes sustainable development. The results also show that all the economic transformation promotes sustainable development in SSA. Further, we also found that economic development and physical capital are important drivers of sustainable development in SSA. However, trade openness does not contribute to sustainable development in SSA. This might be because the combined scale effect in trade outweighs the combined technology and composition effects in SSA. This suggests the technology component in total trade activities in SSA does not promote sustainable development. The study recommends that governments across SSA should invest more in ICT and mobile cellular infrastructure or create an enabling environment that encourages digitization and the development of financial technology in the manufacturing, mining, construction, agriculture and services sectors to enhance green and quality growth for sustainable development in SSA.”

From a paper by Marta Marson, and Donatella Saccone:

“From a theoretical perspective, the ultimate effect that food price shocks may have on inequality is ambiguous. Food price shocks, indeed, generate both winners and losers and their overall impact on income distribution cannot be predicted a priori but depends on the relative magnitude of different effects. From the empirical perspective, however, the link between international food prices and income distribution is largely understudied. The present paper tries to fill the gap by analyzing a large sample of 126 developing and developed countries observed in the period 1990–2020 and studying how food price shocks are associated with changes in income distribution. The heterogeneity of the effect is investigated by means of interaction terms accounting for the food trade balance of countries and the structure of the agricultural sector, coming to three main conclusions. First, upsurging food prices increase inequality by affecting the relative income of the poorest 50 percent of the population to the advantage of richer people, especially of the richest among the rich. Second, this effect is relevant for developing countries while no clear findings emerge for high-income countries. Third, the disequalizing effect of soaring international food prices is not uniform in developing countries but largely depends on their food trade balance and some structural attributes of their agricultural sector. In this regard, food policy must reduce the domestic transmission of price shocks to poor consumers while strengthening farmers’ productive capacity and ability to cope with the shocks through better access to land, capital and productive resources.”