The Unassuming Economist

Source: Project Syndicate

In a recent column, John H. Cochrane of the Hoover Institution and Jon Hartley of Foundation for Research on Equal Opportunity write about the US’ long-ignored issue of supply-chain bottlenecks contributing to raging inflation today.

“The return of inflation is an economic cold shower”

They write how sclerotic growth in the country is not so much due to the “secular stagnation” of demand-side factors, but more due to clogging of the economy’s productive capacity. “The United States needs infrastructure. The problem is not money. The problem is that building anything in America has become almost impossible, owing to the thicket of regulations and lawsuits that will stop or drive up the costs of any project.” Barriers such as rocketing housing costs, deteriorating quality of public education, restrictive labor laws, trade protectionism, and other things all add to the problem. The authors also discuss some solutions to systematically eliminate such challenges.

From a NBER paper by Hites Ahir, Nicholas Bloom and Davide Furceri:

“We construct the World Uncertainty Index (WUI) for an unbalanced panel of 143 individual countries on a quarterly basis from 1952. This is the frequency of the word “uncertainty” in the quarterly Economist Intelligence Unit country reports. Globally, the Index spikes around major events like the Gulf War, the Euro debt crisis, the Brexit vote and the COVID pandemic. The level of uncertainty is higher in developing countries but is more synchronized across advanced economies with their tighter trade and financial linkages. In a panel vector autoregressive setting we find that innovations in the WUI foreshadow significant declines in output. This effect is larger and more persistent in countries with lower institutional quality, and in sectors with greater financial constraints.”

Source: VoxEU CEPR

Abstract:

The real pay of typical workers has grown much more slowly than productivity over recent decades in several developed economies. This column uses data from the US and Canada to examine whether productivity growth actually benefits typical workers by raising their pay. The authors find strong evidence of linkage between productivity and pay in the US but more mixed evidence for Canada, possibly due to it being a smaller, more internationally open economy. Overall, the findings suggest that measures to boost productivity growth are important for raising pay for the average and typical worker.

Source: World Bank Working Paper (2022)

“This paper develops a methodology to identify countries that are at risk of debt default based on four elements of debt vulnerability. These elements capture the different ways in which risks associated with high debt are assessed, namely: (i) the fundamental, (ii) the subjective, (iii) the judgmental, and (iv) the theoretical. The fundamental element considers the liquidity, solvency, and institutional risk elements of debt vulnerability. The subjective element captures the investors’ perceptions of debt default, while the judgmental element is based on the debt thresholds as defined by Debt Sustainability Frameworks. Finally, the theoretical element is normative and captures what ought to be. The methodology constructs an index for each of these four elements and uses them as predictors in a model of public debt default. The methodology flags countries that are at risk of default by means of machine learning techniques and delivers outputs that point to underlying causes of vulnerability.”

Also Read:

Keeping Public Debt Sustainable in an Equitable Way

From a new report by Steven A. Altman and Caroline R. Bastian:

“The DHL Global Connectedness Index measures globalization based on international flows of trade, capital, information, and people. This update highlights key developments in these four areas for the world as a whole, with a focus on the Covid-19 crisis. Overall, globalization is emerging from the pandemic far stronger than many expected. The DHL Global Connectedness Index declined modestly in 2020, and there is clear evidence of a recovery underway in 2021. Nonetheless, the pandemic has also highlighted vulnerabilities that should be addressed in order to fortify and expand the benefits of global connectedness.”