Economic Tidbits: BPEA -- Spring 2019

Since 1970, the Brookings Institution has been publishing the Brookings Papers on Economic Activity twice a year. The papers are invited and policy-relevant, and although they often contain a dose of statistical and theoretical analysis, some effort is made to keep the main themes readable to the patient generalist reader. It is fairly common that themes from BPEA articles become the conventional economic wisdom for a few years after publication.

For those who are interested,  here's a quick sketch of the six papers just released for the Spring 2019 issue.

"On falling neutral real rates, fiscal policy, and the risk of secular stagnation," by Lukasz Rachel and Lawrence H. Summers

"[N]eutral real interest rates would have declined by far more than what has been observed in the industrial world and would in all likelihood be significantly negative but for offsetting fiscal policies over the last generation. Their findings support the idea that mature industrial economies are prone to secular stagnation, underscoring the urgent need for governments to find new sustainable ways of promoting investment and long-term strategies to rekindle private demand."

"A forensic examination of China’s national accounts," by Wei Chen, Xilu Chen, Chang-Tai Hsieh, and Zheng (Michael) Song  

"[N]ew research from a team of economists investigating China’s GDP accounting framework and the data the national account is built on has found that the true growth rate of Chinese GDP has been overstated by almost 2 percentage points annually from 2008 to 2016. Incentives at the local level to report growth have skewed statistics and officials at the national level have failed to rectify this over-reporting."

"On the economics of a carbon tax for the United States," by Gilbert E. Metcalf

"The ever-rising accumulation of greenhouse gases in the Earth’s atmosphere—the most prominent of which is carbon dioxide—is costing the US. The damage from a one-degree Celsius increase in temperature is estimated to equal about 1.2 percent of GDP. Gilbert Metcalf argues that a carbon tax would help reduce US emissions and offers examples from the British Columbian carbon tax to show that a well-designed carbon tax can actually boost jobs and GDP, while reducing carbon emissions."


"Okun revisited: Who benefits most from a strong economy?" by Stephanie Aaronson, Mary C. Daly, William Wascher, and David W. Wilcox

"In 1973, economist Arthur Okun asked whether a `high-pressure economy' could contribute to the upward mobility of U.S. workers. Over forty years later, Brookings’ Stephanie Aaronson and the Federal Reserve’s Mary Daly, William Wascher, and David Wilcox revisit his central question to ask who the U.S. economy is benefiting today. In particular, how is it benefitting less advantaged and marginalized groups, such as African-Americans, Hispanics, and women?"

"Fiscal space and the aftermath of financial crises: How it matters and why," by Christina D. Romer and David H. Romer

"Based on data from 30 OECD countries since 1980, their research finds that the debt ratio does not matter simply because of its impact on current market access or because it is a proxy for market access, but also because of its impact on policymaker choices. Countries with lower debt-to-GDP ratios responded to financial distress with much more expansionary fiscal policy than countries that face a crisis with higher debt."

"A unified approach to measuring u∗," by Richard K. Crump, Stefano Eusepi, Marc Giannoni, and Aysegul Sahin

"The unemployment rate in the United States peaked at 10% in October 2009. Since then, it has declined gradually, reaching below 4% for the first time in almost twenty years— igniting a debate about how sustainable these low levels are and how monetary policy should respond. Much of this debate centers around determining the natural rate of unemployment, u*t, or the unemployment rate at which inflation is stable. Bridging two popular measurement approaches, new research ... found that the natural rate of unemployment in the United States stood at 4.1% as of the third quarter of 2018."