Comments due by Sep. 11, 2015
Olivier Blanchard began his tenure as the International Monetary Fund’s chief economist at the start of the 2008 global economic crisis and is leaving his post amidworld-wide market turmoil.
But one would be hard-pressed to say that it’s not a changed world.
In the latest issue of the IMF’s research magazine, Mr. Blanchard gives a high-altitude survey of the recent past, present and future of the global economy and the science of economics (or alchemy, depending on your view).
Here are a few highlights:
The recent past:
“The financial crisis raises a potentially existential crisis for macroeconomics. Practical macro is based on the assumption that there are fairly stable aggregate relations, so we do not need to keep track of each individual, firm, or financial institution–that we do not need to understand the details of the micro plumbing. We have learned that the plumbing, especially the financial plumbing, matters: the same aggregates can hide serious macro problems. How do we do macro then?”
“In the context of the Greek program discussions, it made good sense to argue for debt relief first in private. We did. And when we thought our argument was not getting through, it made good sense to then go public. It would have been wrong to go public from the start, or to never go public.”
“The issue I have been struck by is how to indicate a change of views without triggering headlines of ‘mistakes,’ ‘fund incompetence,’ and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a ‘mistake’ in the way people think of mistakes, e.g., mixing up two cells in an Excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful.”
The present:
“There is a good chance that we have entered a period of low productivity growth. There is a chance that we have entered a period of structurally weak demand, which will require very low interest rates. And low growth combined with increasing inequality is not only unacceptable morally, but extremely dangerous politically.”
“There is a clear swing [in economic policy making trends] of the pendulum away from markets towards government intervention, be it macro prudential tools, capital controls, etc. Most macroeconomists are now solidly in a second-best world. But this shift is happening with a twist—that is, with much skepticism about the efficiency of government intervention.”
“Some propositions that would have been considered anathema in the past are being proposed by ‘serious’ economists: For example, monetary financing of the fiscal deficit.”
The future:
One of the key ways the IMF’s role will evolve is through “liquidity provision. Again, the gross asset and liability positions create the risk of very large sudden stops, and the need for international liquidity provision on a very large scale. The current haphazard combination of central bank swap lines and fund liquidity programs is a strange contraption. It should be improved, if only to eliminate the role of political factors in who gets what. The two should be better integrated, and integrated with regional agreements.” (WSJ)
It was interesting to me to see that the productivity growth was so low. I agree with Blanchard in that we need to address long term issues of low productivity growth and in addition the increasing inequality. This increasing inequality causes a lot of turmoil politically resulting in nothing being changed because no can come to an agreement. When nothing can be changed, this matter will not magically improve. People are thinking more neoclassical by questioning and being skeptical over government intervention. As for the future, I was very confused as to what it was trying to say. Was it trying to say that if assets cannot be converted into cash quickly, it will affect everyone internationally? Thanks.
ReplyDeletePosted by: Evan Orzolek
The highlights from Olivier Blanchard article expressed his thoughts on the economies past, present, and future; along with the causes of the decline and what can be done to revitalize it. In the first paragraph he states that he and the fund had greatly underestimated the evidence they had gathered. The confusing part was he states they gained "creditability" from their mistake. My question is how making a mistake can cause a gain in creditability? I would assume that a mistake of this magnitude would cause a great decline in creditability not an increase.
ReplyDeleteThe next two paragraphs were a combination of what is and what should be done to cause a revitalization of the economy. He believes that there needs to be an improvement in the "haphazard combination of central bank swap lines and fund liquidity programs". I wished that Blanchard would go into greater detail about what should be improved, as it would allow for me to have a greater degree of understanding of the plans for the economy now and in the future.
Antonio DiMaggio
In the first paragraph I felt in agreement with Blanchard due to the fact that I was confused on the point of Macroeconomics due to the realization that things flow much more smoothly when you dig deep into the details. I also found it very interesting that a mistake in the business would eventually be beneficial in the future. I was curious to know why we are entering a period of low productivity growth so I would've liked to read more about that. Other than that confusion I found this article very interesting and I am very eager to learn more about macroeconomics.
ReplyDeleteMike Salmonese
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ReplyDeleteOliver states that in the recent past paragraph, that macro is no longer sufficient. He says that Micro is necessary, or in his own words "The financial plumbing matters". I do not feel he gave a convincing enough argument that we can still macro going forward.
ReplyDeleteIn addition, I was surprised to hear that in the present day we are currently in a period of low productivity. It has appeared as though in the last several years productivity has increased. It was interesting to learn that we are now at a lull.
In general I feel that Oliver's comments were surprising and caught me off guard. I did not expect to learn macro may no longer be necessary and we are currenlty in a period in a low productivity growth.
Ashley Russo
In the first paragraph Oliver Blanchard discusses that the financial crisis is creating a potential existential problem for macroeconomics but it was confusing to me because he didn't give enough detail on why macro was becoming non sufficient. Then he went on to discuss that the micro plumbing of our society, which he called the financial plumbing matters. This was interesting and I would have liked to read more about that.
ReplyDeleteThe second paragraph went on to discuss the low productivity over the years which seemed important but I didn't understand why our economy had a low rate of productivity and a structurally weak demand. Also it said that this could be very dangerous politically, but I was confused on why. So I would like to know more about why the low growth rate and increasing inequality would cause a problem politically.
Olivier states that due to the financial drop in 2008, many governments have begun to intervene in the economy of their respective country. This caused problems for the IMF as they had predicted the economy of these countries to act a certain way, a way that didn't account for government intervention. This caused major problems for the IMF and required a new approach for the Monetary fund. They now needed to account for the micro economics of each country as well as the macro economics, this shift caused backlash as many groups considered this "incompetence" on IMF's side. This is very interesting to me as it has caused major differences in how a countries economy should behave and how it is currently behaving.
ReplyDeleteOlivier later outlined this shift has most likely caused a period of structurally weak demand on a global scale due to such government interventions. Some countries are creating larger supplies for products and relying on exporting goods rather than contributing enough to global demand. On the other hand, other countries are spending much more than they can afford in the long run. This is very interesting to me as economic government intervention has always been avoided by countries, such as the United States with their "Hands off" approach and now that governments are interfering major problems are arising for the global economy.
Chris Carapola
I found this article interesting becuase I liked the way he recognized the issues of macroeconomics in three different sections; past, present and future. I was surprised when blanchard said we entered a period of low produstivity growth. Low interest can cause an incredible amount of problems on top of everything else going on with the ecomony.
ReplyDeleteWhile reading the rest of this article i realized that productive work for the benefit of another makes the economy. When you don't work, but consume, the world subsidizes you. When enough tire of working and subsidizing, economies collapse. I didnt really understand some of the article but would of a little bit better if Olivier were to give more information.
Christina Randazzo
When reading this, the whole first paragraph had caught me by surprise. Blanchard says "The financial crisis raises a potentially existentially crisis for macroeconomics", in other words, the financial dilemma puts macroeconomics at risk. This threw me off guard because it seems to me that he believes macroeconomics is not going to be relevant soon. Macroeconomics is taught in all different types of universities and is important for people to know about, and the fact that is might be of no use soon is odd.
ReplyDeleteIn the next section Blanchard discusses the "Present" financial status. He states that we reached a point of low productivity growth and structurally weak demand. Now we have to lower interest rates. He said that that this is potentially dangerous but I wish he would elaborate more about why this is dangerous. I did not like how he did not give enough information about the topic.
Lastly, in the paragraph about the future, he states that IMF plans to evolve with liquidity provision. I think liquidity provision could be good for the economy but again, I wish he went into greater depth about his plans for the future so I could decide whether I support them or not. If he went into more detail it would have made his argument easier to understand and would show me that he knows what he is doing and what he is talking about.
I was extremely attracted to this article and found it very easy to break down. He breaks the article into past, present, and future which really helped the reader know about what time period he is talking about. I like his views with government intervention. With the upcoming election coming this is a huge topic. "But this shift is happening with a twist—that is, with much skepticism about the efficiency of government intervention.” This next part of our history will make or break the economy. I am very curious about which way our economy will turn. I pray for the best, but prepare for the worst.
ReplyDeleteI agree with Blanchard in this article when he claims our current financial crisis is actually a crisis for macroeconomics. Macroeconomics is a broader study based on assumptions of a stable economy while microeconomics is a much more refined look into each individual firm and financial institution. Because of our 2008 economic crisis, macroeconomics is no longer sufficient. Logically it makes sense that microeconomics is more useful than macro however I wish Blanchard went into more depth as to why. He then mentioned how presently we are entering a period of “low productivity growth” and “weak demand”. This is creating the need for more government intervention, which is dangerous for the free market economy of which we are based. What I didn’t understand in this section was why Blanchard stated macroeconomists are now in a “second-best world”. I also would have liked him to elaborate more on the formerly “anathema” propositions that economists are now using today like monetary financing of the fiscal debt.
ReplyDeleteRiley Iafrate
Blanchard starts off by talking about how the 2008 financial crisis created a lot of problems for the IMF. The IMF struggled by making low estimations and not paying attention to the microeconomics of certain individuals and firms.I am curious if Blanchard was also talking about different countries too. For example, did the IMF not pay attention to the specifics of certain countries and the way they handled their crisis individually. Blanchard sounds like he had a hard time accepting the responsibility for the IMF's fault, but he does think that admitting it gives them more credibility and they have learned from that mistake to make better decisions. In Blanchard's eyes, the IMF gained experience and wisdom through that past transgression.
ReplyDeleteIn Blanchard's Talks for the present he talks about how the economy will need a lot of growth and without it the economy will suffer. Low growth and income inequality will not hold well with the people and the economy as people are becoming more fed up with government intervention into the markets. Low interests rates in this possible period of Low demand are key to higher growth.
I have a hard time understanding Blanchard's solution through his "The Future" paragraph.
After reading this article I find it ironic that Mr. Blanchard is leaving his post amid world-wide market turmoil. The world’s macroeconomics is in a very unstable situation, China’s acclaimed economic double digit GDP numbers are deflating rapidly and their financial market is in a downward spin, even with the Chinese government’s intervention. Japan, the world’s third largest economy is in a two decade economic stagnation. It also had its worst quarterly contraction in recent history. Canada has entered into recession, Brazil is in default and the US is still struggling to breakout after its financial crisis. It appears the macroeconomics has not improved but it is tenuous at best.
ReplyDeleteIn the recent past highlight it was startling to read Mr. Blanchard statement “We have learned that the plumbing, especially the financial plumbing, matters”. It was amazing for the head of the IMF to make this statement. The IMF did step in and contained a potentially disastrous financial situation with Greece and prevented a domino scenario within the P.I.G.S. with a consumer run on the bank. But the current financial situation with Greece has also deteriorated where initially the IMF only placed a band aid on it.
The present: “a period of structurally weak demand, which will require very low interest rates. “ The US Fed has had near zero fed rates for almost seven years. I am surprised that Mr. Blanchard would make a statement like that.
In retrospect, I was quite stunned at some of the statements made in this article especially by a well renowned economist.
Nicholas Swyntuch
All in all, Olivier Blanchard's post came to me as an act of mystery, especially in regards to his views on the future (today in real time). According to him, the present (at the time) was "a period of low productivity growth and a period of structurally weak demand". In 2008, this was indeed true, since we went through a severe recession that year. However, when he starts to discuss possible solutions for the future, he doesn't seem to clarify his ideas in a coherent manner. In what ways are central bank swap lines and fund liquidity programs obscure factors to each other? Would benefiting one of them hinder the other? To me, he knows what he wants to say. It just has to be reiterated in a way that more people can understand.
ReplyDeleteDaniel Tapia
According to the article “Past, Present, and Future of Economics,” by Olivier Blanchard. Talks about how the financial crises are creating existential issues for macroeconomics. I found a very interesting point on this article. He states that making a mistake in business world can lead to beneficial for the future. Now I don’t necessary agree with that statement. However I do believe that we all learn from our mistakes, but I am not sure enough how that would relate to business. I really found this article very interesting however it lead me with some sort of confusion that I would’ve never think that existed. Kristine Pllumaj
ReplyDeleteThe article was very precise on it's past, present, and future ideas on the status of the economy. I liked how in "the Recent Past," Blanchard talks about how it's important for economists to look at the "Micro-pluming" of the economy. This implies that it's not enough that they just look at the aggregates. I also liked how he mentioned that the fund increased their credibility about interest rates although it was a painful process.The part Blanchard wrote about the future was a bit unclear, but he was right in saying that the combination of central bank swap lines and fund liquidity programs is unusual. -Bradley Paterson
ReplyDeletein the beginning "the past" he admits to having made a "mistake", but tries to defend it but saying it wasn't really a mistake but a mixup of 2 cells in an excel spreadsheet. Well that may not have been a mistake on the part of the people reading it, but definItely a serious mistake by the person who entered the information in the spreadsheet. As far as the present, there might be certain things that I do believe government should get involved with, however markets are NOT one of them. Haven't we seen in too many other cases that the government being over involved in anything is a bad thing. Not to mention that taking away control from "the people" is not what this country is supposed to be about. Does anyone but me remember, "of the people, by the people, and for the people!" (gettysburg address by president lincoln) I didn't hear anything about take rights away from us so government could become a tyrant dictator, isn't that why we wrote the declaration of independence. Anyway, I digress... I will add however that I can sort of get behind "the future" plan. We definitely need to change things that add political factors, to items that should not be involved in politics.
ReplyDeleteThe highlights from Olivier Blanchard article communicated his contemplations on the economies past, present, and future; alongside the reasons for the decay and what should be possible to revive it. In the first section he expresses that he and the trust had enormously thought little of the proof they had accumulated. The befuddling part was he states they picked up "respectability" from their slip-up. My inquiry is how committing an error can bring about an addition in respectability? I would expect that a mix-up of this size would bring about an awesome decrease in noteworthiness not an increment.
ReplyDeleteLauren Mangieri
The past has more of a positivity perspective while the present and future have a normative feel. Oliver states what "ought to be" done in order for things to be stabilized. For example, "which will require very low interest rates.", or "It should be improved, if only to eliminate the role of political factors in who gets what." Macroeconomics is indirectly being affected by the growing financial crisis'. I thought it was very interesting when Oliver said, "Some propositions that would have been considered anathema in the past are being proposed by 'serious' economists". Sometimes in a time of failure past choices need to be looked at for the bigger pictures. All options need to be considered for the sake of a better future.
ReplyDeleteOlivier, has been through the global economic crisis, and is stating the issues that contributed to the crisis and how the economy, has learned for it and how we can prevent, it from happening again. As stated that we are still facing a crisis but one that we have more of a control of ? Might be looking too much into it. In the past the way people viewed it, as is that little individual, firm, or financial intuitions do not pay a big role in the economy. That’s they reason people did not keep track of them individually. We are dealing with a time of low productivity growth, where the economy is dealing with a low level of demand, which leads to low interest rates. In the future the gross asset and liability positions create the risk of very large sudden stops, and the need for international liquidity provision on a very large scale.
ReplyDelete