EconVue Spotlight

It is always a happy occasion for me when Chicago wins another Nobel Prize. Richard Thaler’s award represents continued recognition for behavioral economics. Always prescient EconVue expert Richard Katz interviewed Thaler ten years ago, and we revisit his excellent article for Toyo Keizai below. Now mainstream, there is not universal acclaim for behavioral economics. I recommend Kevin Bryan’s blog on this subject, and especially the comments that follow.

This week could be a watershed in Chinese history, although the inner workings of the 19 th National Party Congress are what I call an unknowable unknown, to be followed on by President Trump’s visit to China in less than a month. Key issues to watch: continued  sweeping changes in the People’s Liberation Army, in the shadow of the continuing North Korean crisis, and de-privatization of business under the Chinese Communist Party. For an excellent overview of China’s economic challenges and the state of their reform process, I’ve included a video of a panel I attended at the Asia Society in New York recently. 

In Washington, I listened to former Fed governor Daniel Tarullo, himself a non-economist, talk about the possibility of a non-economist taking the helm at the Fed, as well as inflation expectations. Unconventional insight on this topic comes from Econvue expert Robert Pringle in London regarding the failure of central banks to foresee the financial crisis ten years ago. He says that inflation targeting is a defacto global monetary standard.

Finally, as an EconVue reader, we kindly ask you to participate in a short survey as part of a study at the Lake Forest Graduate School of Management regarding economic news. Your input would be appreciated. Here is a link:  https://www.surveymonkey.com/r/8GHDBPL. 

RESEARCH BY ECONVUE EXPERTS  

Interviewing a Nobel Prize Winner
Richard Katz

One of the great pleasures of my career is that I've gotten to interview several Nobel Prize economists, Here's the beginning of an interview I conducted in 2007 with this year's winner, Richard Thaler. He was the inventor, along with psychologist Daniel Kahnemann, of "behavioral economics." This school recognizes that people are not Vulcan-like utility-maximizing rationalists, but human beings--a heresy in orthodox economics. At the time, Obama was looking into his views for economic advice.

10-Year Retrospective: Lessons of the Financial Crisis 1, 2, & 3
Robert Pringle

The lead-up to the crisis was marked by the near-universal adoption of inflation targeting. This became sacrosanct as the framework for monetary policy (implicit in the case of the Federal Reserve). It became the nearest we had to a global monetary standard.  

Perhaps it is time for a new standard, rather than watching central banks around the world aim for and miss 2% inflation over and over again.  

Blame the Economy for Widening Inequality – And Washington for Doing Little about It
Robert Shapiro

Ask the right questions, and the income data reveal a great deal about how this inequality took hold over the last 40 years.  It is a given that the American economy and politics both changed dramatically over this period. But how did each of those forces affect the distribution of incomes?

FMI Weekly Data Preview: October 16-20
Michael Lewis

The week began on a reasonable note with the NY Fed’ Empire manufacturing survey this morning. The headline index rose +6 points to 30 in October, not far from the cycle-high.

Washington Should Take Note of Chinese Advancement in Brazil
R. Evan Ellis

While partly related to Brazil's size, it is of note that, largely unnoticed in Washington D.C., Brazil is one of the countries in Latin America where the most significant major Chinese commercial advances have occurred during the past year.  

Washington’s Weakening Hand In Iran
Karim Pakravan and Kaveh Mirani HuffPost 10/10/2017

Collaboration: Blockchain
Collin Canright

The implications in the wake of so many recent data breaches are self evident, and I believe all of these technologies will come together eventually. It will take time, money, and collaboration among private and, especially in areas like real estate, public entities. Given the outlook for government finances in the United States and the always-present forces to maintain current revenues from the technology status quo, it will be a long effort requiring considerable leadership.

STORIES IN OUR SPOTLIGHT

Nobel

In addition to Richard Katz’s interview above, a range of commentary on this year’s award of the Bank of Sweden Prize in Economics in memory of Alfred Nobel.

Richard Thaler is a Controversial Nobel Prize Winner – But a Deserving One
Robert Shiller 10/11/2017 The Guardian

Hayek: For Humility and Against a Nobel Prize in Economics
Timothy Taylor 10/10/2017 Conservable Economist

The 2017 Nobel: Richard Thaler
Kevin Bryan Blog 10/09/17 Univ of Toronto Rotman School of Management

The number of behavioral anomalies at the level of the market which persist and are relevant in the aggregate do not strike me as large, while the number of investors and policymakers who make dreadful decisions because they believe markets are driven by behavioral sentiments is large indeed!

Federal Reserve

Fed Economists’ Stakes in Forecasting Firm Spur an Internal Probe
Katy Burne 10/10/2017 WSJ

What were they thinking?

Kevin Warsh, Candidate for Federal Reserve Chair, Is Not Even an Economist
Ike Brannon 10/6/2017 Weekly Standard

Daniel Tarullo: From law professor to Federal Reserve Governor
Brookings Institute 10/3/2017 Video

Inflation expectations hard to measure. Why not a greater focus on how overall debt levels, historically high everywhere, change models?

World

Population growth rate
Our World in Data 2017

This is why global growth has slowed and in spite of temporary rebounds will continue to do so as overall population peaks by 2100

Labour repression & the Indo-Japanese divergence
Pseudoerasmus 10/2/2017

Terrific economic history from  @pseudoerasmus comparing India & Japan's industrialization and the relative strength of labor in each country.

Is Europe Prepared for the Next Crisis?
Klaus Regling, Jeromin Zettelmeyer , and Adam S. Posen  10/11/17 PIIE and  European Stability Mechanism (Video) and prepared remarks

Not surprisingly, the head of the European Stability Mechanism is optimistic.  However, the list of tasks to complete integration is daunting.

Debt

CFR Sovereign Risk Tracker
Council on Foreign Relations 5/1/2017

Which countries are most likely to suffer a debt crisis? Track sovereign risk with  @BennSteil's interactive map

5 facts about government debt around the world
Abby Budiman & Drew Desilver 9/19/17 Pew Research

The U.S. Can No Longer Afford Deficit-Increasing Tax Cuts
Jason Furman 10/2/2017 WSJ

Common sense.

China

Infographic: How the CCP Rules, a Guide to China’s Leaders of Party and State
Yuanzhuo Wang & James Evans 10/11/2017 Fairbank Center for Chinese Studies

As leaders meet in Beijing for the 19th Party Congress, a visual guide to understanding China’s elite politics.

1.34 million officials have been punished for graft since 2013, Chinese watchdog says
CNBC 10/8/2017

Astonishing number when one realizes that this is more than the entire population of San Diego. 

Beijing Pushes for a Direct Hand in China’s Big Tech Firms
Li Yuan 10/11/2017 WSJ

Will “red shares” increase moral hazard, and how will markets react?

China May Be Running Out of Time To Escape the Middle-Income Trap
Eric Fish 10/3/2017 Asia Society

A panel chaired by Kevin Rudd, former PM of Australia, including Evan Medeiros, Asia Director of the NSC under Obama.  “I don’t think that Xi Jinping necessarily is a reformer. I think he is a modernizer”—and that distinction is critical.  

1949: The Year That Set the Course of Chinese-American Relations
Orville Schell 10/4/2017 NYT

Masterful review of A FORCE SO SWIFT: Mao, Truman and the Birth of Modern China, 1949 By Kevin Peraino   

War

Inside North Korea, and Feeling the Drums of War
Nicholas Kristof 10/5/2017 NYT

Sobering, frightening, enlightening.

Hypersonic Missile Nonproliferation: Hindering the Spread of a New Class of Weapons
Richard H. Speier, George Nacouzi, Carrie Lee and Richard M. Moore10/7/2017 Rand Corp.

We have more to worry about than the spread of nuclear weapons over the next decade. The proliferation of hypersonic missiles would give nations an incentive to become trigger-happy.