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📣The secular decline in rates may not have boosted U.S. fiscal capacity as much as you think, but it definitely has exposed the U.S. Treasury to more interest rate risk. 🧵
based on #BPEA piece brookings.edu/bpea-articles/…
@SVNieuwerburgh @ProfJiang @MindyXiaolan
based on #BPEA piece brookings.edu/bpea-articles/…
@SVNieuwerburgh @ProfJiang @MindyXiaolan
1/in standard models, government debt is fully backed by the collateral, future primary surpluses (S). So, a natural way to assess fiscal capacity is to measure the dollar value today of this stream of future surpluses
2/ Let’s assume for a second that the federal government runs surpluses, spending and tax revenue that are a constant fraction of GDP. The dollar value in 2021 of future S is given by the multiple on a claim to GDP, the steady-state S/Y and 2021 GDP. 
(1/N) Thanks to those liking my @BrookingsInst #BPEA discussion, but I need to clarify one point, and I screwed up in the chat so also will be clarifying, explaining, and giving apologies to @profsufi and @AtifRMian below.
(2/N) First, clarifying (for @Claudia_Sahm and others) the general point: while providing data for policy guidance mid-crisis is very useful, we should not regard the answers in today’s papers as the definitive answers. Many examples of how our understanding has changed . . .
(3/N) A decade later, we are still not sure about a lot of the house price bubble, financial crisis and Great Recession. For example, ongoing work on relative roles for expectations vs. credit conditions: violante.mycpanel.princeton.edu/Workingpapers/… and dlgreenwald.com/uploads/4/5/2/…
Quick story from a #BPEA on-record reporter lunch today discussing a new @gabriel_zucman & Saez wealth tax paper. One of the discussants was Greg Mankiw, Harvard economist and former Bush CEA chair, who is a critic of the wealth tax proposal. 1/
@gabriel_zucman One of the Zucman/Saez arguments is that a wealth tax will help the US by reducing the influence of the ultra-wealthy on politics. Mankiw -- who had already critiqued the proposal on several fronts, including efficacy -- was responding to that argument. 2/
"Most rich people I know," Mankiw said, "were sad Donald Trump got elected." 3/
The discussion about wealth taxes (and Saez-Zucman) at #BPEA is both incredibly rich and productive.
Makes me realize how lucky we are to have smart public finance economists battling over these ideas and policies.
Hug a public finance economist; we need them.
Makes me realize how lucky we are to have smart public finance economists battling over these ideas and policies.
Hug a public finance economist; we need them.
My sense of the #BPEA room is that the reflexive response of many economists is to see the problems with a wealth tax. But equally, there's something pretty amazing about the audacity of the Saez-Zucman vision, which would transform the role of the wealthy in society.
One economist argued that there's not much of an "economic" justification for the Saez-Zucman wealth tax. By "economic", they meant no purely positive argument.
But Saez & Zucman are admirably clear that they're starting with a set of normative concerns.
But Saez & Zucman are admirably clear that they're starting with a set of normative concerns.
I don’t think I’ve seen the #BPEA room more crowded than it is for Saez and Zucman’s paper, suggesting there’s a lotta interest in the economic analysis of wealth taxation.
brookings.edu/bpea-articles/…
brookings.edu/bpea-articles/…
For a Warren-style tax on the wealthy:
Tax base = total wealth x top wealth share x (1 -evasion rate)
Total wealth = 5 x national income (up from 3x)
Top 0.1% wealth share = 20% (up from around 7% in 1980)
Evasion rate = ... just kidding; I’m expecting a brawl about this. #BPEA
Tax base = total wealth x top wealth share x (1 -evasion rate)
Total wealth = 5 x national income (up from 3x)
Top 0.1% wealth share = 20% (up from around 7% in 1980)
Evasion rate = ... just kidding; I’m expecting a brawl about this. #BPEA
Here’s @gabriel_zucman’s thread summarizing his paper with Saez:
Next paper at #BPEA, by Stephanie Aaronson, @marydalyecon, William Wascher and David Wilcox looks at the cyclicality of labor market outcomes across demographic groups.
brookings.edu/bpea-articles/…
I was a discussant, so thought I might show a few slides...
brookings.edu/bpea-articles/…
I was a discussant, so thought I might show a few slides...
The differences in the cyclical sensitivity of unemployment by race are just striking. A deep recession that might push the white unemployment rate up to 10% can cause the black unemployment rate to rise as high as 20%. Business cycles have very different implications by race.
Interestingly enough, there aren’t big differences by gender. It used to be the case that women’s unemployment was more responsive to the business cycle, but in the great recession, it was men’s unemployment that rose then fell most dramatically.
Last paper for the day at #BPEA, tries to measure u* (Crump, Eusebio, Giannoni and Sahin). There’s a lot here, so lemme skip to the bottom line, which is that the equilibrium unemployment rate might be around 4%.
brookings.edu/bpea-articles/…
brookings.edu/bpea-articles/…
Discussant makes an interesting observation: If the slope of the Phillips Curve is shallow right now—and latest estimates suggest that it is—then errors in estimating U* (and hence the unemployment gap), has few inflationary implications. It doesn’t matter that much for policy.
Along the way, the discussant dug out a comment I made many moons ago about the near non-falsifiability of the Phillips curve. Re-reading it, this seems like a reasonably good argument... #BPEA
Opening paper at #BPEA, is @LHSummers and @LukaszRachel who begin by juxtaposing two strikings:
Ten-year projections for debt-to-GDP for the US rose from 6% of GDP in 2000, to 105% today. Yet the ten-year real interest rate declined from 4.3% to 0.8%.
brookings.edu/bpea-articles/…
Ten-year projections for debt-to-GDP for the US rose from 6% of GDP in 2000, to 105% today. Yet the ten-year real interest rate declined from 4.3% to 0.8%.
brookings.edu/bpea-articles/…
Implication is that if not for fiscal policy, r* — the neutral real interest rate — would be substantially negative. Secular stagnation might turn out to be a bigger deal than we ever imagined. #BPEA
This likely terrifies central banks for whom the zero lower bound might become an everyday problem. It suggests that policymakers needs to become comfortable at using fiscal policy as a counter-cyclical tool. And with r<g, we need to rethink what fiscal responsibility means #BPEA
Here’s a piece that David Romer and I just wrote for the latest CSWEP newsletter, which we think contains some useful insights for those seeking to make economics a more diverse place.
Begins on p.7, here: aeaweb.org/content/file?i…
Lemme expand a bit on what we found...
Begins on p.7, here: aeaweb.org/content/file?i…
Lemme expand a bit on what we found...
When we took over as editors of the Brookings Papers, we made a conscious decision to try to include more women economists on the program. You can think of this as something of an experiment, and so our note is our attempt to report on the results.
By one measure, we succeeded. The number of women who published in the @BrookingsEcon Papers more than doubled, to a share that somewhat exceeds the share of women in “top twenty” economics departments.
