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Olivier Blanchard

@ojblanchard1

13 Nov

1. Twitter is great in allowing you to get your thoughts out quickly. Sometimes too quickly. You have second thoughts. The world changes. I want to take three covid forecasts that I got wrong:

2. I thought the second wave would be associated with more uncertainty: Worries that a limited lockdown might not decrease the infection rate enough, worries that the end might trigger a third wave.

3. I am not so sure. The news about the vaccine go the other way. It looks like there is light at the end of the tunnel. Uncertainty is probably less, despite the intensity of the increase in infections in the short run.

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Olivier Blanchard

@ojblanchard1

29 Oct

Some quick reactions to the new lockdowns in Europe.

1. The degree of uncertainty is much higher than in the first wave. In the first wave, the (incorrect) belief was that the infection rate would quickly decrease and remain low thereafter.

2. This time, whether we can quickly decrease the infection rate, and whether we can keep it low thereafter, is much more in question. This is likely to adversely affect spending behavior by firms, and by workers.

3. The current plans are to allow more activity than in the first lockdown, for example by keeping schools open and thus allowing parents to go to work (whether this will have to be tightened is again uncertain), so the supply side effects may be smaller than in the first wave.

Read 10 tweets

Olivier Blanchard

@ojblanchard1

3 Sep

Quick reactions to the French economic plan released today.
The three legs, climate, competitivite (helping firms), cohesion (helping people) make good sense. The amount committed, 100 b euros on top of what has already been spent is substantial. But (there is always a but...)

Help to firms is largely in the form of a decrease in taxes on output (``impots de production’’). These are indeed not great taxes, as they must be paid independent of profit. Removing them is good for firms and for employment. But what is needed for the time being is different.

I believe there were better ways to do it. For example, wage subsidies (which Jean Pisani-Ferry, Thomas Philippon and I argued for) to COVID affected firms, the approach taken in the UK, or paying for fixed costs for COVID affected firms, the approach taken in Germany.

Read 8 tweets

Olivier Blanchard

@ojblanchard1

8 Jun

When the virus struck, the priority was to protect fragile firms and workers. As the lockdown ends, the focus must change from protection to reallocation. How it should done is the topic of a piece by Jean Pisani Ferry, Thomas Philippon and me. bit.ly/3dIiHCY

The challenge is to do it in an environment of high unemployment, and high uncertainty both about the course of the virus and the end of physical distancing constraints, but also about which sectors will contract and which sectors will expand in the medium run

We argue for the following architecture. For workers, extending the duration of unemployment benefits. Where it exists, maintaining the partial unemployment schemes, that have kept the link between firms and workers, and allowed for a smoother distribution of funds.

Read 10 tweets

Olivier Blanchard

@ojblanchard1

13 Mar

A 11-piece thread on Italy, the ECB, and the need to avoid another euro crisis. Start with the basics, the first two points being the most important.

The Italian government is behaving extremely responsibly—more so than many. It is putting health considerations and the control of the epidemic ahead of short term economic considerations---exactly as it should.

This commitment will have large economic and fiscal costs. But, at the interest rate that prevailed until yesterday (less than 1%) however, even a large increase in the debt ratio, even of the order of 10% to 20% does not put debt sustainability into question.

Read 11 tweets

Olivier Blanchard

@ojblanchard1

24 Feb

1. The next few days will likely see an avalanche of analyses of the economic effects of the corona virus. Here are a few points, building on a previous thread. Basic point: Anti virus measures aim at the core of economic organization, the division of labor.

2. We have to assume that we shall see repeated and localized pockets of infection around the world for some time to come (maybe until vaccines come on line). These in turn will lead to quarantines, border closures, and disruption of economic relations.

3. Because the remedies are extreme, even small risks of infection and of death can have a drastic effect on economic activity.

From a macro viewpoint, it is an unusual supply shock. What can policy do?

Read 6 tweets

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