Jeffrey Frankel, Professor of Capital Formation and Growth, Harvard University
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Jeffrey A. Frankel is James W. Harpel Professor of Capital Formation and Growth. He directs the Program in International Finance and Macroeconomics at the National Bureau of Economic Research, where he is also on the Business Cycle Dating Committee, which officially declared the 2001 recession. Nominated by President Clinton in 1996 to be a member of his Council of Economic Advisers, Frankel's responsibilities included international economics, macroeconomics, and the environment. Before coming to Harvard in 1999, he was Professor of Economics at the University of California at Berkeley, having joined the faculty in 1979. Past appointments also include the Federal Reserve, Institute for International Economics, International Monetary Fund, University of Michigan, and Yale University. His research interests include international finance, monetary policy, regional blocs, and international environmental issues. Books include American Economic Policy in the 1990s (2002). Born in San Francisco in 1952, he graduated from Swarthmore College in 1974, and received his economics PhD from MIT in 1978.
The question “how did economists get it so wrong?” is a difficult one to answer, but Paul Krugman has it exactly right. In this case I would only add that he is modest in skipping over a point: during Japan’s lost decade of growth in the 1990s he forcefully made the inference that a severe economic breakdown was possible in a modern industrialized economy – a breakdown that was both reminiscent of the Great Depression and was outside the ken of modern macroeconomic theory. But macroeconomics went on as before. Even the cartoons are good (except that I have… Read more
Martin Feldstein and others predicted that the tax-cut component of the fiscal stimulus package -- precisely because much of it would be saved -- would have much less expansionary bang-for-the-buck than the spending component of the stimulus package. (Bang the for the buck in this case could be defined as demand stimulus divided by budget cost.) But President Obama had to get those last three (Republican) votes in the Senate, and those three Senators insisted on raising the tax cut component and lowering the spending component. Their motivation presumably was to mollify their fellow Republicans, many of whom still claim… Read more
I concur with Gale and Prante that a clearly more efficient way of getting the necessary revenue would be to eliminate employers' tax exemption for health care benefits, at least for upper income workers, as proposed by Furman, McCain and others. And another would be auctioning off most emission permits rather than giving most of them away, at least after the first five years or so. It is just another case of good economics getting steamrollered by politics.… Read more
The famous Paradox of Thrift holds now more than ever: what is good for the individual, and for the economy in the long run -- high saving -- is bad for the economy in the short run, during the current worst-post-30s recession, when we need a boost to demand. Americans could not have gotten the timing worse. During the years 1983-2008 the economy grew well, and by the end the first baby boomers had reached their peak earning years. Yet households’ saving rates fell almost to zero in 2005-07. Meanwhile the government ran record deficits, reducing national saving even more (in… Read more
If tax reform were really freed from political handcuffs, then the most important place to get more revenue is taxes on environmental externalities. An overwhelming majority of economists agree with this proposition -- for example the members of the Pigou Club dreamed up by Greg Mankiw (who was chair of President Bush's Council of Economic Adivsers). Most compatible with efforts on global climate change would be a cap-and-trade program on emissions of CO2, with the permits auctioned off (except for some limited free distribution in the short run to adversely impacted industries). But I would be equally happy with a carbon… Read more
Simon Johnson's provocative essay makes a lot of good points. The analogy between US policies and emerging-market country policies has been evident for a long time, and yet not taken seriously until now. But I question whether the entire explanation for imperfect US policies in the past -- much less the current response -- is regulatory capture by the financial sector. It is ironic that these charges are coming at a time when both the Chairman of Federal Reserve and the Secretary of the Treasury are men who, so far as I know, have not spent any part of their respective… Read more
It goes without saying that most international summit meetings are long on photo-opportunities and short on substance. Last Thursday's G-7 meeting did have genuine substance, particularly with regard to expanding the role and resources of the IMF. The new SDR allocation is perhaps the biggest decision of substance: those observers who have proposed such a step in the current international crisis, or in past international crises, have usually been dismissed as pipe-dreamers (John Williamson, Dani Rodrik, George Soros, Joe Stiglitz...). In addition, there seems to have been some forward movement on international regulation of the financial sector, as the Europeans wanted. Although President Obama… Read more
The trick is to combine substantial effective short-run fiscal stimulus in 2009 and, probably, 2010, with a return to fiscal sustainability in the longer run -- and preferably not to wait until the long run has arrived to put in place specific measures that will move operate in this direction. The motivation is not just to try to prevent a fiscal disaster five or ten years from now (with dollar crash), but also to make sure that an incipient recovery (say, a year from now) is not aborted by a rapid rise in long term real interest rates. Only by… Read more
First, Inflation-Indexed bonds seem to me a clearly undervalued asset (against a background where nobody knows whether most assets have hit bottom or not). Using the conventional break-even approach, TIPs imply an extremely low long-term US inflation rate. That doesn't even take into account the asymmetric form of their indexation which makes them a one-way bet: their nominal value rises if inflation is positive, but does not fall if inflation is negative. Surely the market is not correctly pricing them. One implication is that TIPs cannot be relied upon as an indicator of expected inflation. Another is that we should all buy them. (I think… Read more
The most urgent economic riority is boosting demand, to moderate what is already a severe recession. Martin Feldstein argues that very little of the tax rebate earlier this year was spent, precisely because it was explicitly temporary, so that households rationally used the money to raise their saving rate (more precisely, in most cases: to pay off some of their troublesome debts). Yes, eliminating the payroll tax on lower-income workers would indeed be a better-targeted way of achieving the objective, especially it were made permanent rather than a "holiday" (not that anything is permanent in tax policy). Beyond from the… Read more
Paul Krugman is right that the economy needs fiscal stimulus now -- a combination of spending (particularly on projects that can both start up in the short term and be useful for the long-term) and tax cuts (particulalry for the lower 95% of workers, as the President-Elect says). He is right that we don't have to worry about crowding out of private investment via higher interest rates at the moment. Getting the economy moving is the priority. But a few years down the road we will have to worry a lot about the legacy of huge deficits left from the… Read more
As is widely known, the 2001 and 2003 tax cuts were heavily skewed toward the top income brackets and away from lower-income American workers. I couldn't agree more with the emphasis that President-elect Obama's has placed on reversing that tilt. I would not do it solely in the name of equity, as so many Democrats do, or even in the name of maximizing the propensity to spend in a time of recession, though that also belongs on the list. I would emphasize also incentives: the importance of reducing the effective marginal tax rate on low-income workers, which currently is often… Read more
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