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.
On Cutting Tax Expenditures I agree with the proposal completely. With regard to the politics, one would have to see whether the phrase “cut tax expenditures” polls more like the phrase “cut expenditures,” which I assume polls well, or like the phrase “raise taxes,” which of course polls horribly. I have no idea. With regard to the merits of the idea as economic policy -- in a context where strong measures to reduce the budget deficit will be necessary in coming years -- Len Burman is completely right. Agreeing to the general principle is easier than agreeing… Read more
Updated at 12:29 p.m. on Dec. 23. I agree with Greg that the dominant empirical fact about investment is its procyclical volatility (the main reason investment has been depressed for the last two years is that the economy has been depressed), and also that the recent credit crunch made it worse. But I don't agree with a third item on his list: "the policy environment seems adverse to business." As in many areas, it is when we get to the politics that I disagree. Greg cites trade policy, fiscal imbalances, and energy costs, in support of his proposition that the… Read more
I agree with Donald Marron, that most of the greenhouse gas emission permits should be auctioned off, not given away to firms (which would confer windfall profits). This is what President Obama originally proposed last February, but it is not in the congressional climate change legislation. Raise the gas tax. Cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency. This is another measure that Obama proposed when he first took office, but that was voted down. Continue to cut expensive weapons systems that the military doesn’t want, but are kept only because the suppliers are… Read more
Updated at 3:17 p.m. on Nov. 16. I do think that measures such as the Contingent Convertible Bonds would be a useful step. (I am pleased to agree with Charlie Calomiris on this one.) Some argue that it would be hard to know when to invoke the contingency clause. It strikes me that this argument largely vanishes when one realizes that the clause would of necessity be invoked by the time we got to the stage of a Bear Stearns or Lehman Brothers bankruptcy. CoCos would not go very far in themselves toward comprehensive reform of the financial system, if… Read more
Updated at 9:59 a.m. on Nov. 9. I am astounded at the claim of my friend Charlie Calomiris that government spending under recession circumstances doesn’t create jobs. Does he think that the increase in demand doesn’t raise aggregate output, because the federal debt crowds out private production? That would be hard to believe, at a time when the Fed is keeping interest rates at zero, and long-term interest rates are also quite low. The lecturing to Democrats about the evils of the national debt takes real chutzpah, after Presidents Reagan, Bush I and Bush II increased it ten-fold during times… Read more
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
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