The inadequate response to the Great Recession reflects policymakers'
acceptance of Milton Friedman's analysis of the Great Depression. And yet the
dominance of Friedman's monetarism has less to do with the evidence supporting
it than with the fact that economics is all too often tainted by politics.
With China's creation of the new $50 billion Asian Infrastructure Investment
Bank, most of the debate has centered on the futile US effort to discourage
other advanced economies from joining. Bu the real question is why multilateral
development lending has so often failed, and what might be done to make it work
"With US commitments unhonoured and US-backed policies blocking the kinds of
finance other countries want to provide or receive through the existing
institutions, the way was clear for China to establish the Asian Infrastructure
Investment Bank. "
The dynamic general equilibrium (DGE) approach is the dominant methodology in
macro today. I think this is so because of its power to organize thinking in a
logically consistent manner, its ability to generate reasonable conditional
forecasts, as well as its great flexibility--a property that permits economists
of all political persuasions to make use of the apparatus.
If we recognize the need to address the trade deficit, and the centrality of the value of the dollar, then it is mind-boggling that the Obama administration would not have sought to include rules on currency in the TPP.
We find that while the potential gain from tariff reduction on the typicalU.S. export or import is small (that is, for the average trading relationship across all products and countries), potential gains for a small subset of products and partners may be quite large.