Editor’s Note

Let the articles speak for themselves.

Karen Dynan, a former assistant secretary of the Treasury, recounts the events that led to the current inflation after decades of price stability. “The price surge does not imply that policymakers were reckless – that a forceful macro response to the Covid-19 crisis was a mistake,” she argues. “After what many saw as an insufficient response to the Great Recession, policymakers were determined not to underreact. Moreover, uncertainty about how the pandemic would evolve and about the economy’s productive capacity going forward complicated plotting a return to stable growth.

“But the experience of 2021-22 underscores an unwelcome reality: even when inflation has been dormant for decades, it can reemerge if demand is pushed too far, too fast.”

Maurice Obstfeld, the former chief economist at the IMF, considers the prospects of Argentina’s libertarian president, Javier Milei, in his battle to pull that country out of a century of economic dysfunction. “President Milei is in a relatively strong political position and has accomplished reforms unprecedented in the Argentine context,” he writes, “but Argentina’s policy framework remains too vulnerable to reversals. Renewed pressure loom in the forms of rising unemployment, lagging government revenue, and persistent corruption.

“With a presidential election due in 18 months, Milei faces a credibility trap. Should the success of his program become widely doubted, his political prospects could deteriorate, making the return of Peronism more likely – a prospect that damages current economic performance and adds to fears of future inflation.”

Cliff Winston, a senior fellow at Brookings, tells the story of how the ballooning cost of autos foreshadowed affordability discontent. “True luxury cars were always beyond the reach of the masses,” Winston writes. “What’s changed is that cheap budget vehicles have been driven to the brink of extinction.”

“So many of the problems that seem to contribute to the affordability malaise result from government failure,” he adds. “In the auto industry, government failure has allowed automakers to exploit tariffs to the detriment of consumers. The problem could be solved by an administration willing to prioritize consumers over producers, but no administration has yet been willing to step forward.”

Bill Frey, a demographer at Brookings, speculates on the societal impact of the Baby Boomers reaching their ninth decade: “This year, America’s first boomers – born between 1946 and 1964 – are reaching the age of 80. This giant cohort numbering 79 million at its peak is making a huge, distinct impact on many aspects of the nation’s social, cultural and economic life.”

“That will certainly include altering senior lifestyles and living facilities,” he also points out, “along with raising their voices about the need for better health care. But they also have more in common with today’s youth than the seniors they are replacing. They are the most racially diverse older generation to date, as well as the most receptive when it comes to the changing roles of women. We should keep an open mind about the possibility that the former ‘don’t trust anyone over 30’ generation will again draw on its vast experience by building bridges with today’s younger generations.” Greg Auclair and Adnan Mazarei at the Peterson Institute for International Economics take a long, hard look at President Trump’s America First investment gambit with the goal of separating the hype from the substance.

“Even if some investments do not materialize,” they conclude, “the arrangements still mark a shift in the global investment regime. For decades, the international system rested on the assumption that cross-border capital flows should be driven primarily by commercial considerations mediated by markets. That assumption is weakening.”

“Some national security concerns are valid. But the return of industrial policy also raises familiar concerns around inefficiency, favoritism and corruption. At a time when economic governance in the United States is already under strain, the downside risks are significant.”

John Austin, a senior fellow with the Eisenhower Institute at Gettysburg College, cuts through the conventional rhetoric to ask what should be done to bolster US manufacturing. “A pragmatic pro-manufacturing, pro-growth agenda needs to be fashioned from elements that have worked very well for America in the past,” he writes.

“First, give the private sector the leeway to compete on quality and cost in an increasingly interdependent world – and don’t try to put globalization back in the bottle. Meanwhile, accept there is a legitimate (but limited) role for government to promote the national interest through intervention in markets. In particular, government needs to provide “public goods,” whose return cannot be fully captured by private actors.”

Brian Feinstein, a professor at the Wharton School, challenges the collective wisdom that government initiatives to tilt the playing field in favor of small business makes economic sense. “The costs of this regime are significant and often overlooked,” he argues.

“Legal preferences for small firms undermine statutory objectives, channel public resources toward less valuable uses, generate unnecessary red tape – and, ironically, undermine firms’ incentives to grow to efficient scale. Meanwhile, the usual justifications for these preferences – that they create jobs, spur innovation and counter concentrated political power – are open to serious question.” And look, there’s even more! Check out this excerpt from Eswar Prasad’s new book, The Doom Loop: Why the World Economic Order Is Spiraling into Disorder. The title, alas, says it all.

Happy perusing. — Peter Passell