Archive for category: Washington Post

The cancer of antisemitism is spreading. Colleges must take the right stand.

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Lawrence H. Summers, a Post contributing columnist, is a professor at and past president of Harvard University. This column is adapted from remarks delivered at the Harvard Medical and Dental School Shabbat Observance on Nov. 10.

We are, I am convinced, at a moment of moral and mortal peril in the world and in university communities like my own. I will not spend time here detailing Hamas’s evil barbarism or the malevolence of its sponsors. Many others have done that well, including President Biden.

My focus is much closer to home. For more than two decades, since I spoke of antisemitism in effect if not intent in response to the Divest Israel movement while serving as Harvard’s president, I have been alarmed. More recent developments — from Harvard’s student newspaper’s endorsements of the boycott-divest-sanction (BDS) movement, to testimonials by Israeli students regarding in-class discrimination, to vile social media posts — have only heightened my concern.

Even so, I am shocked and appalled by what I have seen on university campuses since Oct. 7. I should have raised my voice louder. It is not a mistake I will make again.

We come together at a moment of danger.

Antisemitism is a cancer — a lethal adversary best addressed as rapidly, thoughtfully and aggressively as possible.

Harvard and many other elite universities have not been swift in their response. Though some universities have done better. After a long month of delay, the kinds of statements that many of us have been insisting on from the first day have come at last from university leaders.

This is welcome, but any treatment plan is only a first step toward recovery. I want to reflect on the road ahead.

Recently, Tamara Bockow Kaplan of Harvard Medical School spoke to me indignantly and accurately about a number of places where antisemitism issues were being treated less seriously and aggressively than parallel issues of prejudice.

Then Kaplan relayed something I can’t get out of mind — that not long ago, she had come to the bedside of an unconscious young man with swastika tattoos on his body. She told me how she did a double take, saw his crying mother, and then proceeded to do what was right and treat the young man.

How are we now to reconcile our hurt, our fear, our rage with our responsibility?

Not by doxing students and inciting mobs to threaten even those whose views we abhor most.

Not by supporting violence that touches innocents beyond that which is absolutely necessary for successful and enduring self-defense.

Not by seeking to shut down criticism of governments or countries to which we feel a strong connection.

Not by calling for guilt by association or discipline or humiliation of anyone without due process.

Not by suggesting ours is the only group suffering injustice or rightly feeling under threat.

To do any of these things would be in some way to lower ourselves to the level of those hurting us most. That is what they most want. We must not and will not give it to them.

How, then, to go forward? Spreading cancers cannot be contained with limited, casual or partial responses. The stronger and more vigorous the response, the greater the prospect of a return to normal.

Though intellectual communities often pride themselves on being at the vanguard of justice, this is not always the case. German universities were not just passive but on the wrong side in the 1930s. American universities that regarded themselves as progressive were in the vanguard of the eugenics movement.

Today’s moment is different, but history is no less cautionary. It is the responsibility of university leaders — deans, presidents and outside trustees — while leaving aside the cut and thrust of politics and policy, to assure that universities are sources of moral clarity on the great questions of their time.

It is shameful that no honest observer looking at the record of the past few years, and especially at the last month, can suppose that universities’ responses to antisemitism have paralleled in vigor or volume the responses to racism or other forms of prejudice.

For example, too often, those most directly charged with confronting prejudice — Offices of Diversity, Equity and Inclusion — have failed to stand with Israeli and Jewish students confronting antisemitism, the oldest prejudice of them all. Some university DEI officials have themselves taken positions that are widely viewed as antisemitic.

With recent leadership statements at Harvard, I hope and trust this is changing, though there is much to be done if consistency is to be achieved in what rhetoric is condemned, what policies are enforced and what standards of discipline are applied.

Double standards are unacceptable. I believe, however, that those of us concerned with prejudice against Jews make a grave mistake if we embrace the approach of identity politics and seek only to be an equally recognized identity. Excesses of identity politics have harmed the academy by denigrating intellectual excellence, interfering with open debate and inhibiting the unfettered search for truth. Double standards must be avoided, but the right approaches center on universal principles, not group-specific policies. Our approach must instead be an insistence on seeing past false equivalence to moral clarity as a central component of education.

Make no mistake. To do otherwise is not to have antisemitic intent. But it risks antisemitic effect.

This means recognizing the difference between wanton acts of terrorism and defensive responses.

This means seeing that singling out Israel with calls for its annihilation is Jew hatred.

This means acknowledging the truth often attributed to Orwell: “People sleep peacefully in their beds at night only because rough men stand ready to do violence on their behalf.”

This means pondering that there is evil in the world and considering with the greatest of care and seriousness how to respond.

If they aspire to be places of moral leadership, universities must seek not the soft understanding that glides over questions of right and wrong. Rather, the hard comprehensions that grave threats demand.

In a way I would not have imagined even a few years ago, I believe the United States, Israel and their allies are engaged in a profound, even existential struggle. Even a casual examination of the state press in Russia or China or Iran will demonstrate that antisemitism is intertwined with totalitarianism.

These might not be easy years for our country or our people. The intellectual and moral challenges with which universities must contend and the extent of internal division within them are greater than at any time since I came to Harvard 40 years ago.

We must all do our part. Leadership will be essential, but I am so encouraged by the talent, humanity and moral seriousness that still exist across American college campuses.

We will not just endure but prevail by, yes, insisting on what is right but also carrying on with our vitally important work in the library and the lab, the classroom and the common room.

A world on fire: How the G-20 can douse the flames

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By Bono and Lawrence H. Summers, The Washington Post

Bono is the co-founder of ONE, a global campaign to end extreme poverty and preventable disease, and the lead singer of the rock band U2. Lawrence H. Summers, a professor and past president at Harvard University, was U.S. treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010.

Wildfires of all kinds.

This has been the hottest summer, not just in both of our lives, but possibly in 120,000 years, according to leading scientists. Yet it is likely to be the coolest we’ll experience for the rest of our lives. It’s a startling thought and one to stop on before checking the exits — if we can find any.

That means more heat, more drought and more wildfires like this summer’s devastating blazes in Maui and the Mediterranean basin. But it also means more pressure on a global economy already feeling the strain.

Because the climate crisis unaddressed will become development in reverse, undoing decades of social and economic progress in regions that did nothing to cause it.

This is a time to plan, not panic. To organize, not agonize. There are strategies we can adopt before the next time we hear someone shout “Fire!,” and we realize it’s the global economy itself that has gone up in flames.  READ THE FULL WASHINGTON POST COLUMN

What Jerome Powell should say on inflation

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On Friday, Federal Reserve Chair Jerome H. Powell will give his third Jackson Hole address since inflation emerged as a major macroeconomic issue. These addresses are significant because they frame the monetary policy debate for the coming year. In his 2021 keynote, Powell supported markets by emphasizing why he thought inflation was transitory and well controlled — positions the Fed would abandon in the face of overwhelming evidence a few months later. Last year, he surprised and depressed markets by signaling the Fed’s dominant concern with inflation and its determination to keep tightening even at risk of slowing economic activity — judgments that have withstood the test of time.

Today, Fed rates are about 2 percent higher than markets or the Fed expected a year ago. Despite surprisingly high rates and a banking crisis in the spring, growth and employment have been strong, and inflation — while still well above the Fed’s 2 percent target — has come down substantially. There is intense interest in how Powell interprets these results, and even more desire for signals regarding future policy.

Here is what I hope to hear from Powell on Friday. More important, here are the perspectives that should inform Fed policy going forward.

First, I hope Powell emphasizes that what credibility the Fed enjoys is a consequence of its reversing course and taking resolute action to raise interest rates, and not an argument that it can afford to reduce its concern about inflation. At this time two years ago, the Fed dot plot (with the support of most commentators) was predicting zero rates into 2023. If the Fed had not repeatedly adjusted its policy path, inflation would be much more challenging today.

Second, I hope for a clear rejection of suggestions that inflation is securely under control. No serious observer ever believed that underlying inflation was as high as 6 percent, given the many specific and unusual factors leading to price hikes last year. And almost everyone agrees that it is still running well above the Fed’s 2 percent target, especially because current readings are likely depressed by deflation in some of the sectors where prices spiked last year.

It is highly welcome — and not what I predicted — that underlying inflation has come down by about 1 percentage point, even with very low unemployment. But this good news far from assures victory over inflation. A continuation of recent trends cannot be taken for granted. Wage inflation on the monthly Bureau of Labor Statistics measure was higher last month than last quarter, and last quarter was higher than last year. Union wage settlements in highly visible areas such as parcel delivery and airline piloting might establish generous norms.

Further grounds for concern come from major labor cost pressures in the health sector, upward adjustment in consumer price index health insurance measures, rising gas prices, and climate and geopolitical influences on commodity prices, along with growing indications that residential rentals will start to rise in cost. It is sobering to recall that the shape of the past decade’s inflation curve almost perfectly shadows its path from 1966 to 1976 before it accelerated in the late 1970s.

Third, I hope Powell will recognize that the dramatic change in the U.S. fiscal position has major implications for monetary policy. Most obviously, major increases in demand coming from federal deficits (along with mandated and subsidized investments in green technology and climate resilience) likely mean that R-star — the so-called neutral interest rate — has risen substantially and, given a deteriorating fiscal trajectory, probably will rise further. These sources of increased demand are very likely major explanations for why the economy has remained so robust despite radical increases in interest rates. This means interest rates have to be considerably higher than they were previously to achieve any given level of restraint. I do not regard as plausible the Fed’s stated view that the long-run neutral interest rate is 2.5 percent.

There is an additional aspect that has received less attention. The Fed’s use of QE — quantitative easing — policies, whereby it creates floating-rate bank reserves and buys long-term bonds, had the effect of shortening the maturity of the debt offered by the government to the market at just the moment when long rates were very low. For the foreseeable future, the Fed will be losing tens of billions of dollars a year (ultimately at taxpayer expense) as the rate it pays banks far exceeds what it earns on past purchases of long-term bonds. Now, the Fed is reducing its risk and lengthening the maturity of outstanding federal debt by selling off long-term bonds. Unless it interferes with financial market functioning, this policy should be maintained. Given our problematic debt trajectory, the United States should be terming out its debt.

Fourth, the chairman needs to respond explicitly or implicitly to the growing chorus suggesting that the Fed should adjust its inflation target. For years, the Fed has been firm in its commitment to 2 percent. Of course, there are legitimate academic arguments about the merits of having a numerical target and, if so, what it should be. But timing and context are crucial. The Fed’s preferred price index has risen 7 percent faster than its target since January 2021. Debt and deficits are at record levels, and a presidential election is fast approaching. A central bank’s most important asset is its credibility. Loss of that risks higher inflation, interest rates and ultimately unemployment, as in the 1970s.

Maintaining credibility requires the Fed making clear — and without hints of dissent from the administration — that the commitment to achieving 2 percent inflation is absolute both now and for the foreseeable future.

Fifth, I hope the chairman will remain agnostic about the future path of policy, even as he emphasizes the importance of containing inflation. Neither the Fed nor anyone else can be confident in their ability to forecast the economy. I am aware of no evidence that ever-more-frequent and specific central bank communication reduces volatility, and the gyrations that frequently coincide with post-Fed Open Market Committee news conferences suggest otherwise.

What we know now is that inflation is still too high, labor markets are tighter than they have been since World War II, fiscal deficits are at near-record peacetime levels and stock prices are high. This suggests a need to recognize that it might well prove necessary to hit the brakes some more — and that it might well be a long time before it is prudent to cut rates.

China’s economy is finally hitting a wall

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There can now be little doubt that just as the conventional wisdom way overstated the economic prospects of Russia in 1960 and Japan in 1990, so have China’s prospects been greatly exaggerated in this decade. Indeed, I think there is a good chance that, measured at market exchange rates, U.S. gross domestic product will exceed China’s for another generation.

As with Russia and Japan, this reflects the fact that countries whose growth is driven by super-high capital investment in manufacturing eventually hit a wall. As in those cases, it reflects demographic disaster, with the number of births in China now less than half of what they were seven years ago and marriage rates collapsing. On top of that, China’s export growth engine is stalled by a lack of global willingness to accept more of its production, and its infrastructure and real estate sectors still must work off the massive overbuilding of recent years.

In Russia and Japan, tremendous technology — exemplified by Sputnik in the case of the Soviet Union and electronics leadership in Japan — was not enough to prevent relative economic decline. The same will likely be true in China, even if it ends its corrosive political interference with top companies. What does all this mean for the United States? No one should conclude that we can be complacent about the Chinese geopolitical challenge. Indeed, as Russia’s behavior in Berlin, Cuba and Eastern Europe during the 1960s illustrates, nations that see the economic route to glory foreclosed can become irrational and dangerous.

It is not Xi’s intention to wish us well; he does not seek to be slotted into the global order on our terms or desire to maintain current balances of power. Our buildup of alliances needs to be complemented by increased national security spending and firm signals that aggression will not be tolerated.

At the same time, however, we must be careful that valid security concerns do not lead to economic policies that provoke the very kinds of aggression that worry us most.

Policies that limit commerce with China are surely necessary in some areas on national security grounds. But contrary to what is often asserted by advocates, these policies exacerbate inflation, reduce the purchasing power of middle-class incomes and interfere with American competitiveness.

To build on national security adviser Jake Sullivan’s recent formulation, if the United States is going to fence off some “yards” of its economy from China, yards being small is at least as important going forward as fences being high.

The affirmative action ruling is big. Now elite colleges need to think bigger.

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I was sorry but not surprised to see Thursday’s Supreme Court decision disallowing affirmative action in college admissions. It is ironic that a court that regards itself as conservative has taken an action so radical in terms of upsetting long-standing practices and expanding federal power over private institutions. Unless universities now respond dramatically and innovatively, the likely result will be degradation of an American university system that is the envy of the world.

Much of the strength of our university system derives from its pluralism, with fierce competition among institutions large and small, public and private, sectarian and nonsectarian, specialized and liberal-arts oriented, research or teaching focused. It is crucial to allow private institutions to set their own course in admissions and other matters essential to their missions unless bright red lines such as segregation or defrauding students are crossed.

Further, as former president Barack Obama’s powerful statement this week on his own experience reminds us, admissions policies focused beyond the test scores that dominate in most other countries have allowed private schools to make great contributions to social justice in the United States.

There is risk following this week’s decision that educational excellence will be set back. To say admissions policies should not be based wholly on test scores is not to say test scores should have no role. If schools take steps such as abolishing testing requirements or emphasizing criteria apart from academic performance to preserve diversity, the result is likely to be a diminishment in how much knowledge they can impart and ultimately a reduction in their contribution to society.

What is done is done, however, and a deep rethinking is now needed. After this earthquake from the court, I hope that elite institutions will broaden their focus from diversifying the racial composition of their ivory towers to additional dimensions of diversity and broadening their commitment to opportunity and social justice.

While I supported affirmative action and was heavily involved as university president in writing Harvard’s brief in the landmark 2003 affirmative action case Grutter v. Bollinger, I have always been uncomfortable with admissions policies that substantially favor the prep-school-attending minority children of wealthy parents with Ivy League degrees over poor kids from disadvantaged backgrounds with access only to substandard public schools. Years ago, Obama expressed a similar sentiment when he made clear that he did not think that his children should benefit from affirmative action policies.

Here is the ambitious program that follows from these considerations. First and most straightforwardly, elite universities should eliminate preferences for legacy applicants, take a hard look at admissions preferences for those who excel in “aristocrat sports” and resist being impressed by those who have benefited from high-priced coaching through the admissions process.

Elimination of early decision and early admission options would also make the process fairer to applicants from less-sophisticated and -advantaged families.

These steps would open up many admissions slots for which most poor and minority applicants cannot effectively compete at present.

Furthermore, I hope “holistic” admissions policies will move to more explicitly consider family disadvantage in selecting applicants. Finding students who have overcome real disadvantage, rather than judging personality, should be central in admissions interviews.

But there are even more promising avenues to pursue. Selective private colleges and universities enroll a tiny fraction of 18-year-olds each year. Changes in their admissions policies will in turn only affect a small fraction of their classes. So for all the attention they attract, the admissions policies of these institutions have a marginal impact on social justice.

If elite institutions are serious about social justice, they have to think about scale. What except exclusivity is the rationale for not significantly expanding freshman classes as applicant pools explode?

Beyond that, many leading universities have summer and extension schools. Instead of running summer schools and camps for the children of the privileged, with high tuition and limited financial aid, why not create programs for able disadvantaged kids and motivated and eager public school teachers? Technology makes possible extension courses not just for local education but also for the world and not just for young people but also for students of all ages.

In an earlier era, leading universities were deeply involved with strengthening pre-college education. University faculty created advanced placement courses and, in the post-Sputnik era, a range of science curriculums. With the internet, the capacity of universities to support and supplement high school education is immense.

All of us who are part of elite university communities are tremendously fortunate. Indeed, Ivy League endowments have grown dramatically over the past generation. The question for America’s elite institutions is this: Will they define their greatness by their exclusivity, while debating who will be the privileged few? Or will they take truly affirmative action, and use their vast resources and great human and social capital to include as many people as possible?

The moral and legal case for sending Russia’s frozen $300 billion to Ukraine

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Russia’s assault on Ukraine has become a brutal war of attrition — militarily but also economically and socially. Russian President Vladimir Putin recognizes the nature of this struggle. Ukraine, having lost one-third of its GDP, with one-third of its population already displaced and the lights flickering on and off, could win battles and still lose the war.

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The Republicans don’t want to fix the IRS. Here’s how to do it anyway.

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with Natasha Sarin

The current moment is perhaps the most important for U.S. tax administration since the income tax was put in place more than a century ago.

Consider just the past six months: Congress has passed the largest-ever increase in IRS funding; repeal of that funding has become the first legislative priority of the new Republican House majority; and the IRS has been tasked with implementing major novel tax provisions to address the climate crisis. Now, the agency faces an imminent leadership transition.

We both have been engaged with issues like these as government practitioners and as analysts of tax administration (Sarin until recently as Treasury’s counselor for tax policy and implementation, Summers previously as deputy treasury secretary and treasury secretary, and in joint research). For those weighing the future of the IRS budget and those who would shape the agency in the years ahead, we offer five observations.

First, even after the $80 billion investment in 2022’s Inflation Reduction Act, the IRS is in much greater danger of being under- rather than over-resourced.

The IRS has the oldest IT system in the federal government — so much so that systems are written in COBOL and paper returns continue to be transcribed by hand. Each year, more than 260 million returns are filed, and the IRS serves every American household; in comparison, JPMorgan serves about half that but annually spends 28 times more on modernizing its already state-of-the-art technology. It is no surprise, then, that millions of returns filed during the pandemic still have not been processed.

Further, today the IRS has fewer field agents to do complex tax examinations than at any time since World War II. As a result, audit rates for millionaires went down by more than 70 percent over a decade. Providing the IRS resources was a vital first step toward improving the agency, but the task at hand is large.

Second, recent information has strengthened the case that the payoff for investment in tax collection is enormous.

In past work, we have shown that an investment in the IRS similar in size to that of the Inflation Reduction Act would generate more than $1 trillion in additional tax revenue over a decade by reducing the “tax gap” — the difference between owed and paid taxes. But this is, in fact, conservative, as recent research has emphasized a point left out of our calculation: Successful audit activity raises future collections from taxpayers who face enforcement activity. If their home office deduction is disallowed once, taxpayers do not attempt the same deduction again.

Third, improvements in tax administration promote fairness.

Reasonable people can disagree about how progressive the tax code should be. But we cannot see any logical argument for rules that operate differently for certain taxpayers. Most Americans have most of their tax liability automatically withheld and earn income in ways that are reported directly to the IRS — for example, interest income on the 1099-INT or dividend income on the 1099-DIV. But the most privileged Americans accrue income in opaque ways that are not subject to this type of reporting and, therefore, are a source of a large percentage of the tax gap.

A crucial priority for the IRS must be enhancing its capacity to ensure that the most financially sophisticated taxpayers meet their obligations. This would require making much greater use of data science, drawing to a greater extent on those with past experience representing these taxpayers and relying more on outside experts to help evaluate taxpayers’ claims.

Fourth, recent revelations from Donald Trump’s taxes underscore the inadequacy and inequity of current IRS capacity.

Obvious flags went unheeded in the former president’s taxes. Generally speaking, forgiven debt is treated as income because if a taxpayer no longer has to pay a creditor $1 million, he is $1 million richer. In his returns, Trump asserted otherwise, a position his own lawyers did not believe was likely to prevail in the face of an IRS challenge. Subsidiaries where sales and expenses exactly offset one another — a stunning coincidence if true — needed more attention, too. But with a single agent largely responsible for this complex case, the IRS reports that it simply did not have the necessary resources to do the work.

Trump is just one prominent example of a much broader issue. The IRS receives more than 4 million partnership returns annually, but opens audits of only 7,500 of them each year. That’s a rate of essentially zero — and an invitation to mischief for those seeking to evade their tax obligations.

Fifth, successful tax enforcement requires that the IRS have the respect and confidence of the American people.

Enhanced enforcement must never compromise strict adherence to the Taxpayer Bill of Rights. And the bipartisan Taxpayer First Act rightfully focused on the importance of improving customer service. This must be on the agenda. It is not acceptable that in 2022 only 13 percent of calls made to the IRS were answered, or that taxpayers have waited eight months for refunds, or that only 2 percent of taxpayers file their taxes for free each year.

With demands coming from many quarters, it will be essential in the years ahead that the IRS not be distracted from its core mission: “Provide America’s taxpayers top-quality service … and enforce the law with integrity and fairness to all.”

Just as the military needs to stay focused on protecting our national security and the Federal Reserve on price stability and full employment, the IRS must deliver on these crucial objectives: create a system of tax administration that is more effective in collecting legally owed taxes, reduce burdens on American taxpayers and uphold fairness for all.

What the Fed should do next on inflation

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The debate over U.S. monetary policy is in a new phase. There is no longer any question that the Fed allowed itself to fall way behind the curve in the second half of 2021 and early 2022, calling its credibility into question. It is equally clear that, as its critics urged, the Fed has since moved aggressively to contain inflation by raising rates and quantitatively tightening. After these steps, along with the president’s releases from the Strategic Petroleum Reserve and some good luck, the Fed has regained its credibility as an inflation fighter.

Unfortunately, all major reductions in inflation in the past 70 years have been associated with recessions. It should come as no surprise that many economists, including me, expect a recession to begin in 2023. Historical experience as encapsulated in the proposition known as the Sahm Rule demonstrates that whenever U.S. unemployment rises by more than half a percent within a year, it goes on to rise by 2 percent. So, if recession comes it is very likely to lift unemployment to the 6 percent range.

What should the Fed do next? The choices from here get harder, not easier, as both the risk of a severe recession and enduring inflation make policymaking more challenging. Chair Jerome H. Powell was right in his Dec. 14 news conference to emphasize that there is no basis for confident economic prediction.

Some of the most stridently made arguments are also the silliest. Doves are wrong to argue that the Fed should obviously pause in raising rates since inflation expectations are low. Hawks who suggest the Fed must keep raising rates until they substantially exceed past inflation neglect the fact that inflation is coming down — much less the possibility that the economy could face a Wile E. Coyote moment in 2023, in which demand collapses.

This could occur as small and medium businesses hit a wall of high-interest refinancing, as markets suddenly focus on what a recession would do to corporate profits, as consumers’ covid-era savings are depleted, or as businesses that have been clinging to their workforces realize they’re no longer necessary. Alternatively, oil prices could spike or geopolitical risks could increase. In all these scenarios, policymakers will wish that monetary policy was not highly contractionary.

The Fed is seeking to balance the risk of stagflation caused by entrenched inflation expectations with the risk of dangerous downturn. It is being supported by the administration, which is doing an exemplary job of respecting the Fed’s independence. My instinct is that the Fed’s approach of stepping more gingerly as the situation becomes more problematic is appropriate.

It is very unlikely that we will have a recession so severe as to drive the underlying inflation rate below the 2 percent target. Hence, overshooting on inflation reduction is not the primary risk, and the Fed is right to emphasize its inflation objective going forward.

This judgment is supported by another consideration. There has been a transitory element in inflation’s recent deterioration caused by bottlenecks in sectors such as used cars. As these bottlenecks ease, and prices return to normal, there will be a transitory deflationary impact hitting the statistics. This must not be confused with enduring resolution of the inflation problem.

Wage inflation is now running at 5 percent or more, and labor markets remain exceptionally tight. Until wage inflation declines significantly or we get clear evidence of a productivity acceleration, there is no basis for assuming that any low rates of inflation observed will be sustained if monetary policy is eased.

Some suggest that a 2 percent inflation target is not appropriate in current circumstances, especially given the costs of meeting it. Powell was right, in my view, to firmly reject this idea. I doubted at the time that setting a numerical target for inflation was a good idea, but now is not the time to switch course. A shift now even to a 3 percent target, let alone a higher one, would set the stage for a stagflationary decade. The 3 percent target would devolve to a floor, as policy eases, with the economy turning down and 3 percent in sight.

A year ago, the policy imperative was altering a monetary policy that was way behind the curve. Today, the greatest low-hanging fruit for policy improvement lies in steps that the rest of the government outside the Fed can undertake. These include tariff reductions, measures to accelerate permitting for energy projects urged by Sen. Joe Manchin III (D-W.Va.), measures to contain health-care and college tuition costs, and procurement practices focused on buying at minimum cost.

Fiscal policy will need to respond if and when recession comes. There will not be room for massive, across-the-board efforts. But now is the time to put in place carefully targeted measures to refund child tax credits, strengthen unemployment insurance and be ready to pull forward federal spending on maintenance and replacement cycles to periods when overall demand is soft.

It is a tribute to the 2010 Dodd-Frank financial regulations that so much monetary tightening has taken place with so little market trauma. But regulators need to be alert to issues of liquidity in a number of markets and to the very substantial divergences that have opened in recent months between public market valuations and the value at which many assets are being carried on private balance sheets. They also need to be conscious of the possibility that well intentioned regulatory safeguards will interfere with liquidity in key markets.

The rest of the world will suffer greatly if the United States does not control inflation and rates ultimately rise far above current levels, as occurred in the early 1980s. Even recent increases in rates and the dollar along with geopolitical dislocations are creating serious problems for many developing countries. The United States should be leading global efforts to resolve sovereign debt problems more quickly and to catalyze much higher lending levels from the International Monetary Fund and World Bank.

Managing inflation and the risk of recession in a way that ensures a soft landing is likely not possible. But managing these risks with maximum care is profoundly important as a foundation for the long-term investment policies that will drive the inclusive prosperity that almost all Americans desire.

Curbing inflation comes first, but we can’t stop there

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The United States right now faces as complex a set of macroeconomic challenges as at any time in 75 years.

That is not the same as saying it faces its darkest economic moment. Our current situation includes strengths such as low unemployment and is by no measure as grave as the 2009 financial crisis or 1970s inflation. What stands out, however, is the number of serious, interconnected problems demanding attention.

Consider the links in this chain of macroeconomic challenges:

First, an economy that even progressives such as Paul Krugman recognize as overheated is operating with a core inflation rate that is close to 7 percent and is not yet declining — with the latest monthly figure exceeding the latest quarterly figure, which in turn exceeds the latest annual figure.

Second, the combination of the adverse effects of inflation and the adverse effects of necessary anti-inflation policies has prompted a consensus prediction of recession beginning in 2023. The most recent Federal Reserve projection suggesting that inflation can be brought down to 2 percent without unemployment rising above 4.4 percent is simply not plausible as a forecast.

Third, the Fed has raised interest rates in a way that markets would have thought unlikely in the extreme only a year ago. Markets are reeling from the shock, with the possibility that normal trading could break down in the Treasury bond market, an event that if unchecked would have significant ramifications for other markets.

Fourth, the global economy is everywhere challenged by rising U.S. interest rates and a dollar exchange rate at record levels against some key currencies. The fallout from the war in Ukraine has also been devastating to many economies. A weak and closing global economy hurts our exporters and markets and dangerously implicates vital national security interests.

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My inflation warnings have spurred questions. Here are my answers.

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I have argued repeatedly that Federal Reserve policy remains dangerously behind the curve in ways that will lead to poor economic performance in the years ahead, and that a rapid change in direction is needed. This view has been challenged from both outside the Fed and within it, including in Fed Chair Jerome H. Powell’s most recent speech. Here, let me respond to the main challenges to my analysis.

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The Fed is charting a course to stagflation and recession

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When the long-awaited process of raising interest rates begins Wednesday, market observers will fixate on the precise words used in the Fed statement and during Chair Jerome H. Powell’s news conference. The focus will be on what they signal about the number of rate increases coming this year and next, as well as the schedule for selling down the bonds the Fed accumulated during the pandemic.

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On inflation, we can learn from the mistakes of the past — or repeat them

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A year ago I warned that “there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflation pressures of a kind we have not seen in a generation.”

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On inflation, it’s past time for team ‘transitory’ to stand down

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There is a wise apocryphal saying often attributed to John Maynard Keynes: “When the facts change, I change my mind. What do you do?” After years of advocating more expansionary fiscal and monetary policy, I altered my view this past winter, and I believe the Biden administration and the Federal Reserve need to further adjust their thinking on inflation today.

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We don’t have to fly blind into the next pandemic

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—by Ngozi Okonjo-Iweala, Tharman Shanmugaratnam and Lawrence H. Summers

We are nowhere near the end of the pandemic. Yet covid-19 is a prelude to more and possibly worse pandemics to come.

Scientists have repeatedly warned that in the years to come outbreaks will be more frequent, spread more quickly and take more lives. Together with the world’s dwindling biodiversity and climate crisis, to which they are inextricably linked, infectious-disease threats represent the primary international challenge of our times.

We cannot avoid outbreaks altogether. But we can sharply reduce the risk of them blowing up into pandemics. What is striking has been our inability to act and invest collectively to do so. We are flying blind into the next pandemic. It could come anytime, from a deadly influenza strain or another pathogen that jumps from animals to humans. It could even strike while the world still struggles with covid-19.

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The inflation risk is real

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The covid-19 chapter in U.S. economic history is coming to a close more rapidly than almost anyone expected, including me. Within weeks, gross domestic product will reach a new peak, and it is likely to exceed its pre-covid trend line before year’s end, as the economy enjoys its fastest year of growth in decades. Job openings are at record levels, and unemployment may well fall below 4 percent in the next 12 months. Wages and productivity growth are increasing.

This is both very good news and a tribute to the aggressive covid-19 containment policies of recent months, as well as to strong fiscal and monetary policies since the onset of the pandemic. Our economy has outperformed those of other industrial countries. U.S. policymakers can take satisfaction from that.

But new conditions require new approaches. Now, the primary risk to the U.S. economy is overheating — and inflation.

Even six months ago, it was reasonable to regard slow growth, high unemployment and deflationary pressures as the predominant risk to the economy. Today, while continuing relief efforts are essential, the focus of our macroeconomic policy needs to change.

Inflationary pressures are mounting from the boost in demand created by the $2 trillion-plus in savings that Americans have accumulated during the pandemic; from large-scale Federal Reserve debt purchases, along with Fed forecasts of essentially zero interest rates into 2024; from roughly $3 trillion in fiscal stimulus passed by Congress; and from soaring stock and real estate prices.

This is not just conjecture. The consumer price index rose at a 7.5 percent annual rate in the first quarter, and inflation expectations jumped at the fastest rate since inflation indexed bonds were introduced a generation ago. Already, consumer prices have risen almost as much as the Fed predicted for the whole year.

“We are seeing very substantial inflation,” Warren Buffett recently observed in remarks typical of business leaders throughout the country. “We are raising prices. People are raising prices to us, and it’s being accepted.”

Fed and Biden administration officials are entirely correct in pointing out that some of that inflation, such as last month’s run-up in used-car prices, is transitory. But not everything we are seeing is likely to be temporary. A variety of factors suggests that inflation may yet accelerate — including further price pressures as demand growth outstrips supply growth; rising materials costs and diminished inventories; higher home prices that have so far not been reflected at all in official price indexes; and the impact of inflation expectations on purchasing behavior.

Higher minimum wages, strengthened unions, increased employee benefits and strengthened regulation are all desirable, but they, too, all push up business costs and prices.

It is possible that the Fed could contain inflationary pressures by raising interest rates without damaging the economy. But in the current environment, where markets around the world have been primed to believe that rates will remain very low for the foreseeable future, that will be very difficult, especially given the Fed’s new commitment to wait until sustained inflation is apparent before acting. The history here is not encouraging. Every time the Fed has hit the brakes hard enough to slow growth meaningfully, the economy has gone into recession.

How much does it matter whether inflation accelerates? In general, increases in inflation disproportionately hurt the poor and are associated with reductions in trust in government. Progressives might consider the role that inflation played in electing Richard M. Nixon in 1968 and Ronald Reagan in 1980.

Jason Furman, chairman of President Barack Obama’s Council of Economic Advisers, recently said that the American Rescue Plan is definitely “too big for the moment,” stating: “I don’t know of any economist that was recommending something the size of what was done.” Excessive stimulus driven by political considerations was a consequential policy error that would be tragically compounded if valid concerns about the economy overheating prevented Congress from making the types of necessary public investments that are the focus of President Biden’s Jobs and Families Plans.

So how best can we contain overheating risks and promote sustainable growth while also making necessary investments in infrastructure, greening the economy and helping low- and middle-income families?

First, starting at the Fed, policymakers need to help contain inflation expectations and reduce the risk of a major contractionary shock by explicitly recognizing that overheating, and not excessive slack, is the predominant near-term risk for the economy. Tightening is likely to be necessary, and it is critical to set the stage for that delicate process. Meanwhile, the administration needs to continue to respect the independence of the Fed as it changes course. Clear statements that the United States desires a strong dollar will also be helpful in anchoring inflation expectations.

Second, policies toward workers should be aimed at the labor shortage that is our current reality. Unemployment benefits enabling workers to earn more by not working than working should surely be allowed to run out in September; in some parts of the country they should end sooner. Re-employment bonuses should be considered, and a major focus should be on promoting mobility and training workers for occupations where labor is short. Where “made-in-America” requirements exacerbate labor shortages and raise prices, they should be reconsidered.

Third, it is essential to make long-term public investments to increase productivity and enable more people to work. It would be a grave error to cut back excessively on public-investment ambitions out of inflation concerns. That is not because of the immediate jobs they create, but because of the long-term increases they generate in productive potential, sustainability and inclusivity. But where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts. Additionally, current spending financed by future taxes might further stimulate an already overheated economy. The opposite — revenue increases ahead of spending, or at least parallel to spending — can ensure more sustainable growth.

The winding down of the covid-19 crisis provides a historic opportunity for taking the next step toward providing for all Americans in an ever more effective and inclusive way. But to avoid squandering the opportunity, policymakers need to accept economic reality. The moment has come to move past emergency policies and fight for our country’s long-term future.

U.S. workers need more power

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By Lawrence H. Summers and Anna Stansbury

Covid-19 has brought into sharp relief the contrast between the experiences of the higher-income Americans who receive deliveries and the lower-income Americans who fulfill them, between those who can work safely from home and those who must expose themselves to risk, often with inadequate protection, between those who have the power to safeguard their health and their living standards and those who do not. More broadly, it has highlighted the long-standing trends in the U.S. economy toward a falling labor share of income, rising income inequality and slow wage growth for most workers — even as corporate stock market valuations and profitability rise.

Economic analysis often ascribes these trends to some combination of globalization, technological change and rising monopoly power. But our research suggests that a more compelling explanation is the broad-based decline in worker power. As workers have become less able to share in the profits generated by their firms, income has been redistributed from employees to the owners of capital. That has contributed to higher income inequality along class and race lines.

The evisceration of private-sector unions is the most obvious example of the decline in worker power. At the peak, one-third of the private-sector workforce belonged to a union; that number is now 6 percent. But other factors also affect the degree to which workers can share in firms’ profits. Because of increased shareholder activism, rising levels of debt, increases in private equity and changing corporate norms, businesses are increasingly run for shareholders rather than their stakeholders. Ruthless management tactics involving precise measurement of workers’ day-to-day activity have become widespread.

Meanwhile, workers at large firms or in highly paid industries (such as manufacturing, construction or transportation) used to earn large wage advantages, as they shared in the profits generated by their companies, but these benefits have declined by half since the early 1980s. An increasing number of workers are outsourced domestically, employed by staffing or temp agencies or misclassified as independent contractors, reducing their ability to share in the profits of the main firm they work for. And the real value of the minimum wage is lower than it was in the 1970s.

Why did this happen? Some portion of the decline in worker power may have been an inevitable outcome of globalization or technological change. But our research — which examines shifts in labor shares and corporate profits across different industries — indicates that changes in policy, norms and institutions are the most important explanatory factors. This view is supported by the fact that the legal and political environment has been tilted substantially in favor of shareholders and against workers since the 1980s, a trend exemplified by the expansion of state right-to-work laws undermining unions’ ability to fund themselves and the increasing corporate use of union avoidance tactics, both legal and illegal. The fact that the decline in unionization, the rise in income inequality and the fall in labor’s share of income have all happened to a greater extent in the United States than in much of the rest of the industrialized world also suggests an important role for U.S.-specific explanations.

What should be done? A traditional economic argument is that policy should let markets function competitively and then rely on progressive taxation and spending to redistribute income afterward. It is this kind of thinking that lies behind advocacy of negative income taxes or, more recently, for a universal basic income. But progressive institutionalists have long argued for pre-distribution alongside redistribution, strengthening worker power by changing the structure of labor market institutions.

We believe both ingredients are required. Strengthening worker power can be an important countervailing force against firms’ dominance in product and labor markets, as argued famously by John Kenneth Galbraith. And it’s not necessarily the case that it is more efficient to reduce inequality through after-the-fact transfers and taxes than by strengthening unions beforehand. After all, taxes create distortions and alter incentives — and moving to a system with more centralized bargaining may actually reduce the distortionary effects of taxation. When something is a big problem — as is inequality in America today — it is appropriate to tackle it from multiple angles.

Of course, there is a risk that by raising wages, such policies might lead to an increase in unemployment. Indeed, our research suggests that the decline in worker power may have contributed to the long-term decline in average U.S. unemployment (until the current crisis). The risk of increased unemployment should not be dismissed lightly, particularly as unemployment disproportionately affects lower-income people and people of color. But it is possible to bolster the power of labor without excessively restricting hiring. There is reason to believe, for example, that allowing bargaining at a broader level than just the individual firm — such as sectoral collective bargaining — would reduce the negative effects of unionization on unemployment. We must also consider the type of unemployment that policies might create; an increase in short-term unemployment as workers spend more time searching for good jobs is less problematic than the development of a two-tier labor market where unprotected “outsiders” spend long periods in unemployment or are unable to access good jobs at all.

Overall, we believe that increasing worker power must be a central and urgent priority for policymakers concerned with inequality, low pay and poor work conditions. If we do not shift the distribution of power toward workers, any other policy changes are likely to be short-term and insufficient.

Covid-19 looks like a hinge in history

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The Covid-19 crisis is the third major shock to the global system in the 21st century, following the 2001 terror attacks and the 2008 financial crisis. I suspect it is by far the most significant.

Although the earlier events will figure in history textbooks, both 9/11 and the Lehman Brothers bankruptcy will fade over time from popular memory.

By contrast, I believe, the coronavirus crisis will still be considered a seminal event generations from now. Students of the future will learn of its direct effects and of the questions it brings into sharp relief much as those of today learn about the 1914 assassination of the Archduke, the 1929 stock market crash, or the 1938 Munich Conference. These events were significant but their ultimate historical importance lies in what followed.

This crisis is a massive global event in terms of its impact. Take an American perspective. Almost certainly more Americans will die of Covid-19 than have died in all the military conflicts of the past 70 years. Some respectable projections suggest that more may die than in all the wars of the 20th century. This spring’s job losses have come at a far faster rate than at any point in history and many forecasters believe that unemployment will be above its post-Depression high for two years. As I write this from a small town I have not left in two months, I suspect that no event since the civil war has so dramatically changed the lives of so many families.

A month ago it would have been reasonable to suppose that the deaths, the economic losses and the social disruption would be transitory. This looks much less plausible today. The US has given its best shot (though certainly not the best possible shot) at locking down for two months now and it has not brought daily fatalities below 1,000 a day. Much of the country is now letting up isolation policies. Similar things are happening in much of Europe and new outbreaks have been reported in success-story countries including Singapore, South Korea and Germany. It now looks very plausible that there will not be an enduring improvement on the current situation in the west.

As significant as these events are, what they portend may be even more important, in two respects.

First, we appear to be living through a momentous transition in what governments do. Historically the greatest threat to the lives and security of ordinary people has come from either failures of domestic governance — disorder or tyranny — or from hostile foreign powers. This reality shaped the design of domestic and international political institutions. Progress has been made. Not only have we avoided a repeat of the world wars, but the chance that an individual on our planet will die a violent death is now about one-fifth of what it was a half century ago.

At the same time, threats that are essentially external to all countries have risen in significance and now exceed traditional ones. Over time, climate change threatens to engulf us. Aids, Ebola, Mers, Sars and now Covid-19 suggest that pandemics will recur with some frequency. Then there is terrorism, upheavals that cause mass movements of refugees, and financial instability. We also face challenges coming from new developments in artificial intelligence and information technology. Coronavirus is helping to usher in a world where security depends more on exceeding a threshold of co-operation with allies and adversaries alike than on maintaining a balance of power.

The second way in which Covid-19 may mark a transition is a shift away from western democratic leadership of the global system. The performance of the US government during the crisis has been dismal. Basic tasks such as assuring the availability of masks for health workers who treat the sick have not been performed. Medium-term planning has been conspicuous by its absence. Elementary safety protocols have been ignored in the White House, putting the safety of leaders at risk.

Yet, For all of the Trump administration’s manifest failures, the US has not been a particularly poor performer compared to the rest of the west. The UK, France, Spain, Italy and many others all have Covid-19 death rates per capita well above the US. In contrast, China, Japan, South Korea, Taiwan, and Thailand all have death rates well under 5 per cent of American levels. The idea that China would be airlifting basic health equipment to the US would have been inconceivable even a year ago.

If the 21st century turns out to be an Asian century as the 20th was an American one, the pandemic may well be remembered as the turning point. We are living through not just dramatic events but what may be well be a hinge in history.

Given what we’re losing in GDP, we should be spending far more to develop tests

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When it comes to crafting foreign policy, designing anti-poverty programs or implementing measures to combat climate change, economists have an understandable tendency to feel as though the economic aspects of the debate receive short shrift. The opposite is true when it comes to the pandemic. If anything, the United States is in danger of overemphasizing the impact of the crisis on the economy — and massively underinvesting in the health measures that are ultimately most important.

We are embarked on a policy path of opening things up without major complementary measures, an approach based more on wishful thinking than on logic or evidence. In guidance issued last month, the Trump administration stated this relaxation should only begin when the number of new cases daily had declined for 14 days. This criterion has not been met for the country as a whole or in many states, yet reopening has begun.

A simple calculation illustrates why this path is so dangerous. The most important parameter for understanding an epidemic is what epidemiologists label R0 (R-nought) — the number of people infected by a single individual with the virus. If R0 is greater than 1, an epidemic explodes; if it is less than 1, it diminishes and eventually ceases to be a problem. Experts estimate that before lockdown R0 was about 2.5, which is why lockdown was necessary. They now estimate, in part because case counts have been stable, that R0 is a bit below 1 — perhaps 0.9 or, on an optimistic view, 0.8.

Basic but grim arithmetic implies that if we move from lockdown even 20 percent of the way back to normal life, the epidemic will again be potentially explosive. (For example, if we are currently at an R0 of 0.9, and assuming that the R0 without any distancing is 2.5, then returning to 20 percent of normal would take the R0 to 1.22, clearly in the danger zone.) This is very worrying as the president and many other political leaders seem to be encouraging substantial reversals in lockdown policies.

It’s conceivable this will work out, at least in the short run. For a few months, summer heat and humidity may reduce transmissibility. The virus may mutate in benign ways. The population that has not yet been infected may be less susceptible on average to the virus and less contagious when they catch it.

But don’t count on it; hope is not a strategy. These factors have been operating in recent weeks, and yet R0 has remained stubbornly close to 1. That suggests it is unlikely that any of these factors are significant enough to change the basic conclusion: Substantial opening up without new measures to reduce transmission is likely to unleash major new waves of disease, sooner or later.

Some might believe this is a price worth paying for the economic benefits the country would reap. After all, on a rough estimate covid-19 is reducing the gross domestic product by 20 percent — $80 billion dollars a week. The problem is that the main constraint on economic activity is not mandatory lockdowns. Rather, whatever is technically permitted, people will be reluctant to resume normal behavior for fear of being infected. The likely result: a resurgent pandemic, dramatically lowered economic activity, or both simultaneously.

Moreover, this economic slowdown is a price we do not have to pay. We could substantially reduce transmission, save lives and permit the safe acceleration of reopening — if we are willing to commit the necessary resources. These would be small compared to the economic damage the virus is wreaking and the amounts we are paying to try to compensate for the losses.

The most promising strategy is establishing a system of pervasive targeted testing. If we were able to identify individuals who have potentially been infected, then quarantine those who test positive, we could substantially reduce the transmission rate. Suppose this required testing every American every week and that each test cost $20. (Both are pessimistic assumptions.) The $6.6 billion price tag would be less than one-tenth of the weekly cost of the Cares Act.

Similarly, investments in contact tracers for those who identified with covid-19 would have an extraordinarily high return. Suppose the total cost of a contact tracer is $400 daily, and that 300,000 tracers are needed to follow up on all newly discovered positive cases. The cost would only be $600 million a week, less than 1 percent of the cost of the Cares Act.

The same kinds of calculations make the case for much more spending on masks, on potential therapies and on pursuing production of plausible but still unproven vaccine candidates.

Amounts of money that are small compared to the economic losses we are suffering are immense relative to battling the virus. They should be the first priority going forward.

National governments have gone big. The IMF and World Bank need to do the same.

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By Gordon Brown and Lawrence H. Summers
The nations of the developed world have responded to the covid-19 crisis by supporting their domestic economies and financial systems in bold and unprecedented ways, and at a scale that would have been unimaginable three months ago.
In contrast, when the world’s finance and central bank governors convene virtually this week for the semiannual International Monetary Fund-World Bank meetings, there will be steps taken to fortify the international system, but nothing comparable to what countries are doing domestically.
Historians such as Charles Kindleberger have argued convincingly that it was a failure of international cooperation that made the Depression “great.” And even when there has been coordinated action in response to the crises that have come since, more often than not it has come after huge human cost. Thus the Bretton Woods Conference on reconstructing the international financial system came after the devastation of a world war. The Brady Plan for resolving the Latin American debt crisis was only agreed to after the human cost of a lost decade for the region.
On the other hand, the 2009 London Group of 20 meeting on the financial crisis demonstrated the value of early and coordinated action to limit the damage to the global economy, maintain trade and support fragile emerging markets.
The next wave of the covid-19 crisis will be in the developing world. About 900,000 can be expected to die from coronavirus in Asia and a further 300,000 in Africa, according to grim and perhaps cautious estimates from Imperial College London.
While social distancing is the West’s route to suppression of the virus, the developing world’s crowded cities and often overcrowded slums make isolation difficult. Advice on hand-washing means little where there is no access to running water. Without a basic social safety net, choices are narrowed and stark: Go to work and risk disease, or stay home and starve with your family.
If the disease is not contained in these places, it will come back — in second, third and fourth waves — to haunt every part of the world.
Pervasive economic and financial failure in emerging markets also threatens the viability of the supply chains on which all countries depend. Given the magnitude of emerging-market debts, it threatens the stability of a global financial system that is already dependent on heavy central bank support. And with emerging markets accounting for more than half of global gross domestic product, global growth is threatened as well.
Just as the Federal Reserve and other major central banks have expanded their balance sheets in previously unimaginable ways, the international community needs this week to do, in former European Central Bank president Mario Draghi’s famous phrase, “whatever it takes” to maintain a functioning global financial system. At a time when the United States is borrowing an extra $2 trillion to meet its needs, it would be tragic if massive austerity was forced on an already hard-pressed developing world.
First, the IMF, World Bank and regional development banks need to be as aggressive as the world’s central banks in expanding their lending. This means recognizing both that the current near-zero interest rate environment makes it possible to use more leverage than previously, and that there is little point in having reserves if they cannot be utilized now.
The World Bank nearly tripled its lending in 2009. An even more ambitious target may be appropriate now, along with a major increase in subsidized lending at a time when low borrowing rates in rich countries make it much less costly. In addition to relieving debt interest payments, the IMF, with its $150 billion gold reserves and network of credit lines with central banks, should be prepared to lend up to $1 trillion.
Second, if ever there was a moment for an expansion of the international money known as Special Drawing Rights, it is now. If global money is to stay in balance with the domestic monetary expansion in rich countries, an increase in SDRs of well over $1 trillion is urgently needed.
Third, it would be a tragedy and a travesty if stepped-up global financial support for developing countries ended up helping those countries’ creditors rather than their citizens. Country debts incurred before the crisis must be at the center of the international financial agenda. We should agree now that once we have clarity on the economic fallout of the crisis, we will pursue the kind of systemic approach required to restore debt sustainability in a number of emerging-market and developing countries, while safeguarding their prospects for attracting new investment.
But the most immediate and largest short-term support can come from waiving upcoming debt repayments by the 76 low-income and lower-middle-income countries that are supported by the International Development Association (IDA).
The current proposal on the table is that creditor nations would offer a six- or nine-month standstill on bilateral debt repayment, at a cost of between $9 billion and $13 billion. But this proposal is constricted both in its time frame and the range of creditors included.
We propose relieving over $35 billion due to official bilateral creditors over both this year and next, because the crisis will not be resolved in six months — and governments need to be able to plan their spending with some certainty.
Here the role of China, which holds over a quarter of this bilateral debt, will be crucial. China’s decision to be a long-term provider of funds for investment in developing economies has been welcome, and its spending has sped the development of important infrastructure. Now is the time and opportunity for China to play a leadership role with other creditors by waiving its debt repayments this year and next.
Nearly 20 years ago, when we both argued the case for debt relief for nearly 40 highly indebted poor countries, almost all the debt was owed to official bilateral or multilateral creditors and little to the private sector. Now $20 billion — often borrowed at high interest rates — is due by the end of 2021 to private-sector creditors.
As recognized by the Institute of International Finance, which represents private-sector creditors to emerging markets, the private sector has to take its share of the pain. It would be unconscionable if all the money flowing from our multilateral institutions to help the poorest countries was used not for health-care or anti-poverty measures but simply for paying private creditors, especially those such asthe large U.S. banks that are continuing to pay dividends at a time of crisis. The ministers and governors convening this week should join their authority with that of the IMF and World Bank to mobilize the private sector around a voluntary plan for addressing these debts.
Just as the pandemic can be contained most effectively and least expensively with early bold measures, the lesson from the past is that international recession and its consequent human cost is best addressed quickly and boldly. We must act fast and act together.

Trump is missing the big picture on the economy

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As an economist, I am normally enthusiastic when presidents or other political leaders emphasize the economic aspect of public policy issues. I am all for economic growth, cost benefit analyses, trade agreements, more flexible markets and prudent deregulation. Yet I am appalled by President Trump’s invocation of economic arguments as a basis for overriding the judgments of public health experts about battling the coronavirus pandemic.

In fact, as a matter of pure economics — even leaving aside moral considerations that should be taken into account — the president’s arguments are flatly wrong. When Trump tweets and says things like “we cannot let the cure be worse than the problem itself” or “you can destroy a country by closing it down” and raises the prospect of reversing measures taken to promote social distancing, he misunderstands the fundamental economic problem posed by the pandemic, as well as the most rational, economically sensible way to address it. In the end, economic growth and well-being would be harmed, not helped, by the course he is advocating.

It is an elementary confusion to believe that lost growth and lost jobs are primarily a consequence of social-distancing measures rather than the pandemic itself. There are currently more than 50,000 diagnosed cases in the United States; the number is doubling every few days. Perhaps some people would be traveling, shopping and eating out as usual if there were no prohibitions. But does anyone believe that ordinary life will continue if millions of Americans have the virus and our hospitals are overflowing? This is where we surely will be in a few weeks if we abandon social distancing.

I recovered over the past year from ruptured quadriceps tendon. At a certain point, sick of the braces that kept my knees rigid, I pressed my physicians to take them off. They responded by pointing out that taking them off prematurely would put at risk all the progress I had made. If I ruptured the tendons again, they said, I would have to start the whole process over — and from a worse starting point. Fortunately, I saw their point, managed my impatience and am doing well today.

The same logic applies to social-distancing policies. Prematurely abandoning or relaxing social distancing will be disastrous on both economic and health grounds. If restrictions are lifted prematurely, the result will be a follow-on pandemic surge. More people will die. What will the policy choice be then? If it is a return to restriction, starting from a much less favorable point and much more disease spread, then the cumulative economic loss will be greatly magnified. The costs we have already borne will have been totally in vain.

Indeed, as a matter of logic, overly temporary social distancing represents the worst of all policy alternatives. In the view of almost all experts, it would be a grave mistake to accept the full and rapid spread of coronavirus as inevitable. But if this is to be our strategy, there is no reason not to get on with it, rather than suffer the additional burden of temporary distancing.

Ending restrictions too soon and allowing a further disease spike carry a range of collateral risks and costs. When it is safe to take up old habits, will the public trust the advice of authorities who misled them? What extra uncertainty cost will be baked into all financial markets when it becomes clear that the federal government has offered false assurances on safety? Will other countries be willing to buy our goods when the United States has turned itself unnecessarily and against the advice of experts into an exporter of products?

The president has compared the challenge of pandemic to the challenge of war. But Americans do not fight wars for our freedom saying we can only keep going for another few weeks and then we will give up. Elevating temporary economic expedience over the long run health of the citizenry is a dangerous strategy. And we deserve better from our business community than demands to go back to selling when disease counts are still rising.

The president and the business leaders who urge him to abandon a public health orientation to pandemic policy are nonetheless correct to want to move through the current difficult period rapidly as possible. The right focus is not on false hopes. It is on realistic strategies that permit a targeted approach to reducing transmission. That means more testing, more contact tracing, and more and better facilities for those who need to be separated from others or treated.

There will come a time when we can gradually let up on current restrictions and help the economy in the process. It will be the moment when new case counts are no longer accelerating; when we have adequate measures in place to quickly catch and contain new outbreaks; and when we are confident that we are not endangering hard-won progress by impetuous actions.