Here is our take on the articles summarized below: 

The concerning spread of the Delta variant of Covid-19 has many reflecting on the multitude of changes caused by both the initial thrust of the pandemic and today’s retreading of it.  Foreign Policy asked 13 economists and thinkers to weigh in on how these changes will shape the world going forward; their answers are indicative both of the deep impact the pandemic has made on our institutions and of the optimism many feel at coming through the initial hardship.  Meanwhile, the drumbeat of climate change has continued unabated, as The Economist reminds us this week.  The Delta variant has also brought old tensions over restrictions and fiscal stimulus to the surface, which we examine in our third article.  Finally, we look at an interview with Dallas Federal Reserve President Robert Kaplan, who believes the Fed needs to pump the brakes on some of its spending.  Even as we grapple with the challenges facing us in this pivotal moment, we must practice the kind of patient wisdom which will always prove correct, though not always in vogue.

Fuzzynomics and 12 Other Attempts to Name Our New Era

Foreign Policy

Read the full article here
In an economic epoch where the old rules no longer apply and the new rules are not at all clear, the term “Fuzzynomics” (coined by author Antoine van Agtmael) aptly describes the uncertainty faced by the world’s policymakers and consumers.  Foreign Policy asked 13 economists and thinkers to describe the “Fuzzynomics” era and propose their own titles for this post-pandemic order.  Here are their responses:

• The Experimental Economy – Stephanie Kelton, professor of economics and public policy, Stony Brook University: New eras require new tactics.  While central banks were once thought of as the economy’s bastions in both booms and busts, the financial crisis revealed the weakness of fiscal systems.  Policymakers recognized this at the outset of the pandemic and implemented new, experimental techniques to address the idiosyncrasies of today and challenges of tomorrow.
• Government Unbound – Mohamed A. El-Erian, chief economic advisor, Allianz, and president, Queens’ College at Cambridge: The pandemic accelerated a de-liberalization trend which had been creeping into even Western democracies.  A number of market failures, notably in the arenas of equity and climate change, have prompted the increased presence of government in daily life.  Done correctly, the growing influence of world governments would help address longstanding challenges and institute more effective systems, but this outcome would require a heretofore unseen level of self-discipline.
• Post-Financial Capitalism – Dambisa Moyo, economist: Many Western corporations have shifted their focus from shareholders (those with a financial interest in the company) to stakeholders (those with any legitimate interest in the company, financial or otherwise).  This has redefined how corporations measure success, moving beyond the financial bottom line to a sort of “societal bottom line” incorporating performance on environmental, social, and governance (ESG) goals. But these goals have trade-offs too, and managing these will require flexibility, transparency, and innovation to create the growth across all the metrics needed to promote human flourishing.
• A New Social Contract – Mariana Mazzucato, professor, University College London: The relationship between governments and corporations needs to move from parasitism to symbiosis.  A new social contract, one in which the public and private sectors cooperate to create value, would require a common purpose advancing public warfare, and the backbone to implement that purpose.
• Undiscovered Country – Ian Bremmer, president, Eurasia Group and GZERO Media: To face the unknown economic landscape ahead, the world will need “steady leadership, consistent execution, and the absence of politicization” – three qualities which have been in short supply, at least in the U.S.  Nevertheless, it will take courage to address the widening gap between developed and developing nations; with little to light the way forward, global institutions must take care not to lose their nerve in the face of uncertainty.
• Age of Deadly Disparities – Jayati Ghosh, professor of Economics, University of Massachusetts Amherst: The gap between rich and poor countries may ultimately lead to a lost generation in the developing world as austerity, lack of vaccine access, and job losses strangle emerging economies.
• Infantilized Liberalism – Deirdre Nansen McCloskey, professor emerita, University of Illinois at Chicago: “Cries resound for the parent state to come to the aid of its adult children with spending and regulation galore.”  True liberalism, of the kind promoted by Adam Smith, has produced much of the flourishing we see in the world today.  To subjugate the peoples of the world to a domineering parental state would be a regression.
• Era of Secular Stimulus – Ruchir Sharma, head of emerging markets and chief global strategist, Morgan Stanley Investment Management: While the heap of stimulus unleashed in the wake of the pandemic has led some to comment that “we’re all Keynesians now,” the prevailing mode of government spending is a distortion of Keynes’ approach to targeted government intervention.  As governments have become increasingly inoculated to the dangers of budget deficits, public intervention has grown as well.  The inevitable result, inflation, was corralled in the 70’s by Paul Volcker, but at great cost.  As government spending is set to expand and inflation concerns are on the rise, the bill may soon come due.
• Dynamic Divergence – Vera Songwe, executive secretary, UN Economic Commission for Africa: On nearly every axis, the pandemic has exacerbated a movement to opposite poles.  Inequality abounds, nationalism prevails, and an ongoing pandemic disproportionately harms the poor and disadvantaged.  For the world to reconverge, the global multilateral system must be renewed with more effective and inclusive institutions.
• Managed Strategic Competition – Kevin Rudd, president and CEO, Asia Society, and former Australian prime minister: Great power competition, primarily between China and the US, will come to dominate nearly every facet of life.  The state will become an “enforcer” of national competitive advantages, pushing its economy towards dominance in key fields.  To prevent courting catastrophe, the major players will need “red lines,” such as national security and climate change, where competition does not interfere with mutual goals of safety, present and future.
• The Boring 20’s – Niall Ferguson, senior fellow, Stanford University’s Hoover Institution: Even after the “excitement” the pandemic created in 2020, many of the major themes of the pre-pandemic era have returned to something like the norm.  Without a major catalyst to keep it afloat, there is nothing to guarantee the temporarily higher inflation brought on by massive stimulus will persist.  International institutions are recovering from the pandemic, though perhaps they are more wary of China.  In many areas, the signals point to a reversion to “normal,” and even “boring,” rather than escalation.
• Fuzzynomics – Anoine van Atmael, author: Long-held Western beliefs in liberalism are under attack from their left and right flanks, while the global center of gravity is moving East.  The U.S. place of prominence has been eroded, and may soon pass to China.  In the Fuzzynomics era, the solution is to throw out the rulebook and spend your way out of your problems in the uncertain hope that things will work out as they did in the past.
• Age of (Re)Discovery – Betsey Stevenson, professor of public policy and economics, University of Michigan: The pandemic left few areas of life untouched.  But as people rediscover the joys muted by the coronavirus and uncover new ones, a refreshed equilibrium of life will spring forth, shaped by the experiences of a year of loss, isolation, and change.  Through the adversity of Covid-19, many will find a novel mode of life, strengthened by the very hardships that formed it.

Rapid Emission Cuts Can Reduce the Risks But Not Eliminate Them

The Economist 

Read the full article here

At the Paris Climate Conference in 2015, targets were set to reduce global emissions so that global warming could be limited to “well below 2.0°C”. Shortly after the conference, an NGO named the Climate Action Tracker (CAT) was created with the purpose of calculating the impact of the Paris Agreement’s emission-reduction goals. The conclusion CAT came to is that the world is on track to be 2.7°C hotter than the pre-industrial baseline by 2100, substantially higher than the Paris Agreement’s goal. In the last year, we have seen several countries make more ambitious pledges to rapidly cut emissions. While this has brought the CAT’s estimate down to 2.4°C, the estimate includes policies announced, not enacted. If the world only follows the policies that are actually in place right now and does not fulfill other pledges that have been made, we can expect the earth to be 2.9°C hotter than pre-industrial baseline by 2100. The consequences of falling dangerously short of current emission-reduction goals, and failing to take additional action, include an increase in unpredictable natural disasters, the rise of sea levels which threaten the existence of low-lying cities and countries, and massive food crises brought on by the decimation of crops, among other disastrous outcomes. While humans have proven themselves resilient and flexible, especially with the creation of new technologies, there are limits to nature’s ability to adapt to a warming climate. Only the species and ecosystems that can adapt faster than the climate warms will be able to survive. Coral reefs are expected to disappear completely in a 3°C world, as would the Amazon Rainforest which has already been weakened by logging and burning.The longer it takes to cut emissions, avoiding a 3°C rise “becomes something only achievable through the application of untested and in some cases troubling technologies designed either to suck carbon from the atmosphere in vast amounts or to throw some of the sun’s warming rays back into space.”

Coronavirus and the Global Recovery: the Dangers of Whiplash Economics

Delphine Strauss, Financial Times

Read the full article here

“I think one of the biggest risks to our global growth going forward is that we prematurely declare victory on Covid,” commented Mary Daly, the president of the Federal Reserve Bank of San Francisco. The spread of the Covid-19 Delta variant has brought the unwelcome return of restrictions for many countries and has renewed fears in the minds of investors that the global recovery may be dramatically slowing. Additionally, there is concern that the global recovery will become uneven as some economies tighten social restrictions and others do not. On the other hand, the Delta variant will disrupt economic growth whether a country decides to tolerate higher infection rates or not as workers become ill or must self-isolate after coming in contact with someone who has tested positive. Nonetheless, the rise in Covid-19 cases is forcing central bank policymakers to rethink fiscal and monetary policy. For example, while the US Federal Reserve has pivoted towards removing fiscal and monetary stimulus, the Delta variant’s rise could complicate removing stimulus and necessitate a boost instead. In the United Kingdom (UK), the recent rise in inflation has taken the Bank of England by surprise, leading some policymakers to suggest an early end to quantitative easing. The rise in Covid-19 cases in Japan has prompted talk of a new round of fiscal stimulus as the economic outlook has dimmed. Investors are even less optimistic about other advanced economies that have had a slow start to vaccinations, like Australia and New Zealand, andare very wary of emerging economies where Covid-19 death rates are rising and policymakers have limited abilities to impose new lockdowns or provide financial support. The International Monetary Fund’s chief economist, Gita Gopinath, has warned of the “dangerous divergence” between advanced economies and some emerging and developing economies. Limited access to vaccines, depleting fiscal support, and a rapid rise in interest rates brought on by talk of the US Federal Reserve tapering, has hammered these emerging and developing economies, widening the gap in the global recovery.

Dallas Fed Chief Robert Kaplan on Why the Fed Should (Slowly) Back Off

Lisa Belifuss, Barron’s

Read the full article here

In this interview, Kaplan indicates his belief that the Fed needs to slow down some of its pandemic-induced policies if it is to arrive safely at its long-term inflation goal of 2%.  Headline inflation is expected to end the year around 3.4%, well above the Fed’s target, but is also expected to moderate into 2022.  Some of the price pressures are expected to dissipate once the labor supply rebalances to demand.  On the other hand, high basic material costs are likely to bleed into higher prices for goods and services moving forward.  If the current pace of inflation growth continues, the Fed will need to begin rolling back some of its crisis-mode policies, such as the $120B in monthly Treasury and mortgage-backed securities purchases.  While 2013 taught us that tapering too quickly can spook the markets, waiting too long to taper creates unnecessary imbalances in the economy.  One potential example is house prices: home prices are historically elevated, and many houses are being bought up by funds, which is likely to drive up rent prices in the long term.  At the same time, low interest rates have encouraged excess risk-taking from individuals whose risk profile is not well suited for it.  As investors continue to move out on the risk curve in search of yield, it creates an opening for a severe tightening of financial conditions.  Still, the Fed remains committed to promoting the health of the general economy, not just the asset markets; to accomplish this, Kaplan asserts that the Fed must slow down its extraordinary actions or risk overheating the economy.