Policy on a Precipice: EconVue July/August Newsletter

COVID has spawned an era of furious policy experimentation by national and local governments. From lockdowns to public-private partnerships in global health, from modern monetary theory to unprecedented income support and dual-edged technological innovations, economic scholars will be analyzing the resulting data for generations. We cannot possibly foresee all the implications of these concentrated actions over the last 18 months. We cannot predict the political and economic fallout, or know how geopolitics will bend to our new reality. However, we can expect the impact will be persistent, certainly outlasting the current uptick in inflation. Half a century from now, we could still be in the midst of changes created by this pandemic. 

Looking back fifty years supports this hypothesis. In July and August of 1971, President Richard Nixon made two decisions that shaped the world we inhabit today. First, as a hedge against the power of the Soviet Union, he announced he would visit China, a rare non-hyperbolic turning point in history. A month later, he announced unilaterally that the dollar would no longer be convertible to gold, effectively ending the Bretton Woods System, and further shocking our allies. The full consequences of these policies are very hard to quantify, but it is safe to say that the world would be a different place had Hubert Humphrey won the presidential election in 1968.

In spite of all his negative press, Nixon was a hugely consequential president. The political scandal that destroyed him meant that he was no longer in the White House when Saigon fell in 1975. However he introduced the policy of Vietnamization: a drawdown of 500,000 troops, with the US simultaneously providing air support, training, and supplies to the South Vietnamese army. Then as now this strategy, which spanned the administrations of multiple presidents, did not work.

In the summer of 1966 my father was a State Department press officer at the US Embassy in Saigon. He was assigned to accompany a distinguished guest, Moshe Dayan, the fabled Israeli general, on a tour of South Vietnam at the height of conflict. The hope was that the luster of his victories during the Suez Crisis would rub off on perceptions of US military efforts. Instead, after a strenuous tour of the battlefields, Dayan shocked my father and other officials, proclaiming that the US did not stand a chance against the guerrilla fighters of the North. He was right of course, but It was nearly ten years before the US left, vanquished and humiliated.  Vietnam remains a Communist country today. 

History and policy are made by imperfect human beings who in a relatively short time are able to make the same mistakes twice. The worst outcomes are often associated with overreaction, and negative effects may persist for decades. Observing the chaotic events in Afghanistan, the resurgence in Covid worldwide, and  economic weakness in China, I hope that the virtual meeting of central bankers at Jackson Hole this coming Friday will provide clear and lucid policy direction and demonstrate cooperation in a world that is far from fully recovered. The US cannot afford another own goal. 

The title of this year's Jackson Hole Symposium is "Macroeconomic Policy in an Uneven Economy" which seems to indicate a focus on economic equality and an acknowledgment that while things might look good in some segments, recovery is not happening at the same rate everywhere. (You can watch Jay Powell's live remarks, and find the agenda and papers as they are presented, on the Kansas City Fed website beginning at 7pm CDT this Friday.)

It occurs to me that the famous Carl von Clausewitz quote applies not just to war, but also to pestilence. "War is the realm of uncertainty; three quarters of the factors on which action in war is based are wrapped in the fog of greater or lesser uncertainty." His related theory that most intelligence during a conflict is inaccurate and often contradictory might also easily apply to this pandemic. The links below are intended to help clear the fog of so much we don't yet know. 

Research from EconVue Experts and Friends

June 27, 2021
ECONVUE ARTICLE

U.S. Vaccinations Rising Where They Are Needed Most
Michael Lewis

U.S. Vaccinations Rising Where They Are Needed Most; Beware Fake News: Biden Is Still Likely to Replace Powell

August 7, 2021 / EconVue Pulse

Diverging Interests: Covid in Australia
David Maywald
There are diverging interests between age cohorts (old versus young), between different parts of Australia, and between those who bear the brunt of lockdowns versus those who are largely insulated...  There will be more anti-lockdown protests, more seeding events (from quarantine failures and porous borders) and we will see the diverging interests play out.

July 7, 2021 / CEEP

Chinese Engagement in Latin America and Europe: Comparisons and Interdependencies
R. Evan Ellis 

This paper examines Chinese commercial, political, and security engagement with Latin America and the Caribbean, comparing it with similar engagement in Europe. It finds evidence that PRC engagement globally is driven by a strategy focused on re-orienting the world to the economic benefit of China, with nonetheless important political, institutional, and security engagement in support of these objectives and the consequences of their pursuit.

June 9, 2021 / 4sight Health
REPORT

Medicaid, Motherhood and America’s Future: Giving Birth to Better Maternity Outcomes
David W. Johnson 

As the healthcare system evolves toward value, the women’s healthcare sector, and OB/GYN services in particular, represents a significant opportunity for improving outcomes and reducing costs at massive scale.

July 13, 2021 / BloombergQuint
ARTICLE

ECB Strategy Review: A Tweak,  A Leap,  And A Missed Opportunity
Paul Sheard

The ECB's recently published monetary policy strategy review, 18 months in the making and its first in 18 years.

July 15, 2021 / CFA Society Chicago
PODCAST

Investment Exchange Forum – Decentralized Finance (DEFI) & Macroeconomics

CFA Society Chicago member Rich Excell, CFA chats with Lyric Hughes Hale, Editor-in-Chief of EconVue to discuss macroeconomics and digital assets.

July 7, 2021 / the Hill
ARTICLE

Biden cannot counter China with a team that lacks expertise
William Overholt

Would America have accepted a Cold War leadership without Soviet expertise? The more you see China as a dangerous adversary, the more important it is to actually understand China. It is insufficient for officials to be well-connected, experienced on Middle East issues, and dislike China.

July 13, 2021 / Centre for the Study of Financial Innovation
Webinar

The Biden Administration: The First 175 Days

Our Editor in Chief Lyric Hughes Hale participated in this webinar organized by Centre for the Study of Financial Innovation. The Biden Administration is almost six months old. It entered Washington with the most ambitious economic programme in generations. But it also faced massive challenges - the Covid pandemic, a deeply fractured society, a troubled relationship with America's allies, and China. And that was before Afghanistan.

China

August 3, 2021 / Nikkei Asia
ARTICLE
Has China already peaked?
Dave Sharma

In the annals of history, there has not been a power that is rising while its population is shrinking. The two simply do not go hand in hand. Xi might talk with confidence about the next century of CCP rule, and of China's unstoppable momentum. But the census figures show that China's power on the global stage may already have peaked.

July 13 12, 2021 / MarketWatch
Ark’s Cathie Wood seems to have thrown in the towel on China
Steve Goldstein

From a valuation point of view, these stocks have come down and again from a valuation point of view, probably will remain down.

May 27, 2021 / The Times Literary Supplement (TLS)
ARTICLE
Most threatening when weak?
Niall Ferguson

The risks China poses to global security.

July 26, 2021 / Bloomberg
ARTICLE
How Xi’s Four Pillars of Regulation Will Reshape China’s Big Tech
Shuli Ren

Beijing’s regulatory crackdown on fintech to education to ride-hailing will alter the corporate landscape and affect foreign investment.

August 7, 2021 / Bloomberg
ARTICLE
China’s Hubris Is a Threat to Its Economic Future
Matthew Brooker

The country’s leadership has embarked on a risky top-down approach to economic policy-making that signals a departure from decades of market opening and engagement with the world

July 4, 2021 / Financial Times
ARTICLE
What happens if Chinese household wealth is unleashed on the world?
Thomas Hale & Tabby Kinder

Tentative steps at liberalisation reflect fears over the strong renminbi and risks of a bubble in domestic markets

July 19, 2021 / Politico
ARTICLE
China is buying up American farms. Washington wants to crack down.
Ryan McCrimmon

Bipartisan pressure is building to stop foreign nationals from purchasing American farm operations and receiving taxpayer subsidies.

July 17, 2021 / Nikkei Asia
ARTICLE
Why Ray Dalio is wrong about China
Andrew Hunt & Ben Ashby

Rewards for investors will fade, not increase, over time

July 17, 2019 / Taylor and Francis Group
REPORT
Can onshore spot market progress influence offshore N.D.F. market development for the C.N.Y?
Chi-Wei Su, Kai-Hua Wang, Heng-Guo Zhang & Rui Nian

This study utilizes a time-varying wavelet analysis to examine the relationship between the onshore spot market and the offshore non-deliverable forward (NDF) market of the Chinese Yuan (CNY).

March 24, 2021 / CFO
REPORT
SEC Unveils Rule on Oversight of Chinese Issuers
Matthew Heller

The U.S. Securities and Exchange Commission has proposed the guidelines it will use to implement a Trump administration law that authorizes it to delist Chinese stocks.

July 17, 2021 / Beijing Review
ARTICLE
China to steadily advance digital yuan pilots
Xinhua News Agency

China's central bank on July 16 released a white paper on the progress of the country's digital fiat currency, the e-CNY, saying that it will steadily push forward pilot schemes of its digital yuan.

Cryptocurrencies

July 20, 2021 / Brookings Institute
ARTICLE
The Brutal Truth about Bitcoin
Eswar Prasad

While Bitcoin’s roller-coaster prices garner attention, of far more consequence is the revolution in money and finance it has set off that will ultimately affect every one of us, for better and worse.

July 20, 2021 / Brookings Institute
ARTICLE

A Bitcoin ETF Would Be Good for Investors and Regulators
Timothy Massad

A Bitcoin ETF would be a way for retail investors to invest in cryptocurrency without having to actually purchase it and deal with the complexities of custody. 

July 21, 2021 / U.S. Securities and Exchange Commission
SPEECH
Prepared Remarks of Gary Gensler, Chair of the Securities and Exchange Commission, Before the American Bar Association Derivatives and Futures Law Committee Virtual Mid-Year Program
Chair Gary Gensler

July 2021 / NBER
WORKING PAPER
Epidemic Exposure, Fintech Adoption, and the Digital Divide
We ask whether epidemic exposure leads to a shift in financial technology usage within and across countries and if so who participates in this shift. We exploit a dataset combining Gallup World Polls and Global Findex surveys for some 250,000 individuals in 140 countries, merging them with information on the incidence of epidemics and local 3G internet infrastructure. 

Covid Economics

July 2021 / Foreign Affairs
ARTICLE
The Forever Virus: A Strategy for the Long Fight Against COVID-19

It is time to say it out loud: the virus behind the COVID-19 pandemic is not going away. SARS-CoV-2 cannot be eradicated, since it is already growing in more than a dozen different animal species. 

May 2021 / NBER
WORKING PAPER
How Is COVID Changing the Geography of Entrepreneurship?
Evidence from the Startup Cartography Project Catherine E. Fazio, Jorge Guzman, Yupeng Liu & Scott Stern

Leveraging data from eight U.S. states this paper provides new insight into the changing nature and geography of entrepreneurship.

August 20, 2021 / Github
QJHONG COVID MODEL
Qijun Hong
There are early signs that the curve is flattening. Fatality will surpass 1000/day by end of August. It will peak near 2000/day around late Sept/Oct...the US will surpass 700,000 deaths by about October 5th.

Dr Hong's model has been consistently the most accurate.

July 28, 2021 / Nadia Eghbal
BLOG
The New American University
Nadia Eghbal
Learning about ASU helped me reexamine my assumptions around the role of universities in a modern world, as well as how to build successful organizations: the idea that prestige doesn’t have to correlate to exclusivity; that longstanding institutions are capable of reinventing themselves; that my values aren’t as divergent from academia as I previously thought; and that there is, perhaps, hope for universities after all.

July 28, 2021 / Barron's
ARTICLE
What If the Fed Worked for the People? This is How It Can Start Curbing Inequality.
Claudia Sahm

July 14, 2021 / Wall Street Journal
ARTICLE
How Biden’s Executive Order Could Reshape Rail and Ocean Shipping  
Randy Yeip, Roque Ruiz & Ana Rivas

July 16, 2021 / Morgan Stanley Ideas
REPORT
Reports of US Cities' Demise Seem Greatly Exagerated 

Morgan Stanley analysis shows that many are booming or rebounding. What does that mean for assets tied to urban living? The truth on city populations, in our view, appears more nuanced, and more positive.

July 6, 2021 / the White House
BLOG
Historical Parallels to Today’s Inflationary Episode
Chair Cecilia Rouse, Jeffery Zhang, and Ernie Tedeschi

The authors examine previous periods of heightened inflation and see what they can teach us about inflation in 2021. 

July 13 2021 / PBS
VIDEO
The Power of the Fed

When COVID-19 struck, the Federal Reserve stepped in to try to avert economic crisis. As the country’s central bank continues to pump billions of dollars into the financial system daily, who is benefiting and at what cost?

Recent Hale Report Podcasts

EPISODE 18  |  52 mins
On the Changing Geopolitical Role of the U.S.
Robert Madsen

In Episode 16 of the Hale Report, Lyric Hale interviews Robert Madsen, Senior Economist at Hale Strategic, and an EconVue contributor. They discussed China, Japan, South Korea, Taiwan, and US economic policy.  

EPISODE 17  |  46 mins
On Self-Driving Cars
Joe Atikian

In Episode 17 of the Hale Report, Joe Atikian discusses his new book, Autonomous, The Coming Crash of Self-Driving Cars.  Especially interesting in view of the news about the Tesla probe today.

EPISODE 16  |  57 mins
On China Tech & Crypto
Winston Ma

In Episode 16 of the Hale Report, Lyric Hale interviews Winston Ma, investor, author, and adjunct professor at NYU focusing on technology & the digital economy. They discuss his new book, "Digital War: How China's Tech Power Shapes the Future of AI, Blockchain and Cyberspace".

To all our American readers, a happy Labor Day weekend, and wishing everyone else a wonderful summer's end.