Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
April 23, 2013

"Washington's premier think tank on the global economy"
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A Dose of Reality for the Dismal Science

Adam S. Posen
  Adam S. Posen Advocates of rapid fiscal austerity have argued that public debt is like a black hole—once it reaches a certain size, it collapses and pulls the economy down with it. Crisis awaits the spendthrift, according to this view. The claim that there was a clear tipping point for the ratio of government debt to GDP past which an economy's walls caved in never made any sense. Most countries with a high debt-to-GDP ratio show stagnation, not a jump in interest rates, savings, or currency. Slow growth causes debt to mount, while some borrowing is used to promote growth. The moderate middle ground between panicked austerity and heedless spending is the right place for policy advisers to be. It is not worth provoking a crisis with drastic austerity measures to forestall a crisis that is unlikely to come.

>> Read full op-ed

  Congressional Testimony
The Fed at 100: Can Monetary Policy Close the Growth Gap and Promote a Sound Dollar?

Adam S. Posen
  Adam S. Posen testifies before the Joint Economic Committee, advocating three guidelines regarding the setting of the right goals for the US Federal Reserve: distinguishing between goal and instrument independence for central banks; making practical targets rather than broad mandates or narrow rules; and the necessity of responsible monetary policy to close the output gaps.

>> Read full testimony [pdf]

Three New Lessons of the Euro Crisis

Arvind Subramanian
  Arvind Subramanian Some observers argue that greater fiscal and banking integration are needed to sustain the euro area currency union. Arvind Subramanian argues that the real lessons of the euro crisis lie elsewhere: 1) currency unions must worry about endogenous as much as exogenous shocks, since free capital mobility and elimination of currency risk—attributes of a currency area—can be (and were) the source of asymmetric shocks; 2) currency unions are prone to self-reinforcing liquidity crises, because some vulnerable parts lack their own currencies; and 3) a currency union's dominant member, like Germany, can have the double exorbitant privilege of lower borrowing costs combined with a weaker currency—a feat that a non-monetary-union currency like the US dollar cannot duplicate.

>> Read full op-ed

Five Myths about Taxes

Steven R. Weisman
  Steven R. Weisman "I paid my income tax today!" So went one of Irving Berlin's lesser-known patriotic jingles. Few share Berlin's enthusiasm, but many do embrace certain myths about taxes. Steven R. Weisman debunks five "myths" that are more complicated than many people realize: 1) the income tax is a Democratic big-government scheme, 2) taxes discourage work and entrepreneurship, 3) income taxes are less progressive than they used to be, 4) the corporate tax is much higher than it is in other advanced countries, and 5) 47 percent of Americans pay no taxes.

>> Read full op-ed

VTB Purchase of Tele2 Is a Classic Insider Deal

Anders Åslund
  Anders Åslund The sale of Tele2, a foreign-owned mobile phone company, to the Russian state bank VTB illustrates how the Russian stock market malfunctions. The owners had little choice but to sell Tele2 because it did not receive any of the coveted G4 licenses. Presumably, owners of the company had no choice but to sell to a state company, which capped the price. Russia has a strict order of privilege: state corporations, Kremlin-connected companies, the old oligarchs, and then all the rest. The Tele2 sale shows how not even the old oligarchs are allowed to play. The inevitable outcome is that Russian stock prices themselves are increasingly tightly capped.

>> Read full op-ed

Peterson Perspectives Interviews

audio  Russia Challenges US Policy Again
Anders Åslund says the Russian economy is faltering, but the United States seeks to set aside human rights and deal with Putin on nuclear arms this year.

audio  Volatility in Venezuela Threatens the Chavez Legacy
Barbara Kotschwar says the protests over Maduro's narrow victory in Venezuela's presidential election could lead to more political and economic instability.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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Remain Calm: Europe Is Still on Track

Slovenia Must Handle Its Banking Crisis!

India's Disputed Ruling on Pharmaceuticals and Patents

The Euro Crisis after Cyprus: What We Have Learned

Did Cyprus Set a Dangerous Precedent? Some Further Thoughts
  Rewriting History: A SAFE Revision Reveals a Different Picture of Balance of Payments and a Mixed Message for Foreign Firms

Shadow Deposits in the United States and China

China's New Populist Urbanization

Local Government Financing Vehicles Under Fire Again

Testimony before the U.S.-China Economic and Security Review Commission
  Mpumalanga (aka Mfumulanga) calling

Is the Korean Peninsula Stable? Extended Deterrence 2

Not Satire: The Great and Glorious Generals of the DPRK

KCNA Watch: All the Propaganda That's Fit to Print

Is the Korean Peninsula Stable? Extended Deterrence 1

PIIE Noted in the News and on the Web

International Monetary Fund
Toward a Stronger Eurozone: Fostering Growth and Completing the Architecture of EMU
Adam S. Posen is a panelist in this high-level discussion that concluded the International Monetary Fund's Spring Meeting.

France 24
The Business Interview
Adam S. Posen discusses the role austerity has played in Europe's slow economic recovery on France 24's weekly segment featuring economic experts.

Washington Post
An Interview with Fred Bergsten, Evangelist for the Open Economy
C. Fred Bergsten recounts the history of the Peterson Institute and its notable policy contributions in this interview with the Washington Post's Barry Wood.

International Monetary Fund
IMF-Chatham House Seminar: The Liberalization and Management of Capital Flows
Edwin M. Truman is a discussant on the second panel of this seminar on the liberalization and management of capital flows. The second session begins at the 55:20 mark.

Preview of Our Next Issue

Payoff from the World Trade Agenda 2013 [pdf]
Gary Clyde Hufbauer, Jeffrey J. Schott, Cathleen Cimino, and Julia Muir

As Other Nations Prosper, So Will United States
Robert Z. Lawrence and Lawrence Edwards

In This Issue

Minister Chidambaram Economic Reforms in India

Finance Minister Chidambaram discusses India's economic outlook and the status of its economic reforms.
Jean Pisani-Ferry Evaluation of the Troika Conditionality in Europe

Jean Pisani-Ferry, Joerg Asmussen, Reza Moghadam, Servaas Deroose, and Jacob Funk Kirkegaard discuss a new study from the Brussels-based think tank Bruegel analyzing the troika's recent programs in Europe.
Anders Borg The Continuing Impact of the European Crisis

Swedish Finance Minister Anders Borg reviews lessons learned from Sweden's record as the most successful European country to weather the global financial crisis of 2008–09.
Title National Competitiveness, Scalability of International Value Chains, and Location of Production

PIIE, the ECB, and the World Bank cosponsor a discussion on the policy implications of deepening global value chains.
Sherpa Yudaeva Russian Preparations for the Next G-20 Summit

G-20 Sherpa Yudaeva and Deputy Finance Minister Storchak discuss what Russia hopes to accomplish as chair of the G-20.

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