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Welcome to Say More, a new weekly newsletter that brings Project Syndicate's renowned contributors closer to readers. Each issue invites a selected contributor to expand on topics covered in their commentaries, delve into new ones, and share recommendations, offering readers exclusive insights into the ideas, interests, and personalities of the world's leading thinkers.
This week, Project Syndicate catches up with Barry Eichengreen, Professor of Economics at the University of California, Berkeley, and author of The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era.
In last week's edition of Say More, Peter Singer, Professor of Bioethics at Princeton University, addressed topics ranging from the White Savior narrative and the legalization of sex work to neglected utilitarians and the thrill of surfing.
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Barry Eichengreen Says More...
Project Synd icate: GDP growth in the US slowed to 2.1% in the second quarter of 2019, down significantly from 3.2% in the first quarter. After 121 consecutive months of expansion (as of July), a US recession, regardless of what caused it, would have serious consequences for emerging economies. What steps can they take to minimize the impact?
Barry Eichengreen: The World Bank’s Poonam Gupta and I recently examined every significant correction (including sharply weakening exchange rates) that emerging markets as a group have suffered since 2000. Every such episode – with the exception of the global financial crisis of 2008-2009 – was associated with financial tightening and/or an economic slowdown, mainly in the US. Now, another such slowdown appears to be coming (financial tightening, not so much).
What can emerging markets do? Use their own monetary and fiscal policies in countercyclical ways. Some countries (China, South Korea) have already done this, but others have not.
Will it work? It won’t offset the impact of an advanced-economy slowdown, but it may dampen the impact somewhat. The African proverb, “When the elephants fight, the grass gets trampled,” unavoidably applies here.
PS: In a recent Washington Post article, you express serious reservations about Libra – Facebook’s planned cryptocurrency – owing mainly to a lack of trust in Facebook itself, given its poor track record on privacy and utter lack of understanding of monetary economics. Leaving Libra aside, what would it take for a “stablecoin” to work? Is there a way to replicate the institutional underpinnings of a traditional currency, while leaving national governments out of it?
BE: The simple answer is no. Fully backed stablecoins are expensive to scale up: someone has to trade an actual US dollar bill, which is easy to use, for a clunky, illiquid stablecoin. Partly backed, partly collateralized stablecoins are vulnerable to speculative attack.
PS: Your July PS commentary makes a strong case for Christine Lagarde to succeed Mario Draghi as president of the European Central Bank. What should be the first order of business for the ECB under her leadership?
BE: The ECB should review its monetary framework, as other central banks are doing. The ECB’s current approach is “eclectic” – a mishmash of different policies that have chronically failed to achieve 2% inflation. The start of a new president’s term is a good time for stocktaking.
PS: You noted in March that a mechanism like the Instrument in Support of Trade Exchanges, or Instex, could enable European firms and banks to circumvent US secondary sanctions on companies that do business with Iran. With the Trump administration apparently determined to apply sanctions liberally, several other schemes are being floated to enable companies to avoid the US financial system. By weaponizing the US dollar, could Trump end up turning it into a dud?
BE: With the global economy becoming less US-centric, the international monetary and financial systems are already leaning toward becoming less dollar-centric. But movement away from the dollar is slow, both because inertia is powerful in this domain and because the obvious alternatives, the euro and the renminbi, have their own problems.
The more the Trump administration uses the dollar as a weapon, the stronger the incentive for other governments to invest in alternatives, and the faster this movement will be. Still, for a sudden, wholesale shift away from the dollar to occur, Trump would have to do something very extreme. That said, I wouldn’t put it past him.
PS: In your latest book, The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era, you argue that the first step toward addressing the real concerns driving populism should be to strengthen the welfare state, so that it can shield those who suffer most during economic slumps. Which components of the US safety net should be addressed first?
BE: To address the displacement caused by globalization, we have to figure out how to provide effective trade-adjustment assistance. Addressing displacement caused by technical change is, if anything, more complicated. In the long run, we need to invest more in training, apprenticeship, and life-long learning. Since skills take a long time to impart, there is also an argument for short-term wage subsidies for low-skill workers, so that employers have an incentive to hire people, rather than robots, on the margin.
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By the Way...
PS: George Bernard Shaw gets the credit for saying, “If all the economists were laid end to end, they’d never reach a conclusion.” Why do so many non-economists still think he was right?
BE: There will always be cranks who dispute economic common sense, and the popular press does a good job of giving them a platform. Similarly, I would argue that the news media from which non-economists get their information like to play up healthy debate among economic professionals as something more than that.
PS: What has improved in economics education since the profession was largely blindsided by the global financial crisis a decade ago, and what still needs to change?
BE: Economic history is more prominent in many programs (he says predictably and somewhat self-servingly). High-quality empirical work, often supported by newly digitized sources and big data, has gained the intellectual high ground. These are positive tendencies in what may have become an overly abstract and theoretically formulistic discipline. It would be healthy to indulge them further.
PS: What has surprised you the most about the Trump administration?
BE: It’s tempting to say that nothing surprises me at this point, as we’ve all become inured to Trump’s statements and policies. If anything, it is surprising how his predominantly older white male supporters in post-industrial regions continue to support him, even though they are the ones hurt by his tax, trade, and social policies.
PS: Is there a quotation or expression that resonates with you?
BE: From my teenage years: “To study history means submitting to chaos and nevertheless retaining faith in order and meaning.” (That’s Hermann Hesse.)
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Eichengreen Recommends
We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Eichengreen's picks:
 Eric Hobsbawm: A Life in History
By Richard Evans
Currently, I’m reading Evans’ biography of the great historian of the modern economy Eric Hobsbawm. Readers learn about the evolution of scholarship on the Industrial Revolution, globalization, and imperialism over the course of the twentieth century, while following Hobsbawm’s remarkable personal and intellectual journey.
 Democracy and Dictatorship in Europe
By Sheri Berman
Berman’s book is a magisterial survey of Europe’s political development since the ancien régime. Necessarily, it’s an economic history and a political history.
 The Struggle to Save the Soviet Economy: Mikhail Gorbachev and the Collapse of the USSR
By Chris Miller
Miller’s analysis is deeply grounded in archival material, but his account is short and accessible.
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From the PS Archive
From 2018
Following the election of Brazil’s President Jair Bolsonaro, Eichengreen predicted that supporters of authoritarian politicians like Bolsonaro and Trump will learn the hard way that political corruption only grows worse under strongman rule. Read his commentary Populism’s Common Denominator.
From 2017
Contrary to popular belief, Eichengreen argued, automation will cause many jobs to be transformed, not eliminated – a trend that places a premium on lifelong learning. Read his commentary Two Myths About Automation.
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In his newest book, Eichengreen contextualizes the recent resurgence of populism and explores possible responses to the sources of anxiety which populists exploit.
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Around the Web
In case you missed it, here are some other places around the web where Eichengreen's work or ideas have appeared recently.
Trade agreements are shaped by both economics and geopolitics. Given this, Eichengreen and his co-authors recently cautioned, if the US alienates its geopolitical allies, successful bilateral agreements will be a lot harder to conclude. Read more here.
Speaking at the 2018 Nobel Symposium on Money and Banking, Eichengreen identified crucial lessons not just from the 2008 global economic crisis, but also from those that preceded it. Watch his presentation here.
A century after the Treaty of Versailles ended World War I, Eichengreen warned that the victors’ subsequent inward turn – the reason for its utter failure – has disturbing parallels today. Read more here.
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