Tournament: Glenbrooks | Round: 3 | Opponent: Harvard Westlake CR | Judge: Lena Mizrahi
OFF
Rates hikes are coming but gradual
Beckworth and Horan 10/12/21 (David Beckworth is a Senior Research Fellow at the Mercatus Center at George Mason University and a former international economist at the US Department of the Treasury. He is the author of Boom and Bust Banking: The Causes and Cures of the Great Recession. His research focuses on monetary policy, and his work has been cited by the Wall Street Journal, the Financial Times, the New York Times, Bloomberg Businessweek, and the Economist. He has advised congressional staffers on monetary policy and has written for Barron’s, Investor’s Business Daily, the New Republic, the Atlantic, and National Review. David is the author of the Macro Musings blog and also hosts the weekly Macro Musings podcast., Patrick Horan is the Program Manager for Monetary Policy at the Mercatus Center at George Mason University. Patrick received an MA in economics from George Mason University and a BA in economics and political science from the College of the Holy Cross. Previously, he worked as a researcher for the political news website, RealClearPolitics., "Inflation Is Painful, But the Fed Shouldn’t Overreact", https://www.discoursemagazine.com/economics/2021/10/12/inflation-is-painful-but-the-fed-shouldnt-overreact/)
But if the present inflation is due to transitory supply shocks rather than Fed policy, then the Fed should be careful not to tighten prematurely, which could choke economic recovery. This is not a purely theoretical concern: In the summer of 2008, the Fed was hesitant to cut its target interest rate—which would have made it easier to borrow money and stimulated economic growth—out of a mistaken concern for higher inflation. But the greater threat at that time was financial instability and a contracting economy, which could have been mitigated had the Fed cut its rate sooner. Even more egregiously, the European Central Bank, fearing inflation, raised its target interest rate in 2008 and then again in 2010 and 2011 as it drove the Eurozone into crisis. In both cases, the central banks were misled by inflation caused by supply shocks and responded inappropriately.
Checking the Forecasts
When in doubt over whether inflation is driven by Fed policy or external forces, it is helpful to look at medium-term forecasts for inflation. The figure below shows one popular example: the five-year, five-year-forward inflation forecast that comes from the Survey of Professional Forecasters. This is a five-year forecast of the average inflation rate, beginning five years in the future. For example, the current forecast is for the average inflation rate from 2026 to 2031.
This horizon is useful since it allows us to see beyond the near term, where supply chain disruptions due to the pandemic are affecting inflation. Inflation forecasts this far out, in other words, should be largely reflecting the stance of monetary policy without interference from short-term changes. The figure below shows that the professional forecasters’ outlook for inflation is very close to 2. They see the Fed keeping inflation anchored over the medium to long term.
The next figure shows another five-year, five-year-forward inflation rate. This measure comes from the bond market and is based on Treasury bonds indexed for inflation. This forecast, unlike the previous one, comes from the interaction of all bond traders around the world. These individuals have skin in the game since they are trying to be profitable in their trades. Consequently, this forecast provides a nice cross-check on the one from the Survey of Professional Forecasters. The figure below demonstrates that here too the forecast is now close to 2, indicating that bond traders also believe the Fed is committed to keeping inflation near its target over the medium term.
Forecasts over the medium term, then, show that the Fed’s current performance is about right, but that could change depending on how events play out over the next year. If the economic recovery continues to be strong and puts additional upward pressure on inflation, then it might make sense for the Fed to pump the brakes on inflation by tightening its monetary policy. However, if other factors such as the pandemic and supply chain bottlenecks continue to stymie economic activity, then the Fed shouldn’t be too quick to raise interest rates.
For now, the Fed has signaled it will begin slowly reducing bond purchases near the end of this year. The Fed has also indicated it is likely to start incrementally raising interest rates next year if the economic recovery continues. This gradual approach to tightening monetary policy is sensible given the current state of recovery. Therefore, if lawmakers want to address the high prices caused by inflation, rather than blaming the Fed, they should work on ameliorating bottlenecks and shortages.
Expanding organized labor’s bargaining power creates upward pressure on interest rates
da Costa 17 ~Pedro Nicolaci da Costa was a senior correspondent at Business Insider. He wrote commentary and analysis on economics, the Federal Reserve and financial markets, and is based in Washington, DC. "The shrinking role of unions helps shed light on an economic trend that is puzzling Fed officials." https://www.businessinsider.com/decline-of-unions-helps-fed-solve-low-inflation-puzzle-2017-12~~
Weak wage growth has been part and parcel of the low inflation trend, with average hourly earnings gaining just 2.5 annually at latest blush.
For Andrew Kenningham, chief global economist at Capital Economics, there’s an important story behind the subdued price and wage increases that policymakers are largely ignoring.
Technological change and globalization have "reduced the demand for unskilled labor in advanced economies" and caused "trade union membership and the frequency of strikes to fall steeply and has contributed to a surge in part-time, contract and casual work, which has further reduced the bargaining power of labor," he writes in a research note.
The official data bear him out. US union membership peaked at a third of the private sector workforce around 1960, and has declined steadily since to just 6.4.
Research suggests the prevalence of unions has a positive effect not just on the wages of union workers but also spills over to non-union counterparts, which must raise pay to compete. The opposite is true when unionization declines.
In 2015, there were 7.6 million union members in the private sector, 4.4 million fewer than in 1983, according to the Bureau of Labor Statistics. The number slipped further to an all-time low in 2016.
The low inflation phenomenon is prevalent not just in the United States but across rich economies, suggesting the loss of bargaining power has crossed borders.
"Since the global financial crisis, inflation has been below target in most advanced economies most of the time. The core inflation rate since January 2009 has averaged around 0, 1 and 1½ in Japan, the euro-zone and the US respectively,"Kenningham said. "And the Fed’s preferred measure of core inflation has been below 2 for 100 of the 104 months since the crisis!"
Fed Chair Janet Yellen conceded in recent testimony "this year’s low inflation could reflect something more persistent" rather than the transitory factors many central bank officials have cited.
Against that backdrop, it’s little wonder markets are questioning the Fed’s own estimates for three interest rate hikes in 2018 and further increases in 2019. The Fed has raised interest rates four times since December 2015 to a 1 to 1.25 range, and looks set to raise interest rates again this week. It has also began shrinking its $4.5 trillion balance sheet, expanded during the Great Recession in an effort to keep long-term rates low while the federal funds rate was already at zero.
Over-aggressive monetary policy causes a global debt crisis.
Shang Lin Wei, Professor of Finance @ Columbia, Chief Economist @ ADB, 7-9-21, "The Global Dangers of Rising US Inflation" Project Syndicate. https://www.project-syndicate.org/bigpicture/stagflation-ahead
To anticipate the international consequences of higher US inflation, we need to recognize the risk that the Fed may tighten monetary policy more suddenly and dramatically than its current 3.4 inflation forecast might suggest. For now, a majority of US households, firms, and investors still believe that the Fed will adjust the money-supply spigot in a timely, measured way to prevent inflation from getting out of hand.
But such "inflation anchoring" could prove fragile if Americans see more evidence of the Fed failing to keep inflation near its desired 2 target. Should that happen, both employees’ wage demands and firms’ price-setting will start to reflect the possibility that inflation could shoot up to 5 or more unless the Fed applies the brakes by raising interest rates aggressively.
If US rates rise sharply, history tells us that two types of countries may experience serious financial and economic difficulties. The first group comprises economies that finance a significant part of their investment or consumption with foreign-currency debt, by borrowing either from foreign banks or on international bond markets. Countries with large short-term foreign-currency debts (with less than one year to maturity) and relatively low foreign-exchange reserves are particularly vulnerable to a severe debt or banking crisis.
The second group consists of countries with an overvalued fixed exchange rate, which makes them vulnerable to a run on their currencies and an exchange-rate crisis. So, if the Fed tightens policy significantly, we can expect to see a number of debt and currency crises in Central and South America, Africa, and Asia in the next 2-5 years. Because significant foreign-currency debt and overvalued fixed exchange rates are not mutually exclusive, some countries may suffer several types of crises.
This is why US inflation and interest-rate policy is so important to so many. When the United States sneezes, the rest of the world may catch a cold. But other countries should not expect America to conduct its monetary policy any differently as a result, and nor should they count on the International Monetary Fund or the G7 to be able to direct the US to be more globally minded in managing interest-rate movements.
Even countries not in either of the risk categories will need to address the challenge of imported inflation. China, for example, is deeply concerned about this, even though it currently has relatively modest foreign-currency debts and retains a high level of foreign-exchange reserves.
To prevent imported inflation from fueling domestic inflation, the People’s Bank of China would need to tighten its own supply of liquidity to the economy. For such a policy to be effective, China must either introduce more exchange-rate flexibility or tighten its capital controls, with the former approach promising to be much better for the economy in the long run.
Post-covid debt crisis causes nuclear war through hotspot escalation and collapses multilateral governance.
Strategic Partners Marsh McLennan SK Group Zurich Insurance Group, Academic Advisers National University of Singapore Oxford Martin School, University of Oxford Wharton Risk Management and Decision Processes Center, University of Pennsylvania, ’21, "The Global Risks Report 2021 16th Edition" "http://www3.weforum.org/docs/WEF'The'Global'Risks'Report'2021.pdf
Forced to choose sides, governments may face economic or diplomatic consequences, as proxy disputes play out in control over economic or geographic resources. The deepening of geopolitical fault lines and the lack of viable middle power alternatives make it harder for countries to cultivate connective tissue with a diverse set of partner countries based on mutual values and maximizing efficiencies. Instead, networks will become thick in some directions and non-existent in others. The COVID-19 crisis has amplified this dynamic, as digital interactions represent a "huge loss in efficiency for diplomacy" compared with face-to-face discussions.23 With some alliances weakening, diplomatic relationships will become more unstable at points where superpower tectonic plates meet or withdraw.
At the same time, without superpower referees or middle power enforcement, global norms may no longer govern state behaviour. Some governments will thus see the solidification of rival blocs as an opportunity to engage in regional posturing, which will have destabilizing effects.24 Across societies, domestic discord and economic crises will increase the risk of autocracy, with corresponding censorship, surveillance, restriction of movement and abrogation of rights.25 Economic crises will also amplify the challenges for middle powers as they navigate geopolitical competition. ASEAN countries, for example, had offered a potential new manufacturing base as the United States and China decouple, but the pandemic has left these countries strapped for cash to invest in the necessary infrastructure and productive capacity.26 Economic fallout is pushing many countries to debt distress (see Chapter 1, Global Risks 2021). While G20 countries are supporting debt restructure for poorer nations,27 larger economies too may be at risk of default in the longer term;28 this would leave them further stranded—and unable to exercise leadership—on the global stage.
Multilateral meltdown Middle power weaknesses will be reinforced in weakened institutions, which may translate to more uncertainty and lagging progress on shared global challenges such as climate change, health, poverty reduction and technology governance. In the absence of strong regulating institutions, the Arctic and space represent new realms for potential conflict as the superpowers and middle powers alike compete to extract resources and secure strategic advantage.29 If the global superpowers continue to accumulate economic, military and technological power in a zero-sum playing field, some middle powers could increasingly fall behind. Without cooperation nor access to important innovations, middle powers will struggle to define solutions to the world’s problems. In the long term, GRPS respondents forecasted "weapons of mass destruction" and "state collapse" as the two top critical threats: in the absence of strong institutions or clear rules, clashes— such as those in Nagorno-Karabakh or the Galwan Valley—may more frequently flare into full-fledged interstate conflicts,30 which is particularly worrisome where unresolved tensions among nuclear powers are concerned. These conflicts may lead to state collapse, with weakened middle powers less willing or less able to step in to find a peaceful solution.
Nuke war causes extinction – won’t stay limited
Edwards 17 ~Paul N. Edwards, CISAC’s William J. Perry Fellow in International Security at Stanford’s Freeman Spogli Institute for International Studies. Being interviewed by EarthSky. How nuclear war would affect Earth’s climate. September 8, 2017. earthsky.org/human-world/how-nuclear-war-would-affect-earths-climate~ Note, we are only reading parts of the interview that are directly from Paul Edwards — MMG
In the nuclear conversation, what are we not talking about that we should be?
We are not talking enough about the climatic effects of nuclear war. The "nuclear winter" theory of the mid-1980s played a significant role in the arms reductions of that period. But with the collapse of the Soviet Union and the reduction of U.S. and Russian nuclear arsenals, this aspect of nuclear war has faded from view. That’s not good. In the mid-2000s, climate scientists such as Alan Robock (Rutgers) took another look at nuclear winter theory. This time around, they used much-improved and much more detailed climate models than those available 20 years earlier. They also tested the potential effects of smaller nuclear exchanges. The result: an exchange involving just 50 nuclear weapons — the kind of thing we might see in an India-Pakistan war, for example — could loft 5 billion kilograms of smoke, soot and dust high into the stratosphere. That’s enough to cool the entire planet by about 2 degrees Fahrenheit (1.25 degrees Celsius) — about where we were during the Little Ice Age of the 17th century. Growing seasons could be shortened enough to create really significant food shortages. So the climatic effects of even a relatively small nuclear war would be planet-wide. What about a larger-scale conflict? A U.S.-Russia war currently seems unlikely, but if it were to occur, hundreds or even thousands of nuclear weapons might be launched. The climatic consequences would be catastrophic: global average temperatures would drop as much as 12 degrees Fahrenheit (7 degrees Celsius) for up to several years — temperatures last seen during the great ice ages. Meanwhile, smoke and dust circulating in the stratosphere would darken the atmosphere enough to inhibit photosynthesis, causing disastrous crop failures, widespread famine and massive ecological disruption. The effect would be similar to that of the giant meteor believed to be responsible for the extinction of the dinosaurs. This time, we would be the dinosaurs. Many people are concerned about North Korea’s advancing missile capabilities. Is nuclear war likely in your opinion? At this writing, I think we are closer to a nuclear war than we have been since the early 1960s. In the North Korea case, both Kim Jong-un and President Trump are bullies inclined to escalate confrontations. President Trump lacks impulse control, and there are precious few checks on his ability to initiate a nuclear strike. We have to hope that our generals, both inside and outside the White House, can rein him in. North Korea would most certainly "lose" a nuclear war with the United States. But many millions would die, including hundreds of thousands of Americans currently living in South Korea and Japan (probable North Korean targets). Such vast damage would be wrought in Korea, Japan and Pacific island territories (such as Guam) that any "victory" wouldn’t deserve the name. Not only would that region be left with horrible suffering amongst the survivors; it would also immediately face famine and rampant disease. Radioactive fallout from such a war would spread around the world, including to the U.S. It has been more than 70 years since the last time a nuclear bomb was used in warfare. What would be the effects on the environment and on human health today? To my knowledge, most of the changes in nuclear weapons technology since the 1950s have focused on making them smaller and lighter, and making delivery systems more accurate, rather than on changing their effects on the environment or on human health. So-called "battlefield" weapons with lower explosive yields are part of some arsenals now — but it’s quite unlikely that any exchange between two nuclear powers would stay limited to these smaller, less destructive bombs.