Crisis Cycle: Challenges, Evolution, and Future of the Euro
By: John H. Cochrane, Luis Garicano, and Klaus Masuch – Hoover Institution, LSE, ECB
The euro has survived crises unimagined at its founding: the financial meltdown of 2007–2009, the sovereign debt crisis of 2010–2012, the pandemic, and the Russian invasion of Ukraine. The European Central Bank fought these crises with dramatic policy innovations, buying up vast amounts of debt and providing large loans to banks. But now everyone expects the ECB to intervene routinely, and the euro is more fragile as a result. Crisis Cycle recounts this history and offers recommendations for restoring a durable monetary union.
Monetary and fiscal policy are intertwined, especially in a currency union like the eurozone. Member states can be tempted to borrow and spend too much, and then count on the ECB to rescue them by printing money to buy their bonds. To avoid these disincentives, the ECB was founded with a narrow mandate: use interest rates to pursue price stability, and don’t buy sovereign debt. Debt and deficit rules would keep countries from getting into trouble.
The ECB’s emergency innovations brought back these disincentives. How can the EU avoid larger and larger bailouts? The authors argue that Europe needs a joint fiscal institution that can provide temporary help to sovereigns, a resolution mechanism so sovereign default is a motivating possibility, and bank reform that ensures sovereign default will not bring down the financial system. This timely book shows how to restore the euro’s ambitious and effective founding framework. The unique group of authors combine extensive policy experience and authoritative academic credentials.
Price Setting
By: Truman F. Bewley – Yale University
The prices of some products fluctuate dramatically, while others remain more constant. What accounts for these extreme differences? Renowned economist Truman F. Bewley investigates and elucidates this puzzling problem. Its crux, he argues, is that differentiated product prices are usually stable, whereas the prices of undifferentiated products – for which buyers can easily find comparable substitutes – are often volatile. Although product differentiation gives producers market power, this power alone does not guarantee price stability. There are nearly undifferentiated products whose producers have market power yet for which prices are unstable. Weakness of product differentiation makes it so advantageous for producers to compete on price that they do so and forego the benefits and stability of price collusion. Producers of truly differentiated goods prefer to compete on product performance rather than price and find that reducing prices during recessions does little to increase demand.
Based on hundreds of interviews with businesspeople responsible for setting prices, Bewley’s book is an unusual and groundbreaking work, with findings vital for economists, students, and policymakers.
Truman Bewley has a unique interview skill in drawing out the thought process that important, if unsung, economic decision makers go through on a regular basis. His results ought to change our thinking about central economic policy issues, notably about the management of inflation and recessions.
Robert J. Shiller, Yale University
Algorithmic Harm: Protecting People in the Age of Artificial Intelligence
By: Oren Bar-Gill and Cass R. Sunstein – Harvard University
Will algorithms help people or hurt them? What about artificial intelligence in general? If consumers know what they need to know and do not suffer from behavioral biases, algorithms and AI are likely to be helpful. Consumers will be more likely to get what they want and need. But if consumers lack information, algorithms in particular will be able to convince them to make harmful or foolish choices. And if consumers suffer from behavioral biases, such as unrealistic optimism or a focus on the short term, algorithms will be able to produce serious harms.
In Algorithmic Harm: Protecting People in the Age of Artificial Intelligence, Oren Bar-Gill and Cass Sunstein consider the harms and benefits of AI and algorithms and catalog the different ways in which algorithms are being or may be used in consumer and other markets. The authors identify the market conditions under which these uses injure consumers and consider policy and regulatory responses that could reduce the risks consumers, investors, workers, and voters face now—and in the future. Democracy and self-government are at risk; there is a great deal that can be done to reduce that risk.
Peak Human: What We Can Learn from the Rise and Fall of Golden Ages
By: Johan Norberg – Cato Institute
Golden ages are marked by periods of spectacular cultural flourishing, scientific exploration, technological achievement and economic growth: Ancient Greece gave us democracy and the rule of the law; out of Abbasid Baghdad came algebra and modern medicine, and the Dutch Republic furnished us with Europe’s greatest artistic movements. As such, each has unique lessons to teach us about the world we live in today. But, all previous golden ages have proven finite, whether through external pressures or internal fracturing.
In Peak Human, acclaimed historian Johan Norberg examines seven of humanity’s greatest civilizations – ancient Athens, the Roman Republic, Abbasid Baghdad, Song China, Renaissance Italy, the Dutch Republic and the Anglosphere – and asks: how do we ensure that our current golden age doesn’t end?
