Category Archives: Free exchange

The hole at the heart of economics

AMERICA has a debt ceiling. It's a statutory limit on how much debt the federal government can issue. For most of its existence (the ceiling will turn 100 next year) Congress has simply voted to raise the limit when borrowing threatens to hit it. In 2011 and 2013, however, Republicans in Congress chose a different approach. They threatened not to vote to raise the ceiling unless various budget demands were met. It was a dangerous course of action; had the ceiling not been raised the government would have found itself forced to choose between default—potentially triggering a massive financial crisis—or large, sudden cuts to spending of all sorts, triggering a deep recession.

In both 2011 and 2013 the brinkmanship concluded with a deal. Before those deals were cut, as the moment of doom loomed, some economics writers argued that the Treasury should make use of an obscure loophole in a law designed to allow the government to create platinum commemorative coins to issue a $1tn coin, which could then be used to fund government operations without violating the debt ceiling. The measure seemed legal but sounded completely barmy. At one point...Continue reading

Facebook, and the trouble in being everything to everyone

OXFORD Dictionaries has just named "post-truth" its word of the year. The timing certainly seems apt. Among the many recriminations unfolding in the wake of the American election are darts aimed at the press which, some argue, did an inadequate job during the campaign sorting truth, from half-truth, from innuendo, from outright fabrication. Interestingly, among those groups in the crosshairs is Facebook, which is now struggling to work out what its journalistic responsibilities are in this strange new digital age.

Facebook, which has nearly 2b monthly active users, is a media goliath. Users spend much of their time at the site interacting with friends and family, or sharing photos and videos. Yet Facebook is also an increasingly important location for the publication and sharing of news. According to a study conducted by the Pew Research Centre, 44% of American adults said they get some news from Facebook. Some of that news, as it turns out, is fake....Continue reading

How worrying is the global market reaction to the American election?

IT HAS not yet been a week since Americans elected Donald Trump their next president, and already there is a lot to digest. While Mr Trump's initial personnel decisions deserve plenty of scrutiny, the global market reaction to the election also demands attention.

This morning, the decline in bond prices that began last week continued. In America, the 10-year government bond yield rose above 2.26%, the highest level since the end of 2015, while the 30-year bond yield reached 3%. Treasuries are faring worse than many other bonds, however. Yields are going up nearly everywhere, but emerging markets and the euro-area periphery are experiencing especially large moves. (It is, as my colleague Buttonwood quipped on Twitter, a "Trump tantrum".) What is happening here, and why?

The conventional wisdom is that markets are pricing in an expected move toward expansionary policy in America. Mr Trump is expected to cut taxes dramatically, increasing the American budget deficit, while also spending more on infrastructure and defence. That boost is coming at a time when America's economy, while still...Continue reading