Publications

On 17 March, INET published on its website a blog note (summary) and  Working Paper by William White. The Working Paper argues that, by encouraging the issue of debt, often for unproductive purposes, monetary stimulus becomes increasingly ineffective with time. Worse, it has a number of side effects that become increasingly burdensome over time. It threatens financial instability in a number of ways, leads to real resource misallocations that lower potential growth, and finally produces a policy “debt trap” that cannot be escaped without significant economic costs.

https://www.ineteconomics.org/perspectives/blog/the-full-case-against-ultra-low-and-negative-interest-rates

https://www.ineteconomics.org/research/research-papers/its-worse-than-reverse-the-full-case-against-ultra-low-and-negative-interest-rates

Previously a Working paper posted by INET, this article has now been published as a chapter in a book called “The next money crash and a reconstruction blueprint”. Edited by Uli Kortsch, the book makes the case that economic systems in which private banks (and shadow banks) effectively create money are inherently prone to crises of increasing seriousness. It effectively argues for a modern version of the Chicago Plan that replaces bank-created-money with sovereign-created-money. White’s paper helps document many of the problems generated by the current system and why monetary and regulatory policies have not been able to overcome them. He also lists a number of reforms, in order of their ease of implementation, that could in principle reduce the need for more radical reform. White finishes by noting that monetary reform at the national level is not enough. We also need to reform the International Monetary (Non) System.

In this article, published in the Winter edition of “The International Economy” magazine, William White identifies four interrelated and systemic problems, akin to the biblical Four Horsemen, that need urgent and simultaneous attention.  Our economic, political, environmental and health systems are all operating under severe stress. Moreover, their interrelatedness implies that failure anywhere could well lead to failure elsewhere, and potentially everywhere. Where we are is not a good place to be. Recognizing the analytical uncertainties involved, and also the associated difficulties of turning plans into concrete actions, White then makes some tentative suggestions as to how policy might respond to these threats.

OMFIF and the BSIA (Balsillie School of International Affairs)  jointly published on 16 September a piece authored by William White. He contends that the global economic system, and indeed the state of mankind more generally, is more precarious than is commonly understood. Prior to the pandemic, the economic, political and environmental systems that underpin our democratic and capitalist institutions were already highly stressed. The pandemic, the Fourth Horseman of the Apocalypse, now threatens to trigger “tipping points”  that will not be easy to reverse. White remains optimistic that properly chosen policies can reduce these exposures, but they require answering a number of important questions. Not least, what past policies have contributed to the current, unsustainable state of affairs and should be avoided in the future? Spend and print is not a sustainable solution.

https://www.omfif.org/2020/09/unsustainable-policies-and-their-remedies/?utm_source=omfifupdate

The Institute for New Economic Thinking (INET) recently published a Working Paper by William White. He argues that changes to international financial regulations, post the 2008 crisis,were undoubtedly useful but still fall short of taming global “boom-bust” credit cycles. A macrofinancial stability framework, in which both monetary and macroprudential instruments were used to “lean against the wind” of credit booms, would seem the minimum requirement to achieve the desired objective. This should likely be complemented by other measures designed to change the behaviour of market participants (including higher capital requirements)and also the structure of  markets themselves. White also notes the shortcomings of individual regulatory changes, and refers to concerns raised about their coherence as a package. The paper concludes with a brief overview of more radical solutions for change suggested in the literature (eg, Free Banking and Narrow Banking) and a final observation. The current International Monetary (Non)System imposes no international discipline to mitigate national tendencies to excessive credit creation.

https://www.ineteconomics.org/perspectives/blog/why-international-financial-regulation-still-falls-short

This article will be published shortly as a chapter in a book “New Approaches to Economic Challenges: The Financial System” , published by the OECD in Paris. It is argued in the chapter that economies are Complex, Adaptive Systems (CAS). Such systems are widespread in nature and society,have been well studied by other disciplines, and have many shared characteristics. This communality implies that insights from other disciplines might inform macroeconomic policies as well. Ironically, the embrace of complexity leads to at least ten lessons for policymakers that, while revolutionary,  are both simple and intensely practical.

On 19 August, prior to its publication by the OECD, the chapter was also published as an article in the Swiss financial newspaper “The Market”.

https://themarket.ch/english/simple-lessons-for-macro-policymakers-from-embracing-complexity-ld.2503

William White, together with a number of other economists, answered this question in a submission to the Winter 2020 edition of “The International Economy”.  White notes that the current dollar based regime is decidedly sub optimal, not least because it has no nominal anchor and no reliable lender of last resort, and it needs to be replaced. While there is currently no political appetite to engage in such discussions, the next serious crisis in the global financial system might change this. White suggests that a crucial exposure today is  the massive reliance on short term dollar funding faced by many non US financial institutions. Should this trigger other problems, it might lead to a broader discussion of the shortcomings of the current International Monetary (Non) System.

This article appeared in the Winter 2020 edition of “The International Economy”. White argues that there is a fundamental intertemporal inconsistency in the repeated use of monetary easing by advanced countries to stimulate aggregate demand. This arises from the fact that monetary stimulus encourages the buildup of debt which eventually strangles further spending.  Moreover, such stimulus in the advanced economies has undesirable side effects. It threatens financial instability, has negative effects on productivity growth and can seriously injure emerging market economies as well. Looking forward, there should be greater reliance on fiscal expansion in response to economic downturns, complemented by stronger fiscal contractions in upturns. Improvements are urgently needed in administrative and judicial procedures for debt restructuring, both private and public.

This paper will in time be published as a chapter in a book. In the interim it will be forthcoming as an INET Working Paper. It argues that, while significant efforts have been made in the post-crisis period to  to make the global financial system more stable, worrying shortcomings remain. Comments would be appreciated before a final version is decided upon.