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Smorgasbord

Alan Benson and Kathryn Shaw review the research on "What Do Managers Do? An Economist's Perspective" (Annual Review of Economics 2025, 17: 635–664, .

"Research on managers has also made clear that managers help explain enormous variation in the productivity of firms. Better managers could be better in many dimensions: They may be better at recruiting, retaining, training, motivating, allocating, or evaluating. Much of the work on hiring and evaluating has pinned down the importance of leveraging managers’ observation of and experience with workers. Incidentally, this mirrors a characteristic premise of the employer learning literature: Namely, that firms do not really observe match quality or ability until the worker is on the job. The empirical literature on managers corroborates this assumption but also reminds us that this knowledge often resides with the manager and not the firm. Evidently, inducing managers to act in the best interests of the firm is not straightforward. Studies are replete with examples of how managers’ decisions reflect some combination of the incentives provided to them by the firm and their own considerations. Removing subjective assessments and the exercise of discretion by managers may reduce bias but also comes at the cost of the firm's ability to make well-informed decisions.”

Several OECD economists—Francesco Filippucci, Peter Gal, Katharina Laengle, Matthias Schief, and Filiz Unsal—discuss "Opportunities and Risks of Artificial Intelligence for Productivity" (International Productivity Monitor, Spring 2025, .

"AI could contribute between 0.3 and 0.7 percentage points to annual aggregate TFP [total factor productivity] growth in the United States over the next decade. The predicted impacts across different scenarios are highest in the United States, followed by the United Kingdom, Germany, Canada, France and Italy, and lowest in Japan. These figures indicate that Generative AI will likely be an important source of aggregate productivity growth over the next 10 years but also clarify that the expected gains from the current generation of AI technologies may not be extraordinary. For comparison, the latest technology driven boom linked to information and communication technologies (ICT) has been estimated to have contributed up to 1–1.5 percentage points to annual TFP growth in the United States during the decade starting in the mid-1990s."

The World Bank has published 21st-Century Africa: Governance and Growth, a collection of eight chapters, edited by Chorching Goh (May 2025, ). From the "Main Message" section at the start of the report:

"Over the past 25 years, Africa has achieved notable progress . . . Mortality rates have fallen, with life expectancy rising from 50 years in 1998 to 61 years in 2022. School attendance has improved, with primary school enrollment increasing from 80 percent in 1999 to 99 percent in 2022 and secondary school enrollment increasing from 26 percent to 45 percent over the same period. The early 2000s saw strong economic growth fueled by high commodity prices. China emerged as a trade and investment partner, and the continent experienced a massive inflow of foreign capital from 17.6 percent of gross domestic product (GDP) in 1998 to 38.1 percent in 2018. . . . Aid dependence has declined, tax revenues have increased, and the median poverty rate fell by about 10 percentage points to about 43 percent." On the other side: "Africa remains the world’s biggest development challenge. . . . By 2030, 90 percent of the world's extremely poor population will live in Africa. . . . Sub-Saharan Africa’s share of the global economy remains at 2 percent . . . Private investment remains low, with the informal economy accounting for 59 percent of total nonagricultural employment. . . . Only 51 percent of the African population has access to electricity, compared to the global average of 91 percent." Overall, "Africa's income level per capita would be 40% higher if it had grown at the global average since 1990." The volume includes chapters on all of these topics and more.

William F. Maloney, Xavier Cirera, and Maria Marta advocate for Reclaiming the Lost Century of Growth: Building Learning Economies in Latin America and the Caribbean (World Bank, 2025, .

"In 1850, the average income in the Latin America and the Caribbean (LAC) region was on a par with that of Japan, Spain, and Sweden at about 40 percent of the United States’s income, and substantially above that of Korea … Viewing the subsequent evolution, the central growth question centers not so much on the lost decade of the 1990s, when the region slipped from 30 percent to 20 percent of US income, but rather why, beginning at the turn of the 20th century, the Asian and Nordic comparators, as well as the colonial mother countries of Portugal and Spain, were able to catch up to about 60 percent of US levels. At the same time, LAC’s relative position remained unchanged. … Economic convergence is driven by firms and farms adopting frontier technologies, enabling growth rates faster than those of the countries that are inventing these technologies. … [F]or much of the past two centuries, LAC has been relatively slow at adopting technologies ranging from steamships to computers. Simulations suggest these lags can explain 83 percent of this lack of convergence or divergence …"

Stephen Cecchetti and Kermit L. Schoenholtz describe the state of play in "Crypto, tokenisation, and the future of payments" (CEPR Policy Insights 146, August 2025, ).

Why have cryptocurrencies like Bitcoin not taken off as their enthusiasts predicted? "When historians look back at the decades following Bitcoin's introduction, they will ask: 'Why has crypto not 'taken off' in the way its creators and early backers hoped?' We offer three tentative answers. First, despite the hype about the speed and efficiency of digital transactions, it turns out that transfers of Bitcoin and Ether—the leading cryptoassets—remain slow and costly. On 14 August 2025, it took an average of more than 15 minutes to confirm a Bitcoin transaction. And that time varies widely: on several days in September 2024, it took more than 2,000 minutes! . . . Small retail payments are especially costly (say, 5% for a payment of $20) in part because even the limited number of retailers who are willing to accept Bitcoin in payment typically do not wish to hold it. Second, the competition from traditional finance is intense, helping to lower costs and speed up payments. . . . Third, while both governments and private groups are expanding their efforts to track illicit crypto payments, the reputational damage from criminal activity lingers. In addition, spectacular failures in the past – such as the collapse of the FTX exchange – encourage consumer doubts about the reliability of crypto custodians. Similarly, dire headlines about crypto-related kidnapping and torture probably deter potential crypto users who do not trust custodians and instead would consider owning a digital wallet." They argue that, in the future, "tokenised deposits and tokenised money market funds" are likely to be more important for transactions than crypto or stablecoins.

Ina Hajdini, Adam Shapiro, A. Lee Smith, and Daniel Villar discuss "Inflation Since the Pandemic: Lessons and Challenges" (August 2025, Federal Reserve Finance and Economics Discussion Series 2025-070, ). From the abstract:

"This paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response. Measures of short-term inflation expectations increased alongside realized inflation, especially those of households and firms, which may have contributed to inflation’s persistence through price- and wage-setting behavior. However, measures of longer-term inflation expectations remained generally well anchored, which likely prevented a larger or more lasting increase in inflation. The stability of longer-term inflation expectations, together with easing supply and demand imbalances, allowed inflation to fall from its peak in mid-2022 without a large increase in unemployment."

Fernando Avalos, Sebastian Doerr and Gabor Pinter raise the issue of "The global drivers of private credit" (BIS Quarterly Review, March 2025, pp. 13–30, .

"Private credit funds have increased their assets under management (AUM) from about $0.2 billion in the early 2000s to over $2,500 billion today. . . . Most funds operate as closed-end structures that lock in capital for their life cycle, which typically ranges from five to eight years. They do not trade on exchanges and are not available to retail investors, which makes them illiquid and subject to lighter regulation. The life cycle of funds usually matches the average maturity of their loan portfolios.” For additional background, the IMF devoted Chapter 2 of its semiannual Global Financial Stability Report to "The Rise and Risks of Private Credit" (April 2025, ).

Distinguished Lectures

N. Gregory Mankiw delivered the Martin Feldstein Lecture at the Summer Institute of the National Bureau of Economic Research on the subject, "The Fiscal Future" (July 10, 2025, .

"I have no doubt that this path of a rising debt-to-GDP ratio will stop at some point. The open questions are how and when it will stop. . . . There are only five ways to stop this upward trajectory. They are (1) extraordinary economic growth, (2) government default, (3) large-scale money creation, (4) substantial cuts in government spending, and (5) large tax increases. I would encourage you to try to assign probabilities to these possible outcomes. Individually, each of these outcomes seems highly unlikely. But the probabilities you assign must sum to at least one. I say "at least" because more than one of these outcomes could occur."

Mankiw views the final option as "the most likely outcome in the long run," in part because the other options seem "implausible or unacceptable." He says: "To close a fiscal gap of 4 percent of GDP with only increased revenue, the United States would need to raise overall tax revenue by about 14 percent. That is a huge tax hike, but it would bring us only about halfway toward the level of taxation that prevails in the United Kingdom. U.S. taxes would remain below the OECD average and well below the levels in France, Italy, and Sweden. From a strictly economic standpoint, that is entirely feasible."

Ben S. Bernanke suggests "Improving Fed Communications: A Proposal" at the Federal Reserve Second Thomas Laubach Research Conference (May 15-16, 2025, ).

"Effective communication—about what the Fed sees in the economy and how it plans to respond—helps households and businesses better understand the economic outlook, clarifies and explains the Fed's policy strategy, and builds trust and democratic accountability. . . . The centerpiece . . . would be forecasts of key economic and policy variables at varying horizons, drawn from a comprehensive macroeconomic forecast led and 'owned' by the Board staff (possibly with some input and commentary from policymakers . . .). Because the underlying forecast would be internally consistent and based on explicit economic assumptions, it would provide greater insight than the projections of individual FOMC participants into the factors affecting the outlook for the economy and policy. Critically, a fully articulated baseline forecast would also facilitate the public discussion of economic scenarios that differ from that baseline. Besides highlighting the inherent uncertainty of economic forecasts, the publication of selected alternative scenarios and their implications could facilitate a subtle but important shift in the Fed's communications strategy. Specifically, it would allow the FOMC to provide policy guidance that is more explicitly contingent on how the economy evolves, underscoring for the public that the future path of policy is not unconditional ('on a preset course') but depends sensitively on economic developments and risk management considerations."

Central Bank Independence

New Zealand was the first country to require that its central bank focus on an inflation target. Oliver Sikes tells how it happened in "How one Kiwi tamed inflation" (Works in Progress, June 12, 2025, ). He describes the New Zealand economy and Reserve Bank in the 1980s:

"The government controlled large portions of many industries, including banking, insurance, and utilities, and the agricultural sector was supported by generous subsidies, price guarantees, and low-interest loans. Imports of goods were also tightly controlled—Kiwis needed government approval to subscribe to an overseas magazine. . . . Unlike today's central banks, which mainly control inflation through adjusting interest rates, New Zealand used direct regulatory controls on financial institutions. The government forced banks to hold specific amounts of government debt and set limits on interest rates for savers. It used capital controls to restrict money flows in and out of the country, allowing it to retain a fixed exchange rate. . . . Inflation began to fall in 1982, but only after [Prime Minister] Muldoon imposed a complete freeze on prices and wages, which then coincided with an economic contraction. . . . Recent experiences overseas showed countries could successfully rein in high inflation using tight monetary policy. Paul Volcker's Federal Reserve dropped inflation from 13.5 percent in 1980 to 3.2 percent in 1983 by raising rates to nearly 20 percent." Minister of Finance Roger Douglas asked the Reserve Bank to set public inflation goals, which ended up with a goal of inflation in the range of 0–2 percent. "Michael Reddell, head of the Reserve Bank’s monetary policy unit, said it was settled on ‘more by osmosis than by ministerial sign-off". . . . David J. Archer, a former Assistant Governor, said inflation targets were eventually chosen 'as the least bad of the alternatives available'."

Andrew Levin, "Is the Federal Reserve Overstaffed or Overworked? Insights from the Fed's Financial Statements" (George Mason University Mercatus Center Policy Brief, March 27, 2025, ). From the abstract:

"This policy brief compares the operating expenses of the Federal Reserve with other large federal agencies. Inflation-adjusted salaries of Fed employees increased 67 percent from 2007 to 2024 but remained practically unchanged at other federal agencies. The Fed is now completing a $2.5 billion building upgrade at its DC headquarters—about ten times the cost of office renovations at the Ronald Reagan Building just a few blocks away. The Fed's management of its securities portfolio has resulted in unprecedented operating losses of $220 billion since mid-2022, and the total cost to taxpayers will be about $1.5 trillion over coming years. Each of these outcomes reflects an opaque and hierarchical institution with no constraints on the costs or efficacy of its programs and operations. Congress urgently needs to take specific steps to strengthen the Fed's public accountability."

Interviews

Tim Sablik poses the questions in "Carmen Reinhart: On twin financial and currency crises, the future of the dollar, and sovereign debt" (Econ Focus: Federal Reserve Bank of Richmond, Third Quarter 2025, ). Here's Reinhart:

"When we talk about the dollar’s dominance, it's important to first remember that central banks and investors are not buying greenbacks, they're buying Treasuries. And it is the unmatched liquidity of the Treasury market that supports the role of the dollar. . . . When the euro came into being, for a while it looked like, while it might not replace the dollar, you could have a situation with dual reserve currencies. Before the global financial crisis, investors tended to view all European debt—whether it was French debt, German debt, Greek debt, or Irish debt—as close substitutes. Of course, the global financial crisis completely destroyed that perception. What it boils down to is that you have very fragmented debt markets in the eurozone that don’t offer the liquidity of the U.S. Treasury market. The euro is a unified currency, but there is no unification of the underlying assets that support the currency. Others have argued that the Chinese renminbi could be a contender to replace the dollar. I've never really entertained that possibility because, as Rudi Dornbusch used to say, people only go to a party if they think they can leave whenever they want to. China has capital controls, which directly impacts the liquidity of their debt market. How could you have as a reserve currency an underlying asset that in a time of need you can't sell?"

Dean Karlan served as Chief Economist at USAID from November 2022 to February 2025. Santi Ruiz interviews him "How to Fix Foreign Aid: USAID's former Chief Economist reflects on DOGE" (Statecraft, July 31, 2025, ). Here's Karlan:

"There had never been an Office of the Chief Economist before. In a sense, I was running a startup, within a 13,000-employee agency that had fairly baked-in, decentralized processes for doing things. . . . [T]he reality is, we were running a consulting unit within USAID, trying to advise others on how to use evidence more effectively in order to maximize impact for every dollar spent. We were able to make some institutional changes, focused on basically a two-pronged strategy. One, what are the institutional enablers—the rules and the processes for how things get done—that are changeable? And two, let’s get our hands dirty working with the budget holders who say, 'I would love to use the evidence that's out there, please help guide us to be more effective with what we're doing.' There were a lot of willing and eager people within USAID."

Discussion Starters

Matthew McCaffrey, Joseph T. Salerno, and Carmen-Elena Dorobat make a case for "The History of Economic Thought as a Living Laboratory" (Cambridge Journal of Economics, March 2025, 235–53, .

"We argue that the history of thought can be conceived as a living laboratory of economic theorising. It is living in that it is a vital and valuable part of economics rather than a dead branch of it. It is a laboratory in that it functions as a proving ground in which theories from many different times and contexts can be examined, compared, critiqued, combined and developed. In other words, history of thought can be conceived as a method of doing economics rather than an isolated or niche field within it." Along the way, they quote Joseph Schumpeter: "[O]ur minds are apt to derive new inspiration from the study of the history of science. Some do so more than others, but there are probably few that do not derive from it any benefit at all. A man's mind must be indeed sluggish if, standing back from the work of his time and beholding the wide mountain ranges of past thought, he does not experience a widening of his own horizon… But, besides inspiration every one of us may glean lessons from the history of his science that are useful, even though sometimes discouraging. We learn about both the futility and the fertility of controversies; about detours, wasted efforts, and blind alleys; about spells of arrested growth, about our dependence on chance, about how not to do things, about leeways to make up for. We learn to understand why we are as far as we actually are and also why we are not further. And we learn what succeeds and how and why."

Olivier Blanchard offers "Convergence? Thoughts about the Evolution of Mainstream Macroeconomics over the Last 40 Years" (Peterson Institute for International Economics, Working Paper 25-8, May 2025, .

"Let me state my two main conclusions. First, starting from sharply different views, there has been substantial convergence, both in terms of methodology and in terms of architecture. Second, this convergence has been mostly in the right direction, allowing future research to build on the existing conceptual structure. Put strongly, macroeconomics may have a claim to calling itself a mature science. . . . As macroeconomists, we should stop self-flagellating and not accept flagellation from others. . . . I see the minimalist [New Keynesian] model as the basic unit in an erector set. By itself, the basic unit is not extremely useful, but you can plug into it a whole set of extensions. You can extend it to introduce myopia . . . and reduce the role of expectations. You can replace rational expectations with other expectation formation mechanisms. You can extend it to include borrowing constraints, which lead to a more important role for current variables and more realistic consumption dynamics. You can extend it to more than one country. You can extend it to introduce various forms of heterogeneity and derive aggregate implications. In short, it provides a common and generally understood structure from which to start and organize research and discussion."