Too much blood in terms of unemployment and sweat in terms of intellectual effort has been spent on trying to determine the amount of fiscal space that economies have – our policy focus instead should be on what to do with the fiscal space that almost all advanced economies (and a surprising number of emerging market economies) actually have.

This realization begins with the failings of making misleadingly precise guesses about the output gap and various other not directly observable measures as a driver of policies within the state. Starting with Posen (1998, 2001) on restoring Japan’s economic growth, there has been a mounting attack on official sector output gaps being biased downwards by repeatedly estimating recession outcomes as the trend. Also, building on this analysis of Japan in the 1990s versus 2000s, and subsequent experience globally, has been support for the idea that fiscal austerity or even just fiscal inaction are the right responses to a...

A global pandemic is bringing the sea change in economic policy that the meltdown of financial markets in 2008 did not. While the shift is incomplete and its success is far from guaranteed, now is the time to reflect on its effects and the challenges ahead.

The economic policy response during the COVID-19 pandemic offers four key lessons: First, the features of the coronavirus crisis are different from and the same as past recessions. Second, we must use lessons learned from economic policies in this crisis to prepare for future recessions. Third, good policies require good administration, which was repeatedly missing during the COVID-19 crisis. Good policy is worthless if it never reaches the people it was intended to serve. Finally, it is time for macroeconomics to upgrade its tools and frameworks, bringing in new ideas and retiring some old ones. That effort will require introspection and collaboration. To remain relevant, change in economics is imperative.

The way ordinary Americans think about trade is very different from the way economists and policy wonks think about it. Most people do not have accurate knowledge of how trade affects them personally: they do not support trade if they stand to gain from it or oppose it because it will hurt them economically. Instead, Americans’ views are shaped by trade’s perceived effects on the United States as a whole, their feelings about the trading partner country and U.S. political party in power, and their general outlook on the world beyond their country’s borders.   

Put simply, most Americans’ opinions about trade are rooted in the psychology of human interaction. Their attitudes toward people and countries they see as dissimilar to themselves significantly influence their opinions. The basic distinction boils down to whether they believe it is possible to cooperate for mutual benefit or whether they view with suspicion those who seem very different...