Weekend Homework

Oil prices, Deficit sustainability, and more

Welcome to the latest edition of Weekend Homework, a summary of the most interesting articles, reports,
podcasts and videos that we came across this week. These pieces made us reassess, challenged our
conventional thinking or opened our eyes to a new idea or concept.

What to read
Paul: Oil prices to eventually fall as Iranian sanctions fail. Paul discusses the likelihood (or lack thereof)
that Iran oil supply will leave the market just because the US says so. Given this fact, and then considering
that the medium-term driver of oil demand is global growth and the short term is driven by supply, then
both are pointing to a turning point in oil prices. - Read
Low Inflation Bends the Phillips Curve. Joseph E. Gagnon and Christopher G. Collins look at how the
Phillips Curve i.e. the relationship between inflation and unemployment has undergone tremendous
change over more than 100 years. They argue that the Phillips curve may be nonlinear when inflation is
low, with the economy having operated in the flat region of the curve for most of the past 20 years. If we
are now in the non-linear segment of the curve, we could start to see faster than expected increases in
wage inflation should the current trajectory in employment growth be maintained. – Read

Further Thinking on the Costs and Benefits of Deficits. Jason Furman and Larry Summers have written a
blog post at the Peterson Institute looking at the possibility that the political system may be biased
towards greater deficits, and the validity of the argument that ‘we no longer need to pay attention to fiscal
constraints. They also argue that while there isn’t currently an urgent need to reduce the deficit, the US
should be making contingency plans for the next recession, and how to pay for infrastructure projects in a
fair and equitable manner. – Read

China’s Belt and Road: The new geopolitics of global infrastructure development. In the run up to China’s
second Belt and Road summit this month, the Brooking’s institute provides their assessment of China’s
motivations for launching BRI, its track record to date, regional responses to it, the national security
implications of BRI for the United States, as well as potential policy responses. This includes a segment on
Washington’s scepticism of the initiative as well as how their partners are rejecting this scepticism and
are forging ahead with Beijing. – Read
What to watch
An overview of ‘Facing Up to Low Productivity Growth’. Karen Dynan, Jeromin Zettelmeyer, and Adam S.
Posen from the Peterson Institute for International Economics (PIIE) and Anna Stansbury of Harvard
University discuss PIIE’s new conference volume, Facing Up to Low Productivity Growth. They look at
how this slowdown in productivity growth has been seen globally, and how policy should adapt and
respond to this slowdown. – Watch

What to listen to
Macrovoices Podcast – Overview of the Eurodollar system. Jeffrey Snider joins Erik Townsend to discuss
the history of the Eurodollar system, Eurodollar as a global reserve currency, and how the global
economy and financial system depend on the Eurodollar system. – Listen
You will also find the supporting chartbook attached to this e-mail.
The Knowledge Project – Becoming a Model Thinker. Scott Page, author and Professor of Complex Systems
at the University of Michigan, explains the power of mental models. He asserts that the models we each
hold in our heads have the power to contribute to something special and truly meaningful if cultivated
properly. He also discusses the ‘hierarchy of wisdom’; the journey that your brain goes through when
turning data into knowledge, and then wisdom. This is a great conversation. – Listen