To read the whole post with graphics, please download here. Last week many Emerging market assets came under pressure following the rise in the US 10 year yield. The sell-off was concentrated in Turkish and Argentine markets, whose FX and thus other assets fell sharply, and in USD sovereign debt more generally, but some other assets came under pressure, admittedly falling just outside recent trading ranges. The sell-off prompted a lot of questions about whether this is a broad-based crisis. I don't think it is? Rather it should be a reminder to look closely at national balance sheets, the quality of growth, fiscal space and resilience.
I’ll try to answer (briefly!) a few key questions in this post: What happened? How have affected central banks responded? How strong are EM fundamentals? Is this another EM-financial crisis (hint: probably not), What would it take for a broader sell-off? what might be the vectors of contagion if it escalated? should we be worried about pegs?
As one would expect given the portfolio effects, which are higher for hard currency debt and equity than local, some other liquid EM saw outflows including Mexico (NAFTA risk), Brazil (election), India and Indonesia (oil and some modest financial contagion) but these seemed modest and are likely to remain so unless there is a meaningful macro risks emanating from China or the U.S. These risks are likely to stay isolated, but add to some growth challenges across relevant regions. Other stronger assets caught in the cross-fire (and even some of the affected assets) may present buying opportunities.
This is unlikely to be the last such bout as investors test the resolve of the Fed to continue normalizing, the significant wave of US bond issuance is absorbed and growth rates stagnate or weaken due to the waning of stimulus and trade policy risks. Higher and rising oil prices – driven by the uncertainties about the Iran deal, continued implosion in Venezuela and profit seeking in Saudi Arabia, only complicate the outlook, causing concerns for oil importing regions and countries, and their consumption and external balance.
Early last week I wrote about my concern that the risks Iran deal were not on the radar of many global investors and policy makers, one of the surprises from my last DC trip. I needn’t have worried – its now top of the agenda, or at least sharing it with China trade, Nafta and DPRK - a very busy agenda. If the U.S. were a Muslim country, I would be accusing policymakers of trying to get things done before Ramadan begins, but election timelines and a desire for continual pressure on negotiating partners seem to be a more realistic explanation.
With the Iran deal front of mind seems a good time to expand on a few points from my ongoing analysis of Iran’s economy, including what’s happened since the passage of the JCPOA. While the economy has had some breathing space, focused around the revival of the energy sector, local policy choices and limited foreign investment kept domestic demand weak and challenged any private sector credit revival, all trends that are likely to be even more complicated in the coming months.
The mood at last week’s Spring meetings of the IMF and World Bank was quite upbeat, as anticipated (see my preview here) though there were considerable concerns that near-term strength, exacerbated by U.S. fiscal stimulus and still supportive global monetary stimulus might be masking medium-term vulnerabilities. Many major economies are growing above potential, and are likely to experience some slowdown in growth, the question is how far, and whether the issues remain chronic or turn acute.
U.S. policy – fiscal, monetary, trade and sanctions dominated many. mostly unofficial discussions – and constituted the most common potential future negative catalysts, though most believed that trade wars were unlikely. My baseline includes a drag on private investment from trade and investment uncertainty, offsetting some of the other positive trends and exacerbating some of the impact of FX and commodity trends. Many global consumers may begin to face some challenges from the rising energy costs, admittedly offset by the recycling of strong import demand from oil exporting regions at a national and subnational level. Moreover, the fading sugar rush of the U.S. fiscal stimulus is likely to wear off while Chinese and several other countries continue their slowdown from the recent trend of above potential growth.
Across many issue areas (notably trade, Russia, Iran), it remains hard to discern what the Trump administration or rather the president might see as a success, a state of play that leaves things more uncertain for business, risks accidents and may amplify related market volatility.
Overall views from investors were mixed on the pathway for the dollar, cautiously optimistic about EM bonds, local and hard currency, and more constructive on non-US equity. Investors continue to be worried about the valuation of US assets particularly equities and higher yielding corporate bonds. Turkey stood out as a weak link – perennially exposed to negative shocks,
Looking ahead, the next few weeks are peppered with a variety of policy catalysts including the Iran deal deadline (May 12), public hearings on several proposed US tariffs (mid May), self-imposed if moving NAFTA deadlines, just to name a few.
The rest of the post highlights what I learned about the following:
For a full version of this piece including graphics, please click here.
Like many economic, development and financial types, I’m planning to be in Washington D.C. this week for the Spring meetings of the International Monetary Fund and World Bank, which provide a good opportunity to take the pulse on current views on the global economy. It also provides a good chance to connect the threads of U.S. foreign and domestic economic policy, or at least try to. And I haven’t even gotten into the opportunity to better understand potential policy shifts in places like Mexico, Brazil, South Africa, Nigeria or concerns about concerning debt burdens in Ukraine, Egypt, Mozambique etc etc.
I’m expecting to find the mood cautious in the wake of divergent macro performance expectations, uncertainty around tariff, trade and investment policy, their links with sanctions and geopolitical risk that is adding to valuations and volatility of commodity markets. This will likely amplify concerns that have been present for some time about pricey equity valuations particularly in the U.S, prompting greater concerns about what to buy. I expect a lot of discussion of the recent market volatility, new entrants including cryptocurrencies, and focus on countries more exposed to the financing costs.
A few of the long list of questions follow, and I’m sure I’ll be surprised along the way. Let me know what I missed and check back here next week for my takeaways.
My preoccupations can be broadly grouped into global growth and trade risks, investment climate interest rate and credit in the face of tightening, commodity reflation impact on balance sheets, and the upcoming sanctions timeline.
With Saudi Arabia’s Crown Prince Mohammed bin Salman in Washington at the start of his long U.S. tour, there have been no shortage of good analyses written about what’s at stake and the motivations for the trip and Saudi social and economic reform – my favorites include those by Karen Young and Alastair Newton, as well as broader assessments of macro and regional policy by Steffen Hertog and Gregory Gause. Despite adding to the deluge, I’m going to weigh in also, to focus on some tradeoffs that may not get much public air time on the trip but will be important for assessing developments in coming months and years. These include the balance between local and foreign investment asset allocation, role of the private sector and local market development. Foreign investors salivating over some of the new opportunities should pay attention to the tradeoffs to better align their interests.
With policies changing fast in Saudi Arabia (much much faster than long-time watchers ever expected and something for which authorities have to be lauded), authorities may have to choose between their overlapping goals including attracting capital, getting the highest valuations for their assets, adding local jobs, involving the private sector, gaining the higher financial and political returns, as well as meet their regional political goals which include countering Iran. In fact, achieving many of the other developments suggest that the involvement of the private sector, at least the local one is the goal that is likely to take a backseat as more and more spending and development is done by government or quasi-governmental bodies. This isn’t in itself necessarily a bad thing or a new thing, as government spending has long been a catalyst for local growth, but it does suggest tradeoffs that will need to be resolved.
The trip may bring to the fore tradeoffs about foreign asset management, local economic goals in both countries and the distribution of returns, but is unlikely to resolve them, and instead is likely an opportunity for MBS to roll out some of the bilateral mercantilist policies that the Trump administration favors (though has struggled to implement with countries like China).
Figure 1: FX reserves (USD billion)
Saudi U.S. Asset portfolio. The Saudi Public Investment fund is the new fund in town and is the key vehicle for diversifying within Saudi Arabia’s USD assets. After a significant drawdown of savings in 2014-6, including some of the US bonds and public equity held by Saudi Arabia, the country’s external accounts are close to balance as the trade surplus is offset by more modest capital outflows. With oil prices now at a level that pays for Saudi Arabia’s imports but doesn’t allow much space for new foreign asset accumulation, Saudi Arabia will be more likely to redeploy existing U.S. funds into perceived higher yielding assets and those that meet its economic agenda. In other words, its holdings of US Treasurys (and publicly traded US corporate bonds and equities) are likely to drop in favor of adding other USD-denominated assets including strategic stakes, a transition that many of its peers in the GCC underwent or at least tested some years ago. This will also include some board stakes and investments that raise additional regulatory scrutiny, not only in the U.S. but elsewhere. In doing so, Saudi Arabia would be following a well trodden path towards more direct investment rather than just investing widely in traded assets.
This tradeoff fuels another one – the split between foreign and domestic investment in the portfolio of the PIF and its role in the broader Saudi investment plan. A sizeable portion of the estimated $200 billion in AUM of the PIF represents domestic pools of capital including those designated for social infrastructure such as education. The PIF is not only quickly scaling up its portfolio of foreign strategic stakes but also is being designated as a primary vehicle for key domestic projects and may be tasked with co-investing with inward investment to Saudi Arabia (like other funds like Russia's RDIF). This means the organization has to juggle a range of different mandates at the same time. It is thus part of the broad centralized nature of the decision making process in the office of the crown prince and thus may face challenges in interacting with other entities including other parts of the economy ministry, central bank among others.
Fast-moving central implementation vs predictable (decentralized) institutions: A key driver of the fast pace of implementation has been the centralization of policy in the office of the crown prince and his designates, with only a few lead institutions. New entities including the entertainment vehicle, the military investment vehicle have been created. This centralization has prompted a quick moving passage of legislation, but implementation is more challenging given the need to bring the bureaucracy along. A key test case remains the new anti-corruption apparatus and future legal process – establishing clear rules could increase confidence of the local private sector and also foreign investors, many of whom remain concerned about further reprisals despite dismissals from political bodies like the chamber of commerce. Similarly the management of the stakes in companies yielded to the government bodies as part of the last crackdown will be key measures to watch. Centralization of policymaking and the recurrence of the same effective names is nothing new in the gulf, though it takes on a different guide in a country like Saudi Arabia with a larger labor pool to choose from. How Saudi Arabia decentralizes after the past centralization will be key.
The scale of investment including high profile projects like NEOM and broad localization goals suggest that Saudi Arabia needs to attract foreign portfolio and direct investment capital. Still there may be some capacity constraints in absorbing it even in a country as relatively large and populous as Saudi Arabia (compared to some of the smaller GCC peers like the UAE, Kuwait and even Qatar).
Military and Nuclear equipment: The military ties between Saudi Arabia and the U.S. are long standing, and have increased in recent years despite a greater push from Saudi Arabia to seek goods from a range of different markets including European and Asian suppliers and to ask all of these producers to consider producing more in Saudi Arabia to meet jobs requirements. With the Chinese piloting some equipment co-investment and transfers, expect the U.S. military contractors to follow suit, though it remains to be seen how many Saudis will be employed. Watch also for the details on any nuclear program – U.S. interests are loath to see it go to an Asian or European competitor but it remains to be seen that congress will support enrichment programs. Negotiations will likely continue just as efforts to “fix” the Iran deal continue. It could be an issue that divides the republican party.
Technology focus and technology transfer: A big part of the U.S. visit includes stops in Silicon Valley, where MBS is likely to check in on existing investments, announce new ones, look to consider new ones and encourage tech companies to set up operations in Saudi Arabia. Many of the existing investments include at least implicit quid pro quo considerations that would encourage local investment. At this point, the focus on the tech investments seems to be primarily about having marquee investments and greater clout with technology transfer secondary. Again this is a key area of diversifying within the USD portfolio. Expect the Saudis to seek assurances that their pledges will be allowed to go ahead in the environment where more tech deals are blocked.
Local issuance goals - for Capital raising or local transfers: While the focus has been on the Aramco IPO, Saudi Arabia is becoming a more major player in EM/Frontier credit and equity may follow. Already in 2017, the GCC, led by Saudi Arabia was one of the dominant USD debt issuers and along with Argentina one of the largest at a time when many countries are focused on local issuance. Although Saudi Arabia and peers are off index (not in the JPM sovereign indices), they are an increasing part of an asset class that has been facing lower issuance. Watch for this to continue in 2018 despite the rise in oil prices, leveraging the interest of USD-tied investors including many in Asia.
Privatization on the equity side is key too. Expectations have already been lowered about the timing and near-term international footprint of the Aramco IPO, especially during the British leg on the trip. Explanations for the delay vary but mostly seem to reflect questions about valuation, transparency and local market development. Recent statements from the Aramco leadership point to concerns about NYC cases against major oil companies, while concerns linger about litigation related to JASTA and some U.S. activists are hoping for a chance to use competition rules on OPEC. Beyond concerns about disclosure and price, it remains to be clear how the Saudi authorities will approach the IPO and which of the priorities will win the upper hand. Is the primary goal to unlock capital to re-capitalize the Public investment fund and other projects? How does that interact with or interfere with securing a high valuation? Is Aramco comfortable with So far, the only thing that seems clear is that there will eventually be a local IPO, which is hoped to boost liquidity on the Tadawul (a challenge since the drop in oil revenues which reduced, and which could serve in part as a wealth transfer to select Saudis as IPOs have done in the past. The recent announcement that oil revenues in excess of the budget will find their way to the PIF, may relieve some of the pressure to issue equity in the near-term.
This week, President Trump announced plans to introduce new tariffs for selected steel and alumnium goods, using the justification of the Section 232, the national security exemption. The move, set to be implemented next week, was swiftly condemned by a wide range of U.S. trading partners, including Canada, Mexico and South Korea, several of whom are currently negotiating with the U.S. Following past tariff increases, and a very busy trade calendar, the move is likely to amplify volatility in markets, including FX. I look in this post at the looming elements of a busy trade calendar and consider some impacts on growth, inflation and broader policy.
Several factors may amplify the impact of trade friction - the precedent of using the national security exception, the seeming lack of coordination within the administration and with other ongoing trade negotiations. If implemented, the move would likely add to distortions in metal prices, amplify input costs in the United States, and add to uncertainty for businesses in the U.S. supply chains. The additional grit of trade friction may add transactions costs and uncertainty at a time when global trade growth may already start to moderate (2019+)
Increased targeted tariffs and trade restrictions should not be a surprise. After all, President Trump (and Candidate trump) was very insistent that he wanted tariffs, and fair trade. The choice of the largest tariff size (big beautiful tariffs) was more of a surprise, as is the use of the WTO’s national security exemption at a time when members of the national security infrastructure were loath to see a risk - particularly since much of the current products come from Canada. By using this measure, the U.S. is calling into question elements of the WTO regime and more generally the rules based system it helped created.
Several other trade related measures include.
Any tit for Tat is likely to add trade friction and raise questions about any inflection point for global trade. its worth noting that these measures come at a time of robust global trade and demand and that's unlikely to change in the near future. However the pace of global growth is likely to slow in 2019 and especially beyond due to higher rates and cost of capital, the struggles in growing above potential growth. Global trade flows have been strong and relatively resilient to protectionist threats (in part because these threats hadn’t been converted to action). It might be less resilient going into 2019, when global growth is likely to moderate from the current above potential pace.
The move has not only been questioned abroad, but also at home, including by many Republicans especially in the Senate, who fear the price impact on American consumers and businesses reliant on imports (including food processing many manufacturers and even the energy sector). If the U.S. was moving ahead with even its small infrastructure plan, it could have a greater cost uncertainty and impact - however the Senate suggests no vote on infrastructure this year. Corporate outcry could result in some adjustment of the measures, but the general direction in policy seems clear. Expect more targeted measures - and greater price and demand uncertainty.
The move complicates an already contentious set of negotiations between the NAFTA partners, who seem to have made little progress in the last round of talks, not least because the U.S. representative focused on rules of origin was recalled early. The 232 tariffs may well reflect some desire to play hardball in these negotiations, and to deflect from what seems to be a wave of defections from the White House and pressure on those close to the president. Expect Senate hearings on extending TPA authority past July (the measure that allows an up or down vote) to be even more difficult.
My baseline view continues to be a continuation of NAFTA talks into H2. As the U.S. and Mexican elections approach, the risk is that the talks will be put on hold to allow new leaders to play a role. They may shift to a lower profile pace. Meanwhile the ongoing trade frictions add to come concerns I have expressed about the pace of growth going into 2019 and cost dynamics. Tariff imposition could amplify price pressures at a time when demand has been picking up and the labor market is tightening.
Several factors suggest that the rate of growth of U.S. imports is likely to moderate this year, at least in volume terms. The weakening of the U.S. dollar is likely to increase costs, dampening import incentive. There doesn’t seem likely to be a major food supply shortage. Some of these trends are likely to offset what otherwise would be an increase in imports due to strong growth and rather expansionary fiscal policy.
The recent market selloff with its multiple linked triggers (inflation, fiscal expansion, past FX adjustment) and amplifiers (program trading, volatility funds and instruments, pricey valuations and desire to take profits in tax-mitigating way), seems a good time to take stock of the drivers of the macro and market environment going forward, to update you all on some of the themes/topics/opportunities I’m tracking in 2018 and beyond. The themes and framework are described in this pdf in more detail.
Many of these are longstanding topics that have driven macro and market sentiment in recent years (trade policy, fiscal stance), some may be well choreographed (CB balance sheet adjustment, energy rebalancing), even if likely to be over-estimated as exits approach. Others warrant some additional consideration in a global context (infrastructure development and finance).
I touched on many of these in my 2018 look-ahead in November, and will be updating my views as the months go on. This framework may help me and others identify how the different themes interact. No doubt, new topics will emerge or some of these topics interact.
Bottom line: Macro environment in 2018 still looks set to be relatively benign, with a pickup in global growth, and greater synchronicity of major economies (as laggards begin to catch up). Looking ahead, policy uncertainty (around trade and FX policy) suggest challenges for business planning, and greater costs to consumers, contributing to a slowdown in global growth in 2019-20, suggesting profits should follow suit. Coupled with higher rates and greater competition for capital, debt servicing issues should come more into the fray as the end of expansionary monetary policy facilitates a closer look at sovereign and corporate fundamentals. County selection matters. Price pressures are still likely to be manageable, but greater issuance of debt and equity suggests profit outlook matters. In several EM/Frontiers expect government dominated or secured investment to retain its key place.
I’ll talk more about risk scenarios in the days to come. I look forward to hearing about what I missed, what your signposts are and what scenarios you’re preparing for.
This post shares a few takeaways from my discussions last week in London with policymakers, investors and analysts on MENA and energy. Overall, sentiment was upbeat.There were two big elephants in the room: Saudi Arabia economic and foreign policy activism and the Iran nuclear deal. There remains significant uncertainty around the implementation around those issues, which offsets what is generally a more upbeat outlook in the face of $65-70/barrel crude.
One broader question pervaded my discussions. How much do higher oil prices help? Brent around $70 (or even in the mid 60s) gives significant more room for maneuver and likely will reinforce government driven growth across the GCC as it likely implies less fiscal austerity. It clearly buys time and room for maneuver and spread compression. However, we see only Kuwait and possibly the UAE having scope to resume saving, meaning that regional sovereign funds are likely to receive little new capital as more of the funds are used to support domestic spending. These trends will reinforce the ongoing acceleration of local growth from the 2016-17 pace, much private sector is likely to drag behind as the desire for quick growth brings government actors more into play.
Institutional investors remain constructive on GCC bonds on valuation grounds especially vs Asian alternates and even some of the more liquid CEEMEA names in the USD space. Oman and Egypt seemed to be top picks given that macro environment seemed to be better than feared, allowing some yield compression. $70 brent provides a lot of space for regional external balances and pegs, even if it won’t help fiscal balances much. Expect the GCC to continue to dominate global USD issuance among EM and Frontiers again in 2018, with Qatar joining peers. Going forward, concern may rise about Bahrain, and whether any regional support may not help bond investors.
Oil price and fundamentals: there’s a general consensus that the market is rebalancing and the OPEC + (Vienna agreement) has “worked” and the excess inventories in the U.S. will continue to be drawn down this year, but there is less consensus about the price forecast, which has a wide band around 55-80 this year. This reflects a difference of opinion about the growth in global demand (between 1.1 and 1.7mbd) and the persistence of the production freeze if prices remain high and incentive to cheat rises. On the demand side a key question is whether rising costs will dampen consumption growth (MENA oil producers are one place to watch, as is U.S. and Asian consumers) while shale production is a key place to watch on the supply side.
Global oil majors and many in GCC seem to be looking for $65 Brent this year, seeing some increase in shale output, some drawdown in inventories and the risk of a speculative correction. Others especially on the sellside seem to be sharply scaling up their forecasts, with Goldman Sachs pointing to the possibility of $85 by mid-year. In this price environment, expect oil companies revenues to move up but new investment is unlikely to outstrip plans.
Saudi Policy consternation: The Saudi anti-corruption detentions seem to be coming to an end, with reports that $100 billion in assets have been raised, likely a combination of stakes in companies and cash. This turns attention to the many key questions about the new anti-corruption regime, new institutions and the broader economic reform. Will Saudi authorities continue to hike public wages, even if that places a greater burden on the public sector? What will the new legal process be for corruption cases? Where will the new funds be managed? Will these funds be incorporated into the Public Investment Fund (PIF) which is already managing much domestic investment funds and waiting for new foreign issuance. Interest in the Aramco IPO seemed to have died down despite the improved oil valuation with many investors waiting to believe when they see terms. Meanwhile, the general view was that economic growth would accelerate and
The PIF itself is a matter of much interest, with many investors and regional watchers wondering how its asset allocation will evolve, how it will balance the foreign versus domestic investments and how it will balance competing mandates. It is rapidly staffing up and cares about a professional structure, but like many areas of Saudi policy, it is being asked to do a lot at once, with mixed goals.
Iran deal and economic policy: Coming only a few weeks after President Trump’s ultimatum on the nuclear deal and demand that European allies improve the deal, there was a lot of uncertainty on investment outlook. The view from Europe (especially France and Italy) is that the deal is working, and the burden high for changes, and the Iranians seem to be woking had to make sure that they are not blamed for the deal falling apart. This suggests major changes might be a hard task. Some European countries have already chosen to backstop local companies doing business in Iran, though oil companies concede that Iranian domestic policy uncertainty and term preferences pose as much concern as U.S. sanctions. Banks remain very concerned about sanctions and regulatory risk, which may explain the direct support of European firms. Meanwhile local macro issues including the vulnerabilities of the non-bank credit and the battle between government and IRGC suggest that Iran may struggle to benefit from some of the higher energy prices. The recent protests have triggered a less restrictive fiscal policy, with more subsidies remaining in place, and greater domestic leverage from the government.
Qatar: The general view is that the blockade is here to stay for some time and I've written extensively about Qatari resilience to the blockade due to its deployment of past savings. The economy has bounced back, the continued energy trade has provided solace to investors, and support from the U.S. and EU has limited the approach to secondary sanctions by the Saudis/Emiratis. Indeed, the new supply chains with Iran and Turkey look likely to stay. The recent U.S.-Qatar meeting likely increases Qatari leverage. Still, there are losers at home and the public sector is driving economic activity and absorbing more of the loans. These trends are likely to continue, as local rates remain high. The broader costs to GCC coordination and institutional strength are significant. Regional competition is likely to outstrip coordination resulting in lower domestic liquidity.
Finally, natural gas: If anything there was an even wider divide on natural gas fundamentals and price, with energy market representatives differing on whether there is an LNG supply glut, whether new entrants are taking advantage of cheap supplies sufficiently, and whether new supplies will offset. Policy mandates from China and other growing demand suggest that supply may be absorbed, and the market is gradually becoming less regional. I did field a lot of questions about U.S. energy policy and in particular support/demand for coal, which had some gas producers concerned. The pressure on higher cost natural gas producers is likely to remain.
Global markets (especially) US bond markets, gyrated today following reports on two policy areas (Chinese capital and NAFTA/trade policy) that are set to be sources of volatility in 2018. In both cases, the storms in a teacup seemed disproportionate with (the lack of) new information.
Press reports reminded investors about risks that may have been underpriced. U.S. trade policy (and retaliation/choices of plan B) remains to be a major risk for 2018 and beyond, that is, if US policies move beyond bark to meaningful bite. However, they seem much more likely to be sources of friction that cap profits rather than a major risk in and of themselves.
How do today’s reports play into the key themes for 2018+? What triggers could undermine the recent positive sentiment in a more sustained way? What should we expect from Chinese foreign capital allocation and trade policy? I try to answer some of these in this blog (see my 2018 outlook posts for a more general overview.
Happy New Year! This year I managed to read more books. In honor of the season and my new blog, I’ve selected a few (non-fiction books) books among the 80+ I read/listened to in 2017 that stayed with me through the year and provoked further thought or discussion.
It was tough to pick. The list is heavily skewed by my attempt to find tools to better understand the evolving policy agenda of Trump’s America and which public and private institutions might provide a source of resilience. I also read a lot ahead of and during my trips to Australia, Italy (Puglia) and Romania, though only one book made the cut.
Honorable mentions to Judith Flanders' Christmas: A Biography, which highlights how Christmas almost always was more a secular than religious holiday and one where commercial interests were quick to define tradition. Dani Rodrik’s Straight Talk on Trade, and Ray Hartley's Ramaphosa: the Man who Would be King, which were part of my unfinished holiday reading. They respectively are key guides to assess upcoming trade negotiations and reviews that will punctuate 2018 and useful background for the continued fight over South Africa’s leadership and institutions. But those are a matter for 2018.
In no particular order:
A Most Enterprising Country: North Korea in the Global Economy Justin V Hastings (2016).
This was the most distinctive of the materials I turned to when I sought to get up to speed quickly on North Korea’s economy, its trade with China, Russia and others and the impact of sanctions. Hastings deconstructs internal and cross border trade including the development of hybrid (public and private) shell companies used across the DPRK-China border. A good read to understand the varied interests in China as sanctions are set to deepen.
The Gatekeepers: How the White House Chiefs of Staff Define Every Presidency (2017) by Chris Whipple.
With 2017 being a year of much tumult in the White House and general understaffing in the federal government, Whipple’s book one of two on chiefs of staff was a useful guide. He combs through a half century of U.S. political history to talk about the evolution of the chief of staff role and how administrations floundered when the gatekeeper role was weakened o circumvented. The discussions bringing together reflections of past chiefs to inform their successors were particularly strong – and welcome in today’s partisan air.
Ideas Industry: How Pessimists, Partisans and Plutocrats are Transforming the Marketplace of Ideas Daniel Drezner (2017)
Dan Drezner deconstructs many key institutions in “think tank land”, a complicated set of policy bodies, mostly in the U.S of which he (and increasingly I, am a part. These bodies are one of several providing institutional memory in the U.S. policy arena – all the more so given understaffing in key departments. Given the challenges of funding and mandates, the book is a key read and highlights some areas of caution.
Capitalism Without Capital : The Rise of the Intangible Economy Johnathan Haskell and Stian Westlake (2017)
Over the last few years we economists have spent a lot of ink assessing why fixed investment has been so weak, intangible investment (in branding, internal processes and R&D have been a regular explanation. Haskell and Westlake pull together extensive academic and policy work on intangible investment. It’s a rare economic book that very clearly describes economic theory for non-economists. Worth a read for anyone trying to understand providing some explanations for low productivity, My homework for next year will include trying to extend some of its charts to countries in the emerging world.
The Imagineers of War: The Untold Story of DARPA, the Pentagon Agency that Changed the World Sharon Weinberger (2017)
This book filled key gaps in my understanding of DARPA (long one of the Pentagon’s Research bodies) – which I knew only as an institution I was only vaguely - because of its role in sponsoring the projects that developed the internet, drones and other military equipment, as well as attempts to seed similar institutions in energy and intelligence (ARPA-E and IARPA). This book rectifies this neglect. Weinberger’s book suggests that some of the successes reflect benign neglect of key research priorities, alignment with key foreign policy goals (rather than narrow technical ones) and highlights the cases of over-reach (use of counter-insurgency techniques, especially in South Asia) At heart this is a story of evolving institutions, and highlight the challenges of changing mandates.
Curry: A Tale of cooks and Conquerors. Lizzie Collingham This book uses food to tell Indian history, especially interactions with the Colonial European powers. An interesting if external take on South Asian history. Don’t read while hungry.
Latinos of Asia: How Filipino Americans Break the rules of Race Anthony Christian Ocampo (2017). Ocampo’s book takes as its subject Filipino immigrants and their sympathies with Latino communities they have often intermingled with – with Catholicism, and family networks. A good Input into the diversity of Asian immigrant communities. The book could have benefited from a bit more editing to summarize some of the academic claims.
Out of the Flames: The Remarkable Story of a Fearless Scholar, a Fatal Heresy, and one of the Rarest books in the World (2002) Nancy and Lawrence Goldstone
My pilgrimage to Romania gave me the push to finally read this book which had long been languishing on to read list and it was well worth the wait. The book is required reading ahead of a Transylvanian pilgrimage, but also an amazing account of reformation history across central Europe. Beyond its tale of continual pushing of religious boundaries, it also details some early breakthoughs in biology. The tale of the book’s creation, the religious and political challenges it provoked and its eventual reappearance is a great read of literary detective work.
Rachel's musings on macroeconomic issues, policy and more.