Economische aanraders 05-05-2019
Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 15 belangrijke of informatieve artikelen en interviews die vooral de voorafgaande 7 dagen op economisch terrein verschenen op onafhankelijke sites.
De kop is de link naar het oorspronkelijke artikel, waarvan de samenvatting of de eerste (twee) alinea’s hier gegeven worden. Er zijn in deze rubriek altijd verschillende economische scholen vertegenwoordigd, en we streven er naar die diversiteit te handhaven.
We nemen wekelijks ook een paar extra links op naar artikelen die minder specialistische kennis vereisen. Deze met *** gemerkte artikelen zijn ons inziens ook interessant voor lezers met weinig basiskennis van economie.
Breaking up big companies and market power concentration – Konstantininos Epstathiou
Senator Elizabeth Warren proposes the break-up of big tech companies. A report for the UK government presents another approach for regulating the digital economy. And IMF research serves as a reminder that concentration of market power extends beyond digital. This blog reviews the debate.
Global Foreign Direct Investment Flows Collapse – Don Quijones
More and more companies either choose not to invest in other countries or are prevented from doing so.
Global foreign direct investment flows plunged by another 27% in 2018 — after having already plunged 16% in 2017 — to just $1.1 trillion, the equivalent of 1.3% of global GDP, the lowest ratio since 1999, according to new data released by the OECD. It was the third consecutive annual plunge in global FDI flows, as more and more companies either choose not to invest in businesses or assets in other countries or are prevented from doing so.
At the peak in 2015, before the trade wars began, before the Brexit vote happened, and before China began cracking down on the capital outflows that had fueled big-ticket purchases of strategic companies across the globe as well as surging asset prices in multiple jurisdictions, global FDI flows totaled $1.92 trillion and represented around 2.5% of global GDP. FDI has since collapsed by 43%.
ECB’s huge forecasting errors undermine credibility of current forecasts – ZSolt Darvas
6 december 2018
In the past five years ECB forecasts have proven to be systematically incorrect: core inflation remained broadly stable at 1% despite the stubbornly predicted increase, while the unemployment rate fell faster than predicted. Such forecast errors, which are also inconsistent with each other, raise serious doubts about the reliability of the ECB’s current forecast of accelerating core inflation and necessitates a reflection on the inflation aim of the ECB.
Euro area architecture: What reforms are still needed, and why – Agnès Bénassy-Quéré, Markus K Brunnermeier, Henrik Enderlein, Emmanuel Farhi, Marcel Fratzscher, Clemens Fuest, Pierre-Olivier Gourinchas, Philippe Martin, Jean Pisani-Ferry, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, Jeromin Zettelmeyer
In January 2018, CEPR published a Policy Insight recommending euro area reforms which received broad support as well as some criticism. In this column, the authors argue that the problems that prompted their paper are still there, new problems are on the horizon, and the current state of the policy conversation on euro area reform is disappointing. They also identify priorities that should be at the centre of discussions on reform.
Freedom or Government Control — There Is No True “Third Way” – Bradley Thomas
Every government intervention into the economy may not be socialism, but it is a step toward socialism.
Interventionists claim to advocate for a ‘third way’ of economic organization, one that preserves the productive nature of capitalism, while merely reining in some of its destructive excesses.
For instance, Sen. Elizabeth Warren last year described herself as a “capitalist to the bone,” even declaring “I believe in markets and the benefits they can produce when they work.”
However, she added the caveat that it is “markets with rules” that can create value and insisted “markets worked better” during the timeframe of 1935 to 1980 in large part due to “more aggressive regulation of markets.”
But is there a reasonable “third way”?
The effects of trade policy might be more diverse than most economists think – Peter Egger, Katharina Erhardt
When economists model changes in tariffs, their models make assumptions about the impact of those changes. The column argues that those assumptions are often contradicted in the real world and proposes an approach that relaxes these restrictions. Estimates using this approach show that customary models may severely underestimate the impact of recent tariff increases.
The Accelerating Decay of the Middle Class – Charles Hugh Smith
Ironically, their ample compensation allows them to avoid the poor-quality services they’ve designed for everyone below them.
If we define middle class by the security of household income and what that income can buy rather than by an income level, what do we conclude? We have little choice but to conclude the middle class is decaying, both in the percentage of the workforce that qualifies as “middle class” according to traditional standards and in the quality of life of those who do qualify.
There’s a longstanding way to understand the middle class quality of life: it’s supposed to be superior to the indignities of being poor. If you’ve been poor (and I’ve been down to my last $100), even for short periods, you know the indignities and frictions of being poor (and by poor I don’t mean on welfare, I mean working poor, with unreliable incomes and low wages).
Income Inequality and the Decline of the Middle Class in Two Charts – Charles Hugh Smith
Now look at the middle quintiles–the middle class: their income has gone nowhere in the past decade.
These two charts of average incomes of U.S. households by quintile (bottom 20%, middle 60% (20%+20%+20%) and top 20%) have both good news and bad news. (Charts are from the non-partisan Congressional Budget Office — CBO).
These charts depict 1) household income before transfers (means-tested government benefits) and taxes, in other words, pre-tax earned income, income from capital gains and interest, unemployment insurance, etc., and 2) income after federal transfers and taxes.
This is a much more accurate view of household income, as this is what gets deposited in households’ accounts.
The typical chart of average incomes doesn’t include government transfers, so it under-reports the actual income of households receiving means-tested government benefits. (Note that the CBO methodology may not include all government transfers, as not all transfers are means-tested, i.e. based on income and other qualifying factors.)
The Crash In US Economic Fundamentals Is Accelerating – Brandon Smith
When looking at the health of an economic system it is impossible to gauge growth or stability by only taking two or three indicators into account. The problem is, this is exactly what central banks and governments tend to do. In fact, governments and central banks wildly and deliberately promote certain indicators as the signals everyone should care about while ignoring a whole host of other fundamentals that do not fit their “recovery” narrative. When these few chosen indicators don’t read well either, they rig the numbers in their favor.
The most promoted and and by extension most rigged indicators include GDP, unemployment, and inflation. I would include stock markets to a point in this list, but as I’ve always said, stocks are a trailing indicator and never tell us accurately when an economic crash is taking place. If anything, stocks are and always have been a placebo for the masses, a psychological crutch meant to lull them to sleep while the crash begins. Other than that, they have no value in determining the health of the system. As a lagging indicator, we will cover stocks at the end of this analysis.
Fed’s QE Unwind Continues at Full Speed in April – Wolf Richter
Fed sheds $46 Billion, Total QE Unwind Reaches $580 Billion. Assets drop to lowest level since Nov 2013.
In April, total assets on the Fed’s balance sheet fell by $46 billion, as of the balance sheet for the week ended May 1, released Thursday afternoon. This drop reduced the assets to $3,890 billion, the lowest since November 2013. Since the beginning of the “balance sheet normalization” process, the Fed has shed $580 billion. Since peak-QE in January 2015, the Fed has shed $625 billion.
According to the Fed’s old “balance sheet normalization” plan, which was still on autopilot in April, the QE-unwind would shed “up to” $30 billion in Treasuries and “up to” $20 billion in mortgage-backed securities (MBS) a month for a total of “up to” $50 billion a month, depending on the amounts of bonds that mature that month.
America’s Global Financial War Strategy Is Escalating, Cyber wars and all that – Alasdair Macleod
Behind the Huawei story, we must not forget there is a wider financial war being waged by America against China and Russia. Stories about China’s banks being short of dollars are incorrect: the shortage is of inward capital flows to support the US Government’s budget deficit. By attracting those global portfolio flows instead, China’s Belt and Road Initiative threatens US Government finances, so the financial war and associated disinformation can be expected to escalate. Hong Kong is likely to be in the firing line, due to its role in providing China with access to international finance.
Making Basel III work for emerging markets – Thorsten Beck, Liliana Rojas-Suarez
The Global Crisis originated in the financial systems of advanced countries, so it is unsurprising that the Basel III international standards focused on the stability needs of these countries. This column assesses the implications of Basel III for emerging markets and developing economies. It also outlines the recommendations from a task force of current and former senior officials from central banks in these countries on how to make Basel III work for them.
Developing resilient bail-in capital – Alexander Lehmann
Europe’s largest banks have made progress in issuing bail-inable securities that shelter taxpayers from bank failures. But the now-finalised revision of the bank resolution directive and a new policy of the SRB will make requirements to issue such securities more onerous for other banks. In order to strengthen banking-system resilience, EU capital-market regulation should facilitate exposures of long-term institutional investors.
The implications of non-tariff measures for developing countries’ exports – Jaime de Melo, Alessandro Nicita
Developing countries often struggle to access international markets. One reason is that trade regulatory frameworks are becoming more complex, and that contemporary economic integration strategies need to confront policy measures that are well beyond the scope of traditional trade policy. This column discusses those policy measures and options for integrating them into developing countries’ strategies.
***The Company Store Leaves almost nothing to live on – Chris Martenson
In the song Sixteen Tons by Merle Travis (and made famous by Tennessee Ernie Ford), the idea of the ‘company store’ referred to a system of debt bondage that effectively trapped workers within an unfair system designed to harvest all of their labor at very low cost.
How exactly did the company store system operate?
Under a scrip system, workers were not paid cash; rather they were paid with non-transferable credit vouchers that could be exchanged only for goods sold at the company store. This made it impossible for workers to store up cash savings.
Workers also usually lived in company-owned dormitories or houses, the rent for which was automatically deducted from their pay.
(Source – Wiki)
This model was simple enough to understand. “Pay” your workers with scrip vouchers, then sell them your marked up goods at the company store, pocketing a nice profit. On top of that, force your employees to live in company housing, too, also at terms very favorable to the company.
Add it all up and the workers found themselves in perpetual service to their employer. No matter how hard and long they toiled, there was nothing left for their own private benefit after all was said and done. The company succeeded in skimming off any and all ‘excess’ for itself.
***More Airline Woes: Avianca Brazil Gets Dismembered, Korea’s Asiana Airlines Gets Taxpayer Bailout, Air India Gets Rumors of Default – MC01
It Just Doesn’t Let Up With Airlines.
Here’s an example of what should happen to an airline which has become unprofitable and failed to turn around its financial situation. On May 7, the assets of Avianca Brazil, formerly Brazil’s third-largest airline, will be auctioned off to pay creditors. To streamline sales and maximize proceeds, Avianca Brazil has been broken up in seven lots.
The best assets are prime slots at the Congonhas and Guarulhos airports (both in the São Paulo megalopolis) and will no doubt attract a few interested bidders.
Economic Models vs. The Real World – Frank Shostak
The government’s releases of various economic indicators such as GDP, CPI and unemployment receive wide coverage in the media. In a measured and authoritative voice, various economists and other experts who are interviewed discuss their views regarding the health of the economy. A rise in an indicator such as GDP is interpreted as good news while a decline is seen as pointing to troubles ahead.
What are the tools that economists and financial experts utilize in their assessments of the economy? What is the basis of their framework of thought?
Making the Data Talk
In order to make the data “talk,” economists utilize a range of statistical methods that vary from highly complex models to a simple display of historical data. It is generally held that by means of statistical correlations one can organize historical data into a useful body of information, which in turn can serve as the basis for the assessments of the state of the economy. It is held that through the application of statistical methods on historical data, one can extract the facts of reality regarding the state of the economy.
Promoting temporary work as an active labour market programme – Bas van der Klaauw, Lennart Ziegler
Although temporary jobs are often characterised by lower pay, advocates of temporary work argue that taking up such jobs can increase the chances to find regular work in the long run. This column reviews evidence on the effectiveness of a labour market ‘speed date’ programme in the Netherlands, where unemployed job seekers are matched with temporary work agencies. The speed dates are effective in reducing the costs of unemployment insurance but, in the long run, temporary work does not serve as a stepping stone towards regular employment.
Five Reasons for the Weakness of the Argentine Economy – Daniel Lacalle
Argentina has been “printing money for the people” MMT-style for many years. Its wrongly-called “inclusive monetary policy” of the past-print money to finance massive government spending- has driven the country to massive inflation and depression.
This is the main reason why a country with an excellent education, human capital, and high economic potential has third-world inflation rates.
***Why Your Gasoline Won’t Take You As Far As It Used To – Robert Rapier
But the poster linked to data from the Energy Information Administration (EIA) that I hadn’t previously seen.
The EIA doesn’t directly tabulate the energy content of gasoline. But they do provide two pieces of data that let us calculate it ourselves from two relevant tables in the April 2019 Monthly Energy Review.
Table 3.5 provides Petroleum Products Supplied by Type in thousands of barrels per day, while Table 3.6 provides Heat Content of Petroleum Products Supplied by Type in trillion Btus per year.
Disclaimer: De VoL-redactie selecteert deze artikelen op interessante inzichten, of naar wij denken nuttige informatie. Wij kunnen echter geen enkele aansprakelijkheid aanvaarden voor de gevolgen van beslissingen die op grond hiervan door lezers zijn genomen, zakelijk zomin als privé.
Eerdere afleveringen van dit wekelijkse overzicht vindt u hier.