Economische aanraders 10-03-2019
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.
***The noise in stock prices matters for the real economy – Olivier Dessaint, Thierry Foucault, Laurent Frésard, Adrien Matray
Stock prices respond to fundamental shocks (i.e. news) and non-fundamental shocks (noise). Using US data from 1996 to 2011, this column argues that stock prices are a ‘faulty informant’ for corporate managers because managers have limited ability to separate information from noise when using prices as signals about their prospects. The ensuing losses of capital investment and shareholders’ wealth are large and even affect firms that are not facing severe financing constraints or agency problems.
The Progressive Zombification Of Europe’s Banks – Gunther Schnabl, Thomas Stratmann
Ten years after the outbreak of the global financial crisis, banks in the euro area have not recovered. The Euro Stoxx Financials is only 40% above its March 2009 low, well below its pre-crisis level (Fig. 1). By contrast, the S&P Financials index in the US has risen by 320%. The different fates of European and US financial institutions could be due to the different monetary and regulatory crisis therapies of the European Central Bank (ECB) and the Fed.
US Dollar Hits 52-Week High in Cleanest-Dirty-Shirt-Syndrome on New ECB Stimulus, as Old ECB Stimulus Fails to Stimulate – Wolf Richter
The real worry is the economy in the Eurozone.
The Dollar Index (DXY), which tracks the dollar against the euro, yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc, and which is dominated by the euro, jumped 0.83% to 97.71 at the moment, hitting at least briefly its 52-week high, as the euro slumped 1.1% against the dollar, following the ECB’s announcement earlier today. But it wasn’t just a one-day event for the dollar, but an eight-day rally in an uptrend that started in early February (data via Investing.com):
The real worry is the economy in the Eurozone – despite the fabulous stimulus the ECB has heaped on it for years, including a brutal negative-interest-rate policy and massive QE that has inflated the ECB’s balance sheet to over 40% of Eurozone GDP (by comparison, the Fed’s balance sheet is down to 19.5% of US GDP).
The economics of fintech and digital currencies: A new eBook – Antonio Fatás
In recent years, the arrival of new financial technologies has opened a debate about the extent of their implications for the nature of money, the way new ventures are funded, and so on. This column introduces a new Vox eBook that summarises current research on the impact of these changes and how to manage the possible disruption in financial markets, where governance and regulation are central.
What Killed the Middle Class? – Charles Hugh Smith
Rounding up the usual suspects won’t restore a vibrant middle class.
What killed the middle class? The answer may well echo an Agatha Christie mystery: rather than there being one guilty party, it may be that each of the suspects participated in the demise of the middle class.
If you doubt the middle class has expired, please consider the evidence:
The Middle Class Is Shrinking Everywhere — In Chicago It’s Almost Gone
Wealth concentration returning to ‘levels last seen during the Roaring Twenties,’ according to new research
People tend to self-report viewing themselves as middle class, but by the standards of previous eras, they lack the basics of middle class prosperity. I laid out 12 core characteristics of classic middle class security in What Does It Take To Be Middle Class? (December 5, 2013).
Why Economics Needs Good Theory: Facts and Figures Aren’t Enough – Frank Shostak
Could historical data by itself serve as the basis for the factual assessments of the world of economics? It is believed that through the application of statistical methods on historical data, or just by gazing at the data, one could extract the facts of reality regarding the world of economics. But in order to really make sense of the data one must have a theory, which stands on its own feet, and did not originate from the data. By means of a theory, one could scrutinize the data and could then try to make sense out of it.
The key ingredient of such a theory is that it must originate from something real that cannot be refuted. A theory that rests on the foundation that human beings are acting consciously and purposefully fulfils this.
Central bank digital currency: Concepts and trends – Sayuri Shirai
Recent years have seen the emergence of digital currencies such as Bitcoin as potential private sector money. Central banks are also considering whether to issue their own digital tokens to enable decentralised verification of transactions while maintaining attractive cash-like features. This column lays out the four existing proposals for implementing central bank digital currency. Due largely to technical constraints, however, central banks in general have not found a compelling reason to issue their own digital currency.
China’s Slowdown is Exposing the Cracks in the Global Economy – Claudio Grass
The latest numbers released by China’s statistics bureau fueled widespread concerns about the outlook of the global economy, as the Asian superpower reported its slowest growth rate since 1990. The figures showed a 6.6% growth for 2018, confirming the view that the growth engine of the world economy is running out of steam.
Deep-Seated Vulnerabilities, Far Beyond the Trade War
China’s weakening growth has been widely attributed to the country’s trade frictions with the United States. To some extent this accurate, as the dispute has burdened both countries with billions of dollars from tariffs and retaliatory counter-tariffs. The 3-month ceasefire that was agreed during the last G20 conference in Buenos Aires is set to end in March and if an agreement is not reached by then, hostilities are bound to resume. Donald Trump has threatened a 25% tariff on $200 billion in Chinese imports, a step that will pile on considerable pressure to the already vulnerable Chinese economy and darken its prospects.
Wrong in a very confusing way – NN
There are lots of macro models out there: old monetarism, market monetarism, old Keynesianism, new Keynesianism, supply-side economics, Fiscal Theory of the Price Level, NeoFisherism, Austrian, Real Business Cycle, etc., etc. People who believe in one tend to view the others as being at least partly wrong. But where they disagree, it’s usually possible to pin down some specific points of disagreement.
MMT is not like that.
How finance affects income inequality – Michael Brei, Giovanni Ferri, Leonardo Gambacorta
There is mounting evidence that income inequality and disparities in wealth have been rising in advanced economies in the recent decades. Using data on advanced and emerging economies, this column investigates the link between an economy’s financial structure – that is, the mix of bank-provided versus market-provided funds – and income inequality. Results show that the relationship is not monotonic. More finance reduces income inequality up to a point, but beyond that point inequality rises, especially if finance is expanded via market-based financing.
***What We Know and What We Don’t Know about the Firm – Per Bylund
[This is a chapter from The Problem of Production: A New Theory of the Firm.]
This book is about what is generally referred to as the ‘firm’, a phenomenon in the market that appears obvious but that remains difficult to explain. While there is a field of study referred to as the theory of the firm, there are in fact a number of noteworthy theories. All of these theories claim to explain the firm’s rationale, value, and purpose. But the theories tend to describe the firm in different ways. The discussion is further complicated as there are several different definitions of this seemingly elusive concept. As a result, our understanding for the economic reality of the firm is inhibited.
The purpose of this book is not to reconcile these theories or definitions, however, but to try a new approach and provide an explanation for the firm by looking at the market setting where we find firms. We start by constructing an economic model of the market as an elaborate yet dynamic system of production without firms. This, in turn, allows us to study the limitations of the economic system of production, and what means are available to overcome them; or, more precisely, how the market deals with this ‘problem of production’. The goal is to elaborate on an explanation for the firm by seeking its economic function within the extensive production apparatus of the specialised market.
Fed’s QE Unwind Reaches $501 Billion, Balance Sheet Falls Below $4 Trillion. “Autopilot” Engaged – Wolf Richter
The albatross of $617 billion in bonds that mature in over 10 years.
Over the next few months, the Fed is expected to announce its new plan for its balance sheet. Meanwhile, as we’re riveted to the edge of our seat, the old plan continues on autopilot, and February was one of the few months when the Treasury “roll-off,” as Chairman Jerome Powell likes to call it, hit the “caps.”
***Why the Boom-Bust Cycle Keeps Repeating – Frank Shostak
In a free, unhampered market, we could envisage that the economy would be subject to various shocks but it is difficult to envisage a phenomenon of recurrent boom-bust cycles.
According to Rothbard,
Before the Industrial Revolution in approximately the late 18th century, there were no regularly recurring booms and depressions. There would be a sudden economic crisis whenever some king made war or confiscated the property of his subjects; but there was no sign of the peculiarly modern phenomena of general and fairly regular swings in business fortunes, of expansions and contractions.
The boom-bust cycle phenomenon is somehow linked to the modern world. But what is the link? The source of the recurring boom-bust cycles turns out to be the alleged “protector” of the economy — the central banks themselves.
Trade Isn’t China’s Only Worry – Charles Hugh Smith
Trade is only one manifestation of much deeper economic insecurities and imbalances.
China’s enormous successes–raising hundreds of millions out of poverty, landing a rover on the dark side of the moon, etc.–are well known. Less appreciated is China’s increasing vulnerability to financial instability arising from asymmetries that cannot be resolved by tweaking trade policies.
As this article explains, The China Story That Is Far Bigger Than Apple, China’s trade balance–trade surpluses for decades– is close to slipping into trade deficits.
At the same time, China’s once-mighty pool of savings has diminished as consumption has risen. As a result, China now needs foreign investment more than it did in the previous era.
Trade and innovation: The Schumpeterian role of banks – Christian Keuschnigg, Michael Kogler
Only strong banks can fulfil their Schumpeterian role by efficiently reallocating credit. The column argues that high capital standards, efficient bankruptcy laws, and a lower cost of bank equity improve credit reallocation and thereby support the productive specialisation of the economy. An efficient banking sector also magnifies the gains from trade liberalisation by easing the process of capital reallocation.
The Green New Deal Plus Modern Monetary Theory = Socialism – Mark Hendrickson
Thank you, Representative Alexandria Ocasio-Cortez. The Green New Deal (GND) she has unveiled is most illuminating. It is now unmistakably clear that AOC, Bernie Sanders, and other democratic socialists in the Democratic Party don’t want “socialism lite” but rather they want the federal government to take control of the “commanding heights” of the economy. Although they may settle for the variant of socialism in which businesses remain nominally private, even as the government dictates what they must do, they plainly want central economic planning, albeit with a 10-year rather than five-year plan.
This is no exaggeration. The GND essentially calls for conscripting the American workforce and putting us to work in accordance with what the elite government planners want instead of what “we, the people” want. They propose to replace our market economy, in which privately owned businesses compete to see who can best supply the needs and wants of the people, with a command economy in which government is the master and citizens build what the planners say must be built.
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