Economische aanraders 10-09-2017
Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 10 belangrijke of informatieve artikelen en interviews die 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.
Sinds december 2015 nemen we 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 China Shock: Why Germany is different – Dalia Marin
Previous research has shown that China’s entry into the WTO in 2001 has had a profound impact on jobs and wages of low-skilled workers in the US in sectors exposed to Chinese imports. The same is not true for Germany. This column argues this is because the import-side trade adjustment to low-cost competition had already happened before the rise of China, because the rise of Eastern Europe offered new export opportunities for German firms, and because China’s love for product quality found a perfect match in German products.
***ECB Tightens Noose Around Bank Accounts – Don Quijones
The European Central Bank (ECB), arguably the European Union’s most powerful and least accountable institution, apparently needs more power, according to Daniele Nouy, the ECB’s top supervisor. Chief among the fresh powers it seeks is the power to temporarily prevent people from withdrawing their money from their accounts at banks that are in distress, including by electronic fund transfers.
“In my view… the introduction of adequate moratorium power for authorities is needed in order to react with the needed flexibility, if the situation of a bank deteriorates rapidly,” Nouy told a member of the European Parliament in a letter. “Given the potentially swift evolution of liquidity crises, a moratorium tool could be necessary to ensure there is adequate time for ensuring a credible solution,” Nouy said, adding that the ECB will soon publish an opinion on this issue.
The Insanity of Pushing Inflation Higher When Wages Can’t Rise – Charles Hugh Smith
In an economy in which wages for 95% of households are stagnant for structural reasons, pushing inflation higher is destabilizing.
The official policy goal of the Federal Reserve and other central banks is to generate 3% inflation annually. Put another way: the central banks want to lower the purchasing power of their currencies by 33% every decade.
In other words, those with fixed incomes that don’t keep pace with inflation will have lost a third of their income after a decade of central bank-engineered inflation.
There is a core structural problem with engineering 3% annual inflation. Those whose income doesn’t keep pace are gradually impoverished, while those who can notch gains above 3% gradually garner the lion’s share of the national income and wealth.
As I showed in Why We’re Doomed: Stagnant Wages, wages for the bottom 95% have not kept pace with official inflation (never mind real-world inflation rates for those exposed to real price increases in big-ticket items such as college tuition and healthcare insurance).
Routinisation, globalisation, and the fall in labour’s share of income – Mai Dao, Mitali Das, Zsoka Koczan, Weicheng Lian
In both developing and advanced economies, labour’s share of income has been declining since the 1970s, presenting a puzzle for classical trade theory. This column proposes that the globalisation of trade and ‘routinisation’ of tasks can reconcile declining labour shares in both advanced and developing economies. Countries with higher initial exposure to routinisation and a greater increase in participation in global value chains are shown to have experienced stronger declines in the labour income share of medium-skilled workers.
Blowing off the roof – Peter Schiff
Of all the absurd Washington pantomimes none has been as reliably entertaining and maddening as the annual debates to raise the debt ceiling. Although the outcome was always a foregone conclusion (the ceiling would be raised), the excitement came when fiscal conservatives bemoaned the perils of runaway debt and “attempted” to exact spending restrictions through threats “to shut down the government,” (which often led to news coverage of tourists being turned away from national parks.) On the other side of the aisle Democrats would rail that the ceiling must be raised “because America always pays her bills.” Lost was the irony that “paying” bills with borrowed money was fiscally responsible, and that raising the ceiling actually enabled America to continue to avoid paying its bills. After these amateur theatrics, the ceiling would be lifted and Washington would go on as if nothing happened. But at least the performance threw occasional light on the nation’s debt problems.
But this week the news dropped that President Trump had made a “gentleman’s agreement” with Senate Minority Leader Chuck Schumer to permanently scrap the “debt ceiling” so that government borrowing can occur perpetually without the need to air the nation’s fiscal dirty laundry. Given how much the national debt has exploded in recent decades, and how reluctant Congress has been to address the problem, it should be no surprise that the proposal has finally been made. The only shock is that it happening when the Republicans control the White House and both houses of Congress.
Will Low Unemployment Cause Accelerating Inflation? – Frank Shostak
In August the US unemployment rate closed at 4.4% against 4.3% in the month before. The relatively low unemployment rate seen by some commentators as implying that the US is almost at the so-called natural rate, which believed to be at around 4.5%.
It is held that once the unemployment rate falls below an “optimal” rate —called the Non-Accelerating Inflation Rate of Unemployment (NAIRU) —it sets off an inflationary spiral. This acceleration in the rate of inflation takes place through increases in the demand for goods and services.
It also lifts the demand for workers and puts pressure on wages, reinforcing the growth in the rate of inflation.
***Brick & Mortar Meltdown: Bon-Ton Department Stores Hires Bankruptcy Advisor – Wolf Richter
Vitamin World plans to file for bankruptcy, Perfumania Holdings just filed. And Toys R Us… All in just two weeks.
Bon-Ton Stores, Inc., which operates about 260 department stores largely in the Northeast and Midwest under the names Bon-Ton, Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, and Younkers, has hired PJT Partners, which describes itself as “a leading advisor to companies and creditors in restructurings and bankruptcies around the world.”
Faced with falling sales and customer traffic, the company is trying to refinance debt and prepare for a possible bankruptcy filing, “people familiar with the matter” told the Wall Street Journal.
***Social connectedness: Measurement, determinants, and effects – Ruiqing Cao, Theresa Kuchler, Johannes Stroebel, Arlene Wong
Systematic analyses of social connectedness and social networks have traditionally been complicated by a lack of high-quality, large-scale data. This column uses data on friendship links on Facebook to construct a new measure of social connectedness between US counties, and between US counties and foreign countries. Social networks in the US are quite local, and both national and international networks are substantially shaped by historical events and migration patterns. The populations of US counties with more geographically dispersed social networks are generally richer and better educated, and have higher life expectancy and greater social mobility.
(What’s Left of) Our Economy: The Real Dreamer Fakeonomics – Alan Tonelson
If you’ve been following the heated national debate about President Trump’s decision to rescind former President Obama’s Deferred Action for Childhood Arrivals (DACA) program, you know that an economic conventional wisdom has been quickly established. It holds that, whatever you think about the legality, propriety, or morality of ending its legalization process for the young and young-ish residents of the country who arrived as the children of illegal immigrants, the impact on the nation’s growth, employment, and productivity would be disastrous.
Sadly – but not surprisingly – an examination of the data reveals this conclusion to be quintessential fakeonomics. Worse, these claims have been spread with techniques that have become all too typical in the nation’s political, policy, and media circles – by endlessly and credulously repeating assertions that are based either on no solid data whatever, or on unusually weak data.
India’s Demonetization: No Impact on Black Money Despite Huge Costs It Imposed – Jerri-Lynn Scofield
The Reserve Bank of India (RBI) on Wednesday published its annual report, which assessed India’s demonetization policy, initiated last November.
Regular readers will be familiar with some aspects of this story, covered extensively by Naked Capitalism here, here, here, here, here, here, and here. In this short post, I’ll bring the story up to date.
To recap, on the night of November 8, Prime Minister Narendra Modi delivered an unscheduled speech announcing the cancellation of Indian Rupees (Rs) 500 (about US$7.82) and Rs 1000 (US$15.65) notes– 86% of all cash then in circulation in what’s largely a cash-based economy– in order to ferret out black money.
The government estimated that demonetization would flush up to 1/3 of currency then in circulation from the economy, with holders of black money choosing to trash or abandon their holdings rather than admit its shady provenance. Central bank liabilities were expected to decline, and the government to reap a windfall.
Widespread and immediate chaos followed, as I observed firsthand as I was visiting India at that time (and wrote in some of the links included above).
Markets, Not Government, Improve Race Relations – Richard M. Ebeling
Politically we seem to be living in some trying times. The political polarization, as captured in the mainstream news media, appears to be intensifying with even acts of destructive violence on the streets and campuses of American cities. At the same time, pictures out of Houston during and following Hurricane Harvey show empathetic assistance and cooperation between people and groups that supposedly are in heated contention with each other. How do we reconcile this?
To begin with, I am persuaded that the supposedly racial and social “class” tensions that some assert is on the rise in America is not true. In fact, I would argue that in everyday interaction and association race relations are far, far better than they were, say, twenty-five years ago, and most certainly compared to fifty or seventy-five years ago.
US trade wars in the 21st century with emerging countries: Make America (and its partners) lose again! – Antoine Bouët, David Laborde
During his election campaign, Donald Trump repeatedly announced that he would impose tariffs on imports from China, Mexico, and Germany. This column evaluates the likely outcomes should the US instigate trade wars by imposing such tariffs. In all scenarios, the net effect on US welfare and GDP is either zero or negative. Such trade wars would also have wider negative effects for the trading partners, and potentially, the world economy.
Trump’s Historic Opportunity with the Federal Reserve – Tho Bishop
And then there were three.
Today Stanley Fischer submitted his letter of resignation from the Federal Reserve’s Board of Governors, effective next month, the second such resignation of Donald Trump’s presidency. While Fischer’s term as Vice Chairman of the Fed was set to end next year, he had the ability to serve as a governor through 2020. Along with Trump’s decision next year on whether to replace Janet Yellen as the Fed’s chair, this means Trumps will have the opportunity to appoint five of seven governors to America’s central bank.
Given that the position holds a 14-year term, it is unusual for a president to have the opportunity to make so many appointments. As Diane Swonk of DS Economics noted, “It’s the largest potential regime change in the leadership of the Fed since 1936.”
Of course the question is now whether a change in personnel will lead to a change in policy.
Howard Marks Graciously Admits He Was Wrong: “Sees No Reason Why Bitcoin Can’t Be A Currency” – Tyler Durden
Billionaire investor (and self-professed “Bitcoin Dinosaur”) Howard Marks made headlines in July when he called Bitcoin a “unfounded fad.. a pyramid scheme” in one of his famous memos, igniting a firestorm of backlash from cryptocurrency advocates.
However, in his most recent Oaktree Capital memo, Marks retracted his position after being educated by some of his Bitcoin-loving friends regarding the cryptocurrency.
There has been particularly spirited response to my comments on digital currencies. It prompted me to sit down with people ranging from some of my Oaktree colleagues to Steven Bregman and Murray Stahl of Horizon Kinetics (my July memo incorporated some of Steven’s observations on ETFs), and I learned that I’ve been looking at Bitcoin the wrong way. In particular, I rea
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