Economische aanraders 17-03-2019
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.
Why International Economics Theory Has Become Irrelevant – Carmen Elena Dorobăț
With the US–China trade war and the Brexit dealings making headlines around the world, debates about international trade are at a high point. Unfortunately, those wishing to turn to the theory of international economics for support and enlightenment on these issues will find themselves disappointed. This field is perhaps the epitome of the much-despised “ivory tower economics,” as it is now severed from the reality of global markets. Dry, long-winded, and highly formalized, international economics is kept in a separate, pristine theoretical box, taught and used in a vacuum without much reference to other areas of economic science, and even less connected to the realities of global business. If connections are made by scholars, they are tenuous, unrealistic, or merely conjectural. Mainstream international trade theory explains only very little of international trade reality.
There are three reasons for this, which can be traced back to the methodological roots of international economic analysis, especially: 1) an exclusively macroeconomic approach, 2) the use of the classical dichotomy, and 3) the absence of the entrepreneur. Let me explain these in turn.
Important time series evidence about the efficacy of the ECB’s balance sheet policies is flawed – Adam Elbourne, Kan Ji, Bert Smid
Previous research has shown that changes to the size of the ECB’s balance sheet were followed by meaningful changes in macroeconomic aggregates. This column argues that the econometric technique these studies employed does not provide reliable estimates. Impulse responses to purported balance sheet shocks are statistically indistinguishable from those from nonsensical identification schemes. The effectiveness of the ECB’s balance sheet policies is therefore still unproven.
***Financial Exclusion and System Vulnerability, Study Warns – Don Quijones
Ten years ago, six out of every ten transactions in the UK were done in cash. Now it’s just three in ten. And in fifteen years’ time, it could be as low as one in ten, reports the final edition of the Access to Cash Review. Commissioned as a response to the rapid decline in cash use in the UK and funded by LINK, the UK’s largest cash network, the review concludes that the UK is not nearly ready to go fully cashless, with an estimated 17% of the population – over 8 million adults – projected to struggle to cope if it did.
The Eurozone is Slowing, and the ECB Isn’t Prepared – Claudio Grass
At the end of January, only a month after the official end of the QE program of the European Central Bank (ECB), its President Mario Draghi told the European Parliament’s committee that the central bank could resume its bond purchasing, in a questionable effort to assuage concerns over the impact of the policy change. As Europe’s economy flashes increasingly bright warning signs, doubts are multiplying over the sustainability of the ECB’s plans, the efficacy of its measures and its capacity to support the economy, should another crisis come to pass.
Fed vs. Narrow Banks – Competitive deposits? John H. Cochrane
Suppose an entrepreneur came up with a plan for a financial institution that is completely safe — it can never fail, it can never suffer a run, it offers depositors perfect safety with no need for deposit insurance, asset risk regulation, capital requirements, or the rest, and it pays depositors more interest than they can get elsewhere.
Narrow banks are such institutions. They take deposits and invest the proceeds in interest-bearing reserves at the Fed. They pay depositors that interest, less a small profit margin. Pure and simple. Economists have been calling for narrow banks since at least the 1930s.
You would think that the Fed would welcome narrow banks with open arms.
You would be wrong.
2e deel artikel
In its death note to narrow banks (link to Federal Register where you can post comments; previous post), the Fed claimed charmingly that retail deposit rates are fully competitive, so we don’t need a narrow bank option to help spread the interest on reserves to deposit rates. In the Fed’s view, the fact that banks pay so little compared to reserves just reflects the costs (many of them regulatory!) of servicing retail accounts.
Central bank digital currencies and private banks – David Andolfatto
The idea of a central bank digital currency has prompted a mixed reaction among economists. This column uses a simple theoretical framework to investigate the impact of such a currency on a monopolistic banking sector. There are two main results. First, the introduction of an interest-bearing digital currency increases financial inclusion, diminishing the demand for physical cash. Second, while an interest-bearing digital currency reduces monopoly profit, it need not disintermediate banks in any way. A central bank digital currency may, in fact, lead to an expansion of bank deposits if the resulting competition compels banks to raise their deposit rates.
How Many Economists Still Get Subjective Value Wrong – Per Bylund
Subjective value is not objective. Sounds obvious, but the distinction is lost on most — scholars and practitioners alike.
People seem to think subjective value is simply a person’s ‘willingness to pay’ a price. Well, it’s not. Subjective value cannot be expressed in dollars and cents, because that would simply mean subjective value is an expression in terms of objective market purchasing power.
If value is subjective, however, that purchasing power too is subjectively valued, in terms of what subjective value it can provide (through the actual goods and services the money can purchase). And, in any market-like setting, willingness to give up purchasing power for a good only indicates that the person subjectively values that purchasing power (however it is appreciated by him/her) less than the value expected from the good that can be purchased.
E-Commerce is Wiping Out Mall Retailers One by One. Here’s the Data – Wolf Richter
Department store sales hit a new record low in the data going back to 1992.
E-commerce sales in the fourth quarter soared 12.1% from a year ago to a new record of $132.8 billion (seasonally adjusted), the Commerce Department reported this morning. For the whole year 2018, e-commerce sales blew through the $500-billion level for the first time, reaching $513.6 billion, up 14.2% or $64 billion from a year ago.
Not seasonally adjusted, e-commerce in Q4 jumped to $158.5 billion, 11.2% of total retail sales. E-commerce sales have doubled over the past five years.
***Here’s The Problem: The Pie Is Shrinking – Charles Hugh Smith
At that point, the only way to enable debt-serfs to service their debts is too give them free money, i.e. Universal Basic Income (UBI).
Scrape away the churn and distraction and the problem is simple: the pie of prosperity is shrinking, and the “fixes” are failing. The status quo arrangement is based on the endless expansion of “growth” and debt, which is the monetary fuel of more, more, more of everything: money, energy, resources, goods, services, jobs, wealth and income, all of which make up the elixir of prosperity.
Prosperity is shorthand for a positive return on investment (ROI), a.k.a. primary surplus. Prosperity is the result of there being a surplus which can be distributed after capital, resources and labor are put to work.
What’s wrong with the WTO’s Environmental Goods Agreement: A developing country perspective – Jaime de Melo, Jean-Marc Solleder
Developing countries have not participated in the WTO-led negotiations aimed at bringing down barriers to trade in environmental goods. If negotiations conclude, would the win for trade and for the environment be extended to a win for developing countries? This column draws insights from a newly assembled comprehensive dataset on barriers to trade in environmental goods and provides evidence that tariffs and non-tariff barriers are still an impediment to trade while similar regulations stimulate it. A larger list of environmental goods would entice developing-country participation, but this will also require protecting developing countries from challenges at the WTO.
Keynes is Dead; This is the Long Run – Charles Gave
For those who haven’t studied the riveting subject of macroeconomics since college – sarcasm, of course, for everyone out there that doesn’t live and breathe the subject like we do – Keynes advocated for increased government spending and lower taxes to stimulate economy activity, especially during times of economic hardship. Subsequently, long after his death, Keynes’ disciples proposed that optimal economic performance could be achieved through frequent “fine-tuning” by government monetary and fiscal policies (i.e. interest rates, relative to the former, and taxes/spending in the case of the latter).
Consequently, like so many well-intentioned policy initiatives meant to cope with emergency conditions, Keynes’ prescription has morphed into constant application even during mild cyclical downturns. Moreover, the other part of his master plan—to run surpluses during good times–has been almost totally ignored by election-driven politicians (are there any other kind?).
US Banks Report $251 billion of “Unrealized Losses” on Securities Investments in 2018, the Most Since 2008: FDIC – Wolf Richter
And other juicy banking nuggets.
Net income in Q4 2018 among all 5,406 FDIC-insured banks and thrifts more than doubled year-over-year to $59 billion, due to “higher net operating revenue” and “lower income tax expenses”; and full-year net income rose 44% to $237 billion, the FDIC reported today in its Quarterly Banking Profile. But over the same period, “unrealized losses” on investment securities – losses that are not included in the “net income” figures above – ballooned to $251 billion, the largest unrealized losses since 2008.
“Unrealized losses” are losses on securities that dropped in value but that the banks have not yet sold. In other words, they’re “paper losses.”
Macro Trade Of The Century: Gold, Yuan, & Global Stocks – Kevin Smith, Tavi Costa
Dear Investors: At Crescat we remain positioned to capitalize on a downturn in the economic cycle. Global equity markets peaked in January 2018 while US markets peaked in September 2018. Crescat’s hedge funds were two of the world’s top performing funds in 2018 as a result of our bearish macro views and positioning last year. We are confident that was only the beginning of a downturn in asset prices from record global leverage and central-bank-driven asset bubbles for this cycle. US asset bubbles only just began to burst at the end of last year as one can see in the chart below.
Year to date, global stocks and corporate credit securities have rallied sharply while economic indicators have continued to deteriorate. This is setting global risk-asset markets up for another down-leg. We haven’t even had a recession yet to end the economic cycle while US stocks are still near record valuations across a breadth of measures. There is tremendous shorting opportunity ahead! With the current quarter, we are now in a tie with the 1990s for the longest US economic expansion ever. Crescat’s macro models show that the expansion is about to turn into a recession within the next several quarters based on an abundance of indicators.
Ownership, Scarcity, and Economic Decision Making – Dan Mahoney
[Originally published in Volume 5, No. 1 (Spring 2002) of the Quarterly Journal of Austrian Economics.]
A central theme of all schools of economics is the notion that goods are scarce. The extent of human wants and needs is sufficiently great that the means man would apply to those ends are limited, requiring that he choose among alternative actions. The purpose of this article is to call attention to a facet of scarcity that stems from this fundamental notion and that is of relevance to economic decision making, the determination of what goals to pursue, and how to attain them. This facet is the ownership of these scarce goods. The fact of ownership means that there is an additional problem faced by those who would use such goods, beyond the fact that such goods are physically unable to satisfy all conceivable uses to which they could be put. This problem is how to convince the owner, who by the very meaning of ownership is entitled to complete control over those goods, to part with those goods (so that they may be applied to other uses).
China’s Looming Liquidity Shortage (Or Why Endless Stimulus Isn’t Working) – Tyler Durden
Chinese Premier Li promised yet more stimulus measures overnight from tax cuts to focused rate reductions (but, he admitted, not blanket liquidity provision).
But, after over 60 different ‘stimulus’ measures in the last few months and last night’s promises, nothing seems to be working as China’s economic data continues to tumble.
Household credit cycles and financial crises – Jan Hannes Lang, Peter Welz
Financial crises are often preceded by credit excesses, but how do we know when credit is excessive? This column shows that deviations of household credit from levels that are justified by economic fundamentals exhibit long cycles of 15 to 25 years with large amplitudes of around 20%. Household credit excesses build up many years ahead of financial crises and only gradually unwind thereafter. Most importantly, higher levels of household credit imbalances are associated with larger declines in real GDP once a financial crisis hits. The findings suggest that household credit cycles should be carefully monitored by macroprudential policymakers to ensure financial stability.
***Free Trade is Pro-Middle Class and Pro-Family – Gor Grigoryan
The most sophisticated proponents of protectionism acknowledge the economic arguments in favor of free trade, but portray their position as transcending economics and the free traders’ superficial hunger for “cheap stuff.” These protectionists instead champion loftier goals such as the political and societal benefits of a robust middle class. But, leaving aside the economic superiority of free trade, protectionism still falls short of free trade in achieving the protectionists’ own stated goals; it is free trade which preserves peace and community.
Advocates for tariffs often support them in the name of supporting a strong middle class, the existence of which, they claim, provides political and societal benefits that outweigh the overall efficiency losses tariffs bring about. It is true that, in the short term, taxing foreign steel benefits the specific industries whose output is steel, and may increase the number of jobs and/or salaries in steel production. However, this is at the expense of every industry whose inputs include steel. Steel factory employment comes at the cost of car factory employment. Now, what if foreign steel were not taxed, but rather a lower-order good, closer to immediate consumption, like foreign cars were instead taxed?
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