Economische aanraders 20-10-2019
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 Economic Consequences of Cheap Money – Ludwig von Mises
[From a memorandum, dated April 24, 1946, prepared in English by Professor Mises for a committee of businessmen for whom he served as a consultant, this article appears in The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression (2006) as chapter 5, “The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money.”]
The author of this paper is fully aware of its insufficiency. Yet, there is no means of dealing with the problem of the trade cycle in a more satisfactory way if one does not write a treatise embracing all aspects of the capitalist market economy. The author fully agrees with the dictum of Böhm-Bawerk: “A theory of the trade cycle, if it is not to be mere botching, can only be written as the last chapter or the last chapter but one of a treatise dealing with all economic problems.”
It is only with these reservations that the present writer presents this rough sketch to the members of the Committee.
The Problem Is The Economy, Stupid! Not The Climate – Egon von Greyerz
The earth is about to get much cooler and so too is the earth’s economy.
“Sic Transit Gloria Mundi” (Thus passes the glory of the world). This phrase was used at the papal coronations between the early 1400s and 1963. It was meant to indicate the transitory or ephemeral nature of life and cycles.
As we are now facing the end of a major economic, political and cultural cycle, the world is likely to experience a dramatic change which very few are prepared for. Interestingly, the peak of economic cycles often coincide with the peaks in climate cycles. At the height of the Roman Empire, which was when Christ was born, the climate in Rome was tropical. Then the earth got cooler until the Viking era which coincided with the dark ages.
The Mythology of the “Natural Interest Rate” – Brendan Brown
Myth : A huge and growing global savings surplus during the first two decades of this century has pressed down the natural rate (some say neutral rate) of interest. Actual very-low and sometimes negative market rates of interest reflect this.
Reality : Estimates of the neutral rate according to central bank consensus definition have fallen, but these involve dubious “top-down” observations about economic aggregates and theoretical constructs based on an unsound money regime.
Central bankers and their governments are prone to embrace claims that low rates are now “natural.” If unnatural, they would be levying in full sunlight a giant monetary repression tax (at a rate equal to the spread of the natural rate over the market rate which the central bankers are manipulating and levied on government bond and money liabilities).
But the claims about an actual low natural rate are bogus.
Tariffs and monetary policy: A toxic mix – Michael Bordo, Mickey Levy
The history of tariffs and immigration and capital barriers provides clear lessons of the potentially sizeable economic costs of anti-globalisation policies. This column describes how the US-China tariff war and policy-related uncertainties are harming economic performance, and are also distorting the Federal Reserve’s monetary policy and undermining its credibility and independence. Tariffs and discretionary monetary policy are a toxic mix, and the authors encourage a de-escalation of burdensome barriers to trade and urge the Fed to adopt a systematic, rules-based approach to monetary policy.
***Economic Decay Leads to Social and Political Decay – Charles Hugh Smith
If we want to make real progress, we have to properly diagnose the structural sources of the rot that is spreading quickly into every nook and cranny of the society and culture.
It seems my rant yesterday (Let Me Know When It’s Over) upset a lot of people, many of whom felt I trivialized the differences between the parties and all the reforms that people believe will right wrongs and reduce suffering.
OK, I get it, there are differences, but if the “reform” doesn’t change the source of the suffering and injustice, it’s just window-dressing that makes the supporter feel virtuous. Want an example? Let’s take the the “cruel and unusual punishment” for drug-law offenders, many of whom are African-American males whose lives are effectively hobbled by felony convictions and long sentences in America’s Drug War Gulag.
G20 Finance Leaders: Stablecoins Present Serious Regulatory Risks – Joeri Cant
The G20 finance chiefs of the world agree that global stablecoins give rise to a set of public policy and regulatory risks.
On Oct. 18, Reuters reported that the G20, an international forum for the governments and central bank governors from 19 countries and the European Union, have called upon the International Monetary Fund to examine various macroeconomic implications of global stablecoins, including monetary sovereignty issues in its member countries.
Members say stablecoins pose a serious risk to global finance
The link between declining middle-wage jobs, rising wage inequality, and worker welfare – Jennifer Hunt, Ryan Nunn
Over the last five decades, middle-wage jobs diminished in the US as wage inequality increased. This column investigates the relationship between these two phenomena, and finds no evidence that either computerisation or automation (often cited as a source of both trends) produced employment polarisation or increased wage inequality. By examining wages at the individual level (rather than occupation-average wages), the column suggests that the evolution of wages can be better explained by distinct causes—ranging from changing labour market institutions to globalisation—than by observable demographic factors.
Unions and Protectionism, Not Free Trade, Doomed the Rust Belt – Ryan McMaken
As the decline of the Rust Belt became increasingly obvious during the 1980s, protectionists attempted to blame the malaise on too little government protection from foreign competition. Campaigning for the presidency in 1984, Walter Mondale attacked Ronald Reagan for lifting quotas on steel imports, declaring ” Reagan’s policies are turning our industrial Midwest into a rust bowl.”
The Rust Belt never recovered its old-time manufacturing base, and it has long been fashionable among protectionists to claim that the modern Rust Belt has become a land of “communities broken technological advances, globalization, and unfettered free trade.”
That part about technology is about right. The rest, not so much. For a more complete picture of what has really led to the exodus of jobs from the Rust Belt, we need look no further than the current United Auto Workers strike. As of Thursday this week, “a council of union-hall leaders meeting in Detroit Thursday voted to extend the now 32-day walkout” which is estimated to have already cost GM $2 billion.
It doesn’t take a PhD in entrepreneurship to figure out why some manufacturers might be motivated to move far, far away from jurisdictions that encourage this sort of thing. Not surprisingly many manufacturing have indeed moved elsewhere — including within the United States.
America’s Road Map To $40 Trillion National Debt By 2028 – MN Gordon
Watch out! At this very moment, professional economists of all stripes are making plans on your behalf. They’re dreaming and scheming new and innovative ways to spend your money long before you’ve earned it.
While you’re busy at the gristmill, grinding away for clients and customers, claims are being laid upon your life. Your future earnings are being directed to boondoggles galore. Yet these claims are in addition to everything Washington’s already signed you up for.
At last count of the U.S. National Debt, every American citizen’s on the hook for nearly $70,000. Add U.S. Unfunded Liabilities – which includes Social Security, Medicare Parts A, B, and D, federal debt held by the public, plus federal employee and veteran benefits – and each citizen owes almost $383,000. And this sum’s going to double in the years ahead faster than you can say lickety-split.
Rethinking fiscal policy choices in the euro area – Paul De Grauwe, Yuemei Ji
With an economic slowdown looming in the euro area, how should fiscal policies respond? This column uses a behavioural macroeconomic framework to investigate the trade-offs between stabilising output and public debt. It proposes that, when the interest rate is lower than the growth rate of the economy, fiscal policy can be used as a tool for output stabilisation while keeping public debt stable. It argues that many EU countries have the fiscal space to stimulate their economies, which could help in preventing a recession.
Why “Worker Exploitation” Is a Myth – Antony Sammeroff
“In order to show that it is a half-truth, we must have recourse to long and dry dissertations.” — Frédéric Bastiat
It’s still a very prevalent view that employers are somehow exploiting the people who work for them when they draw a profit from their business, despite the fact that a person’s employer is clearly doing more for their finances than all of the people who are not employing them. I might add, perhaps somewhat facetiously, including those keyboard-warriors who claiming that entering someone into employment is exploiting them.
It is true that workers do get paid less than the total value of what they produce, but that is because what they produce is made with other resources which have to be bought, and in a factory or work place which has a price and requires overheads to operate. The capitalist is responsible for paying for marketing and advertising to link the product to potential buyers — and at the end of the day, if the product doesn’t sell, everyone else has already been paid but the capitalist walks away with the loss.
**Another Chinese Mega-Construction Project in California Is Halted, this one in San Francisco. List of Troubled or Scuttled Chinese Projects in California Grows – Wolf Richter
How China’s crackdown on debt and capital flight pulls the rug out from under mega-real-estate projects.
After months of rumors and speculation amid apparently failed efforts to secure a short-term loan and find an equity investor, property developer Oceanwide, a division of Chinese conglomerate Oceanwide Holdings Co. Ltd., said that it has stopped construction indefinitely on a 54-story 605-foot tower across from the Salesforce Tower and across from the infamously leaning Millennium Tower (thankfully built by US developers) in San Francisco’s Transbay district.
The tower – which was planned to include 156 high-end condos and a Waldorf Astoria hotel – is the shorter of two towers in the same project.
The price effects of trade: New evidence from the US and implications for quantitative trade models – Xavier Jaravel, Erick Sager
International trade creates both winners and losers. Using comprehensive price data, this column estimates the US price effects of the China shock from 2000 to 2007. It finds that US consumers benefited from large price declines in product categories in which imports from China increased, as increased trade with China eroded the market power of US producers. The positive impact of the China shock on the purchasing power of US consumers is large in comparison to its negative impact on US jobs.
The Ultimate Heresy: Technology Can’t Fix What’s Broken – Charles Hugh Smith
Technology can’t fix what’s broken, because what’s broken is our entire system..
The ultimate heresy in today’s world isn’t religious or political: it’s refusing to believe that technology can not only solve all our problems, it will do so painlessly and without any sacrifice. Anyone who dares to question this orthodoxy is instantly declared an anti-progress (gasp!) Luddite, i.e. a heretic in league with the Devil.
Even worse, if that’s possible, is declaring that technology is making our lives worse rather than better. There’s an entire industry devoted to cherry-picking data to support the One True Faith of Technology: a new miracle drug (never mind the side-effects or the fact that the drug only works on a relative handful of patients), a new energy source that will generate nearly free energy in near-infinite quantities (thorium reactors, though there is not yet a single one that’s operational), and the marketing of convenience: this new marketing gimmick will change your life–you can try on clothing in virtual reality, no need to go to the mall! Wow! Borrow more, buy more, throw more into the landfill–isn’t technology wonderful?
***Sailing into uncharted demographic waters – David Bloom
Population ageing, driven by declining fertility, increasing longevity, and the progression of large-sized cohorts to older ages, is the dominant global demographic trend of the 21st century. This column introduces a new Vox eBook that examines the myriad challenges and economic uncertainties posed by ageing populations. Overall, the contributions suggest that although the challenges are formidable, they are not insurmountable. There is good reason to reject the view that ‘demography is destiny’.
JPMorgan, BofA, Citi, Barclays, Deutsche Bank, BBVA, Santander Accused of Rigging Government Bond Auctions in Mexico. Bank of Mexico Implicated – Nick Corbishley
Mexico’s antitrust agency Cofece has accused the domestic subsidiaries of JP Morgan Chase, Bank of America, Citigroup, Barclays, Deutsche Bank Santander, and BBVA of colluding to rig Mexican bond prices, in particular treasury notes, over a ten-year period. Following a three-year investigation, Cofece on Monday declared that it had notified “various economic agents” of their likely involvement in a concerted scheme to manipulate Mexican bond prices .
Sergio Lopez, the head of Cofece’s investigative unit, said that the agency’s probe had unearthed evidence that between 2006 and 2016 banks conspired to withhold bond inventories from the market in order to benefit each other. In a summary on its website, Cofece described the banks’ actions as “absolute monopoly practices”
New Nobel Winners Are Latest Bad Sign for Economic Theory – Peter G. Klein
The 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel – colloquially known as the Nobel Prize in Economics – has gone to Abhijit Banerjee, Esther Duflo and Michael Kremer “for their experimental approach to alleviating global poverty.” Banerjee, Duflo, and Kremer are pioneers in the use of field experiments, or randomized-controlled trials (RCTs), to study economic phenomena. An RCT in economics is analogous to its counterpart in medicine. The economist wishes to study a particular rule or policy (an “intervention,” in the jargon) – say, giving teachers a financial reward to show up for classes. Rather than work out a theoretical model and then “test” it against historical data on incentives and attendance, as most contemporary economists would do, the economist conducts an experiment in real time. One group of teachers in an actual school is given the treatment, another the control (i.e., no change in incentives), and the differences between the groups are compared. The results are then generalized to suggest that this incentive is effective at reducing teacher absenteeism.
Who pays more taxes – John H. Cochrane
A retired guy and a carpenter walk in to a bar, and they each order a beer. When they pay, the fashionable progressive economist asks them, “how much tax did you pay today on the money you got to buy that beer?” The carpenter answers, “Well, I just got my paycheck today. So, that’s 30% federal income tax, 5% state income tax, 15% social security and other payroll taxes.” The retiree says, “I took the money out of my bank account at the ATM on the way over. There isn’t a tax on taking money out of banks so I didn’t pay any taxes today.”
“The shame, the horror, the inequality!,” proclaims the progressive economist, sending the preprint of his study in the New York Times. “Retirees, who have a lot more in their bank accounts than working folks, aren’t paying any taxes! All the taxes are being shouldered by poor workers! We need to tax money people take out of banks!”
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