Economische aanraders 23-02-2020
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 Green Fatal Conceit: Why Physical Science Can’t Tell Us Proper Policy Goals – Robert P. Murphy
The Committee on Energy and Commerce recently released more details of the so-called CLEAN Future Act, which “formally adopts the goal of achieving of a 100 percent clean economy by 2050.” Besides the manipulative name, the proposal (a) doesn’t even bother trying to justify its central goal and (b) includes a grab bag of proposals that progressive Democrats have always favored, regardless of climate change concerns, and many of which are very blunt instruments to reduce emissions even if the central goal did make sense. When a small group of officials declares what “the science” dictates in terms of government measures, the public should be very wary.
The World Is Awash in Oil, False Assurances, Magical Thinking and Complacency as Global Demand Careens Toward a Cliff – Charles Hugh Smith
This collapse of price will manifest in all sorts of markets that are based on debt-funded purchases of desires rather than a warily prudent priority on needs.
Since markets are supposed to discover the price of excesses and scarcities, it’s a mystery why everything that is in oversupply is still grossly overpriced as global demand slides off a cliff: oil, semiconductors, Uber rides, AirBNB listings and many other risk-on / global growth stories are still priced as if pre-Covid-19 demand was still guaranteed.
Punters are still buying semiconductor stocks based on out-of-touch projections that are the equivalent to counting the number of fairies on the head of a pin, ignoring the fundamental reality that very few people actually need a new mobile phone, vehicle, laptop, refrigerator, etc.
Money, Inflation, and Business Cycles: The Cantillon Effect and the Economy – Mark Thornton
Austrian economists hold that money matters a great deal in concrete terms in the immediate short run and has permanent long-run effects. Sieroń’s book investigates the Cantillon effect, which indicates that money is not neutral because inevitably it is injected unevenly, creating economic distortions. These distortions are important to the long run and the Austrian theory of the business cycle.
Economists agree that money matters, but that agreement stops when it comes to how money matters. For example, some say it only matters in the short run while others believe that it matters in the short and long run. Austrian economists hold that money matters a great deal in concrete terms in the immediate short run and has permanent long-run effects.
Hidden causes and hidden effects: Bilateral trade imbalances – Alejandro Cuñat, Robert Zymek
Most countries exhibit large variation in bilateral trade balances across their trade partners. This column argues that it is possible to use gravity trade models to describe the sources of this variation with greater clarity, but that a large portion of the variation still remains poorly understood. It also shows that tariffs imposed during the US-China trade war will reduce the US-China trade deficit in the long run, but only by worsening the US trade balance with other trade partners almost one-for-one.
Subprime Credit Card Delinquencies Spike to Record High, Past Financial-Crisis Peak, as Other Consumers Relish the Good Times. Why? – Wolf Richter
I’m not worried about banks or investors in subprime-credit-card backed securities. If they take a beating, fine. But what does this bifurcation tell us about consumers?
The rate of credit card balances that are 30 days or more delinquent at the 4,500 or so commercial banks that are smaller than the top 100 banks spiked to 7.05% in the fourth quarter, the highest delinquency rate in the data going back to the 1980s (red line).
Leveraging posterity’s prosperity – Laurence Kotlikoff
The US has spent the entire post-war period running a massive and ever-growing Ponzi scheme that takes from the young and gives to the old. This column discusses how the scheme has been and is being run by expanding take-as-you-go-financed Social Security, Medicare, and Medicaid systems, by running huge official deficits, and by imposing a larger share of taxes on the young and a smaller share on the old. Take as you go, whether done on or off the books, has done precisely as theoretically predicted – reduced the US’s national saving rate from 13% in the 1950s and 1960s to 3% in the last two decades. This underlies, in large part, a commensurate drop in the domestic investment rate, which was also 13% between 1950 and 1969 and is now running at 4%. The textbook predicted consequence? Lower median labour productivity and median real wage growth.
***Is Free Market Economics Too “Ideological”? – Per Bylund
Free market economics is often ignorantly dismissed for being “ideological” rather than scientific. It probably sounds smart to the economically illiterate, but it is decidedly not. It doesn’t mean nearly what most people assume it does. The word “free” in free market economics is not used as a normative value judgment but indicates an economy that is unaffected by exogenous (from the outside) factors.
“Free” therefore means that it is the market economy in and by itself that is subject to theoretical analysis. This is, in fact, the only way to identify any and all “pure” market mechanisms and processes.
If economics tried to inductively extract theory from data, we could never know what it is we capture in those data: is it the actual (underlying) economic mechanisms, or the effect of regulations, or of a specific temporal context, or some mix?
China’s Debts Are Coming Due At The Worst Possible Time – MN Gordon
The economic consequences of coronavirus are quickly piling up like garbage along the streets of Los Angeles. Breaking supply chains, closed Chinese factories, iPhone disruptions, and massive shortages of Chinese made products. These developments will most definitely get worse before they get better.
The economic impacts will be devastating. As China flatlines, and first quarter GDP growth approaches zero, the global economy, including the U.S., will also be greatly disrupted. Perhaps many low-cost, Made in China products will go on indefinite hiatus. What then?
Former Communist Party membership and present-day entrepreneurship – Artjoms Ivlevs, Milena Nikolova, Olga Popova
Following the collapse of communism in Central and Eastern Europe, many former Communist Party members launched businesses. This column relies on individual-level survey data to document how entrepreneurial activity was driven by the connections, resources, and opportunities associated with former membership of the ruling party rather than by entrepreneurial skills or individual talent. The findings underscore the fact that former Communist Party networks continue to affect business practices in Central and Eastern Europe.
Some Problems with Worker Productivity Stats – Frank Shostak
According to the US Labor Department, worker productivity in the non-farm sector increased at an annual rate of 1.4 percent in the fourth quarter of 2019 after declining by 0.2 percent in the previous quarter. For the year, productivity increased 1.7 percent, up from 1.3 percent in both 2017 and 2018. It was the best annual showing since the 3.4 percent increase in 2010. For most commentators, an increase in productivity is considered an indication that the US economy is becoming healthier and wealthier.
After all, the increase in productivity means that workers are now generating a greater amount of goods per hour. Notwithstanding, there are serious doubts as to whether productivity figures here actually describe the facts of reality.
Supply and demand in local economics – John Cochrane
Act 1: If housing is too expensive, allow the supply curve to operate.
In a surprising bit of excellent economics, Conor Dougherty writes “Build Build Build Build…”in Sunday’s New York Times.
The story starts with the usual way of doing business (meaning, not doing business) in California
Japan, The Fed, & The Limits Of QE – Lance Roberts
This past week saw a couple of interesting developments.
On Wednesday, the Fed released the minutes from their January meeting with comments which largely bypassed overly bullish investors.
The Fed recognizes their ongoing monetary interventions have created financial risks in terms of asset bubbles across multiple asset classes. They are also aware that the majority of the policy tools are likely ineffective at mitigating financial risks in the future. This leaves them being dependent on expanding their balance sheet as their primary weapon.
Interestingly, the weapon they are dependent on may not be as effective as they hope.
The euro: A transfer union from the start – Enrico Perotti, Oscar Soons
A monetary union among diverse economies enhances trade and financial integration, but also has redistributive effects. The column argues that the euro led to implicit devaluations and revaluations, boosting the productive incentives and fiscal capacity of strong members at the cost of others. The euro was thus a transfer union from the start, with implicit flows from the periphery to the core.
Social Security Cannot Survive in Its Present Form – Gregory Bresiger
The biggest political issue over the next fifteen years may be changing conditions that affect how much Social Security can pay. This would include the decline in the ratio of those who are paying into the system to those collecting. Once this was as much was some forty-two to one. Today the ratio is down to about three to one. That ratio will probably fall further, which would likely require more cuts and higher taxes. Rachel Greszler complains that more tax increases, already pending in Congress, are the most likely solution.
Social Security’s problems are the classic problems of every government social “insurance” program (Social Security is nothing like an insurance company, which is tightly regulated and required to carry huge reserves, which can’t be loaned out for political reasons as Social Security surpluses have been).
***When Bubbles Pop, Only the First Sellers Escape Being Bagholders – Charles Hugh Smith
Hapless bagholders have two options: buy the dip and be destroyed, or hang on hoping for a reversal and be destroyed.
One often overlooked characteristic of the current stock market bubble is the extremely small exit for sellers trying to avoid becoming hapless bagholders. Bubbles always present small exits because once sentiment turns, buyers vanish and so price goes over the waterfall and crashes on the rocks below (accompanied by the screams of all the punters who reckoned they’d exit at the top).
But modern markets have characteristics which have diminished the exit to a tiny hole in the wall.
***So That’s the End for Air Italy. And More Airline Money-Pits – MC01
On February 10, one of the largest Italian newspapers, Il Corriere della Sera, announced airline Air Italy, Italy’s second largest airline after Alitalia, was facing a liquidity crisis and may not survive long. Less than 24 hours later, Air Italy announced it would immediately enter voluntary liquidation. It said that until 25 February, flights would be carried out by other airlines, such as Wamos Air. Tickets for flights beyond that date would be refunded. And employees would receive their severance packages “as written in their contracts.” So that’s the end.
Political risk and exchange rates: The lessons of Brexit – Paolo Manasse, Graziano Moramarco, Giulio Trigilia
The pound depreciated overnight by about 7% against the euro and other main currencies following the Leave victory in the UK’s EU referendum, suggesting that the markets expected Brexit to harm the British economy. Yet currency markets hailed the overwhelming victory of Brexiter Boris Johnson’s Conservative Party in the 2019 general election with a 2% appreciation of the pound. This column argues that this apparent contradiction can be explained by disentangling the effects that politics has on exchange rate expectations and a political risk premium.
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