Economische aanraders 24-03-2019
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.
Concentration increasing? – John H. Cochrane
Is the US economy getting more concentrated or less? At the aggregate level, more. This is a widely noted fact, leading quickly to calls for more active government moves to break up big companies.
But at the local level, no. Diverging Trends in National and Local Concentration by Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter documents the trend.
They make a concentration measure that is basically the sum of squared market shares, so up means more concentrated and down means less concentrated. This is the average of many different industries and markets.
The average concentration of national markets has gone up. But the concentration of smaller and smaller markets has gone down. More businesses are dividing up county and zip code markets.
Industries differ. This graph does not get a prize for ease of distinguishing the lines, but the two red lines just below zero are manufacturing and wholesale trade, where the industries with really dramatic reductions in local concentration are retail trade, finance insurance and real estate, and services.
What’s going on? The natural implication is that the town once had 3 local restaurants, two local banks, and 3 stores. Now it has a McDonalds, a Burger King, a Denny’s and an Applebees; a branch of Chase, B of A, and Wells Fargo, and a Walmart, Target, Best Buy, and Costco. National brands replace local stores, increasing the number of local stores.
Monetary policy in times of uncertainty: a reappraisal of the Brainard principle – Giuseppe Ferrero, Mario Pietrunti, Andrea Tiseno
Dealing with uncertainty about the state of the economy is one of the main challenges facing monetary policymakers. In recent years there has been an extensive debate on the value of some of the deep parameters driving the economy, such as the natural rate of interest and the slope of the Phillips curve, estimates of which are quite uncertain. This column argues that when facing uncertainty on the structural relationship among macroeconomic variables, central banks should adopt a pragmatic and data-dependent approach to adjusting their monetary policy stance.
The Coming Crisis the Fed Can’t Fix: Credit Exhaustion – Charles Hugh Smith
Thus will end the central banks’ bombastic hubris and the public’s faith in central banks’ godlike powers.
Having fixed the liquidity crisis of 2008-09 and kept a perversely unequal “recovery” staggering forward for a decade, central banks now believe there is no crisis they can’t defeat: Liquidity crisis? Flood the global financial system with liquidity. Interest rates above zero? Create trillions out of thin air and use the “free money” to buy bonds. Mortgage and housing markets shaky? Create another trillion and use it buy up mortgages.
And so on. Every economic-financial crisis can be fixed by creating trillions of out thin air, except the one we’re entering–the exhaustion of credit. Central banks, like generals, always prepare to fight the last war and believe their preparation insures their victory.
China’s central bank created over $1 trillion in January alone to flood China’s faltering credit system with new credit-currency. Pouring new trillions into the financial system has always restarted the credit system, triggering renewed borrowing and lending that then powered yet another cycle of heedless consumption and mal-investment–oops, I meant development.
Views of “Current Economic Conditions” in Germany Drop to Euro Debt-Crisis Level – Wolf Richter
But expectations & hopes for the next 6 months rise to less negative.
The economic indicator of the Center for European Economic Research (ZEW) in Germany, like other business and financial indicators, has two parts: One for the “Current Economic Situation,” meaning current reality as it is now unfolding, and one for economic expectations or perhaps hopes, called “Economic Sentiment,” meaning what these business and finance insiders are seeing over the next six months. They’re now diverging sharply: The “Current Economic Situation” is heading straight down into the dumpster, while “Economic Sentiment” for the next six months is still in the dumpster, where it had plunged over the past 11 months, but is now trying hard to climb out of it.
***Work of the past, work of the future – David Autor
Labour markets in US cities today are vastly more educated and skill-intensive than they were 50 years ago, but urban non-college workers now perform much less skilled work than they did. This column shows that automation and international trade have eliminated many of the mid-skilled non-college jobs that were disproportionately based in cities. This has contributed to a secular fall in real non-college wages.
The Fed Has Given Up: Get Ready for More QE – Ryan McMaken
The Federal Reserve’s Federal Open Market Committee on Wednesday voted unanimously to keep the federal funds rate unchanged. Overall, the FOMC signaled it has made a dovish turn away from the promised normalization of monetary policy which the Fed has promised will be implemented “some day” for a decade. Although the Fed began to slowly raise rates in late 2016 — after nearly a decade of near-zero rates — the target rate never returned to even three percent, and thus remains well below what would have been a more normal rate of the sort seen prior to the 2008 financial crisis.
Brexit delay will not postpone deglobalisation – Peter A.G. van Bergeijk
Many associate Brexit and the Trumpian trade wars with the start of a new phase of deglobalisation. This column argues that we should view them as symptoms rather than causes, as the world had already started to fundamentally change before either came on the horizon. Neither the delay to Brexit nor the extended pause in the US–China tariff war means that the risks of deglobalisation have diminished.
The Countries with the Most Monstrous Corporate Debt Pileups. US Wimps out in 25th Place! – Wolf Richter
But China and the tax havens like Luxembourg, oh my!
US corporate debt, excluding debt by banks – so “nonfinancial” corporate debt – has surged in recent years by all measures and to such an extent that it was featured prominently in the Fed’s Financial Stability Report, in terms of what might trigger the next financial crisis. The Fed is counting total nonfinancial business debts, which include the debts of businesses that are not incorporated. It found about $17 trillion in debts.
A narrower measure is nonfinancial corporate debt, which amounts to $15 trillion. This is up a breath-taking 40% from the prior peak in 2008. The Bank for International Settlements (BIS) uses this measure to compare how corporate debt stacks up in different countries. One of its measures is corporate debt denominated in local currency; and in order to determine the relative size of this debt, the BIS expresses it as a percent of nominal local-currency GDP.
Central Banks Are Messing with Your Head – Thorsten Polleit
Human action and the interest rate
People value present goods more highly than future goods. For instance, an apple available today is considered more valuable than the same apple available in, say, one month. This is expressive of time preference — which is an undeniable fact, a category of human action.
The sentence “Humans act” is a logically irrefutable truth. It cannot be denied without causing a logical contradiction. By saying “Humans can not act”, you act and thus contradict your very statement.
From the true insight that humans act we can deduce that human action takes place in time. There is no timeless human action. Were it otherwise, people’s goals would be instantaneously reached, and action would be impossible — but we cannot think that we cannot act.
Low funding jeopardises the European Commission’s innovation missions – Semih Akcomak, Bastiaan Overvest
The European Commission plans to spend about €120 billion on research and innovation under mission-oriented programmes between 2021 and 2027. This column shows that planned spending is small both relative to the total R&D spending of individual EU countries and relative to previous missions. In addition, there is a lack of clarity on how missions will be determined, designed and governed. Experiences in other countries suggest that the Commission should find new ways of increasing funding to missions and increase clarity on the implementation of mission-oriented policies.
***Classical Economics vs. The Exploitation Theory – George Reisman
For more than a century, one of the most popular economic doctrines in the world has been the exploitation theory. According to this theory, capitalism is a system of virtual slavery, serving the narrow interests of a comparative handful of businessmen and capitalists, who, driven by insatiable greed and power lust, exist as parasites upon the labor of the masses.
This view of capitalism has not been the least bit shaken by the steady rise in the average standard of living that has taken place in the capitalist countries since the beginning of the Industrial Revolution. The rise in the standard of living is not attributed to capitalism, but precisely to the infringements which have been made upon capitalism. People attribute economic progress to labor unions and social legislation, and to what they consider to be improved personal ethics on the part of employers.
***Women’s liberation as a financial innovation – Moshe Hazan, David Weiss, Hosny Zoabi
Countries such as England, the US, Canada, and Australia granted property rights to married women in the 19th century. The column uses US census and economic data from the time to show that the impact was financial as well as social. Women kept more of their assets as cash in US states that granted these rights. This reduced interest rates and accelerated industrialisation in these regions.
Finance & Insurance Hit it Out of the Ballpark, No Slowdown in the Huge Services Sector – Wolf Richter
There cannot be a recession without a pullback in services.
Revenues in the major private-sector services categories rose 6.3% in Q4 2018, compared to the same quarter a year earlier, to $4.01 trillion, not seasonally adjusted, breaching for the first time the $4 trillion mark, according to the Commerce Department’s detailed Quarterly Selected Services Estimates released this morning. For the year 2018, these selected services rose 6.0% to $15.5 trillion. This is a massive part of the $20.5 trillion US economy.
But this 6.3% growth is not adjusted for inflation. The CPI for services in 2018 rose by 2.8%. Even that does not do justice to the price increases seen in some service sectors, such as trucking, some of which have not yet made their way to the consumer, and thus to the consumer price index.
Climate Change Activist Admits: Being Green “Requires the End of Capitalism” – Ryan McMaken
Well, at least they’re now being honest about it. A headline this week in The Guardian reads: “Ending climate change requires the end of capitalism. Have we got the stomach for it?”
The article, by Phil McDuff, goes on the discuss the “Green New Deal” currently being peddled in the US Congress, and declares a radical turn toward socialism is really at the heart of saving the planet from climate change:
The radical economics isn’t a hidden clause, but a headline feature. Climate change is the result of our current economic and industrial system. GND-style proposals marry sweeping environmental policy changes with broader socialist reforms because the level of disruption required to keep us at a temperature anywhere below “absolutely catastrophic” is fundamentally, on a deep structural level, incompatible with the status quo.
EU-UK global value chain trade and the indirect costs of Brexit – Rita Cappariello, Michele Mancini, Filippo Vergara Caffarelli
EU and the UK production networks are highly integrated, and Brexit poses a threat to supply and demand linkages between the two economies. This column describes how the effect of tariffs will be magnified due to back-and-forth trade across the Channel. This will increase production costs in the UK and, to a lesser extent, in the EU.
Is Inflation Beginning? Are You Ready? – MN Gordon
“Those who cannot remember the past are condemned to repeat it,” remarked George Santayana over 100 years ago. These words, as strung together in this sequence, certainly sound good. But how to render them to actionable advice is less certain.
Aren’t some facets of the past – like the floppy disk – not worth remembering? And aren’t others – like a first taste of romance – worth repeating…if only it were possible?
Where investing’s concerned, remembering the past – and discerning what to make of it – can actually be a handicap. Where does the past begin? How does it influence the future? How does one invest their capital accordingly?
These are today’s questions. What follows, with purpose and intent, is an attempt to scratch out an answer. Where to begin?
Deflation Fears Drive Developing Countries to Even Lower Interest Rates – George Pickering
As the economic contagion of the global financial crisis was spreading from country to country in 2007, it was frequently noted that the mainstream economics profession seemed to be just as much in the dark about the true causes of the crisis as were the general public. In place of anything incisive and theoretically grounded, most people were forced to make do with vague hand-waving and metaphors to explain the crash, with one particularly well-worn bromide sticking out in my own memory as almost the defining phrase of the crisis: “When America sneezes, the whole world gets sick.”
However applicable that apophthegm may have been to the 2007/8 crisis, it was certainly the phrase which came to mind recently when news broke that, following the U.S. Federal Reserve’s dovish turn last month, central banks across the developing world have followed suit by shifting back toward lower interest rates.
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