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.

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Monetary Savings versus Real Savings – Frank Shostak
28 april
According to the National Income and Product Accounts (NIPA) the US personal savings rate stood at 13.6 percent in February 2021 against 8.3 percent in February 2020. Since consumption expenditure is considered as the driving force of the economy, obviously a strengthening in savings, which implies less spending, cannot be good for economic activity, so it is held. Conversely, a decline in savings, which is an increase in spending is considered as good news for economic activity.
The NIPA framework is based on the view that spending by one individual becomes part of the earnings of another individual. The spending of the purchaser is the income of the seller, or we can say that spending equals income.
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Three Reasons Why The Biden Tax Increase Makes No Sense – Daniel Lacalle
25 april
Anyone who believes the “rich” and large corporations will pay for $28 trillion in debt or the $2 trillion in new deficit has a real problem with maths.
Biden’s announcement of a massive tax increase on businesses and wealthier segments of the population simply makes no sense. The tax hikes will have a significant impact on economic growth, investment and job creation and do not even scratch the surface of the structural deficit. Even if we believe the Gross Domestic Product growth and revenue estimates announced by the Biden administration, the impact on debt and deficit is negligible. So, what is their response? That debt and deficits do not matter because the key now is to spur growth and the cost of borrowing is low despite rising debt.
Furthermore, the Biden administration has been inundated by MMT (Modern Monetary Theory) proponents who passionately believe that deficits are good because they attend to the rising global demand for US dollars. Additionally, the Biden administration argues that the deficit increase is not a problem because the Federal Reserve continues to purchase government bonds, keeping yields low and debt costs stable.
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Inflation and expectations at NRO – John H. Cochrane
27 april
Essay at National Review Online.
Inflation: The Ingredients Are in the Pot, and the Fire Is On. (But will it boil?)
John H. Cochrane and Kevin A. Hassett
The end of the COVID-19 recession is in sight. If the Atlanta Fed’s real-time estimate of 8.3 percent Q1 growth proves accurate, real GDP is only four-tenths of a percent below the all-time high from Fall 2019. And the vaccinated, post-COVID boom is on the way. Most people have money, and are ready to spend it. Yet unprecedented fiscal and monetary “stimulus” continues.
Is persistent inflation around the corner? Inflation and commodity prices are up sharply. The latest Michigan survey shows people expect 3.7 percent inflation next year. Shortages of everything from lumber to semiconductors have raised input prices for businesses, while the percentage of small businesses reporting that they cannot find qualified workers is at a record high. The ingredients are in the pot, and the fire is on.
But will the pot boil? Since 2008, observers have warned of imminent inflation, yet inflation has barely budged.
Inflation is hard to foresee, because inflation today depends in large part on what people expect of inflation in the future. If businesses expect higher prices and wages next year, they raise prices now. If workers expect higher prices and wages next year, they demand higher wages now.
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Commodity prices and banking crises – Markus Eberhardt, Andrea Presbitero
26 April
Commodity prices are one of the most important drivers of output fluctuations in developing countries. This column shows that a major channel through which commodity price movements can affect the real economy is their effect on financial stability. Commodity price volatility is likely to trigger financial instability and banking crises through a reduction in government revenues and a shortening of sovereign debt maturity, which in turn are likely to weaken banks’ balance sheets.
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Smaller economic stimulus payments could boost consumer spending more – Michele Andreolli, Paolo Surico
29 April
What is the consumption response to unexpected transitory income gains of different size and what are the aggregate demand implications of stimulus packages that target different segments of the population? This column explores these questions using responses to hypothetical questions in the Italian Survey of Household Income and Wealth. Families with low cash-at-hand display a higher marginal propensity to consume out of small gains, while affluent households exhibit a higher marginal propensity to consume out of large gains. For a given level of public spending, a fiscal transfer of a smaller size paid to a larger group of low-income households stimulates aggregate consumption more than a larger transfer paid to a smaller group.
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As Flammable-Cladding Crisis Crushes Prices at Low End of UK Housing Market, Bank of England Frets about Contagion, Banks – Nick Corbishley
30 april
The BoE is assessing if contagion from this scandal could spread to the broader housing market and cause a new financial crisis.
The Bank of England is now fretting about the impact the UK’s flammable-cladding crisis could have on broader home prices in the UK and what that means for banks. New data shows that affected properties — and there are up to 1.3 million of these flats — sell for as little as one third of what the owner had paid.
The BoE is concerned about the banks that sit on loans backed by those properties and is assessing whether contagion from this scandal could spread to the broader housing market and cause a new financial crisis.
The BoE’s Prudential Regulation Authority (PRA) has surveyed mortgage-lenders on their exposure to leasehold flats with fire risks. And it is asking lenders for regular updates.
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Rates Can Still Come Down Some Even As The Reflation Trade Continues – Bryce Coward
30 april
Last week we wrote how interest rates may have room to come down a bit before ultimately heading higher later this year and into next year. This line of thinking was reinforced this week at the Fed’s meeting release and press conference. Powel’s messaging/guidance was squarely unchanged in suggesting 1) an asset purchase taper is not imminent and 2) rates will remain at zero through 2023.
Now, that guidance can always change, primarily if inflation (and particularly core PCE) gets well above 2% and remains there for many months or quarters. But, we aren’t there yet. In fact core PCE released just today came in at 1.8%. All this means that direct and indirect market wagers that the Fed will raise rates sooner than late 2023 are literally “fighting the Fed”.
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Why Empowering Organized Labor Will Definitely Not Help the Economy – William L. Anderson
26 april
Paul Krugman has a very prominent perch from the editorial page at the New York Times and he has used his influence, among other things, to shill for two things that are anathema to a strong economy: inflation and organized labor. My analysis examines what Krugman says about labor unions and explains why once again his economic prognostications are off base.
In a recent column, Krugman declares that the present political climate may reverse the long trend in private sector unionism—and that is a good thing:
The political environment that gave anti-union employers a free hand may be changing—the decline of unionization was, above all, political, not a necessary consequence of a changing economy. And America needs a union revival if we’re to have any hope of reversing spiraling inequality.
As he often does, Krugman presents a scenario of a prosperous America in which organized labor helped create a productive and happy society, although one might question his knowledge of history.
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Infrastructure and jobs – John H. Cochrane
28 april
To many on the left, it’s always 1933. Building “roads and bridges” will “create jobs,” soaking up the mass army of unemployed desperate for work that they seem to see.
Driving around though, I notice that we build roads with big machines, not lots of people. And construction jobs are high-skill jobs, not people with shovels. “Shovel-ready” itself is a misnomer. Nobody uses shovels on a construction site anymore, they use a backhoe. Neither you, reading this, nor I, nor an unemployed Wal-Mart greeter or bartender could do much of anything useful on a road construction site.
On a lark, I went to the Bureau of Labor Statistics to see just how many people are employed on roads and bridge construction.
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Milton Friedman’s Methodological Mistake – Matthew Tanous
30 april
In 1966, famed Chicago School economist Milton Friedman wrote a hugely influential essay on the methodology of economics entitled “The Methodology of Positive Economics” (contained in the volume Essays in Positive Economics). In distinguishing economics as a “positive science”, Friedman focuses on the use of empirical investigation where the “ultimate goal … is the development of a “theory” or, “hypothesis” that yields valid and meaningful (i.e., not truistic) predictions about phenomena not yet observed.” Focusing on prediction rather than explanation of observation presents the first step wrong, but as can be seen later in his essay, Friedman doesn’t even stick to this requirement for prediction, saying that the theorist’s role is in part “to specify the circumstances under which the formula works or, more precisely, the general magnitude of the error in its predictions under various circumstances.” He even goes so far as to discount possible theories that can give more accurate predictions, saying “it does not always pay to use the more general theory because the extra accuracy it yields may not justify the extra cost.”
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China and the WTO: How can they work together better? – Petros C. Mavroidis, André Sapir
30 April
The ability of the WTO to shape the way China conducts its trade policy has been severely limited, and most attempts to leverage multilateral pressure have so far failed. This third in a series of three columns explores how the relationship could be reformed and improved going forward. The authors highlight the need for clearer guidelines on state-owned enterprises, as well as new rules surrounding the transfer of technology between signatories.
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*** Which lifeboat will you chose? – Charles Hugh Smith
30 April
I’m sure it’s no surprise that the next five years will be risky and challenging; to the degree that we will be reliant on those closest to us, we are sharing a virtual lifeboat.
Consider a scenario in which we’re on a ship that’s sinking, and the lifeboats have been launched. Being some of the last still on board the doomed vessel, we can scan who’s in each lifeboat and choose which one we’ll clamber into.
It’s a consequential decision because the currents and weather are already separating the lifeboats, and so each lifeboat will be on its own. The seas are increasingly treacherous, and the nearby islands are surrounded by reefs which could shred the lifeboat’s hulls in seconds.
While we don’t know everyone on board, we’ve met many of the other passengers and crew and made the acquaintance of a fair number of our fellow castaways.
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Free-Money Stimmies Blow Out Consumer Income & Spending on Goods for a Glorious WTF Chart of the Year – Wolf Richter
30 april
This is just freaking nuts. It explains the record trade deficits, bottlenecks, shortages, and inflation pressures, among other distortions.
Personal income from all sources, including the free-money-from-the-sky $1,400 stimmies, spiked by 21% in March from February, and by 31% from March 2019, to a seasonally adjusted annual rate of $24.2 trillion, a historic WTF moment that shows the effects of the historic WTF overshoot triggered by the last round of stimulus payments.
A month ago, after personal income in February had plunged, following the January spike triggered by the $600 stimmies that started going out at the end of December, I said: “We’re awaiting with feverish anticipation what this chart will look like for March and April, when the $1,400-stimmies arrive. It’s going to blow our socks off.”
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The Fundamental Economic Problem with Biden’s Rescue Plan – Antón Chamberlin
30 april
March 31 gave us a statement on the American Jobs Plan, and April 28 saw President Joe Biden speak on it to the American people (well, roughly 8 percent of the American people). The goal of the law is the following:
While the American Rescue Plan is changing the course of the pandemic and delivering relief for working families, this is no time to build back to the way things were. This is the moment to reimagine and rebuild a new economy. The American Jobs Plan is an investment in America that will create millions of good jobs, rebuild our country’s infrastructure, and position the United States to outcompete China. Public domestic investment as a share of the economy has fallen by more than 40 percent since the 1960s. The American Jobs Plan will invest in America in a way we have not invested since we built the interstate highways and won the Space Race.
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***Vaccines and liability – John H. Cochrane
26 april
I learned something from the New York Times lead editorial on Sunday. Why are we not shipping mega quantities of vaccines to countries like India?
… as the vaccines came to market, some vaccine makers insisted on sweeping liability protections that further imperiled access for poorer countries. The United States, for example, is prohibited from selling or donating its unused doses, as Vanity Fair has reported, because the strong liability protections that drugmakers enjoy here don’t extend to other countries…
Pfizer has reportedly not only sought liability protection against all civil claims — even those that could result from the company’s own negligence — but has asked governments to put up sovereign assets, including their bank reserves, embassy buildings and military bases, as collateral against lawsuits.
Well, you can sort of see the problem. You’re a drug company. You sell a billion units of a brand new drug — still on emergency use authorization in the US — to, say, India. 10 people get a rare blood clot that may or may not be due to your vaccine. Local courts sue you for a gazillion dollars. Who wouldn’t want liability protection?
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Bank runs and central bank digital currency – Eric Monnet, Angelo Riva, Stefano Ungaro
01 Mei
One of the concerns in the debate on central bank digital currency is whether the ability for depositors to hold an account at the central bank could trigger a run on the banking system. This column looks back to the French Great Depression of 1930-1931, when savers had a safe alternative to banks in the form of government-backed savings institutions, and shows that the existence of safe deposits other than banks can play a substantial role in triggering bank runs. The study also provides insights into two elements of the current discussion: ceilings on safe deposits and interest rates.
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***Africa’s latent assets – Soeren J. Henn, James Robinson
26 April
Social science research has painted a dismal picture of Africa’s potential for sustained economic growth. But growth, such as that which happened in China after 1978, can be surprising and can tap into ‘latent assets’ in a society that might have not been previously evident. This column identifies three latent assets in Africa which the authors argue are highly propitious for its long run trajectory.
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Disclaimer: De VoL-redactie selecteert deze artikelen op interessante inzichten, of naar wij denken nuttige informatie. Wij kunnen echter geen enkele aansprakelijkheid aanvaarden voor de gevolgen van beslissingen die op grond hiervan door lezers zijn genomen, zakelijk zomin als privé.

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