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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Time for Supply – John H. Cochrane, Jon Hartley
3 maart
At Project Syndicate essay, with Jon Hartley. It’s not the first, and it won’t be the last on the issue!
Now that surging inflation has refocused everyone’s attention on the long-ignored supply side of the economy, the question is how best to support broad-based growth, efficiency, and innovation. The answer is not necessarily deregulation, but the need for smarter regulation is increasingly apparent – even to progressives.
STANFORD – The return of inflation is an economic cold shower. Governments can no longer hope to solve problems by throwing money at them. Economic policy must now turn its attention to supply and its cousin, economic efficiency.
The issue is deeper than delayed goods deliveries and a year’s worth of sharp price increases. From the end of World War II to 2000, US real (inflation-adjusted) GDP per capita grew 2.3% per year, from $14,171 to $44,177 (in 2012 dollars). Americans became healthier, lived longer, reduced poverty, and paid for a much cleaner environment and a vast array of social programs. But since 2000, that post-war growth rate has fallen almost by half, to 1.4% per year. And it’s worse in Canada and Europe, where many countries have not grown at all since 2010 on a per capita basis.
Nothing matters more for human flourishing than long-term economic growth. So, no economic trend is more worrisome than growth falling by half, especially for the well-being of the less fortunate.
The eruption of inflation settles a long debate. Sclerotic growth is not the result of demand-side “secular stagnation,” fixable only with massive fiscal and monetary stimulus. Sclerotic growth is a supply problem. We need policies to increase the economy’s productive capacity – either directly or by reducing costs
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Can Government Successfully Counter Recessions Through Expansionary Policies? Don’t Count on It – Frank Shostak
4 maart
Whenever the signs of an economic weakness emerge, most economic and political commentators declare that the government should increase spending in order to prevent the economy falling into a recession. Economic activity, in this view, consists of a circular flow of money, with one individual’s spending becoming part of the income of another individual. Spending equals income, hence more spending will mean higher incomes.
If some individuals decide to reduce their spending, their actions weaken the circular flow of money. If an individual spends less, the incomes of others are lessened and they, in turn, reduce their purchases of goods from other individuals. As a result, overall spending on goods and services declines and, thus, overall income falls, too.
Following this logic, in order to prevent a downward spiral, mainstream economists claim the government should step in and increase its outlays, thereby filling the shortfall in private sector spending. Thus, government spending is a vital agent of economic growth.
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The post-2008 boom in foreign currency corporate bonds: Why emerging markets go large – Charles Calomiris, Mauricio Larrain, Sergio Schmukler, Tomás Williams
28 februari
The 2008 global crisis was followed by a boom of US dollar-denominated bonds in emerging markets. This column shows that this post-2008 growth was characterised particularly by large bonds, with principal greater than or equal to $500 million. Key drivers of this boom were the development of emerging market corporate bond indices and the increasing interest of institutional investors from developed countries in emerging markets. This growth in dollar-denominated borrowing could create instability in emerging markets, especially as US monetary policy begins to tighten.
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Russia in Financial Crisis (Again), Ruble Collapses (Again), Central Bank Does Mother of All Rate Hikes (Again), US Stocks Shrug (Again) – Wolf Richter
28 februari
A financial crisis in Russia just doesn’t have the same effect on the US as a financial crisis brewed up in the US has.
Earlier today, the ruble collapsed by nearly 30% to where it took 117 rubles to buy $1, up from about 83 rubles on Friday under the broad range of sanctions, many of them targeting the Russian financial system.
The Central Bank of Russia implemented numerous emergency measures to contain the chaos, the bank runs, the frenzied hunt for dollars, and to prop up the value of the ruble. These measures included some capital controls, a promise of unlimited ruble liquidity for the banks, and the mother of all rate hikes: 1,050 basis points, from 9.5% on Friday to 20% on Monday. Which succeeded in softening the collapse of the ruble on Monday, now trading at 103 rubles to the dollar.
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Integration in global value chains might not increase exposure to risk after all – Alessandro Borin, Michele Mancini, Daria Taglioni
1 Maart
Environmental, political, economic, and health disruptions in recent years have helped fuel concerns that too much interdependence through global value chains may be a problem. This column compares the relative effects of a domestic demand shock to those of a global value chain-related shock and concludes that engagement in global value chains allows unexpected shocks to demand to be managed better than in a world of predominantly domestic production, traditional trade, or regional value chains. Global value chain participation dampens exposure to risk, as idiosyncratic shocks are mitigated by a higher market differentiation.
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China Needs to Pop Its Property Bubble – Mihai Macovei
5 maart
The financial woes of the giant real estate developer Evergrande, which carries an estimated debt of $300 billion, have rekindled global fears that China’s property bubble is about to burst. Such predictions have occurred repeatedly in the past, in particular since 2010, and have been fueled by the rapid rise of property prices, construction volumes, and real estate debt. Today, many analysts fear that if the property bubble collapses, the impact on the real economy will be devastating. Some expect China’s growth potential to decrease dramatically, to 4 percent per year from about 8 percent during 2010–19, or even lower. Yet the current property market turmoil originates in regulatory action to reduce financial leverage, and it may not lead to a full-fledged financial meltdown if authorities keep the situation under control. Most important, reducing the share of construction and real estate activity may slow real gross domestic product (GDP) growth in the short run but would benefit China’s transition to a more productive and sustainable growth model.
A Red-Hot Housing Market
After its liberalization in the late 1990s, China’s property market witnessed a sustained expansion with only minor corrections lasting no more than a few months. The government supported the property sector to strengthen the urban middle class and underpin growth. Banks started issuing home loans in 1997, and credit was easily accessible to both developers and households. Housing became the preferred investment vehicle for the Chinese, as bank deposit rates were kept artificially low, the stock market suffered severe crashes in 2007 and 2015, and capital controls prevented investment diversification abroad. Today the homeownership rate exceeds 90 percent (compared to 65 percent in the US) and about 70 percent of household wealth—far higher than in Western economies—is held in real estate. After the global financial crisis, the government used the property sector to spur growth via recurrent waves of easy credit. As a result, residential property prices have more than doubled during the last fifteen years alone (graph 1).
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Key features of the ECB’s new monetary policy strategy: A New Keynesian perspective – Sebastian Schmidt
2 maart
Following a comprehensive review, the ECB announced its new monetary policy strategy in July 2021. Two key elements of this new strategy are the symmetry of the inflation target and the use of especially forceful or persistent measures when the economy is close to the effective lower bound. This column shows that these elements have strong foundations in existing macroeconomic frameworks. In the New Keynesian paradigm, a symmetric target may be more robust than asymmetric alternatives, and forceful or persistent measures may be necessary to stabilise inflation expectations.
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Bank of Canada Front-Runs the Fed, Hikes Interest Rates, Citing Hot Inflation & Even More Inflationary Pressures – Wolf Richter
2 maart
Rates “need to rise further.” Balance sheet already shrank by 14%, more shrinkage to come.
The Bank of Canada today hiked its overnight rate and its deposit rate each by 25 basis points, to 0.50%. It cited 5.1% CPI inflation that it expects to rise further and faces one of the worst housing bubbles anywhere – both of them fueled in part by two years of interest rate repression and money printing. It cited “further pressures on house prices” and the additional inflationary pressures from commodities markets following Russia’s invasion of the Ukraine.
“Interest rates will need to rise further,” the BoC said in the statement, in line with jawboning by BoC officials following the prior meeting in January.
“Price increases have become more pervasive, and measures of core inflation have all risen,” it said. “All told, inflation is now expected to be higher in the near term than projected in January.”
“Persistently elevated inflation is increasing the risk that longer-run inflation expectations could drift upwards,” the BoC said.
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Bubble-Bust in Japan – Mark Thornton
28 februari
During the 1980s Japan was feared as an economic and technological powerhouse. Most observers attributed their stock market bubble and high growth rates to easy monetary policy, management style, and government managed technological development. Since 1990, the Japanese government has been fighting price deflation with monetary inflation and trying to increase growth by government deficit spending. By all accounts it has not worked. Their economy remains mired in low growth, they have by far the highest ratio of government debt to GDP in the world, and they face a dramatic demographic crisis as their population continues to age. This chapter is the lesson of what NOT to do and who not to listen to for advice.
Business cycles and bubbles differ from one another, but the technical similarities between the Japanese and US bubbles are striking. The Japanese bubble began in the early 1970s, the US bubble started in the early 1980s. Both stock markets grew rapidly for thirteen years and then went parabolic to form bubbles, which peaked in Japan at the end of 1989 and in the United States during early 2000. Both stock markets lost about a third of their value eighteen months after their peaks. The Nikkei Stock Index has since lost as much as three-quarters of its peak value, while the Dow Jones Industrial Average has been down 40 percent and the NASDAQ Composite down by 75 percent of its peak value. The real estate bubble continued in Japan for some time after the stock market began its meltdown, and likewise, real estate — particularly housing — experienced (two) bubbles since the initial breakdown of the US stock market in 2000.
The surprising thing is that in the United States the lessons of the Japanese bubble seem to have almost gone unnoticed. Japan experienced fourteen years (now more than twenty-five years) of economic stagnation since its bubble popped. Most troubling, the United States not only failed to heed the warnings of the Japanese bubble, it has thus far mimicked Japan’s failed attempts to stimulate its economy with extremely low interest rates and large government budget deficits. Both countries have opted for a slow, agonizing “recovery,” rather than a sharp correction of past errors that would quickly reallocate resources and return the economy to sustainable growth. Experts tell us that the Japanese and their economy are very different from the Americans and their economy and that the Japanese bubble and Japan’s policy response to its crash were likewise different, but while there certainly are many important differences between the US and Japanese bubbles, the technical features and new-age thinking are strikingly similar in both bubbles.
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***Wars Rarely Achieve Their Initial Goals: The Curse of Second-Order Effects – Charles Hugh Smith
2 maart
Initial victories do not guarantee the war will be won. Rather, they arouse the most dangerous enemy: the fatal hubris of over-confidence.
War tops the long list of human folly for a basic reason: it rarely achieves the initial goals of launching the war. It takes a special kind of human folly to discount all the negative possibilities that come from starting a war and focus exclusively on the one positive outcome in the belief it is inevitable, guaranteed, etc.
Wars carry a particularly heavy curse, that of long-term second order effects.
The decision to launch a war must discount bad outcomes and extrapolate previous minor military campaigns as “proof” that the war will be won quickly and with minimal second order effects. (First order effects: actions have consequences. Second order effects: consequences have consequences.) Put these two gratifying assumptions together and you arrive at a third assumption: the war will be over before we know it.
And so civilians make haste to view the initial battle lest they miss the all-too-brief excitement (First Battle of Manassas, American Civil War) or the combatants proclaim the war that started in late August will be over by Christmas (World War I). Alas, both wars dragged on for over four years as the bodies and consequences piled up.
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Extraterritorial sanctions: A stick and a carrot – Ohyun Kwon, Constantinos Syropoulos, Yoto Yotov
4 maart
Sanctions are now a central tool of governments’ foreign policy. This column examines the extraterritorial impact of sanctions on trade and welfare, and finds that the big extraterritorial burden of sanctions falls on target countries, whose trade with third countries is reduced significantly. Surprisingly, trade between senders and third countries increases due to sanctions. Thus, extraterritorial sanctions appear to be a stick and carrot for third countries, with the net effects depending on the size of the target and sender states and on the economic ties between the third countries/regions.
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Even Soaring Wages Got Crushed by Inflation in Hot Labor Market: Fed Gets More Rate-Hike Ammo (as if it Needed More) – Wolf Richter
4 maart
Production and nonsupervisory employees had biggest year-over-year wage gains since 1982, but they too were outrun by inflation.
The tight labor market and soaring inflation have been cited by various Fed officials as the top reasons for rate hikes starting on March 16. Even the lowest lowball measure that the Fed uses for its inflation target has already totally nailed the inflation requirement. Today’s jobs report nailed the other part.
Both employers and households reported large gains in people who were working in February. The two measures differ: The reports from employers includes only their payrolls. The reports from households include not only W-2 workers but also the self-employed and people starting their own businesses, and there has been a huge wave of entrepreneurs trying to start their own thing.
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***Why So Few See the Last Chance to Exit – Charles Hugh Smith
21 februari
When the crash can no longer be denied, the drop is widely recognized as having been obvious and inevitable..
The last chance to exit is well-known in stock trading circles, but the concept can be applied much more broadly. The basic dynamic at work is a mismatch between the fundamentals (i.e. the real world) which are deteriorating due to structural changes and the psychology of participants which continues to be confident and upbeat.
A wide spectrum of emotions and human traits are in play, but the core dynamic is our desire to discount signs of trouble rather than deal with a long-term change in the tides. The long uptrend supports confidence that the uptrend will continue moving higher more or less permanently, and the desire to keep minting money by staying fully invested in the uptrend encourages cherry-picking data to support the idea that the fundamentals are still solid.
Selection bias, denial, complacency and greed all play parts in this continuation of the psychology of an uptrend even as the S-Curve has shifted from growth to stagnation as the fundamentals have deteriorated beneath the surface.
This asymmetry between the fundamentals of valuation and the psychology of valuation cloaks the change in trend so few recognize it as the last chance to exit. Participants, so well trained by years of profits to “buy the dip” and anticipate future gains, see the initial dip as an opportunity to buy rather than as a warning sign.
This complacency is reinforced by the prompt reversal of any dip and a new high in valuations. Again, this dynamic is not limited to stocks; the ascent of housing valuations feeds the same complacency and selection bias: housing can’t go down because…the litany of supportive narratives is always long and illustrious.
The last chance to exit is also present in states, cities, industries, jobs, institutions, groups and neighborhoods. The decay is ignored as everything seems to remain glued together and the rot is papered over by various pronouncements and policies.
There is typically a period of consolidation that further supports a complacent confidence that the present is immutable: the uptrend is permanent. But this consolidation is misleading: it’s not a continuation of the uptrend, it’s the result of first-movers selling to True Believers in the immutability of the present and getting out of Dodge.
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Pennies from haven: Wages and profit shifting – Annette Alstadsæter, Julie Brun Bjørkheim, Ronald Davies, Johannes Scheuerer
1 maart
There is no longer any debate that some multinationals avoid taxes by shifting profits to tax havens. What is less understood, however, is what happens to the money not spent on taxes. Using matched employer-employee administrative data from Norway, this column shows that employer profit shifting contributes to income inequality and benefits high-skilled and high-paid employees most. High-skilled workers in service industries gain the most, with CEOs experiencing the highest wage increase.
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If You Want to Build Back Better, Reshore Our Entire Supply Chain – Charles Hugh Smith
4 maart
It is entirely accurate to say that the U.S. is addicted to waste and distant sources of essentials.
The downside of dependency is in the air. The U.S. has allowed itself to become dependent on other nations for essentials, a policy that I view as an insanity fueled by greed.
The problem with dependency is the cost can’t be calculated until it’s too late. Restoring independence is a massive, costly undertaking, but if you wait until the cost of dependency is clear to all, it’s too late to escape the collapse triggered by the cut-off of essentials from other nations.
The happy story of “free trade” (there is no such thing) is that everybody wins. The reality is everyone loses except corporate profiteers. The problem with deciding on the wunnerfulness of “free trade” by looking at the price tag is that all the real costs of dependency and profiteering are not in the price on the tag: the “market” doesn’t include those costs because that would reveal “free trade” as a catastrophically bad deal for the people whose nation becomes dependent on others for their essentials.
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