Economische aanraders 07-11-2021
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.
Why China’s Property Bubble Is a Big Deal – Daniel Lacalle
No economy has been able to ignore a property bubble and even less so offset it and continue to grow, replacing the bust of the real estate sector with other parts of the economy. Heavily regulated economies from Iceland to Spain have failed to contain the negative impact of a real estate sector collapse. It will not be different in China.
China’s real estate problems are three: the massive size of the sector, its excessive leverage, and the amount of developer debt in the hands of average households and retail investors.
According to The Guardian, “China’s real estate market has been called the most important sector in the world economy. Valued at about $55 trillion, it is now twice the size of its US equivalent, and four times larger than China’s GDP.”
Janet Yellen Admits The “Net Zero” Grand Reset Price Tag Will Be $150 Trillion – Tyler Durden
For years, the climate change lobby was laser-focused on just one aspect of the “climate change” crusade: the end – which supposedly is some world where the temperatures no longer rise due to fossil fuel emissions (because we now supposedly live in a world of global warming as most ‘scientists’ agree, not to be confused with the global cooling hypothesis that emerged in the 1970s, when scientists were warning of a new ice age, and so on until the money blows in the opposite direction again in a few years when it becomes politically convenient) as opposed to bothering with the means. Meanwhile the “means”, or the final cost to taxpayers of all that endless, tedious virtue-signaling, was almost never touched upon for a reason – as we first explained three weeks ago, the bill for getting the world from point A to that mythical, utopic point B, was so high, it would be double global GDP over the next three decades.
The short-lived high-pressure economy – Antonio Fatás
In 2019, the US economy had reached levels of employment that ensured that the gains of the economic expansion were shared across many segments of the labour market. Unfortunately, the benefits of this high-pressure economy were short-lived thanks to the recession that started in March 2020. This column argues that this pattern fits all previous US cycles. Expansions end too early to allow for long periods of stable and low unemployment.
Towards A Single World Currency – James Rickards
Is the move toward central bank digital currencies real? And, if so, is it the first step toward a global reserve currency that will replace the dollar and euro as currencies of choice in reserve positions of major economies?
Well, yes and no.
Before I expand on that answer and explain the impact central bank digital currencies will have on the more familiar world of foreign exchange, it’s helpful to say a bit more about what central bank digital currencies (CBDCs) are.
CBDCs are not cryptocurrencies. The CBDCs are digital in form, are recorded on a ledger (maintained by a central bank or Finance Ministry), and the message traffic is encrypted. Still, the resemblance to cryptos ends there.
The CBDC ledgers do not use blockchain, and CBDCs definitely do not embrace the decentralized issuance model hailed by the crypto crowd. CBDCs will be highly centralized and tightly controlled by central banks.
Transitory Inflation: A Fisherian Fed? – John H. Cochrane
Should the Fed raise interest rates fast? Or should it leave them alone, figuring inflation will be “transitory?”
Lots of models, including ones I play with, predict that a constant unchanging interest-rate peg leads to stable inflation. If there is a fiscal shock, it leads to a one-period price-level jump, but no further inflation, so long as the interest rate stays where it is. The models in the first few chapters of The Fiscal Theory of the Price Level have this feature, also “Michelson Morley, Fisher and Occam.” Martin Uribe has also written about this issue, here for example.
The simplest example is
denotes real primary surpluses scaled by the value of debt. If the interest rate
does not move, expected inflation does not move. A fiscal shock (negative
) gives a one-period unexpected inflation, devaluing outstanding debt; essentially a Lucas-Stokey state-contingent default. Sticky prices smooth all this out over a year or two.
Here’s Why US Supply Chain Problems Will Only Get Worse – Brandon Smith
It is an economic rule which free market philosophers like Adam Smith have tried to explain to governments and monopolists for centuries:
Less liberty and more centralization equals less production and less overall wealth.
Governments and central banks have sought to circumvent this rule by printing money from thin air, thinking that they can create wealth while at the same time suffocating public financial interactions and trade with authoritarianism. This, of course, only leads to inflation or stagflation, and thus wealth is never actually created, it is projected like a hologram in order to trick the masses into thinking that all is well – until everything breaks, that is.
Inflationary policies inevitably lead to speculation
To be sure, capital is concentrated under this system into the hands of a select few, but the currency itself is devalued swiftly and buying power is truncated. Speculative assets and many commodities start to see a burst of activity as the inflation grows out of control.
Metals may become the new oil in net-zero emissions scenario – Lukas Boer, Andrea Pescatori, Martin Stuermer, Nico Valckx
Low greenhouse gas technologies require more metals than their fossil fuel-based counterparts. This column estimates supply elasticities and pins down the price impact of the energy transition on the metals markets. The results show that prices for copper, nickel, cobalt, and lithium could reach historical peaks for an unprecedented, sustained period in a net zero emissions scenario. The total value of production could rise more than four-fold for the period 2021-2040, rivaling the total value of crude oil production.
Economists have needlessly produced a climate war – Laurence Kotlikoff, Felix Kubler, Andrey Polbin, Simon Scheidegger
The replacement of positive with normative economics has left climate policy in its sorry state – as a fight between generations, across regions, and even among economists over climate justice. This column uses a multi-region, overlapping generations model of climate change to study climate policy as an externality whose resolution can uniformly and equally benefit all humankind, regardless of year or place of birth. The optimal uniform welfare-improving policy, implemented via a time-varying global carbon tax plus region- and generation-specific net transfers, can materially limit global emissions, dramatically shorten the use of fossil fuels, and raise the welfare of all current and future agents by over 4%.
***What “Inflation” Really Means – Frank Shostak
Most commentators label increases in the prices of goods and services over a period of time as inflation. Ludwig von Mises however, held that the popular definition of inflation is erroneous. He wrote in Economic Freedom and Interventionism (p. 99),
Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term ‘inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.
The subject matter of inflation is embezzlement. To establish how the phenomena of inflation has emerged we must go back in time to trace it origins. Historically, inflation originated when a country’s ruler such as the king would force his citizens to give him all of their gold coins under the pretext that a new gold coin was going to replace the old one. In the process, the king would falsify the content of the gold coins by mixing it with some other metal and return diluted gold coins to the citizens.
The globalisation backlash – Italo Colantone, Gianmarco Ottaviano, Piero Stanig
As populist parties have surged across advanced democracies so, it seems, has a ‘globalisation backlash’. This column provides descriptive evidence on the backlash, discusses its theoretical underpinnings within standard trade models, and reviews the evidence on its drivers. It appears that globalisation is at stake partly due to reasons that are not strictly related to trade. The political sustainability of globalisation – and arguably of the international liberal order – will depend on how successful societies are at managing in a more inclusive way the distributional consequences of structural change.
***Study Warns ‘Luxury’ Pollution By Global Mega-Rich Is The Real Problem – Jake Johnson
The richest people on the planet, representing a small sliver of the total population, are emitting carbon dioxide at a rate that’s imperiling hopes of keeping global heating below 1.5°C, prompting fresh calls for government action to rein in “luxury” pollution and combat the intertwined crises of inequality and climate change.
New research by the Institute for European Environmental Policy (IEEP) and the Stockholm Environment Institute (SEI) shows that by 2030, the carbon footprints of the wealthiest 1% of humanity are on track to be 30 times larger than the size compatible with limiting global warming to 1.5°C by the end of the century, the Paris Agreement’s more ambitious temperature target.
Quantifying the risks of persistently higher US inflation – Davide Brignone, Alistair Dieppe, Martino Ricci
There are many uncertainties surrounding the inflation outlook in the US, particularly in light of the large fiscal stimulus. Using the ECB-Global model, this column estimates the impact on inflation of the fiscal stimulus to be limited. Three scenarios are undertaken to quantify the upside risks to inflation which could arise from considering a steeper Phillips curve, stronger fiscal multipliers, and rising inflation expectations. The results suggest that the impact on inflation from these sources of risk is likely to be moderate, unless all of the risks materialise simultaneously, and the Fed does not depart from the assumed monetary policy path.
History Suggests That Stocks Won’t Like Inflation – Lance Roberts
Several articles published lately suggest that stocks perform well in higher inflation environments. That may be the case when inflation rises due to more robust rates of sustainable economic growth. However, history suggests sharply rising inflation not only negatively impacts economic growth but triggers adverse market environments.
Let’s start with the “bullish spin” from Dimensional Advisors. To wit:
“A look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and US stock returns.
Since 1991, one-year returns on US stocks have fluctuated widely. Yet weak returns occurred when inflation was low in some periods, and 23 of the past 30 years saw positive returns even after adjusting for the impact of inflation. That was the case in the first six months of 2021, too (see Exhibit 1).”
Jobs Data Shows Something Big Changed in this Monstrously Overstimulated Economy – Wolf Richter
Record GDP, record consumer spending, record private investment, but the number of workers accomplishing these feats is down by 4.7 million.
The jobs report’s two components – the survey of 60,000 households and the survey of 697,000 individual worksites – came back together today, after having diverged in September in a way that had caused a lot of premature hand-wringing about the labor market.
Households reported that the number of people working, including the self-employed, rose by 359,000 in October after having jumped by 526,000 in September, and by 509,000 in August, for a total of 1.39 million over those three months, according to the Bureau of Labor Statistics today. This is still down by 4.7 million people from February 2020 (red line).
Employers reported that they added 531,000 employees to their payrolls in October. This includes governments, but they shed jobs for the second month in a row. Over the past three months, including large upward revisions for August and September, payrolls grew by 1.33 million employees.
What 100,000 bank accounts tell us about French SMEs in September 2021 – Anne Epaulard, Etienne Fize, Titouan Le Calvé, Philippe Martin, Hélène Paris, Kevin Parra Ramirez, David Sraer
Governments around the world announced fiscal support measures to keep businesses afloat in response to the Covid-19 shock. This column uses bank account data from 100,000 French firms to examine the solvency and liquidity of companies across sectors. Firms in the accommodation and food services sector are doing surprising well, while many firms in the construction sector are struggling financially. The findings suggests fiscal support may not have worked as intended, and that policymakers should continue to monitor bankruptcies closely in the coming months.
The Madness of Taxing Unrealized Capital Gains – Georg Grassmueck
President Biden’s proposal to require roughly seven hundred US billionaires to pay taxes annually on unrealized capital gains has garnered wide support from Democrats as another step to make the rich pay for the uncontrolled spending by the federal government. House of Representatives speaker Nancy Pelosi says Democrats hope the plan will raise as much as $250 billion to help pay for expanding the social safety net and tackling climate change. The current tax system is already too complicated and adding another layer will not make the system any fairer or make rich people pay more in taxes. More importantly, the proposal is another scheme by the government that defies the reality and raises again questions of government overreach.
***Revenge of the Real World – Charles Hugh Smith
The status quo response would be amusing if the consequences weren’t so dire.
Rather than stare at empty shelves, you have two options for distraction: you can don a virtual-reality headset and cavort with dolphins in the metaverse, or you can trade various forms of phantom wealth that always go up (happy happy!) because the Fed.
Neither distraction actually solves any real-world problems, a reality we can call the Revenge of the Real World We’ve entered a peculiar phase in American history in which illusions of wealth and control are the favored distractions from the unraveling of the real world economy and social order.
Printing trillions of currency units can’t restore the global supply chain or social cohesion, Rather, jacking phantom wealth to the moon is only accelerating the collapse of the social order and the economy even as it accomplishes absolutely nothing in terms of solving real-world problems.
Economic Progress Requires Long-Term Thinking – Casey Carlisle
Robert Luddy gave a lecture in sorely missed 2019 titled “Henry Hazlitt’s Long-Term Economic Thinking: Foundation of Entrepreneurial Excellence.” Throughout his talk, it’s clear that Hazlitt has had a profound impact on Luddy—an entrepreneur who’s exhibited excellence for decades. How is it that Luddy personifies success? One possible explanation is that he ignores the temptation of short-term gains while focusing on attaining long-term goals. Hans-Hermann Hoppe would likely describe Luddy as someone with low time preference. Writing about his talk, Luddy discusses how Hazlitt’s most famous work—Economics in One Lesson—sought to build upon Frédéric Bastiat’s essay “What Is Seen and What Is Not Seen.” “Hazlitt goes one step further,” Luddy says, “summing up economics not simply as a series of transactions with hidden implications, but in terms of long-term effects outliving the short-term effects of every economic principle or policy.”
The Chilling Things US Manufacturers Said about the Everything Shortage, Demand, Prices, and Supply Chain Chaos – Wolf Richter
Can’t meet demand due to shortages of labor, components, and materials. And facing soaring input costs, they’re jacking up prices at record pace.
Manufacturers struggled to ramp up production to meet rising demand, hampered by material and component shortages, labor shortages, difficulties in keeping employees because they’re going after better opportunities, long lead times, shipping delays, port congestion in the US and China, rolling blackouts in China, and transportation chaos. Getting goods out of Asia is particularly tough. They’re having to pay more for everything, and they’re passing on those cost increases via record price increases, and they’re not seeing any letup of those increases in costs and prices.
That’s about the summary of what executives of US-based manufacturer said in the two manufacturing Purchasing Managers Indices (PMIs) released today, the “IHS Markit U.S. Manufacturing PMI,” and the “Manufacturing ISM Report On Business.”
Industrial Policy—a.k.a. Central Planning—Won’t Make America Great – Lipton Matthews
Across the political aisle pundits are suggesting industrial policy as a tool to contain the ascent of China. Commentators worry that failure to do so might result in China eclipsing America as the world’s economic superpower. Without doubt, the tantalizing arguments abetting industrial policy are gaining traction because defenders of markets have failed to make their case in a way the public can understand.
When explaining the case against industrial policy, proponents should desist from engaging in abstract analyses, and instead aim to humanize economic losses. The decline in manufacturing jobs, for example, is often depicted by advocates of industrial policy as a problem that could have been foiled had America implemented a suite of trade controls and other planning measures. However, responding that the recession in manufacturing is consistent with the broader economic trend experienced by countries as they get richer rarely sways the average man. Evidence is insufficient to impress an audience. Arguers must nurture the art of conveying information in a relatable medium for their data to be appreciated.
Monstrous Money Printer Bank of Japan Stopped Printing Money, Started Unloading Government Securities – Wolf Richter
Nikkei 225 is flat with February, when the BoJ started unloading government securities.
The Bank of Japan’s monstrous QE that had become part of the national economic religion of Abenomics under Prime Minister Shinzo Abe in early 2013 ended without fanfare. Following Abe’s announcement of his retirement in August 2020, Abenomics went out the door, and the BoJ began tapering its massive asset purchases in the fall of 2020.
And on its balance sheet as of October 31, released today, total assets, at ¥725 trillion ($6.36 trillion) were down a smidgen from the level at the end of August (¥727 trillion) and have essentially been flat since May except for minor fluctuations:
The BoJ has been shedding its holdings of Japanese government securities, starting in February 2021. Since then, its holdings fell by 2.2%, or by ¥11.9 trillion ($104 billion), to ¥528 trillion.
***The Problem with “Stakeholder Capitalism” – Frank Shostak
Writing in the Investment Monitor on March 18, 2021, Klaus Schwab, the founder of the World Economic Forum, was urging the replacement of the present economic system. According to Schwab, the present system is deficient, since it only benefits a small minority of the population while leaving all the others at a visible disadvantage.
Schwab is of the view that a system that strives at attaining maximum profits, which he labels as shareholder capitalism, is bad news for the well-being of most individuals. He is also of the view that a system where the government runs the show together with the private sector, labeled state capitalism, is also deficient.
Klaus Schwab recommends another system, which he labels stakeholder capitalism. This system according to Schwab will make sure that justice and equality prevails for all individuals. The urgency of introducing the new system emerged, according to Schwab, on account of the fact that
[t]he sudden and all-encompassing impact of Covid-19 made us understand, much more than the gradual effects of climate change or increasing inequality, that an economic system driven by selfish and short-term interests is not sustainable. It is unbalanced, fragile and increases the chance of societal, environmental and public health disasters. As Covid-19 demonstrates, when disasters strike, they put an unbearable strain on public systems. We can’t continue with an economic system driven by selfish values, such as short-term profit maximisation, the avoidance of tax and regulation or the externalising of environmental harm. Instead, we need a society, economy and international community that is designed to care for all people and the entire planet. Concretely, from a system of ‘shareholder capitalism’, which prevailed in the West in the past 50 years, and a system of ‘state capitalism’, that gained prominence in Asia, and is centred on the primacy of the state, we should move to a system of ‘stakeholder capitalism’.
Despite Schwab’s misgivings about shareholder and state capitalism, he is of the view that these systems did improve the well-being of individuals.
Whistleblowers Torpedo Facebook and Pfizer: Who’s Next? – Charles Hugh Smith
If America’s total dependence on corporate profits and stock market/housing bubbles is just fine because the bubbles just keep inflating, there’s nothing left but rot.
It’s becoming a routine story: a whistleblower emerges with copious documentation, revealing the ethical / managerial rot at the very top of Corporate America icons. Recently it was Facebook that was revealed as devoting far more resources to masking corporate guile than to actually improving longstanding ethical and quality issues.
Now it’s Pfizer’s fast and loose treatment of supposedly rigorous protocols that’s been heavily documented. The prestigious British Medical Journal (BMJ) stated that the whistleblower provided “The BMJ with dozens of internal company documents, photos, audio recordings, and emails.” BMJ Investigation: Researcher blows the whistle on data integrity issues in Pfizer’s vaccine trial.
The purpose of playing fast and loose is to maximize profits regardless of any other factors. And while corporations exist to maximize profits, the trend in Corporate America is to sacrifice everything to maximize profits and keep the putrid sewage hidden from regulators, the media and the public.
In a Free Economy, Prices Would be Going down, Not Up – Chris Calton
Whenever politicians and media outlets discuss inflation, they invariably use the Consumer Price Index (CPI) as their measure. The CPI is only one of several price indices on top of the various measures of the money supply that underlie aggregate price changes. Strictly speaking, the CPI does not measure inflation per se, but rather the consequences of monetary expansion on consumer products. In macroeconomics, the CPI is one of the key indicators of economic health, and it is this inflation measure that economists use to calculate real GDP. Naturally, the accuracy of the CPI as a measure of the consequences of credit expansion is critically important, yet the measure is controversial among investors. As Investopedia explains, the CPI is “a proxy for inflation,” and “from an investor’s perspective . . . is a critical measure that can be used to estimate the total return, on a nominal basis, required for an investor to meet their financial goals.”
But if the concern is the effect of monetary expansion, why are we using proxy variables to measure this phenomenon? Proxies are useful when we don’t have accurate data on the variable we want to measure, compelling us to find an imperfect substitute that (we assume) tends to follow from the variable we can’t measure. But we have very accurate measures of the money supply, going back more than a century. We know that other factors affect prices in the economy, so price indices cannot accurately capture the consequences of monetary expansion; they can, we are always told, “approximate” these consequences, but why approximate something we have precise measures of?
***Oil price shocks and conflict escalation: Location matters – Andrea Tesei, Jørgen Juel Andersen, Frode Martin Nordvik
Violent conflict often centres around the control of critical resources, including fossil fuels such as oil. This column explores how the location of oil reserves can affect the likelihood of a particular tension descending into widespread civil violence or war. Using a Norwegian data set, the authors show that the presence of onshore oil has a greater effect than offshore oil in driving conflict. Where a resource is relatively straightforward to access (i.e. on land as opposed to out at sea), rebel groups will be more easily able to reap the benefits of taking control through violence.
The Federal Reserve’s Assault on Savers Continues – Murray Sabrin
The front-page headline in the Wall Street Journal on October 14 says it all, “Inflation Is Back at Highest in over a Decade.” The Labor Department reported that the Consumer Price Index (CPI) increased 5.4 percent from a year ago. This should not have been a surprise to Federal Reserve chairman Jerome Powell and his fellow board members nor to its hundreds of PhD economists who drill into the economic data to forecast the economy.
In 2020, when the US economy imploded under the lockdown orders of the federal government and state governors, the Federal Reserve’s balance sheet exploded from $4.17 trillion in February 2020 to $8.48 trillion in October 2021. In other words, the Federal Reserve bought more than $4 trillion in mortgage-backed securities and US Treasury debt in less than two years. This increase in the Fed’s balance sheet in eighteen months is more than was purchased in the first hundred-plus years of its existence. This unprecedented “money printing” has had enormous consequences for the economy and the American people, not the least of which is accelerating price inflation.
As the new money created by the Fed diffuses throughout the economy prices rise in an uneven fashion. Economic sectors and geographic regions are affected differently depending on how the recipients of the newly received dollars spend them, an observation I identified forty years ago in my doctoral dissertation on the spread of inflation through the economy.
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