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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Can the Dollar Survive Both Cryptocurrencies and China? – Alexander Herborn, Gunther Schnabl
8 juli
In his book Denationalisation of Money, F.A. Hayek argued that governments have never devoted their power to providing proper money over time. They “have refrained from grossly abusing it only when they were under such a discipline as the gold standard imposed.”1 The gold backing of the US dollar as the global reserve currency was lifted in the early 1970s, and paper currencies, so-called fiat currencies, have since become the norm. Following this decision, the paper currencies have dramatically lost value against gold (figure 1). Since the turn of the millennium, this process has substantially accelerated.
For the past twenty to thirty years, the Federal Reserve and other major central banks have been steadily lowering interest rates and purchasing large amounts of government bonds as well as other assets such as corporate bonds and asset-backed securities. This has undermined the confidence in the US dollar and the euro as the world’s leading reserve currencies. A flight into tangible assets has set in, such that stocks, real estate, and precious metals have risen sharply in price. Competitors for the “exorbitant privilege” (Giscard d’Estaing) of the reserve currency have appeared, as those who issue the global reserve currencies benefit from virtually unlimited borrowing opportunities and immense profits from money creation.2 The competition has three dimensions.
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How much does climate change actually affect GDP? Part I: An illogical question. – John H. Cochrane
8 juli
How much does climate change* actually affect GDP? How much will currently-envisioned climate policies reduce that damage, and thereby raise GDP? As we prepare to spend trillions and trillions of dollars on climate change, this certainly seems like the important question that economists should have good answers for. I’m looking in to what anyone actually knows about these questions. The answer is surprisingly little, and it seems a ripe area for research. This post begins a series.
I haven’t gotten deep in this issue before, because of a set of overriding facts and logical problems. I don’t see how these will change, but the question frames my investigation.
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The Phillips Curve Myth – Frank Shostak
8 juli
According to a popular way of thinking, the central bank can influence the rate of economic expansion by means of monetary policy. It is also held that this influence carries a price, which manifests itself in terms of inflation. For instance, if the goal is to reach faster economic growth and a lower unemployment rate then citizens should be ready to pay a price for this in terms of a higher inflation rate. Note that inflation is defined by a popular way of thinking as increases in the prices of goods and services.
It is held that there is a tradeoff between inflation and unemployment, which is described by the Phillips curve. (A.W. Phillips described a historical relationship between the rate of unemployment and the corresponding rates of wage increase in the United Kingdom from 1861 to 1957).1
Given that by popular thinking, the increases in wages are associated with increases in the momentum of prices of goods and services it is now commonly accepted to portray the increases in the momentum of prices versus the unemployment rate.
The lower the unemployment rate the higher the annual growth rate of prices. Conversely, the higher the unemployment rate the lower the growth rate of prices is going to be, so it is held.
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Central bank digital currency: The battle for the soul of the financial system – Stephen Cecchetti, Kim Schoenholtz
8 Juli
Central banks are thinking about whether they should substitute publicly issued digital currency for the bank-issued digital money that people use every day. How this plays out can profoundly reshape the financial system and make it less stable. This column argues that we don’t need CBDC to solve financial system problems, but with China already headed down the CBDC road, perhaps the best hope is that central banks will all proceed very slowly and stop well short of universal, elastically supplied, interest-bearing digital currency.
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Today’s Unicorns Have Bigger Cumulative Losses than Amazon, Lost Money far Longer than Amazon, Still No Turnaround – Jeffrey Funk
5 juli
Just because Amazon was able to succeed does not mean others will. But they’re getting showered with money.
Unicorn startups are on a roll. Their share prices are up at least 50% since the pandemic started, and most have doubled and some tripled. Although profitable startups such as Zoom, Roku, and Square are up the most, even startups with large losses are doing well. Share prices for Snap, Twilio, and Pinterest are up three times, Slack’s shares have doubled, and Uber and Lyft’s shares are up 50%.
VC funding is also strong. Funding hit $125 billion in the first quarter of 2021, the highest ever. And this follows a record setting year in 2020 and in the previous five years between 2015 and 2019. Optimism about the impact of startups on productivity is at an all-time high. VC fund managers such as Marc Andreesen, founder of Netscape, are predicting a productivity boom for the 2020s.
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Avoiding a self-fulfilling low-inflation trap – Sebastian Schmidt
6 Juli
Inflation shortfalls across the developed world have raised concerns about the possibility of low-inflation traps. This column presents a simple model of inflation to analyse the role of stabilisation policy in preventing them. It suggests that decisive countercyclical fiscal policy can protect economies from falling into a low-inflation trap by offsetting low inflation expectations.
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My Case against Minimum-Wage Laws – George C. Leef
9 juli
Minimum-wage laws are again in the news, as Joe Biden and his political allies in Congress seek to push the national minimum from its current level of $7.25 per hour up to $15 per hour. Some politicians, Sen. Bernie Sanders for one, declare that people can barely survive even on $15 per hour. If the law takes the minimum up to $15, we can expect pressure to raise it still further in the future.
After all, why shouldn’t the government be compassionate and improve the lives of millions of low-wage workers? Many Americans think that’s one of the reasons for democracy—so that the government can respond to people’s needs.
There is a great deal wrong with minimum-wage laws and I’d like to set forth my case against them. I’m not just against the current move to raise the wage, but against the very concept of laws dictating the terms of contracts between people.
Whenever two people agree on a contract for goods or services, they have peacefully consented to the deal because both expect to be better off as a result. Peter might agree to pay Paul $50 to clean the leaves out of his gutters; Jennifer might agree to pay Jane $8 per hour for cleaning up her restaurant. All four are satisfied. They would probably prefer to receive more or pay less, but they are content with their contracts.
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Corporate taxes: Views of leading economists on profit-shifting, tax base and a global minimum rate – Romesh Vaitilingam
6 Juli
The G7 recently reached an agreement on the taxation of multinational corporations. The IGM Forum at Chicago Booth invited its panels of leading European and US economists to express their views on the challenges ahead. As this column reports, a strong majority (94% of the panelists) agrees that a global minimum corporate tax rate would limit the benefits of profit-shifting to low-tax jurisdictions without biasing where firms invest. But there is considerably more uncertainty among respondents about whether an international tax system with such a global minimum is achievable; and whether taxes based on where firms make their sales would be more efficient than taxes based on where their headquarters and production are located.
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Government Debt Is Starting to Look Almost as Sketchy as Payday Loans – Malachy McDermott
10 juli
If there is one thing every honest money-saving advisor would agree on, it’s that a payday loan is a bad idea. Taking a high interest loan backed by nothing but your word to pay off your current account to fuel consumption with no capital investment is just leading you on the road to ruin.
However this simple message of living within one’s means does not seem to have reached the gilded ears of central banks and governments around the world. As inflation rises (who could have guessed the borrowing binge of 2021 would have resulted in higher inflation?), both the EU and American governments are now caught between a rock and … well, a rock.
Trapped into a cycle of borrowing to cover current account expenditure, even debt-resistant economies like Germany and New Zealand need to keep on this self-destructive path. The collateral used is bonds, about as useful and as stable as ever; the international bond market has exploded in the last ten years.
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Integrating climate change into the financial stability framework – Timo Löyttyniemi
8 Juli
Financial stability is at the core of central banking. This column assesses the various risks to financial stability stemming from climate change, which arise from physical risks, transition risks, and the chosen transition path towards a net zero economy. Additional risks arise from the changes in government policies, risks in green investments, mispricing of assets, and potential changes in metrics. The channels for financial instability are, as usual, the sustainability of government debt, the vulnerability of banking, and the volatility and liquidity of securities markets. Awareness of these additional financial stability risks could increase financial stability.
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Bank of Japan Stops QE, Reserve Bank of Australia Starts Tapering, Bank of Canada & Bank of England Already Tapering, Amid Shock-and-Awe Rate Hikes in Emerging Markets – Wolf Richter
6 juli
The Fed is a laggard, now discussing when and how to taper QE. The ECB is an even bigger laggard, as inflation begins to rage.
The Fed is a laggard, not the leader, in ending the ridiculously easy money policies. At the ECB, internal resistance is building against its asset purchases but for now is getting squashed, leaving the ECB even further behind than the Fed.
The Swiss National Bank continues full tilt, but it doesn’t buy Swiss assets; it prints francs and dumps those printed francs for assets denominated in euros, dollars, and other currencies, including US stocks, which is a different ball game and works as long as enough foreign investors are silly enough to buy these Swiss francs.
But other central banks have already started the process of tapering asset purchases or hiking rates. The Bank of Japan, which started tapering months ago, has now completed its tapering and its total assets actually fell. And some central banks have announced rate hikes, and others have already imposed hiked rates, including shock-and-awe rate hikes in Brazil, Russia, and Turkey to tamp down on raging inflation.
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Estimating the economic impact of climate change from weather variation – Derek Lemoine
9 July 2i
If economists are going to be able to offer clear guidance about the appropriate ambition of climate change policy, we need firmer damage estimates. This column introduces a new model that prices farmers’ ex-post and ex-ante adaptations to weather changes and forecasts. When applied to US agriculture, the model shows a much more pessimistic outcome than currently expected, and encourages the consideration of substantial changes to agricultural policies.
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***From Livestock to Bitcoin: “Legitimacy” and the Evolution of Money – ichael Milano
7 juli
Once a society embraces the division of labor, direct exchange becomes increasingly infeasible. Without money, specialization is constrained; without money, dreams of constructing an advanced society are merely a utopian pipe dream. At its core, money is the lubricant for human relations. It simultaneously solves many problems of cooperation while serving as the basis for economic calculation. As awareness of nonsovereign cryptocurrencies has risen dramatically, questions about the history of money have gained salience. How does money arise? From where does it derive its value? The following sections will expound upon the cumulative development of money, from livestock to bitcoin, by infusing the concept of legitimacy into Carl Menger’s theoretical framework as outlined in On the Origins of Money.
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***Why households with low-interest savings hold expensive debt – John Gathergood, Arna Olafsson
4 Juli
Households’ tendency to hold liquid savings at low interest rates and, at the same time, revolving debt at high interest rates is a long-standing puzzle in household finance. This pattern of behaviour has been observed across many countries, on a variety of revolving credit products including credit cards and overdrafts. Using increasingly available transaction-level data sourced from financial services providers, this column shows that co-holding is often short-lived, and may be best explained by consumers keeping separate ‘savings’ and ‘debt’ accounts earmarked for different forms of expenditures, a form of mental accounting.
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Keynes Said Inflation Fixed the Problems of Sticky Wages. He Was Wrong – Robert Blumen
7 juli
Britain’s economy had been suffering chronic unemployment for a decade prior to 1936. Economic theory as it was then understood clearly showed that the cause of a market surplus was sellers asking a price in excess of what buyers are willing to pay.
If buyers and sellers simply disagree, then so be it. But if the situation is aggravated by excessive regulation or other institutional problems, then economists would advise dissolving institutional barriers that prevent the smooth functioning of the market price system. Contemporary British economists were aware that labor union contracts fixed wages above market-clearing levels and that unemployment subsidies were a factor in preventing labor markets from clearing.
The revolutionary John Maynard Keynes rejected the orthodox view. In his 1936 book The General Theory of Employment, Interest and Money, he proposed a wholly different approach. While carefully obscured in a sophisticated model, Keynes’s solution was simple: to leave nominal wages alone, but lower real wages through inflation. If business firms understood the difference, then when real wages reached an attractive level, they would begin to hire at the union pay scale.
In his critique of the Keynesian revolution, the British Austrian school economist William H. Hutt made compelling arguments against the use of inflation as a substitute for market prices. Hutt made several arguments for the superiority of sound money over inflation. Here I will look at several of his ideas.
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Americans See the Raging Mania: “Bad Time to Buy a Home” & “Good Time to Sell a Home” Sentiments Spike to WTF Record – Wolf Richter
8 juli
If these sentiments become reality over time, it’s going to be a sea change for demand and supply at these crazy prices.
So just briefly: This explains some of the dynamics we have seen in the housing market recently, with mortgage applications, sales of existing homes, and sales of new single-family houses dropping for months even as investors have piled into the market and as inventories have started to rise.
Fannie Mae has been conducting its National Housing Survey monthly since 2010, one of the data collection efforts to come out of the Housing Bust. The survey covers a range of housing-related topics. And in its survey for June – conducted between June 1 and June 24 and released on Wednesday – there are record trend changes in consumers attitudes about whether it’s “a good time to buy a home,” or “a bad time to buy a home,” or “good time to sell a home,” or “a bad time to sell a home.” And you know what’s coming.
The percentage who said that it was a “bad time to buy a home” spiked over the past three months from record to record and in June hit 64%. Consumers cited home prices as the predominant reason.
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***Why Africa’s Geography Is a Barrier to Growth – Lipton Matthews
6 juli
Browsing through history, we can identify several examples of states overcoming the hurdles of geography to achieve great feats. Though the plague of an inhospitable geography is not an insurmountable obstacle to development, it remains crucial to understanding disparities in income across countries. However, some mainstream economists place a premium on institutional development as a panacea for economic growth. Institutions are indeed important, but the legacy of geography still lingers.
Compared to the rest of the world, economic growth in Africa has been quite sluggish. A stunning fact is that during 1965–90, GDP (gross domestic product) per capita growth in Africa averaged 0.8 percent per year. Yet growth in the seven fastest-growing developing countries outside the region averaged 5.8 percent, and growth in the rest of the developing world recorded an average growth of 1.8 percent. Economic decline was so dramatic that the average 1972 GDP level was not attained again until 2004.
Economists admit that exploring Africa’s lackluster performance requires a multidimensional approach. However, many argue that geography is a major contributor to Africa’s anemic performance. According to a landmark study by Sachs and Warner (1997), countries in tropical regions grow more slowly than countries in temperate environments, and unfortunately, a sizeable proportion of the African population is in tropical climates.
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Housing Bubble #2: Ready to Pop? – Charles Hugh Smith
8 juli
All debt-fueled speculative bubbles pop, even as cheerleaders claim otherwise.
The expansion of Housing Bubble #2 is clearly visible in these two charts of house valuations, courtesy of the St. Louis Federal Reserve database (FRED). The first is the Case-Shiller Index, which as you recall tracks the price of homes on an “apples to apples” basis, i.e. it tracks price movements for the same house over time.
Note that this is an index chart where the index is set at 100 as of January 2000. It is not a chart of median housing prices.
The second chart is also a housing price index chart courtesy of the U.S. Federal Housing Finance Agency. (Shoutout to the USFHFA, never came across your work before.)
The red line marks where house prices would be if they had tracked the Consumer Price Index (CPI), i.e. inflation as measured by the Bureau of Labor Statistics. You’ll notice that the last time the Case-Shiller Index touched this baseline was 1998, almost a quarter-century ago. On the FHFA index, it hasn’t touched it since the mid-1970s, 45 years ago.
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HSBC in Big Trouble in its Biggest Market, China – Nick Corbishley
4 juli
As HSBC pivots further to Asia and away from the West, its business in China gets more and more complicated.
HSBC, headquartered in the UK, is first and foremost an Asian bank. The Hongkong and Shanghai Banking Corporation Limited cut its teeth in the 19th century in Greater China. In 2020, its Mainland and Hong Kong operations accounted for 39% of its annual $50 billion in revenue, while the United Kingdom, its second largest market, brought in 28%. The bank is now selling off its retail banking units in France and the United States and scaling back its presence in some emerging markets in order to accelerate its eastward pivot.
But there’s a problem with this plan: Its success rests largely on the bank’s ability to maintain good relations with the Chinese government. And that is proving to be a tough proposition.
Relations have soured significantly over the past two years after it was revealed in 2019 that HSBC had ratted out Chinese telecom giant Huawei to the U.S. Department of Justice for breaching U.S. sanctions on Iran. The information provided by HSBC led to the arrest of Meng Wanzhou, Huawei’s chief financial officer and daughter of the company’s founder, in Vancouver in 2018.
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Down The Market Hole… And The Looming Bank Liquidity Crisis – Romain
8 juli
Everything Is Relative and Only That Is Absolute.
While equity markets have broken many records in terms of relative valuation, some people still argue that stocks are not that expensive.
Of course, everyone has heard about TINA and the idea that valuations remain attractive in a low interest rates environment. In my opinion, TINA is an intellectual fallacy (see Dear TINA, We Need to Talk).
Recently, I noticed that people were using another metric to try to justify current valuations, putting forward the so-called price-earnings to growth ratio (PEG). The argument is simple: the PEG is low on a historical basis, meaning that the market may be cheap from a growth perspective. In other words, the price-to-earnings ratio (PE) of the S&P 500 is elevated, but one should consider the growth potential of US companies’ earnings to relativize the level of the PE ratio.
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Divergence in bankruptcy law across advanced and developing economies – Simeon Djankov, Eva (Yiwen) Zhang
9 Juli
The economic shock triggered by Covid-19 shut down thousands of businesses and cost millions of workers their jobs. The goal of government response to this shock was simple: keep the lights on for as long as possible. This column describes how while some advanced economies have moved ahead with changes in their bankruptcy law to make it easier for distressed companies to keep running, developing countries have not reformed their procedures. A possible solution is to devise policies that reduce the share of the informal economy and put more pressure on reforming formal institutions.
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