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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Climate economics – John H. Cochrane
7 september
An essay on climate economics at National Review.
Climate policy is ultimately an economic question. How much does climate change hurt? How much do various policy ideas actually help, and what do they cost? You don’t have to argue with one line of the IPCC scientific reports to disagree with climate policy that doesn’t make economic sense.
Climate policy is usually framed in terms of economic costs and benefits. We should spend some money now, or accept reduced incomes by holding back on carbon emissions, in order to mitigate climate change and provide a better future economy.
But the best guesses of the economic impact of climate change are surprisingly small. The U.N.’s IPCC finds that a (large) temperature rise of 3.66°C by 2100 means a loss of 2.6 percent of global GDP. Even extreme assumptions about climate and lack of mitigation or adaptation strain to find a cost greater than 5 percent of GDP by the year 2100.
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Wage-setting as macroeconomic policy: More than just a lowflation and competitiveness cure – Willi Koll, Andrew Watt
10 September
Inflation in the euro area has been well below the ECB’s target since 2013. This column proposes institutionalising nominal wage setting within the economic governance of the euro area to bring inflation on target. Such a policy would also address the built-in tendency for divergences in internal demand dynamics and competitiveness within the euro area.
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Why the Fed Is So Desperate to Hide Price Inflation – Thorsten Polleit
6 september
Speaking at the Jackson Hole meeting on August 27, 2021, Federal Reserve (Fed) chairman Jerome J. Powell indicated that he supported “tapering” toward the end of this year and hastened to add that interest rate hikes are still a long way off. The term “tapering” means that the central bank reduces its monthly purchases of bonds and slows down the monthly increase in the quantity of money accordingly. In other words, even with tapering, the Fed will still churn out newly printed US dollar balances, but to a lesser extent than before; that is, it will still cause monetary inflation, but less than before.
Financial markets were not alarmed by the Fed’s announcement that it might take its foot off the accelerator pedal a little: ten-year US Treasury yields are still trading at a relatively low level of 1.3 percent, the S&P 500 stock index hovers around record highs. Could it be that investors do not believe in the Fed’s suggestion that tapering will begin soon? Or is tapering of much lower importance for financial market asset prices and economic activity going forward than we think? Well, I believe the second question nails it. To understand this, we need to point out that the Fed has put a “safety net” under financial markets.
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The Process of Ending Massive Money Printing Has Started – Wolf Richter
9 september
ECB is second giant to taper. Bank of Japan already ended QE. Bank of Canada shed 15% of its assets. Bank of England & Reserve Bank of Australia are tapering. Reserve Bank of New Zealand quit QE cold turkey. Riksbank will end QE this year. What’s taking the Fed so long?
The ECB has increased the assets on its balance sheet by a monstrous €154 billion ($181 billion) per month so far this year via an alphabet soup of programs, blowing by even the crazed money-printers at the Fed with their average rate of $123 billion a month. While there appears to be consensus at the Fed that “tapering” its asset purchases will begin this year and will be completed in the first half next year, with assets then remaining level, the ECB announced today that it will start tapering its asset purchases now.
And thereby it is way behind the Bank of Japan, the Bank of Canada, the Bank of England, the Reserve Bank of New Zealand, and the Reserve Bank of Australia. But ahead of the Fed.
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Inflation in the shadow of debt – John H. Cochrane
10 september
(Note: This post uses mathjax equations. If you see garbled latex code, come to the original source.)
The effect of monetary policy on inflation depends crucially on fiscal policy.
In standard new-Keynesian models, of the type used throughout the Fed, ECB, and similar institutions, for the central bank to reduce inflation by raising interest rates, there must be a contemporaneous fiscal tightening. If fiscal policy does not tighten, the Fed will not lower inflation by raising interest rates.
The warning for today is obvious: Fiscal policy is on a tear, and not about to tighten any time soon no matter what central banks do. An interest rate rise might not, then, provoke the expected decline in inflation.
Here is a very stripped down model to show the point.
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Four Reasons the Next Recession Will Be Worse Than the Last One – Jon Wolfenbarger
10 september
With the stock market at all-time highs and seemingly endless “free liquidity” being provided by the Fed, the last thing most people can envision right now is a major recession—particularly one that will be the worst since the Great Depression of the 1930s!
But the facts we will detail in this article show that this is entirely possible. This is an extraordinary statement, but we are living in extraordinary times!
Here are the four key reasons to believe the next recession could be worse than the Great Recession of 2008–09—which would make it the worst since the 1930s.
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The Fed Is Fatally Corrupt— And So Is the Rest of America’s Status Quo – Charles Hugh Smith
10 September
We know you’re all just poor corrupt officials, but bleating excuses won’t save you from the karmic payoff.
The Federal Reserve can be summed up in two famous lines from the classic film Casablanca in which the corrupt police official Renault is ordered to close Rick’s cafe.
Renault: I’m shocked! Shocked to find that gambling is going on in here.
[The croupier hands Renault a wad of cash]: Your winnings, sir.
The Fed is totally, completely, fatally corrupt. Only those being handed their ill-gotten gains defend the Fed. Everyone who is isn’t totally, completely, fatally corrupt wants America’s financial Politburo tossed on the bonfire of history.
The Fed’s response to its highest-level officials minting millions in insider trading is as transparent as Captain Renault’s shock: only when the putrid corruption filling every nook and cranny of the Fed seeps out under the door does the Fed suddenly announce it’s shocked that insider trading is going on in here.
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Up the Price Pipeline, Inflation Rages at 20% – Wolf Richter
10 september
Producer prices that are input prices for consumer-facing industries are red-hot. But further up the production chain, prices are white-hot.
We’re going to go step by step so you don’t get dizzy right away. The Producer Price Index for Final Demand – these are input prices for consumer-facing industries and are the next step up in the pipeline for consumer prices – jumped by 0.7% in August from July. This pushed the year-over-year increase of the PPI Final Demand to 8.3%, the biggest year-over-year jump in the data going back to 2010.
Prices for goods jumped by 1.0% month-over-month, including food up 2.9% (35% annualized), with meats up 8.5% (102% annualized), while energy rose 0.4%.
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Paul Krugman’s Austrian Obsession – William L. Anderson
9 september
Paul Krugman seems to have a very unhealthy obsession with Austrian economics and especially the school’s theory of the business cycle. More than two decades ago, he attacked it (wrongly calling it a “Hangover Theory” and trying to make a morality play out of it), claiming it had the credibility of the “phlogiston theory of fire.”
Not surprisingly, he got the theory wrong then but has decided to dig that hole of willful ignorance even deeper with a recent attack in the New York Times. Like most Krugman posts, it has more economic fallacies than one can debunk in a short article, so I will stay with one point: Krugman’s belief that inflation is a cure-all to recessions and that anyone who opposes it does so out of ignorance at best and malevolence at worst.
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Bank of Japan Ends its Massive QE that Started when Abenomics Became Economic Religion of Japan – Wolf Richter
7 september
One of the largest central banks ends QE. End of an era for Japan: Large-scale money printing was one of the three official legs of Abenomics.
In terms of the absolute mountain of assets the Bank of Japan purchased over the years, it is one of the top three QE monsters, along with the Fed and the ECB. In relationship to GDP, the BoJ’s total assets are #2, behind the tiny Swiss National Bank, which runs the unique racket of using the overhyped strength of the swiss franc to print large amounts of it and buy securities denominated in foreign currencies, including large amounts of US stocks; but it’s not buying securities denominated in Swiss francs.
Total assets on the BoJ’s balance sheet generally decline every third month as large amounts of long-term bonds mature and are redeemed, which is when the BoJ gets its money back, and the bonds come off the balance sheet. For this reason, we look at the three-month moving average of the increases in total assets.
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Equity premium predictability over the business cycle – Emanuel Moench, Tobias Stein
12 September
The US equity market follows a V-shaped pattern around recessions, with sharply negative returns heading into recessions and a strong recovery as the recession unfolds. In addition, recessions are usually preceded by an inverted yield curve. This column shows that the term spread is a robust predictor of recessions, and that model-implied recession probability forecasts do a good job of predicting the equity premium out-of-sample. An investment strategy based on the recession probability model could be used to time the equity market and lead to higher and less volatile profits over time.
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***The Banality of (Financial) Evil – Chalres Hugh Smith
11 September
The financialized American economy and State are now totally dependent on a steady flow of lies and propaganda for their very survival. Were the truth told, the status quo would collapse in a putrid heap.
Go ahead and be evil, because everyone else is evil, too, because being evil serves everyone’s interests far better than maintaining integrity, for integrity will cost you more than you can afford.
In other words, lying, fraud, embezzlement, misrepresentation of risk, material misrepresentation of facts, half-truths, the replacement of statements of fact with propaganda and spin: these are not the work of a scattered handful of sociopaths: they represent the very essence and heart of America’s economic status quo.
Hannah Arendt coined the phrase the banality of evil to capture the essence of the Nazi regime in Germany: doing evil wasn’t abnormal, it was normal. Doing evil wasn’t an outlier of sociopaths, it was the everyday “job” of millions of people, and not just Nazi Party members.
Not naming evil is the key to normalizing evil. Evil must first and foremost be derealized (a key concept in the Survival+ critique), detached from our realization and awareness by naming it something innocuous.
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What 3.5 million French firms can tell us about the efficiency of Covid-19 support measures – Benoît Cœuré
8 September
In March 2020, the French parliament tasked an independent committee with monitoring the financial support available to companies during the Covid-19 crisis. A rich firm-level database – matching receipt of government money with balance-sheet records, tracing payroll and turnover trajectories for the first two waves of the pandemic – was the result. This column mines that database to evaluate the incentives for accepting government aid; the impact of support measures; and heterogeneity across industries, firms, and locations. The authors judge French fiscal support during the crisis a tentative success.
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How to Cheat with Cost-Benefit Analysis: Double Count the Benefits – Gary Galles
9 september
Because my economics courses focus on public policy, I often deal with benefit-cost analyses (BCA) in them. While little discussed, the central idea is simply to identify and include all the relevant benefits and costs of a decision, do our best to estimate their values, then choose the option that provides the greatest net benefits. Hardly a radical idea. It can be useful in disciplining our thinking to be more consistent. Benjamin Franklin employed a version of it.
The problem is that in disciplining our thinking and identifying the logical principles to be applied to make better decisions, BCA also teaches those determined to mislead others about public policies how to do that better, because knowing how to do it “right” also provides a template for how to be wrong in someone’s desired direction.
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Most Distorted Labor Market Ever: Charts by Sector – Wolf Richter
8 september
Job openings spiked to record 11.7 million, while 12.1 million people still claimed unemployment benefits.
Unfilled job openings have been spiking from record to record, and in July spiked to a new record. And the number of people who quit a job remained in record territory, as companies tried to fill jobs by offering higher wages and signing bonuses and ended up hiring already employed workers away from other companies.
Total unfilled job openings, not seasonally adjusted, spiked by 1.24 million to 11.7 million openings in July, up by 52% from July 2019, according to the JOLTS report by the Bureau of Labor Statistics today. Seasonally adjusted, job openings spiked by 749,000 in July to a record 10.9 million openings.
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A Legacy of Corruption in the FDA and Big Pharma – Liam Cosgrove
11 september
Our healthcare system is broken, a fact nobody would have disputed in precovid days. Regulatory capture is a reality, and the pharmaceutical industry is fraught with examples. Yet we trusted private-public partnerships to find an optimal solution to a global pandemic, assuming a crisis would bring out the best in historically corrupt institutions.
Here is a brief list of less-than-savory behavior demonstrated by our titans of healthcare:
Pfizer and Johnson & Johnson plead guilty to “misbranding with the intent to defraud or mislead” and paying “kickbacks to health care providers to induce them to prescribe [their] drugs,” resulting in fines of $2.3 billion in 2009 and $2.2 billion in 2013, respectively.
Pfizer settled another lawsuit for “manipulating studies” and “suppressing negative findings” just a few years later.
Moderna has never developed an approved drug, yet one of their board members was placed in charge of Operation Warp Speed. This certainly is unrelated to the fact that they received the most federal vaccine research and development funding and have received over $6 billion from our government since the start of the pandemic.
Gilead Sciences paid $97 million in fines, because it “illegally used a non-profit foundation as a conduit to pay the Medicare co-pays for its own drug.”
In 2005, AstraZeneca’s drug Crestor was shown to be linked to a life-threatening muscle disease while the company withheld evidence of this and two dozen other effects from the public.
In 2012, GlaxoSmithKline paid $3 billion in fines, as it “failed to include certain safety data” relating to their drug, since labeled as connected to heart failure and attacks.
Thankfully, our public health guardians are in place to protect us from the greed and deceit of the private sector, right? Wrong. Enjoy another brief list:
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***Please Don’t Pop Our Precious Bubble! – Charles Hugh Smith
8 September
It’s a peculiarity of the human psyche that it’s remarkably easy to be swept up in bubble mania and remarkably difficult to be swept up in the same way by the bubble’s inevitable collapse.
Allow me to summarize the dominant zeitgeist in America at this juncture of history: Grab yourself a big gooey hunk of happiness by turning a few thousand bucks into millions– anyone can do it as long as they visualize abundance and join the crowd minting millions.
Beneath the bravado and euphoric confidence in our God-given right to mint millions out of chump change, a secret plea lurks unspoken: please don’t pop our precious bubble! The big gooey hunk of happiness available to all depends on one special form of magic spell: If we don’t call the bubble a bubble, it won’t pop.
And so Wall Street shills spew endless “research” (heh) proclaiming that the forward price-earnings ratio of 21.1 will only slightly exceed past norms, and so on–in summary: If we don’t call the bubble a bubble, it won’t pop.
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Design of climate change policies needs to internalise political realities – Davide Furceri, Michael Ganslmeier, Jonathan D. Ostry
7 September
The call for stricter climate change policies is gaining momentum in many countries. But despite rising public awareness, there could be political obstacles to adopting the measures needed to combat climate change. This column argues that policy design and timing are critical to overcoming political costs to climate mitigation policies, as is the need to provide effective social insurance policies. An implication is that political realities may often dictate the need to sacrifice some efficiency in climate mitigation policies in order to secure political buy-in.
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America’s Economy Is Heading Down the Same Road as Italy’s – Edoardo Cicchella
6 september
In 2015, I came to the United States from Italy to study at Indiana University as part of an exchange program. I remember one day I was particularly surprised to discover that the State of Indiana had a AAA credit rating. I then wondered how it was possible that people in nearby Illinois, where the rating was notch above junk at best, kept voting for policies that plunged the country into financial ruin, kept moving to Indiana in droves, and all while having an example of a sustainable economy just right of the border.
Being Italian, I thought I might know the answer. Illinois had entered the vicious cycle of clientelism, taxes, reckless public spending and anti-job unionization push, the same cycle that had wrecked the Italian State since at least the beginning of the seventies. It is a spiral that is difficult to break out of: bottomless public spending assures votes, while negative externalities are pushed to the future and to be dealt with by the next elected public official.
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What’s worth knowing in economics? A global survey among economists – Peter Andre, Armin Falk
7 September
Research shapes policy. But what we choose to study is subjective. This column uses a global survey of almost 10,000 academic economists to find their opinions on what economic research should look like. Many economists think that economic research should become more policy-relevant, multidisciplinary, and disruptive, and should pursue more diverse research topics.
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