Economische aanraders 17-01-2021
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.
This Time Is Not Different: More Debt, Less Growth – Daniel Lacalle
I remember that in 2009 three messages were constantly repeated: “In this crisis measures are different, because governments are investing in the recovery by increasing public spending,” “the funds from stimulus plans will strengthen the recovery “and “central banks help a stronger recovery by lowering rates and increasing liquidity.” Then, 2010 arrived and the Eurozone entered a deeper crisis. In many aspects, this recession is similar. Many governments are doing the same as they did in 2009. Extend and pretend. Extend structural imbalances and pretend this time will be different.
“Seasonal Adjustments” of Retail Sales Gone Awry in Weirdest Economy Ever? Americans Actually Cut Back”? – Wolf Richter
Third month in a row of declining retail sales, “seasonally adjusted.” But the curveball from ecommerce caused me to dig and doubt. 15 whiplash charts of retail sales.
Retail sales in December fell for the third month in a row, on a “seasonally adjusted” basis, down 0.7% from November, to $541 billion, and down 2.1% from the peak in September, according to the Census Bureau this morning. And even without restaurants and bars – many of which were shut down in December – retail sales fell on a seasonally adjusted basis for the third months in a row.
Economist Dennis Snower Says Economics Nears a New Paradigm – Dennis Snower
This is probably the most exciting and fruitful time ever to become an aspiring economist. Why? Because economics is reaching its Copernican Moment – the moment when it is finally becoming clear that the current ways of thinking about economic behavior are inadequate and a new way of thinking enables us to make much better sense of our world. It is a moment fraught with danger, because those in power still adhere to the traditional conventional wisdom and heresy is suppressed.
Inflation Breeds Even More Inflation – Thorsten Polleit
I. Warning against Fiduciary Media
Early in the 20th century, Ludwig von Mises warned against the consequences of granting the government control over the money supply. Such a regime inevitably creates money through bank credit that is not backed by real savings—a type of money that Mises termed “fiduciary media.”
In 1912, Mises wrote,
It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of the fiduciary medium must necessarily lead to its breakdown.
Mises knew that breakdowns of economic activity were the inevitable outcome of government interference in the monetary sphere. However, public opinion has not correctly diagnosed the root cause, regularly blaming instead the free market system—rather than the government—for the malaise. In times of crisis, people call for more government intervention in all sorts of markets, thereby setting into motion a spiral of intervention which, over time, erodes the liberal economic and social order.
Low Interest Rates and Government Debt – John H Cochrane
As Figure 1 shows, real and nominal interest rates have been on a steady downward trend since 1980. The size, steadiness and durability of that trend mean that we must look for large basic economic forces. “Savings gluts,” foreign exchange reserves, quantitative easing, lower bounds, forward guidance bond market frictions and so forth may be important icing on the cake, but they are not the cake. They cannot account for such a long-lasting steady trend.
The most basic economics states that the real interest rate equals people’s rate of impatience, plus growth times a coefficient usually thought to be between one and two. The interest rate is also equal to the marginal product of capital. In equations*,
When “Free Trade” Agreements Are a Polite Form of Protectionism – Lipton Matthews
Even some libertarians are under the delusion that regional free trade agreements are motivated by a desire to reduce trade barriers. In reality, states form trade associations to increase their bargaining powers on a global scale. As such, trade agreements are merely tools to promote the agenda of elites. Although Americans may be uninterested in the parochial affairs of Caribbean states, a recent trade dispute among members of the regional trade bloc Caricom aptly demonstrates the ironic effects of agreements purporting to advance trade.
Global liquidity and dollar debts of emerging market corporates – Lorenzo Forni, Philip Turner
Dollar bond issuance by non-US companies has dominated foreign borrowing since the global crisis. In many emerging markets, higher leverage and currency mismatches have increased the risk of corporate insolvencies and created new threats to the balance sheets of local banks. This column documents the financial risks created by these recent trends and outlines the necessary implications for regulatory policy. In addition to regulation, financial fragilities have added to demands for fiscal stimulus and led some emerging market central banks to ease monetary policy by buying government bonds, creating new links with fiscal policy.
2021: If It Wasn’t For Bad Luck, We Wouldn’t Have No Luck At All – Charles Hugh Smith
If we have indeed begun a sustained “reversal of fortune”, it might be prudent to consider the possibility we’re only in the first inning of a sustained run of back luck.
In our self-deluded hubris, we reckon we’ve moved beyond the influence of fortune, a.k.a. Lady Luck: our technologies are so powerful and our monetary policies so godlike that nothing as random as luck could ever crush our limitless expansion.
Thus does hubris beg for a comeuppance: the greater the hubris, the greater the reversal of fortune, the greater the confidence in our godlike powers, the greater the collapse of our prideful faith in technology and economic policies.
Electricity Has Been in a Slump for 14 Years, But All Heck Has Broken Loose in How it’s Generated – Wolf Richter
Electricity generating capacity additions & retirements in 2021, and the long-term change in the power mix.
In 2021, developers and power plant owners plan to bring 39.7 gigawatts (GW) of new electricity generating capacity on line, and retire 9.1 GW in generating capacity, for a net increase in capacity of 30.6 GW, according to the EIA today. 70% of the capacity additions will be from wind and solar, 16% will be from natural gas, and 3% will be from a nuclear reactor. These are utility-scale power generators and exclude rooftop solar. Of the retirements, 86% will be coal and nuclear.
Electricity generation in the US has been a no-growth business since 2006, as efficiencies in electrical equipment (LED lights, appliances, air conditioning, etc.) and further offshoring of manufacturing have kept consumption roughly stable despite growth in the economy and population. But where all heck has broken loose is in how this power is being generated (data via the EIA).
Fiscal Stimulus vs. Economic Growth – Frank Shostak
For most experts a key factor that policymakers should be watching is the ratio between actual real output and potential real output. The potential output is the maximum output that the economy could attain if all resources are used efficiently. In Q3 2020, the US real GDP–to–potential US real GDP ratio stood at 0.965 against 1.01 in Q3 2019.
A strong ratio (above 1) can be of concern because according to experts it can set in motion inflationary pressures. To prevent the possible escalation of inflation, experts tend to recommend tighter monetary and fiscal policies. Their preferred policy would be to soften aggregate demand, which is considered as the key driving factor behind the ratio’s rise above 1.
However, a greater concern to most experts is if the ratio falls below 1, which is associated with an economic slump. Most commentators are of the view that with the emergence of a ratio below 1, the most effective policy to lift the ratio is by means of aggressive fiscal stimulus, i.e., the lowering of taxes and increasing government outlays—a policy of large government deficit.
‘Leaning against the wind’ and the risk of financial crises – Moritz Schularick, Lucas ter Steege, Felix Ward
The question of whether monetary policymakers can defuse rising financial stability risks by ‘leaning against the wind’ and increasing interest rates has sparked considerable disagreement among economists. This column contributes to the debate by studying the state-dependent effects of monetary policy on financial stability, based on the ‘near-universe’ of advanced economy financial cycles since the 19th century. It shows that deploying discretionary leaning against the wind policies during credit and asset price booms are more likely to trigger crises than prevent them.
***Covid-19 and the Socialist Calculation Problem – Patrick Barron
One hundred years ago Ludwig von Mises wrote the definitive exposure of the impossibility of socialism: “Economic Calculation in the Socialist Commonwealth.” In a recent Mises Wire essay—”Socialist Robert Heilbroner’s Confession in 1990: ‘Mises Was Right.'”—Gary North sums up the socialist problem succinctly (his emphasis).
But Heilbroner failed to present the central argument that Mises had offered. Mises was not talking about the technical difficulty of setting prices. He was making a far more fundamental point. He argued that no central planning bureau could know the economic value of any scarce resource. Why not? Because there is no price system under socialism that is based on the private ownership of the means of production. There is therefore no way for central planners to know which goods and services are most important for the state to produce. There is no hierarchical scale of value that is based on supply and demand—a world in which property-owning individuals place their monetary bids to buy and sell. The problem of socialism is not the technical problem of allocation facing a planning board. It is also not that planners lack sufficient technical data. Rather, the central problem is this: assessing economic value through prices. The planners do not know what anything is worth.
***The impact of social security on pension claiming and retirement – Rafael Lalive, Arvind Magesan, Stefan Staubli
Policymakers have used a variety of tools to preserve the solvency of social security systems. The life-cycle model of behaviour predicts that financial incentives will shape people’s decisions on when to claim their pensions and when to retire but this is debatable. This column examines a reform to women’s pensions in Switzerland to understand how people respond to different policy instruments. Most people do not claim their pension benefits at the age that the standard model of behaviour would predict. Instead, individuals are influenced by the full retirement age (which they consider ‘natural’) and the fear of losing benefits by claiming early.
Carl Menger and the Sesquicentennial Founding of the Austrian School – Richard M. Ebeling
There are few works in the history of economics that may be truly considered “revolutionary” and “pathbreaking,” in their starting premises, logic, and implications. But one that is in this category is Carl Menger’s Grundsätze der Volkswirtschaftsliche, his Principles of Economics in its English translation. This year marks the 150th anniversary of its publication in 1871.
Menger’s work is often classified as one of the first formulations of the theory of marginal utility, along with the works of British economist William Stanley Jevons (1835–82) and the Frenchman Leon Walras (1834–1910), whose writings also appeared in the early 1870s. But Menger’s contribution also marked the beginning of a uniquely distinct Austrian school of economics based on the theory of subjective value, of which he became viewed as the “founding father.”
Financial globalisation and inequality: Capital flows as a two-edged sword – Barry Eichengreen, Balazs Csonto, Asmaa El-Ganainy, Zsoka Koczan
Global inequality has fallen in recent decades, but within-country inequality has risen in a significant number of national economies during the same period. This column identifies the channels through which financial globalisation accentuates inequality and suggests how these could be mitigated by accompanying policies.
***Five “Interesting” Financial Tidbits – Charles Hugh Smith
Is that a red flashing light on the control panel of “the man behind the curtain”?
Among the many “interesting” (a safe word to use in perilous times) signs and portents swirling around us, here are five financial tidbits “of interest.” What do they mean? The answer is of course nothing. There are many “interesting” things with no discernible meaning. Being “interesting” is enough.
1. Just like in 2000, proponents claim “this time it’s different.” Back then, the claim was that since the Internet would be growing for decades, dot-com stocks could go to the moon and beyond.
Canada’s Mortgage Lenders Have Set Aside a Record Amount for Bad Loans – Daniel Wong
It’s odd to see it occur while almost every market reports record home sales.
Canada’s real estate markets are booming, but lenders are preparing for mortgage losses. Bank of Canada (BoC) data shows the allowance for credit losses due to mortgages reached a record high in Q3 2020. The record was reached with the biggest surge in the annual rate of growth since the Great Recession.
***The Upside of Lockdowns: More Saving – Doug French
Something good is coming out of the covid lockdowns. Economist David Rosenberg released a special report via the eponymous Rosenberg Research, concluding “the pre-COVID-19 ‘norm’ of a 7% personal savings rate will morph into a post-COVID-19 norm of 10%.”
Rosenberg makes frequent TV appearances after he was chief North American economist at Merrill Lynch in New York from 2002 to 2009, when he was consistently included in the Institutional Investor All-Star analyst rankings. From there he spent ten years as chief economist and strategist at Gluskin Sheff.
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