Economische aanraders 20-12-2020
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.
Quantitative Methods in Economics Can Describe—but Not Explain—Events – Frank Shostak
Most economists regard the use of mathematical and statistical methods as the key to understanding the complexities of economics. They are of the view that in order to be scientific, economics should follow in the footsteps of natural sciences.
By means of mathematical and statistical methods, an economist establishes relationships between various variables. For example, personal consumer outlays are related to personal disposable income and interest rates. Most economists present this relation as:
C = a*Yd – b*i,
where C is personal consumer outlays, Yd is personal disposable income, i stands for interest rate, a and b are parameters. For instance, if a is 0.5, b is 0.1, Yd is 1000, and i, the interest rate, is 2 percent, then C will be 0.5*1000 – 0.1*2 = 499.8.
Gold Vs Bitcoin & The Death Of Money – Egon von Greyerz
2021 is likely to be a year of awakening. This is when the world will start to realize that the $280 trillion global debt has no value and will never be paid back…
But even worse than that, of the $280t a staggering $200t has been created in the last 20 years.
Let’s say that it took 2,000 years to go from zero to $80t in 2000. It doesn’t really matter where we start counting since most of the $80t debt was created after Nixon closed the gold window in 1971.
Can 20 Years of Deflation Be Compressed into Two Years? We’re About to Find Out – Charles Hugh Smith
Extremes become more extreme right up until they reverse, a reversal no one believes possible here in the waning days of 2020.
The absolutely last thing anyone expects is a collapse of all the asset bubbles, i.e. a deflation of assets that reverses the full 20 years of bubble-utopia since 2000. The consensus is universal: assets will continue to loft ever higher, forever and ever, because the Fed has our back, i.e. central banks will create trillions out of thin air without any consequence other than assets lofting ever higher.
This research paper from the San Francisco Federal Reserve begs to differ. Here is an excerpt from Longer-Run Economic Consequences of Pandemics (San Francisco Federal Reserve)
“Measured by deviations in a benchmark economic statistic, the real natural rate of interest, these responses indicate that pandemics are followed by sustained periods–over multiple decades–with depressed investment opportunities, possibly due to excess capital per unit of surviving labor, and/or heightened desires to save, possibly due to an increase in precautionary saving or a rebuilding of depleted wealth. Either way, if the trends play out similarly in the wake of COVID-19 then the global economic trajectory will be very different than was expected only a few months ago.”
International shock transmission through heterogeneous firms – Julian di Giovanni, Andrei Levchenko, Isabelle Mejean
Superstar firms have recently been linked to phenomena such as top income inequality, comparative advantage in trade, and the fall in the labour share. Another important feature of superstar firms is their international trade linkages. This column studies how susceptible an economy with few large firms which account for the majority of imports and exports is to international business cycle shocks. It finds that at the micro level, such larger firms respond more strongly to foreign shocks than smaller firms. At the macro level, this heterogeneity dampens the domestic GDP response to a foreign shock.
What Would Happen If the Fed Ceased to Exist? – Charles Hugh Smith
Extremes get more extreme until risk breaks out; then the reversal will be as extreme as the bubble expansion.
What would happen if the Federal Reserve ceased to exist? We all know the answer: global markets would instantly collapse and the global financial system, now entirely dependent on Fed stimulus, intervention, manipulation, free money for financiers and endless printing of trillions of dollars out of thin air, would crash, leaving nothing but a steaming, fetid pile of corruption infested by the cockroaches scurrying around gobbling up the few crumbs left.
What would happen if the Federal Reserve ceased to exist? The Treasury would sell its bonds on the open market, where buyers and sellers would set the yield on the bonds. Private banks would take deposits and lend money at rates set by supply and demand.
We all know what would happen: yields and interest rates would explode higher in response to risk having to be priced in and every flimsy, worm-eaten enterprise that depended on zero-interest rates would collapse in a heap and every putrid, staggering zombie corporation would crumble to dust, and its phantom assets, illusions generated solely by the artificial spew of the Fed, would fall to their real value, i.e. near zero.
Bitcoin Surges Above $24K, Shrugging Off US Treasury Custody – Tyler Durden
The U.S. Treasury Department said Friday it is proposing new requirements involving convertible virtual currencies that would require banks and other intermediaries to maintain records and submit reports to verify customer identities for certain transactions. But instead of the typical lurch lower on the threat of the ‘r’-word, Bitcoin has extended its recent run to new record highs above $24k…
Individualism and the Industrial Revolution – Ludwig von Mises
[Marxism Unmasked (2006)]
Liberals stressed the importance of the individual. The 19th-century liberals already considered the development of the individual the most important thing. “Individual and individualism” was the progressive and liberal slogan. Reactionaries had already attacked this position at the beginning of the 19th century.
The rationalists and liberals of the 18th century pointed out that what was needed was good laws. Ancient customs that could not be justified by rationality should be abandoned. The only justification for a law was whether or not it was liable to promote the public social welfare. In many countries the liberals and rationalists asked for written constitutions, the codification of laws, and for new laws which would permit the development of the faculties of every individual.
The pandemic crisis response is a long-term marathon: Some key principles to drive the G20 economic policy response in 2021 – Elena Flores, Lucia Granelli
In April 2020, G20 Finance Ministers and Central Bank Governors endorsed the ‘G20 Action Plan Supporting the Global Economy Through the COVID-19 Pandemic’, setting out the key principles guiding the global response to the crisis and commitments to specific actions for driving forward international economic cooperation. The G20 agenda in 2021 – under the Italian Presidency – will be closely linked to the Action Plan. This column develops a few principles to support the G20’s work in 2021.
Bisin on MMT Rhetoric – John H. Cochrane
Alberto Bisin has written an intriguing short review of Stephanie Kelton’s The Deficit Myth. Alberto focuses on the rhetoric of MMT and the book. (My review here FYI.)
MMT’s rhetoric is surely its most salient feature. It has been phenomenally successful in terms of gaining attention, and it has eschewed all the traditional rhetoric of economics — academic articles, conference presentations, monographs full of equations, econometric estimates and tests, or even mountains of charts and graphs, PhD students fanning out to develop it.
Kelton’s book is unusual in MMT rhetoric for appearing to be one definitive source that would lay it out, following standard rhetoric. The trouble with writing a book is that sometimes people read it carefully, and are emboldened that they aren’t missing something in the usual flurry of blog posts tweets and videos. Then the world finds out the ideas in it are empty, the rhetoric artifice rather than explanatory.
As Short-Term Renters & Immigration Fizzle, and People Move Out to “Work from Somewhere Else,” London Apartment Vacancies Soar, Rents Drop – Nick Corbishley
“Unprecedented space across the West End”: REIT Shaftesbury PLC grapples with a new reality.
In this virus crisis, owning the wrong type of real estate (e.g. brick-and-mortar retail) or real estate in the wrong type of area (e.g. apartments in neighborhoods that are heavily dependent on tourism) can have dire consequences, especially when there’s a blanket ban on evictions. UK listed landlord Shaftesbury is hugely exposed to both, and its shares have dropped 47% from their peak in October 2017.
Not only does it own a vast portfolio of all the wrong kinds of property at the wrong time (retail, leisure and hospitality), many of whose tenants stopped paying rent months ago, but almost all of its real estate — including its residential properties — are in London’s West End, which is at the epicenter of the UK’s pandemic fallout.
Two proposals to resurrect the Banking Union: The Safe Portfolio Approach and SRB+ – Luis Garicano
Without completion of the Banking Union, Europe’s Economic and Monetary Union will continue to be fragile and exposed to a return of the doom loop. This column provides a politically and economically viable solution based on first, creating a model ‘Safe Portfolio’ and, through a reform of the regulatory treatment of sovereign exposures, incentivising banks to move towards it; and second, reforming the resolution framework to empower the Single Resolution Board while simultaneously setting up, within it, a European deposit insurance based on the emerging consensus around a ‘hybrid model’.
***California “Techsodus”: Tech Companies, Billionaires, Millionaires, Tech Employees Flee San Francisco & Silicon Valley – Wolf Richter
And we coined “Management by Zooming Around.” Which is what Oracle’s Larry Ellison is doing.
When on December 11, Oracle disclosed that it “is implementing a more flexible employee work location policy and has changed its Corporate Headquarters from Redwood City, California to Austin, Texas,” it was another step in the process that we will henceforth call “Techsodus.”
The exodus of tech companies, executives, billionaires, millionaires, and regular tech employees from California, and particularly from San Francisco and Silicon Valley, is a combo of fleeing California and a shift to work-from-anywhere. Texas, Florida, Colorado, and other states have been among the destinations. Texas and Florida don’t levy state income taxes, so sure.
25 Years Later: What the Euro Has Become – Philipp Bagus
Twenty-five years ago, on December 15, 1995, the fifteen heads of state and government of the then EU decided at a council meeting in Madrid to name the future common currency the “euro” and to introduce it from January 1, 1999, initially as a book currency at a fixed exchange rate. The actual introduction of cash took place in 2002. Denmark, Great Britain, and Sweden, however, retained their national currencies—and still do today.
Where globalisation was hiding, and how far it might go – James Anderson, Yoto Yotov
The gravity equation of international trade raises several empirical puzzles relating to the decreasing impact of distance, the declining trade-related costs of bilateral trade, and the estimation of trade elasticities. This column introduces a new, ‘short-run gravity’ model which simultaneously resolves all three of the above-mentioned puzzles. The model estimates a 14% decline in the distance elasticity and shows that capacity reallocation raised world manufacturing trade by 75% between 1998 and 2006. Finally, an estimated structural parameter implies that the short-tun trade elasticity is about one-fourth of its long-run counterpart.
Who Holds the $1.65 Trillion of Apartment Building Debt amid Eviction Bans and Plunging Occupancy Rates at High Rises? – Wolf Richter
You guessed it: For over half of it, taxpayers are on the hook. Time to take a look.
The mortgage for “2 Cooper Square,” a 15-story luxury apartment tower with 143 units in the NoHo neighborhood of Manhattan, is now over 30 days delinquent, according to the Commercial Observer. In 2010, when the building opened, three-bedroom apartments sported asking rents “as high as $20,000 per month,” gushed the Wall Street Journal at the time. In 2012, the developer, Atlantic Development Group, sold the long-term leasehold in the building to Wafra Capital Partners in Kuwait for $134 million. In 2019, Wafra unloaded the leasehold to David Werner Real Estate and Emerald Equity for about $85 million – a loss of nearly $50 million, or about 37%.
***Markets Aren’t about “Using” People. Markets Help People Attain Their Goals – Gary Galles
A very common rip on market arrangements is that they use people. For instance, I have come across many versions of “love people and use things rather than loving things and using people.” As Paul Heyne expressed the sense of it, “such a system seems somehow to violate our profound moral conviction that nothing is more valuable than individual persons, and that each person ought to be treated as a unique end, never as a means to some further end.”
‘Good’ local governance mitigates the negative productivity returns of credit rationing – Andrés Rodríguez-Pose, Roberto Ganau, Kristina Maslauskaite, Monica Brezzi
Does institutional quality mitigate the negative returns of credit rationing on labour productivity? Using data on a large sample of manufacturing firms in 11 European countries, this column demonstrates that this is indeed the case, especially for micro, small, and medium-sized firms. The negative effects of credit constraints on productivity are mitigated in those areas of Europe with high-quality governance. ‘Good’ regional institutions not only drive firm-level productivity but also, and in a more indirect way, reduce the negative productivity returns of credit constraints.
When Social Capital Becomes More Valuable Than Financial Capital – Charles Hugh Smith
This devaluation of financial wealth–and its transformation to a dangerous liability– will reach extremes equal to the current extremes of wealth-income inequality.
Financial capital–money–is the Ring that rules them all. But could this power fall from grace? Continuing this week’s discussion of the idea that that extremes lead to reversions, let’s consider the bedrock presumption of the global economy, which is that money is the most valuable thing in the Universe because the owner of money can buy anything, as everything is for sale. The only question is the price.
Reversion to the mean is a statistical dynamic but it is also a human social dynamic: for example, once the social / financial / political pendulum reaches Gilded Age extremes of wealth/income inequality, the pendulum swings back. The more extreme the inequality, the greater the resulting extreme at the other end of the pendulum swing.
When Money Dies, 100 Years Later – Jeff Deist
When Money Dies, Adam Fergusson’s cautionary account of hyperinflation in Weimar-era Germany, is the book Americans desperately need to read today.
Ours is a nation willfully lacking in knowledge and understanding of money; a cynic might think this lack of apprehension is by design. Money is seldom discussed in schools, popular media, or politics. And almost a century after the stark lessons of 1923 Germany, the West is convinced it can’t happen here. In our overwhelming material abundance, aided by the natural deflationary pressures of markets, we simply have lost our ability to imagine a hyperinflationary scenario. Sure, there have been currency meltdowns since the two world wars in places like Yugoslavia, Zimbabwe, Bulgaria, and Argentina. Yes, Venezuela and arguably Turkey face currency crises today.
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