Economische aanraders 24-04-2022

Economische aanraders

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.

IMF studies prove its board recommendations are wrong – Daniel Lacalle
24 april

The latest International Monetary Fund (IMF) global economic outlook has just been published and, like all of them, it has many interesting aspects. It acknowledges the economic slowdown in many economies and has dramatically increased the Fund’s inflation estimates. Global growth is now projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. Estimates for 2022 of inflation projections have risen to 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected last January.
The IMF highlights the reality of poor growth and massive inflation. And why such poor growth and high inflation? Due, in no small part, to the previous recommendations of the IMF to spend without control and monetize debt with central bank money supply growth.
Realizing that the previous estimates were all too optimistic and that the third consecutive slash of growth estimates and hike of inflation projections spell trouble for the global economy, the IMF, as always, has made a series of recommendations that will not surprise anyone. Raise taxes, without making a single mention of excess spending or unproductive subsidies.
The IMF recommended governments to spend without control, harming potential growth in the process, and now that debt has ballooned, wants the same governments to raise taxes to mitigate the disaster created by their own recommendations. Either way, taxpayers and the productive sectors suffer.
Is There a Case for the Pre-1914 Gold Standard? Yes, If You Believe Inflation Is a Bad Thing – Vibhu Vikramaditya
16 april

The Russian central bank recently announced that it will stop buying gold at a fixed rate and will instead buy it at the negotiated rate from banks. Following the numerous sanctions imposed on Russia, the ruble had fallen tremendously against the US dollar, to get out of such a situation it had announced that it would buy gold at a fixed price of five thousand rubles a gram until June 30. Since that announcement, the ruble has strengthened sharply against the dollar for over one month. Five thousand rubles was worth around $52 on March 25 and around $63 on Thursday.
The mechanism which led to the increase was to allow the markets to play themselves out, in order to combat sanctions, they asked the nations to transact in their currency which, due to the extensive and growing array of sanctions by the western front, was becoming devalued by each day. It was here, by demanding payment in rubles, are attempting to increase demand for their currency which led to its increase where being pegged to hard currency allowed the confidence of the markets to increase so ruble wasn’t dumped extensively
***A Couple of Thoughts on Big Numbers – Charles Hugh Smith
18 April

Let’s ask “cui bono” of the $33 trillion in added debt and the $9 trillion added to GDP: to whose benefit?
I’ve been thinking about how hard it is to get our heads around big numbers. Technical analyst Sven Henrich (@NorthmanTrader) recently provided one method to grasp the immense wealth of Elon Musk: How to become as wealthy as Elon Musk? Easy. Get paid $1 Million every single day. For 750 years in a row and you’re there.
How can we get a handle on the $33 trillion we’ve added in total debt since 2010? We can start by noting that’s a 60% increase in debt in about a decade, while the population of the U.S. rose by 7%.
Are we 60% better off than we were 12 years ago? How do we measure “better off”? GDP went up by 60% as well, but are we 60% more efficient or 60% more productive? Has the purchasing power of our wages gone up 60%? Can we buy 60% more with a day’s earnings?
I think it’s fair to say “no” to all these questions. We’ve added $33 trillion in debt to more or less tread water.
Does it illuminate the $33 trillion to say that’s $100,000 of debt for every one of the 330 million Americans? Are we each $100,000 better off for borrowing $33 trillion? Well, a few folks have benefitted. The top 400 wealthiest folks have seen their wealth skyrocket by trillions of dollars, from roughly 8% of GDP in 2010–way up from a paltry 2.5% in 1985–to about 18% of GDP, which is now $24 trillion. That works out to $4.3 trillion.
Are Equal Pay Arguments Based upon the Labor Theory of Value? – Connor Mortell
19 april

Following the 2019 Women’s World Cup, the issue of women’s pay moved even more to the front pages as Women’s soccer star Megan Rapinoe spoke out:
Men are so often paid and compensated on the potential they show, not necessarily what they’ve actually done—which normally I would say, we outperform what our contract was.
It has been demonstrated that a man who simply wins an individual qualification game in the World Cup has higher potential earnings than any woman received for winning the entire World Cup. This argument has raged on for decades, but this outcome of Women’s World Cup champions being paid less than men who merely qualify has heated the debate significantly more within the past few years.
This led to tennis star Stefanos Tsitsipas making the claim that because men and women win the same prize money in Grand Slams but play a different number of sets, women, who currently play three-game sets, should play five-game sets as the men do. He went on to explain that the five-game sets that men play simply take a different psychology and a different level of endurance in comparison to the three-game sets that women play.
Prima facie, to the layperson in economics this is a perfectly logical retort to the outcomes-based arguments of the other side. However, this in no way accounts for any disparity in pay. While the counterfactual cannot be proven, it is very likely that if Tsitsipas had only been playing best-of-three sets instead of best-of-fifive, he would have still been compensated more than his female counterparts.
Regulatory capture: trucking edition – John H. Cochrane
16 april

Dominic Pino has a lovely National Review article on Mexican trucks. Watch the sausage in the making. Excerpts with commentary
Congress banned Mexican truckers from entering the U.S. in 1982. NAFTA, which came into effect in 1994, committed the U.S. to removing that restriction by 2000.
1994 was 28 years ago.
The U.S. left the restriction in place anyway, and was found to be in violation of the agreement in 2001… The Bush administration said it would remove the restriction.
But organized labor and environmental groups…sued to keep the restriction in place. The environmentalists claimed that Mexican trucks did not meet American safety and environmental regulations. The Teamsters and other unions had an obvious motive: keeping out the competition….
In 2004.. the Supreme Court ruled against the environmentalists and unions and said that the Bush administration could remove the restriction and bring the U.S. in line with its obligations under NAFTA. Clarence Thomas wrote for the unanimous court.
The U.S. continued to drag its feet on approving Mexican carriers…The Bush administration created a pilot program in 2007… The program included safety examinations for every truck and required the Mexican drivers to read and speak English. Congress defunded the pilot program in 2009….
The Obama administration started a new pilot program in 2011.
Liberalizing trucking is bipartisan.
This program addressed Congress’s purported concerns about safety and regulatory compliance by requiring a more comprehensive inspection of Mexican trucks and requiring GPS and electronic recording devices on every truck to enforce hours-of-service limits and location rules.
Strength in unity: The economic cost of trade restrictions on Russia – François Langot, Franck Malherbet, Riccardo Norbiato, Fabien Tripier
22 April

Following the invasion of Ukraine, the EU and the international community imposed financial sanctions and trade restrictions on Russia. This column analyses the costs for Russia and the EU of further trade restrictions with varying intensity. It shows that an embargo only by the EU would cost Russia three times as much as it would cost the EU. However, if an embargo were imposed by the EU and other countries ‘unfriendly’ to Russia, the relative cost would be 13 times higher for Russia. The adage that there is strength in unity has never been more relevant.
Keynesians and Market Monetarists Didn’t See Inflation Coming – Robert P. Murphy
18 april

The government’s latest report puts the twelve-month official consumer price inflation rate at 8.5 percent, the highest since December 1981:
As economists debate the causes of, and cure for, this price inflation, it’s worth recounting which schools of thought saw it coming. Although individuals can be nuanced, generally speaking the Austrians have been warning that the Fed’s reckless policies threaten the dollar. In contrast, as I will document in this article, two of the leaders of the Keynesian and market monetarist schools didn’t see this coming at all.
Tightening Comes Even to Ridiculous ECB Sooner, Faster as Seven EU Countries Hit by 10%-16% Inflation, Four by over 9% – Wolf Richter
22 april

The ECB created the greatest corporate bond bubble ever. Now junk bonds get crushed, yields already doubled, set to double again, and again, cleansing out the zombies.
The end of QE “is very likely to happen in the course of the third quarter with a high probability that it will be early in the quarter if numbers continue to be the way we have seen them,” President Christine Lagarde told CNBC in an interview today.
“But we have to be data dependent and we will be sequential,” she said.
This moves the end of QE to the early part of the third quarter, so July, and maybe August. In the ECB policy statement last week, the ECB only said that QE “should be concluded in the third quarter,” and that had moved the end of QE to September.
With “data dependent” she means the ECB will watch with stunned open mouth how inflation is now raging further and deeper and more insidiously into the economy, tearing up the ECB’s philosophy that NIRP and QE don’t destroy the monetary system.
And with “data dependent” she also means that the tightening schedule will keep getting sped up – as they have been doing it all year – because the inflation data keeps getting worse.
What stock price reactions to the Russia-Ukraine war tell us about the energy transition – Ming Deng, Markus Leippold, Alexander Wagner, Qian Wang
21 April

Is the geopolitical crisis due to the Russian invasion of Ukraine likely to accelerate or retard the transition to a low-carbon economy? This column argues that stock prices reactions offer a preview of the future economic impact of the Russia-Ukraine war. These reactions suggest that the speed of transition to a low-carbon economy appears to be diverging between the US and Europe. These results obtain while controlling for ESG measures, inflation exposure, and international exposure of firms.
If We Ride the Cantillon Wave, We Should Remember That We’ll Crash with It Too – Jim Fedako
19 april

My daughter sometimes surfs the bore wave that heralds the incoming tide at Turnagain Arm, Alaska. The wave, or waves, to be exact, can reach a height of ten feet, but are usually smaller. Regardless of the size, the waves draw surfers from all over, each looking for the rush of riding a crest, and hoping not to crash in the foam.
While I have yet to surf those freezing waters, which are bounded by menacing quicksand-like mudflats, I recently rode a wave that lasted almost two years. To tell the truth, I enjoyed the ride. Sure, I knew my wave was the least of the series, with a subsequent one roaring in the distance. And I knew I had no chance of reaching the safety of a sandy shore before I was left crushed, broken, and shirtless by the tidal wave to come.
However, I also recognized that even if I skipped the thrills of the first wave, I would have ended up the same. There was neither a harbor nor breakwater to calm the seas on the ominous horizon. So I enjoyed the ride. What else could I do?
Irish banker Richard Cantillon is known for the observation that the first recipients of new money benefit at the expense of later ones. This is due to the first recipients being able to use the new money to purchase goods, assets, services, etc., while prices remain relatively low—these are the winners. By the time that money circulates into subsequent hands, prices have risen, offsetting any benefit. And, finally, when that money passes into later hands, prices have exceeded the nominal value of inflated wallets—these folks are the losers.
What’s Your Plan A, B and C? – Charles Hugh Smith
20 April

Nothing unravels quite as dramatically as systems which are presumed to be rock-solid and forever.
Here’s the default Bullish case for stocks and the economy: let’s call it Plan Zero.
1. The economy and equities can grow forever (a.k.a. infinite growth on a finite planet in a waste-is-growth Landfill Economy)
2. Higher energy costs have near-zero effect on the economy and stocks.
3. The Federal Reserve will deliver a soft landing which reduces inflation back to near-zero while the economy and stocks continue lofting higher.
4. Higher food costs and global food scarcities have near-zero effect on the economy and stocks.
5. Supply chains unraveling has near-zero effect on the economy and stocks.
6. Deglobalization has near-zero effect on the economy and stocks.
7. Higher interest rates have near-zero effect on housing, the economy and stocks.
8. The continual evolution of more contagious variants of Covid-19 has near-zero effect on the economy and stocks.
9. There are no speculative bubbles in housing, stocks or other assets.
10. Even if a speculative bubble in stocks did arise (gasp!), it will never pop because a) the Fed b) sentiment is bearish so stocks can only go higher c) stock buybacks will continue expanding forever d) the yen-quatloo pair’s correlation with bat guano futures is signaling more bullish upside e) Golden Sax issued a buy recommendation, etc. etc. etc.
We hope you enjoyed your ride through FantasyLand. As you exit the ride, please watch your step returning to reality, where extremes unravel extremely energetically and magical thinking fails to actually change the real world.
Russia’s invasion of Ukraine has led to higher inflation expectations of individuals in Germany – Geghetsik Afunts, Misina Cato, Susanne Helmschrott, Tobias Schmidt
20 April

Russia’s invasion of Ukraine will likely pose new challenges to the global economic recovery by affecting energy prices and inflation rates. This column uses a quasi-experimental analysis to document the impact on inflation expectations of consumers in Germany. The authors find that both short-term and long-term inflation expectations increased as an immediate result of the invasion. This increase can partially be attributed to consumers’ fear of soaring energy prices.
It Is Time To End the Fixation with Federal Law Enforcement – José Niño
22 april

Will the mainstream Right rethink federal law enforcement?
The past six years have witnessed America enter a bizarro world state where Democrats are the prowar, prosurveillance state party, while Republicans have looked rather restrained in comparison.
For example, Dinesh D’Souza floored onlookers in 2021 by calling for the abolition of the Federal Bureau of Investigation in one of his op-eds. In an article titled “Abolish the FBI,” D’Souza argued that the federal law enforcement agency has been “corrupted from the top,” its deterioration starting in the Obama administration and continuing apace during the Trump administration. D’Souza also contrasted the FBI’s treatment of Antifa and Black Lives Matter with that of the January 6 demonstrators. The FBI vigorously hunted the latter group while treating the aforementioned leftist groups with kid gloves.
In fairness, D’Souza’s belief that the FBI has been recently politicized is an inaccurate depiction of the institution’s controversial history. The FBI’s involvement in arresting and snooping on antiwar protesters during World War I and the Vietnam War, coupled with the controversial sieges it carried out at Ruby Ridge and Waco, showcases a longstanding track record of malfeasances that conservatives have largely overlooked. Pace D’Souza and fellow conservative commentators like Sean Hannity, the FBI’s politicization is not a recent development; it’s been a feature since its very foundation.
Health, income, and the Preston curve – Leandro Prados de la Escosura
23 April

GDP per capita is a commonly used, but imperfect, proxy for human wellbeing. This column analyses the relationship between life expectancy at birth and per capita income over the past 150 years. It shows that life expectancy and per capita income growth behaved differently in terms of trends and distribution over the period. The relationship was particularly weak during the period 1914 to 1950. Separately, medical improvements and the diffusion of medical knowledge have been crucial drivers of life expectancy improvements across the world.
Peak Balance Sheet: Fed’s Assets Dip to Level of 5 Weeks Ago. End of QE, End of an Era – Wolf Richter
21 april

Markets already started to kiss that easy money goodbye.
Total assets on the Fed’s weekly balance sheet as of April 20, released this afternoon, declined to $8.955 trillion, roughly the same as on March 16 and below the levels of March 23 and April 13. Beyond the week-to-week ups and downs, caused by the peculiarities of Mortgage Backed Securities (MBS), which we’ll get to in a moment, the balance sheet has flattened out. Balance sheet growth has ended. QE has ended. That part of the marvelous show is over.
Since March 2020, when this whole money-printing orgy began, the Fed has increased its assets by $4.65 trillion, a mind-boggling amount of QE in the span of just two years.
QE was designed to repress long-term Treasury yields, mortgage rates, long-term interest rates of any kind, and to inflate asset prices. It thereby created the biggest wealth disparity ever, documented by my Wealth Disparity Monitor, based on the Fed’s own data.
Beyond macro: Firm-level effects of cutting off Russian energy – Raphaël Lafrogne-Joussier, Andrei Levchenko, Julien Martin, Isabelle Mejean
24 April

What are the potential costs of cutting Russian energy imports as a further tightening of the sanction regime? One of the many uncertainties regarding the size of these costs is related to the diffusion and amplification of the shock in production networks. This column discusses what can be learned on this topic from the analysis of firm-level data. Micro-level evidence suggests that some firms adjust, mitigating the effects of the shock. However, exposure to these shocks is heterogenous across firms. This has distributional consequences, with less exposed firms gaining market shares over more exposed ones.
Staring Into the Abyss – Charles Hugh Smith
22 April

So sorry, but “you’ll own nothing and be miserable–oops, we mean happy, yes, deliriously happy” doesn’t count as a solution.
The global economy is perched on the edge of an abyss, and averting our gaze doesn’t actually lessen the risk, it increases it because problems which aren’t faced directly and addressed directly fester and rot the system from within.
This is why we’re collectively staring into the abyss: all the big problems have been dismissed, ignored or papered over with PR-happy-talk “solutions” that only make the problem worse. There are three basic techniques that our “leadership” (public and private) have used to avoid dealing directly with our pressing problems:
1. Appear to address the problems by doing more of what’s failed spectacularly.
2. Propose magical-thinking happy-happy technological “solutions” that are appealing but impractical.
3. Keep the status quo glued together to maximize quick-buck gains for the elite while guaranteeing long-term catastrophe for the entire society / economy.
Doing more of what’s failed spectacularly is one of the phrases you’ve seen here over the years. This generates an illusion of control because the tried-and-true Band-Aid makes it look like the problem is being addressed. Since doing more of what’s failed spectacularly doesn’t break the system immediately, everyone incorrectly assumes it’s benign or actually helping.
Learning the hard way: The effect of conflict on education – Tilman Brück, Michele Di Maio, Sami Miaari
19 April

Among the most pervasive of the economic consequences of conflict are those affecting children’s education outcomes. Focusing on the Second Intifada in the West Bank, this column documents how conflict events reduce Palestinian high-school students’ probability of passing their final exam, the total test score at the exam, and thus the probability of being admitted to university. Worryingly for conflict-affected counties like Ukraine, the negative effect of conflict on academic achievement may also have long-lasting consequences.
The Great Reset VII: Capitalism for the Rich and Socialism for the Poor – Michael Rectenwald
20 april

The standard leftist refrain about “advanced capitalism” is that it amounts to “socialism for the rich and capitalism for the poor.” Like most leftist notions, this idea represents almost the exact opposite of the truth. The system they refer to is anything but socialism for the rich and capitalism for the poor. Capitalists do not want socialism for themselves and capitalism for the rest. Capitalists seek profit, which can only come under a capitalist system.
Of course, the phrase “socialism for the rich and capitalism for the poor” is premised on the leftist belief that socialism is obviously beneficial for those living under it, a veritable land of milk and honey, while capitalism is a nefarious, dog-eat-dog, every-man-for-himself “anarchy,” where the dogs fight each other for the scraps and many necessarily starve. Socialism is to be sought and capitalism to be avoided, at all costs. But the truth of the matter is that capitalism is the productive system that creates wealth and rightfully distributes it, while socialism is the consumptive system that restricts the creation of wealth and wrongfully devours it.
Why is this the case? In socializing the means of production, socialism disincentivizes personal, private investment in capital formation, including capital in oneself. Under socialism, private investment in capital resources, including in oneself, is discouraged (or disallowed). Socialism thus favors the noninvestor, the nonproducer, and the nonuser of the means of production and disfavors (or disallows) the private investor, the producer, and the user of the means of production. Therefore, fewer people will undertake these roles, and capital formation will decline; less appropriation of natural resources, less development of new factors of production, and less upkeep of old factors of production will occur
***Economic spillovers from the war in Ukraine: The proximity penalty – Jonathan Federle, André Meier, Gernot Müller, Victor Sehn
18 April

The economic impact of global disasters differs vastly across space. The stock market reaction to the Russian invasion of Ukraine illustrates this clearly. This column compares the cumulative equity returns in 66 countries during a four-week window centred around 24 February 2022. The authors find a large ‘proximity penalty’ worth about 2.6 percentage points for every 1,000 kilometres a country is closer to Ukraine. Trade-related spillovers account for about two-thirds of this penalty.

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