Economische aanraders 27-03-2022
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.
The hidden costs of incentivising later retirement – Jonas Kolsrud, Camille Landais, Daniel Reck, Johannes Spinnewijn
Over the past two decades, many countries have reformed their public pension systems in pursuit of desirable fiscal effects, often by introducing or strengthening incentives for later retirement. However, the welfare effects of such interventions are still poorly understood. Using Swedish administrative data, this column uncovers significant redistributive costs of pension reforms that incentivise later retirement, especially when it comes to incentivising later retirement at very early and late retirement ages. Policymakers should consider not only the fiscal benefits of incentivising later retirement, but also the redistributive costs.
Will Saudi Arabia Ditch The US Dollar? – Daniel Lacalle
There are numerous articles mentioning that Saudi Arabia may use the Yuan, China’s domestic currency, for its oil exports.
Will Saudi Arabia Ditch The US Dollar?
How much does Saudi Arabia export to China? According to the OEC, the kingdom’s main exports are to China ($45.8B), India ($25.1B), Japan ($24.5B), South Korea ($19.5B), and the United States ($12.2B). Exports of crude oil reached $145 billion in total.
Saudi Arabia is the world’s largest oil exporter at $145 billion, and China the largest buyer at $204 billion, with 2019 figures.
Saudi Arabia’s public accounts are exemplary. From a 4.8% deficit, the kingdom expects a surplus in 2022 and its public debt to GDP is 30.8%, one of the lowest in the world.
Does Saudi Arabia need to use the yuan at all? No. Its foreign currency reserves including gold stood at $472.8 billion in 2020 despite the pandemic-led slump in exports and oil demand. Is it in any pressure to change currency? Even less so. Its reserves comfortably cover its external debt, giving an enviable level of stability compared to other OPEC nations that have large trade and fiscal deficits.
Ultimate No-Growth Industry: Electricity Generation in 2021 Rose to, Well, 2007 Levels, Eagerly Awaits Demand from EVs – Wolf Richter
But the mix of how power was generated changed dramatically over the years.
Electricity generation in the US overall has been a stagnant business since 2005 despite economic growth and despite population growth, and despite the arrival of EVs in ever larger (but still small) numbers.
There were variations from year to year based on how hot the summers were and how cold the winters, and how bad the recessions were – the Financial Crisis and the pandemic recession. But since 2005, the amount of electricity that was generated for end users has remained in the same narrow band, except in 2009, during the Financial Crisis when generation dropped below the range, as demand from the manufacturing and industrial sectors collapsed.
In 2021, the amount of electricity generated from all sources – natural gas, coal, nuclear, wind, solar, hydro, geothermal, biomass, and others – bounced back from the 2020 drop, to 4.16 million gigawatt hours, according to EIA data. This was where it had been in 2019 – and, well, in 2007!
The Community Economy Needs Its Own Money – Charles Hugh Smith
The solutions will come not from those profiting from inequality and scarcity but from relocalizing “money” and production to create degrowth community economies.
We think we understand “money”–we don’t. We think the current versions of “money” are the final versions–they aren’t.
Understanding “money” requires some heavy-lifting, but it’s important, so let’s dig in.
The most accurate description of “money” (in quotes because it’s not what we think it is) is Art Berman’s shorthand:
Energy is the economy.
Money is a call on energy, the capacity to do work.
Debt is a lien on future energy.
We think that creating more “money” can solve all problems. It can’t. Creating more “money” only adds another crisis to the fundamental crisis, a scarcity of affordable energy and resources.
In my new book, Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States, I identify the two problems neither nation-states nor global markets can resolve:
1) Soaring inequality caused by the concentration of capital, power and agency in the hands of the few and the resulting decapitalization and powerlessness of the many.
2) Scarcity of the essential resources that are the foundation of the globalized industrial economy.
What if Germany is cut off from Russian energy? – Rüdiger Bachmann, David Baqaee, Christian Bayer, Moritz Kuhn, Andreas Löschel, Benjamin Moll, Andreas Peichl, Karen Pittel, Moritz Schularick
Germany depends on Russia for about one-third of its total energy consumption. If it is cut off from Russian energy imports, Germany will need to compensate through alternative supply sources, fuel shifting and economic reallocation, or demand reduction. The macroeconomic fallout would depend on how much the production structure can adjust and how substitutable the imports from Russia are by imports from other suppliers. This column shows that the effects of an estimated 30% shortfall of gas supplies are likely to be substantial but manageable, with a GDP decline in the range of 0.5% to 3%.
SEC takes on climate – John H. Cochrane
From March 21 SEC press release, covering the 510 page proposed rule on climate disclosures. (The colleague who pointed me to this describes that as “a good deal shorter than many such exercises!”)
The Securities and Exchange Commission today proposed rule changes … The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.
Wow, just wow. Later,
The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions.
Why is this noteworthy? Remember, the SEC like other financial regulators is supposed to be in the business of relating financial risks. It is not supposed to be in the business of deciding and implementing climate policy. The pretense in this game has been, oh, we’re not doing climate policy, we’re just making sure that companies disclose (and, at the Fed, banks are not exposed to) risks. Financial risks. The climate might change, and the company goes out of business sorts of risks.
What does calculating (nearly impossible, including upstream and downstream) and “disclosing” greenhouse emissions themselves, including emissions from purchased energy is a different story.
Economic warfare and Mançur Olson: Insights for great power conflict – Mark Harrison
Economic warfare, including blockades of essential goods and bombings of industry, was widely used in WWII but with limited impact. This column explores Mançur Olson’s explanation, which is underpinned by the elementary economic concept of substitution. Olson argued that there are no essential goods; there are only essential uses, which can generally be supplied in many ways. This has sweeping implications for the use of economic sanctions, which can be applied to the present context of Russia’s aggression against Ukraine.
***The Stupidity Of Autarchy – Daniel Lacalle
The invasion of Ukraine, the spike in inflation and the risks of supply shortages have made some politicians dust off some of the worst economic ideas in history: Autarchy and protectionism.
Some believe that if our nation produced everything we needed we would all be better off because we would not depend on others. The idea comes from a deep lack of understanding of economics. There is no such thing as autarchy. There is no such thing as covering all the needs of a population based on the limit of a politically defined border. It makes no sense. If I told you that I want to make my city self-sufficient you would laugh about it understanding that it is impossible and that the reason why my city thrives is because of the interaction and commerce with other cities. However, when a group of politicians define a nation’s border, we are immediately led to believe that those limits contain every resource that citizens may need and that everything else is irrelevant.
The other fallacy about autarchy is that anyone can understand that limiting the economy to the confinement of a random limit of land is a very poor way to develop, grow and prosper. It is almost laughable to read from politicians in the eurozone how they want to achieve full independence and limit imports while at the same bragging about its enormous trade surplus. It is funny to see how the most autarchic politicians want to increase exports at the same time. Close our borders to evil foreign commerce that destroys our factories! Let us build more manufacturing capacity so we can export to them!
Economics and politics of measures to stop financing Russian aggression against Ukraine – Eric Chaney, Christian Gollier, Thomas Philippon, Richard Portes
The financial and economic sanctions so far imposed on Russia to force it to end its invasion of Ukraine have not yet had the desired impact. This column argues that cutting off the financing of the Russian aggression is essential and requires immediately banning imports of Russian oil and taxing imports of Russian gas, while cushioning the shock of these measures on households, especially those with low incomes.
Markets Are Peaceful but the State Is Not – Thorsten Polleit
In this article, I would like to present some fundamental economic thoughts on the cause of war, as war has chronically plagued human history, particularly the more recent history. In 1919, the economist Ludwig von Mises (1881–1973) published a book entitled Nation, State, and Economy, presenting an explanation as to why the catastrophic First World War could come about.
Mises’s answer may surprise many people today: the war occurred because of the departure from the idea of free markets, free trade, individual freedom, and equality before the law. In short, it was the abandonment of liberalism and the rise of the state as we know it today that led to World War I.
The modern state is aggressive both internally and externally, and it also has an incentive to wage wars against other states in order to assert its interests by force. State and war go hand in hand, so to speak. To explain this in more detail, I would like to put forward a few economic considerations.
It is a logical, undeniable truth that man has goals that he seeks to reach by employing means. Also, man prefers more means over fewer means and prefers an earlier satisfaction of wants to later satisfaction. As a rational being, he realizes sooner or later that the division of labor is advantageous for him, as it increases the output of his work. Division of labor means that everyone carries out the work they can do at the comparatively lowest cost.
Russian sanctions: Some questions and answers – Richard Berner, Stephen Cecchetti, Kim Schoenholtz
The sanctions on Russia in response to its invasion of Ukraine are the most powerful and costly punishments imposed on a major economy at least since the Cold War. This column poses and provisionally answers a series of questions raised by the sanction regime, covering issues such as secondary sanctions, Russia’s supposed ‘war chest’ of currency reserves, the roles of SWIFT and crypto, Russia’s options for retaliation, and the potential for systemic risk arising from the sanctions and any retaliation.
Autocracy’s Fatal Weakness – Charles Hugh Smith
This desire for compliance and consensus dooms the autocracy to failure and collapse because dissent is the essence of evolutionary churn and adaptation..
The various flavors of autocracy (theocracy, kleptocracy, dictatorship, etc.) look remarkably successful at first blush but they all share a fatal flaw. To understand the flaw we must start with the dominant dynamic of all organisms, natural selection.
Things change. Those organisms which adapt quickly and successfully survive, those that don’t perish. Things change for many reasons and over different timespans. Drought slowly but surely makes regions unlivable for all the but hardiest creatures. A meteor strike can ruin an entire species’ prospects.
I try not to get too philosophical here, but bear with me because this is an important point: selection isn’t teleological, meaning that selection isn’t working toward a goal or end-point, it is entirely contingent, solely responsive to the environment that exists today. There is no “plan” guiding what’s selected to what we imagine is “better;” what’s selected is whatever offers an advantage given the selective pressures of the moment. If water is scarce, mutations that enable the organism to get by on less water have selective advantages.
DNA, RNA, epigenetics and human cultures generate random mutations (i.e. a variety of experiments), and those that offer a beneficial response to a selective pressure are selected and eventually spread through the gene pool or populace.
The global climate accelerator and the financial accelerator: Commonalities and implications from Putin’s war – John Muellbauer, Janine Aron
A key common feature of the global climate crisis and the Global Financial Crisis (GFC) lies in destabilising feedback loops. This column identifies and compares these highly non-linear processes, with lessons for policymakers and modellers. The cascades and contagion of the financial accelerator have climate parallels. Absent decisive action, accumulating greenhouse gases, in raising global temperatures, will lead to more carbon release and even higher temperatures, ultimately rendering much of the planet uninhabitable. Russia’s war creates immediate separate crises for the financial and global climate systems. By delaying approaches to net zero, their linkages increase future financial stability risks.
***Markets and Private Property, Not Government, Protect the Environment – Vibhu Vikramaditya
Each century presents its unique set of problems for lovers of freedom, peace, and prosperity. While the great vanguards of liberty in the twentieth century dealt with the looming shadow of centralization and were engaged in a battle against socialists and statists who argued for centralization and adjudication of individual liberty for the sake of universal material opulence, free markets with the fall of the curtain on the twentieth century have definitely shown that universal material opulence is only compatible with individual economic freedom and liberty.
Despite this great victory, the looming shadow of centralization in pursuit of eradicating economic freedom and individual liberty has come back to haunt us again at the dawn of our twenty-first century. Today these calls for abandonment of individual liberty and eradication of free choices are not based on universal materialistic concerns but on some pretentious and some real humanistic concerns of the environment and the effects of its degeneration on survival of the human race.
Major future economic challenges – Olivier Blanchard, Jean Tirole
A report generated by a commission of 24 distinguished economists focuses on three structural challenges for the global economy. The column sets out some of the conclusions. While the challenges of climate change, inequality and demographic change are significant, solutions – though sometimes expensive or unpalatable – exist.
The Treasury Bond Massacre and the Spike to 5% Mortgage Rates: This is All Going Very Fast – Wolf Richter
Junk bonds are still in la-la-land though, Apocalypse but not now.
When investors demand higher yields on bonds, motivated sellers must lower the price of those bonds in order to sell them. And yields are now spiking and prices of bonds with longer maturities are plunging.
The one-year Treasury yield spiked by 38 basis points during the week, including 12 basis points on Friday, to 1.67%, the highest since October 2019.
***It Didn’t Begin with FDR: Currency Devaluation in the Roman Empire – David Serrano Ordozgoiti
The phenomenon of currency devaluation and its consequences is a process that not only occurred in modern times, but has much deeper roots, going back to antiquity.
With the collapse of the Roman Republic, Caesar’s grandnephew Gaius Octavianus, renamed Augustus, rose to power and soon implemented a far-reaching monetary reform for the Roman common market. The old republican trimetallic system of different denominations of silver, brass, and bronze became a new quadrimetallic system of denominations of gold (aureus and quinary aureus), silver (denarius and quinary), brass (sestertius and dupondius), and copper (as, semis, and quadrant). The denarius aureus, or nummus aureus, was the stable base of the trimetallic system, with a high precious metal content of 98 percent. This unit fell from a theoretical 8.175 grams of the Caesarian aureus to a theoretical 7.785 grams under Augustus.
The denarius argenteus, on the other hand, was the mainstay of the new imperial monetary system. Its precious metal content was also high, between 97 and 98 percent. This unit fell from a theoretical 4.54 grams during the Republic to a theoretical 3.892 grams under Augustus. The sestertius and the as, for their part, functioned as coins in common use and as units of account. The sestertius went from 1.13 grams of silver in the Republican period to 27.00 grams of brass in the Augustan period, while the as changed from 54.50 grams of bronze during the Republic to 11.00 grams of copper in the Augustan period.
Optimal policy for acquisitions of potential competitors under financial constraints – Chiara Fumagalli, Massimo Motta, Emanuele Tarantino
The acquisition of potential competitors is a widespread phenomenon. This may be anti-competitive, as the incumbent kills off potential future competition, or welfare-improving, such as by easing financial constraints for the target. This column provides a framework to trade-off these effects. The authors find that antitrust agencies should prohibit takeovers whose transaction price is particularly high, as the high price signals that the takeover is not indispensable to the target firm’s success. This provides support for the proposals made by antitrust agencies to revise the current laissez-faire approach to mergers in digital markets.
Governments “Sanction” Their Own Citizens Every Day. The Russia Sanctions Are Just a Natural Evolution – Jason Morgan
Russian president Vladimir Putin’s invasion of Ukraine in the last week of February 2022 was the culmination of decades of transnational statist expansion.
The North Atlantic Treaty Organization (NATO), which managers of the postwar Washington-centered imperium set up to counter Communist imperialism coordinated from Moscow, was rendered obsolete when the Soviet Union collapsed at Christmastide in 1991. But instead of rejoicing in the fall of an adversarial empire and scaling back the NATO alliance, the Washington-led transnational statists expanded it. One by one, eastern European and Baltic countries, many of them former members of the Soviet-backed Warsaw Pact bloc, joined the Western ranks.
The EU in search of a WTO-compatible Carbon Border Adjustment Mechanism – Cecilia Bellora, Lionel Fontagné
The proposed European Carbon Border Adjustment Mechanism seeks to curb carbon leakage, which undermines the EU’s ambitious goal of climate neutrality by 2050. This column explores whether the mechanism succeed in reducing carbon leakage, while at the same time restoring a level playing field for EU producers and minimising the likelihood of WTO panels or retaliation by trading partners. The authors argue that the mechanism will significantly curb European carbon leakages, but at a cost. EU member states will need at the very least to agree on how to end free allowances to be compatible with the WTO.
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