Economische aanraders 29-09-2019
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.
Central Bank “Stimulus” is Really a Huge Redistribution Scheme – Alasdair Macleod
When an economy turns from expansion to contraction there is an order of events. The first signs are an unexpected increase in inventories of unsold goods, both accompanied with and followed by business surveys indicating a general softening in demand. For monetarists, this is often confirmed by an inverting yield curve, which tells them that at the margin the short-term rates set by the central bank are becoming too high for business conditions.
That was the position for the US 10-year bond less the 2-year bond very briefly at the end of August, since when this measure, which is often taken to predict recessions, has turned mildly positive again. A generally negative sentiment, fueled mainly by the escalating tariff war between America and China, had earlier alerted investors to an international trade slowdown, expected to undermine the American economy in due course along with all the others. It stands to reason that backward-looking statistics have yet to reflect the global slowdown on the US economy, which is still buoyed up by consumer credit. The German economy, which is driven by production rather than consumption is perhaps a better guide and is already in recession.
Treasury’s Weak Denial Acts as Confirmation: US Weighs Crackdown on Capital Flows to Chinese Companies, Stocks & Bonds, Listed in the US or China – Wolf Richter
Stocks of Chinese companies listed in the US have turned into a fiasco.
The US Treasury Department’s denial on Saturday focused on only one item, omitted to deny the other crucial items, and made the denial even soggier by ending it with “…at this time.” With this statement, sent to Bloomberg on Saturday, the Treasury was reacting to revelations by Bloomberg on Friday:
“The administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.”
According to sources, a group led by Peter Navarro, Assistant to the President and Director of the Office of Trade and Manufacturing Policy, is pushing a multifaceted and broad crackdown on capital flows from US investors to Chinese companies.
Does Libra Threaten Monetary Sovereignty? – JP Koning
Last week, France’s Minister of the Economy Bruno Le Maire declared that “we cannot authorize the development of Libra on European soil.” Several months earlier, Maxine Waters, chairwoman of the U.S. House Financial Services Committee, asked for a “moratorium on any movement forward on Libra.”
If you didn’t know what Libra was, you might be forgiven for guessing that it is some sort of dangerous super-missile or highly volatile chemical agent. What is this dangerous device? It is a payments network. And, with it, Le Maire has said, “our monetary sovereignty is at stake.”
Synergising ventures: The impact of venture capital-backed firms on the aggregate economy – Ufuk Akcigit, Emin Dinlersoz, Jeremy Greenwood, Veronika Penciakova
Differences between the majority of mediocre firms and the exceptional, innovative ones range from the founders’ backgrounds to their paths of innovation. This column assesses the impact of venture capital funding on the growth trajectories firms take. Employment and patenting data show venture capital-backed firms are likely to achieve greater success and contribute more significantly to the aggregate economy. The absence of venture capital funding would lower aggregate growth by 28%.
Politicians Have It Backwards, China Has Decreased Its Manipulation of the Yuan. That’s Why It’s Depreciating – Daniel Fernández Méndez
Trade tensions between the US and China continue to increase. In the penultimate drama in the conflict, Donald Trump has accused China of manipulating its currency to illegitimately increase its competitiveness, and the US government has officially designated China a “currency manipulator.” Accusations that the Chinese government engages in currency manipulation are not new. They date at least to 2006, when Hank Paulson, ex-secretary of the US Treasury, began a round of negotiations with Beijing with the aim of increasing the value of the yuan and initiating an opening into the Chinese financial markets.
The purpose of this article is to elucidate to what degree the Chinese government engages in currency manipulation1.
Banking, FinTech, Big Tech: Emerging challenges for financial policymakers – Kathryn Petralia, Thomas Philippon, Tara Rice, Nicolas Véron
FinTech and Big Tech firms are both increasingly stepping on banks’ traditional turf. This column introduces the 22nd Geneva Report on the World Economy, which looks at the challenges generated by new technology-enabled entrants to the global banking industry and the public authorities that oversee it. It argues that to respond adequately to the FinTech/Big Tech challenge, authorities will need to raise their game and enter uncharted territories.
The Difference Between “Business Fluctuations” and a Recession – Murray N. Rothbard
[Adapted from Man, Economy and State with Power and Market, pp. 851–55.]
In the real world, there will be continual changes in the pattern of economic activity, changes resulting from shifts in the tastes and demands of consumers, in resources available, technological knowledge, etc. That prices and outputs fluctuate, therefore, is to be expected, and absence of fluctuation would be unusual. Particular prices and outputs will change under the impact of shifts in demand and production conditions; the general level of production will change according to individual time preferences. Prices will all tend to move in the same direction, instead of shifting in different directions for different goods, whenever there is a change in the money relation. Only a change in the supply of or demand for money will transmit its impulses throughout the entire monetary economy and impel prices in a similar direction, albeit at varying rates of speed. General price fluctuations can be understood only by analyzing the money relation.
***The ‘new’ economics of trade agreements – Gene Grossman, Phillip McCalman, Robert Staiger
While tariffs have significantly been reduced in the last decades, other barriers to trade, such as differing regulations across countries, continue to pose obstacles. This column presents a new framework to analyse how different forms of trade agreements can address these non-tariff barriers. For various economic environments, it discusses whether and how these treaties can achieve global efficiency.
How Employees & Employers Get Bled by Health Insurance – Wolf Richter
Something is seriously wrong with this system.
The annual cost of the average health insurance family plan through employers — employer and employee contributions combined – rose another 4.9% in 2019, to $20,576. This is up 255% from 20 years ago, having soared five times faster than the Consumer Price Index (+52%).
Employees paid about 29% of the premium for family coverage ($6,015 annually, red portion) and employers paid about 71% ($14,561 annually, blue portion). Over the past 20 years, the employee contribution has increased by 290%.
Financial Storm Clouds Gather – Charles Hugh Smith
The price of this “solution”–the undermining of the financial system–will eventually be paid in full.
The financial storm clouds are gathering, and no, I’m not talking about impeachment or the Fed and repo troubles–I’m talking about much more serious structural issues, issues that cannot possibly be fixed within the existing financial system.
Yes, I’m talking about the cost structure of our society: earned income has stagnated while costs have soared, and households have filled the widening gap with debt they cannot afford to service once the long-delayed recession grabs the economy by the throat.
The Idea of Alternative Currencies Is Going Mainstream – Gregory Bresiger
Mastercard, one of the big players now looking at this new money, is starting a cryptocurrency team.
“Do you have the desire to work at the cutting-edge intersection of payments and cryptocurrencies,” MasterCard asks. Those hired will “monitor crypto currency ecosystem trends” and “develop new products and solutions.”
A credit card expert called it “a smart move.”
Bill Hardekopf, CEO of LowCards.com, says Mastercard “sees there’s a lot of activity in this area. Even if it isn’t going to offer its own cryptocurrency, they know it’s important to have people who understand the subject.”
Others Already Playing the Money Game
Mastercard is part of the Libra Association, which includes Pay Pal, Visa, and other big players. Libra intends to create “a globally, digitally native, reserve-backed crypto currency built on the foundation of blockchain technology.”
Final Collapse is Inexorable – MN Gordon
This week central planners pursued their primary mission with steadfast conviction. They planned. They prodded. They prearranged tomorrow to save us from ourselves. Some also grubbed a little graft for their trouble.
Other central planners took to debasing the dollar to price fix the federal funds rate within a narrow band of tolerance. What in the world do they think they’re doing?
We know from our own everyday experience that people make choices. What’s more, these choices do not occur in isolation. There are a myriad of influences and constraints factoring into the countless choices people make as they go about their day.
One person drives their car to work. Another takes the train. While a third walks. These choices may be individual preferences. But they’re also subject to other factors – like proximity to work or the train station, the price of gas, the cost of parking, and much, much more.
Minimum wage effects across heterogeneous markets – Hiroko Okudaira, Miho Takizawa, Kenta Yamanouchi
Studies often find an aggregated near-zero employment effect when increasing the minimum wage. But the effects might vary if local employers in different regions have different market power. The column examines increases in the minimum wage in Japan and finds a more pronounced negative employment effect in local labour markets where employers had less control over wages.
The Failure of the Welfare State: The Case of Argentina and Brazil – Jean Vilbert
The idea of a “third way” in economic policy has fascinated politicians, scholars, artists, and the voters around the world. Surfing this wave, the welfare state has spread quickly in recent decades.
Some even say that Nordic countries are the definitive evidence that it is possible to deliver a prosperous and egalitarian society through state intervention, mixing free markets with high taxes in order to get high living standards and a smaller inequality gap. But is the matter really settled?
Well, much of Latin America tells another story; a sad story where the welfare state leads to a perennially weak economy (with seemingly endless cycles of recessions and stagflation) and keeps many living in poverty.
Helicopter money as a policy option – Lucrezia Reichlin, Adair Turner, Michael Woodford
With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.
***The September Airline Massacre in Europe – MC01
And these are still the good times, with growing passenger traffic.
Today, Adria Airways, three years after being privatized.
On September 24, Slovenia’s Adria Airways, which has long been dogged by insolvency worries, “temporarily” suspended all operations as it is “intensively searching” for new capital from unidentified “potential investors.” On September 20, two planes had been grounded after the airline defaulted on the lease contract.
The Slovenian government privatized the airline by selling it to German PE firm 4K Invest in 2016. Since then, the company sold all its planes and has been operating with leased planes. In February 2019, ownership changed to STBE, which had previously bought the airline’s brand name. The Slovenian government said that it would not bail out the airline as it would violate EU rules on state aid.
The Average American’s Income Is Unchanged In 30 Years… While The “1%” Have Soared – Tyler Durden
According to the latest Census Bureau figures released this month, real American incomes remained essentially flat in 2018 after three straight years of growth. Median household income was $63,179 in 2018, an uptick of 0.9% that census officials said isn’t statistically significant from the prior year based on figures adjusted for inflation.
The new figures showed that the number of full-time, year-round workers increased by 2.3 million. When looked at by race and ethnicity, median household incomes in America were essentially flat in 2018 for all groups except Asians, who saw theirs rise 4.6% from the previous year in real dollars.
The good news is that while income were flat, the poverty rate in 2018 decline modestly to 11.8%, a decrease of a half percentage point from 2017, marking the fourth consecutive annual decline in the national poverty rate. It was the first time the official poverty rate fell significantly below its level at the start of the recession in 2007.
The Ethics of Externalities – Predrag Rajsic
Some theorists claim that externalities are probably the most legitimate reason for state intervention in human interactions. The ethical case for intervention is that it can presumably increase overall economic efficiency. This article demonstrates that, even if one accepts this ethical principle, the usual choice of externality-generating actions that are believed to justify state intervention is purely arbitrary.
In fact, according to the definition of actions with external effects, any human action in a multi-individual society would qualify for regulation under the banner of improving economic efficiency (i.e., internalizing externalities). However, the nature of human existence renders this internalization impossible. Thus, we end up with a paradoxical situation where every action inevitably fails the ethical criterion we have put in front of ourselves.
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