Author Archive

The real winner: economics which takes money and debt serious

November 27, 2014 Leave a comment

Tyler Cowen and Paul Krugman are musing about the direction of macro-economics: is Keynes the new Keynes or isn’t he? In reality, macro-economics wich takes debt and money serious is winning – and didn’t the real Keynes take debts and money quite serious? A non-exhaustive list of examples:

Here, Dirk Bezemer with: ‘Debt: the good, the bad and the ugly’, good debts boosting demand and production and bad debts boosting asset prices and wealth illusion.

Here, Richard Werner with a very recent article about good and bad debts good debts boosting demand and production and bad debts boosting asset prices and wealth illusion.

Here, an article by Òscar Jordà, Moritz Schularick and Alan M. Taylor which states, based on carefull historical research, “Housing finance has come to play a central role in the modern macroeconomy.” Bezemer and Werner would consider a large part of housing finance related debts to be bad and even ugly debts. Read more…

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The case for structural reforms of welfare in Southern Europe

November 27, 2014 4 comments

Portugal, Spain, Italy, Greece and Turkey all indulge in channeling cash welfare benefits to the rich. France, too. Is there a (northern-)mediterranean pattern here? Maybe, as six of the seven countries on the left of the graph are also part of a geographical cluster (while Australia clearly is a UK offshoot): geography and culture seem to matter. Might reforms consist of less child support for the rich and more for the poor?


Via @JordiVaque

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Links. Old central banking stuff. Input-output. Insiders-outsiders. Tourism is a growth industry.

November 24, 2014 Leave a comment

A) The 1992 Bundesbank ‘Geschäftsbericht 1992′ shows that the Bundesbank did not use to have any problem with buying government bonds. It even provided credit to non-general government companies.

B) In this 1981 piece (Stopping moderate inflations) Thomas Sargent is unusually clear about his opinion of central banking and Margaret Thatcher. He was wrong that disinflation could be easy.

C) Tourism in the EU is far above pre-crisis levels.

D) Robert Vienneau has an interesting input-output study about income distribution and price levels (which I still have to digest a little): ” an empirical exploration, with data from countries worldwide, of Sraffian, Marxian, and classical political economy…  Labor values predict market prices better than prices of production do. Labor values also predict market prices better than they predict prices of production. In short, a simple labor theory of value is a surprisingly accurate price theory for economies around the world”. Which is, by the way, in line with Eurozone ‘Troika’ policies. Mind, however, that contrary to another assumption of these policies low wages do not exclude large current account deficits or slow export growth.

E) Non-EU citizens twice as likely to be at risk of poverty or social exclusion as nationals in 2013. Differences are increasing. And there are large differences between countries which implies that this difference is (also) policy sensitive.

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Dear Deirdre, Distributional Issues Do Matter. Always. And everywhere.

November 23, 2014 Leave a comment

Deirdre McCloskey has written a lengthy Piketty criticism – and she totally agrees with Piketty. It’s Friedmanian in spirit: a self-concious, eloquent (even more eloquent than Friedman!) defense of the market based upon clever arguments and our experience with markets, though also more literate and less US centered than the typical Friedman piece. But it’s a somewhat weird piece. She states that she totally disagrees with Piketty. But she doesn’t. In fact she totally shares his vision: it’s all about g. She defines ‘g’ as ‘The great enrichment’. And states, just like Piketty, that g, or the high growth rate of our economy, saved us from becoming a rentier economy. And just like Piketty she does not seem to understand balance sheets. More on that below.

I agree with many points and surely with the first three of its main arguments: Read more…

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Issing and Sinn: ‘Wenn the situation changes, we alter our conclusions!’?

November 21, 2014 Leave a comment

Two leading conservative German economists, Hans-Werner Sinn and Otmar Issing, once agreed with Mario Draghi: Eurozone inflation should not become too low. Do they still agree?

Today, the ECB published a Mario Draghi speech on is website. From the summary:

He added the ECB would continue to meet its responsibility: “We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us. If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases,” Mr Draghi said.

This is totally in line with a 2003 Otmar Issing speech. In this speech this former ECB banker (1998-2006) states that Eurozone inflation should not become too low, among other reasons to prevent outright deflation in any of the member countries. And in 2000 another leading conservative German economist, Hans-Werner Sinn, stated (with Michael Reutter) in a 100% Krugman proof paper that inflation should not become too low to prevent interest policies from becoming ineffective as well as to enable individual countries to become more competitive (i.e. obtain a lower relative price level compared with other countries) without outright deflation. Again, prevention of deflation in individual member countries is stressed. In those days, Germany was on the brink of deflation and Sinn argued for higher inflation (4%?) in the periphery. Today, Spain and Italy and Greece are beyond the brink of inflation but I do not hear Sinn or Issing arguing for 4% inflation in Germany (they do want some countries to leave the Eurozone). Read more…

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Further evidence on the crappyfication of the UK labour market (graph)

November 20, 2014 3 comments

The UK is supposed to have a flexible labour market. Flexible labour markets are supposed to end rigid ‘dual’ structures of labour markets by improving the position of marginal workers and the unemployed as workers with jobs can be fired more easily. Does this work? Hmmm… (source: the new ONS earnings report).

Figure 2: Annual percentage change in median full-time gross weekly earnings for all employees and those in continuous employment, UK, April 2005 to 2014




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Total hours and hours per worker in Germany (2 graphs)

November 18, 2014 Leave a comment

The unemployment rate in Germany is, though surley not low, one of the lowest of the European Union – and declining.  Also, at this moment employment as well as hours worked per employed person are increasing. This combination is pretty special for Germany. Between 1991 and 2005 the total number of hours worked declined with almost 10% (graph 1) which did not lead to even higher unemployment because the number of hours worked per person declined with about the same amount (graph 2). After 2005 the number of hours first increased in the boom period 2006-2008 but stagnated afterwards which, as the number of hours per worker kept declining, led to an increase of unemployment. At this moment, however, employment as well as the number of hours is increasing, despite a stagnating economy. The continuous decline of the number of hours indicates that, if need be, at least part of the problems of the rapidly ageing German society can be solved by increasing the number of hours per person instead of only increasing the ‘Rentenalter’ (I’m not against such increases – but I’m getting a bit fed up with the ‘ageing society’ panic). And, as I already indicated, unemployment can still go down a few notches, too.   Read more…

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Number of unemployed per vacancy, UK (WOW edition) (graph)

November 17, 2014 2 comments

For my view on the British labour market look here (nice long-term productivity graph), here (where I predict that the decline of productivity will end quite soon, I totally stick to this prediction), here (some historical comparative data on unemployment which show how terrible the Eurozone is doing while the UK experience is much more in line with post WW II developments and the post WW II implicit social contract.Yes, that was betrayed in the UK, too, but that does not compare to what happened in the Eurozone with regard to Spain, Italy, Ireland, Portugal and Greece Update: Krugman hits the nail on the head today, deconstructing some remarks of the increasingly extreme Weidmann, boss of the BuBa, who wants to inflict even more pain on these countries. 45% unemployment?) and here (where I indicate that UK broad unemployment is not doing as well as normal unemployment, to say the least). Mind also that government expenditure increased quite a bit, in 2014. Despite all caveats, the British labour market keeps beating my expectations. The very good thing about this is that this gives people the chance to exit crappy jobs and ´self-underemployment´. One large risk: the continued Eurozone crisis might lead to lower British exports, causing a rapidly increasing current account deficit forcing the UK into austerity and the further betrayal of the post WW II social contract.  Read more…

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Links. Monetary policy in India, inflation metrics and the importance of a steady job

November 16, 2014 Leave a comment

1) In India, the government and, well, another part of the government (the central bank) are bickering about who is allowed to set an inflation target (should a rather narrow variable like consumer price inflation be targeted anyway? In India, this will mainly be about very volatile food prices!):

Finance Minister Arun Jaitley has given the go-ahead for a major overhaul of the current monetary policy framework wherein the Centre will specify ‘inflation targets’ for the Reserve Bank of India (RBI) to achieve. Under the proposed new regime, the RBI will set inflation as its top priority in its policy statements. The decision departs from the recommendation of an expert committee of the RBI, appointed to examine monetary policy. Headed by Reserve Bank Deputy Governor Urjit R. Patel, the committee had recommended that the monetary policy decision-making should be vested with a monetary policy committee, chaired by the RBI Governor. Other recommendations were that the apex bank adopt the new Consumer Price Index (CPI) as the measure of the nominal anchor for monetary policy. And that the RBI set the target CPI inflation level at 4 per cent (+/- 2 per cent) to be achieved through its monetary policy tools. A senior Ministry official told The Hindu that the Modi government decided that the RBI “cannot set for itself an inflation target level of 4 per cent for all times to come…the Centre will set this target.” Another Ministry source said: “It is best that inflation targets are set by the governments elected by the people and not a bunch of bureaucrats and economists sitting in the Reserve Bank.”

Read more…

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‘Always november, always raining’

November 16, 2014 4 comments

from J.C. Bloem (Dutch poet, 1887-1966). Translation: John Irons


It’s raining and it is November:
Autumn lays siege now to the heart
That sadly, though more wont than ever,
Endures its secret pains apart.

And in the room, where resignation
Sees daily life pass as it may,
From streets that speak of desolation
A bleak light falls at close of day.

The years pass by but never alter,
The difference will soon be gone
Between dim memories that falter
And what is lived and is to come.

Lost are the ways I knew of gaining
Release from time in earlier days;
Always November, always raining,
Always this empty heart, always. Read more…

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East Germany – not an economic succes story (2 graphs)

November 9, 2014 3 comments

Update: @Twundit, who was there in 1989, is a kind of ‘life-twittering’ the pictures he made in Berlin.

Twenty five years ago the Berlin Wall came down. Which was and is a good thing: East Germany was a stagnating bureaucratic dictatorship. After ‘Die Wende’, West-Germany kind of adopted East-Germany and the West-Germans paid trainloads of money to enable a ‘one system’ reunification. I read somewhere that the costs must have been around 2 trillion or between 30.000 and 40.000 Euro per West-German. That’s a lot. In an economic sense, however, reunification was less than a total success. Unemployment (unknown in East-Germany, at least in its open variant, hidden unemployment may have been considerable) not only became sky-high (15% in 1994, i.e. four years after reunification) but even increased to an unheard of maximum of 18,7% in 2005 (graph 1).  Read more…

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A money is as sounds as its debtors – Detroit edition.

November 9, 2014 1 comment

Via Detroit news (ht: @AMvanRijsbergen) And yes – I do know that this might, indirectly, via a global banking/hedge fund/investment/securitization channel, affect my Dutch pension rights in a negative way. In the short run. So?

In a bankruptcy case about numbers — $18 billion in debt, 32,000 pensioners, 35,000 broken streetlights — a judge needed 75 seconds Friday to approve a plan to undo decades of financial decline.

U.S. Bankruptcy Judge Steven Rhodes went on to deliver a nearly two-hour speech sprinkled with sympathy for residents of the insolvent city and praise for a plan to shed $7 billion in debt, shield the city’s art collection and minimize cuts to retiree pensions.

Rhodes read from a 50-page script that laid out the legal reasons why Detroit’s bankruptcy plan was feasible, fair and in the best interest of creditors, and spoke directly to residents angry about losing money and elected representation. Read more…

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Links. Ricardo is right. Sinn used to be right. Trichet was wrong.

November 7, 2014 2 comments

1) Kudo’s for the ECB: the bank published the infamous letter which supposedly bullied Ireland into submission to the Troika. And bullying it was. My takes:
(A) an unelected official like Trichet should never use this kind of bullying tone (see especially the letter of October 15) whenever he or she writes to the head of a democratic state. This alone should have been enough to return the letters – whatever the consequences. Trichet was acting far outside his mandate.
(B) the bullying, triumphant tone should have warned the Irish of a hidden agenda and a certain amount of bluff
(C) the ‘Troika’ (cc’s of the Trichet letters were sent to Olli Rehn, EU commissioner for economic and monetary affairs and Joaquin Almunia, EU commissioner for competition…) was, in hindsight, more than a little wrong about the economics. And at the time they could and should have known better

2) Via Marginal Revolution: one more reason why neoliberal policies, based upon hyperindividualism, are a total disaster for family life. Read more…

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Graph of the day. Austerity (not!) kept the UK together

November 4, 2014 3 comments

In the first quarter of 2014 the UK government deficit was 0,5% of GDP larger than in the fist quarter of 2013. Somewhat trivial, but it’s hard to call this ‘austerity’. In the second quarter, however, the deficit was a non-trivial 1,5% of GDP larger than one year earlier, despite a 4 to 5% growth rate of nominal GDP: austerity (not!). This sure does explain part of the economic upswing of the UK. This was, I guess, connected to the ardent wish to keep Scotland in the UK – can you imagine any British government which would not have pushed the expansionary pedal to the metal to keep the country together?




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Links, this time is different edition

November 3, 2014 Leave a comment

1) Horrifying Portuguese demographics

2) A Shari’a economic festival, in Indonesia and hosted by the Indonesian central bank

3) Shari’a government bonds look a lot like sixteenth century European pre-reformation land backed private bonds (when Greece had issued such bonds bondholders would, after the default, have owned quite some Greek property).

4) German retail sales are increasing and Germany is investing in its future

5) This is so different… Germany is the only 2008 Euro member where 2013 GDP per capita is higher than before the crisis (but remember: it took till 1953 until Dutch GDP per capita surpassed the 1929 level)


6) This year, Halloween costumes (which are increasingly popular in Europe) were scarier than ever

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Should central banks target ‘Minsky price levels’?

November 1, 2014 5 comments

Most inflation targeting central banks target consumer prices. I have no idea why, I can’t find anywhere anything which explains why they do not target a broader set of prices. And just targeting consumer prices might lead central banks astray: when the ECB twice increased the interest rate in 2011 consumer prices where showing an increase slightly above the ECB target – but the price level changes of government consumption (primary education etcetera) and investment in fixed assets were at a historical low! Small wonder that the ECB had to lower interest rates later that year.


But there is more to this. Read more…

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The Swedish central bank: honest about the origin of its target

October 31, 2014 Leave a comment

Almost all inflation targeting central banks target the consumer price index – remarkable, as consumer spending is only about 50-60% of total spending. And western central banks generally have a 2% inflation target while the central banks of countries like Indonesia and India have targets of 4-5%. Are these policies based upon carefull deliberation, deep thinking and elaborate economic models? The Central Bank of Sweden (an early inflation targeter and an example for many other banks) is surprisingly honest: it was decided on the fly. They had to do something, the consumer price index was available and inflation was about 2% at the time. Also, the Zeitgeist made them forget about more realistic useful policies aimed at a much broader concept of financial stability, policies which at this moment are being re-discovered (see also this slack wire blogpost): Read more…

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Stress testing households and companies

October 30, 2014 Leave a comment

Last sunday, the ECB published the results of its stress test. Via Janis Varoufakis, the view of Klaus Kastner, a former banker: bankers did take it seriously but it’s not stringent enough. But too much has already been written about banks. Fortunately, central banks do not just publish data on banks but also on households and companies. What kind of financial stress do these data show?

1) The exemplary Irish financial statistics summary chart pack shows that the amount of non-performing mortgages is, though slowly declining, still very high.

2) Italian data show non performing loans, especially of non-financial companies, which despite an already high level are still rapidly increasing. Bad household loans are also increasing, though at a lower rate (look here, p. 30).

3) Spanish data (look here, especially p. 26-28) show a very considerable drop in credit advanced to non-financial companies while there seems to be quite a bit of debt restructuring. Despite this, the amount of non-performing loans is still increasing for all sectors of the economy (data: end of 2013) and the rate of growth of non-performing loans has been 20 to 40% for years in a stretch. interestingly, loans to Portuguese companies and households are much more ‘doubtful’ than loans to South-American countries.

Summary: financial stress for households and non-financial companies in Ireland is still high, in Italy and Spain it’s still increasing.

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Housing market fundamentals

October 30, 2014 2 comments

The Great Financial Crisis taught most of us that private credit matters. Nowadays, for instance Tyler Cowen uses Steve Keen kind of explanations in stead of general equilibrium ideas: there is no great Pareto optimal intertemporal general equilibrium. The crisis also  taught most of us a (to quote Paul Krugman) ‘dirty little secret‘: monetary policy works via the housing market (hmmm… where do these bubbles come from?). Which makes sense: houses are our most important asset. And mortgages are our most important kind of credit.

Anthony B. Sanders has a nice graph which binds private credit and the housing market in the US of A together, using so called ‘deep’ parameters like the employment to population rate, home ownership rates, the rapidly rising share of 20-34 year olds living with their parents (not in this graph but already at 25% in the US of A) and comparable variables. Note that he does not need house prices or volumes of credit to show the housing bubble, which has origins dating back to 1995-1999. Fred Foldvary, who used to be a regular commentor on this blog and who repeatedly emphasized the ‘Georgist’ 18 year USA credit/housing cycle, would not be surprised. In a very real sense, QE served to mitigate the consequences of the debt build up followed by house price decreases caused by the housing cycle. Instead of QE the US of A government could, as  Rogoff argues, have written down more debt but Larry Summers does not agree (about debt in the Euro Area later today some links).


Aside: note the tight ‘Phillips curve’ co-movement between wage increases and the employment rate which seems to be stronger as well as more stable than the ‘unemployment-wage increase’ Phillips curces.

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Links. Debt. And shrimps. And Mario Draghi.

October 28, 2014 Leave a comment

1) Carmen Reinhart and Christoph Trebesch argue that, looking at the record (which they established), redeeming government debt overhangs generally (no: often) increases prosperity.  Learn their Box 1 by heart! It’s another addition to our rapidly increasing knowledge about the history of ‘really existing capitalism’ (for the young ones: the phrase ‘really existing socialism‘ was used to describe communist systems and served to drive down the difference between rosy communist ideals and the often bland and harsh reality – the rosy ideal in this case being ‘general equilibrium’).

2) On Voxeu, S. M. Ali Abbas, Laura Blattner, Mark De Broeck, Asmaa El-Ganainy andMalin Hu show a decomposition of 100 years of government debt in 13 advanced economies. Who owned the debt, what kinds of debts were issued? Less and less of the debt is held by commercial banks and more and more by institutional investors (pension funds and the like) which leads to internationalization of the debt (though governments owe less debt denominated in foreign currencies – which in the Eurozone however does not matter as the Euro can, in a sense, be considered to be a foreign currency). The amount of debt on the balance sheets of central banks is nowaday way lower (as a % of total debt) than in the 1950-1980 period. Part of these debts were (and are) currency, the authors do not show the amount of this kind of ‘debt’.  Read more…

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