Recently, Eurostat published data on labour participation rates in North Africa and the eastern mediterranean. In many of these countries, female labour participation rates (paid labour, that is) are low (graph 1). And they are lower than they used to be (graph 2).
Graph 1. Labour market participation rates, Israel (IL), Morocco (MA), Egypt (EG), Lebanon (LB), Tunisia (TN), Palestine (PL) and Algeria (DZ).
Real ‘micro foundations’ of macro ideas are possible. Asger Lau Andersen, Charlotte Duus and Thais Lærkholm Jensen use data from 800.000 individual Danish households to show the micro-economic underpinnings of ‘balance sheet recessions’. When house prices decline, severely indebted households spend relatively less than less indebted households – even when debt service does not change and the incomes of the indebted households increases more than the income of less indebted households. Remarkably, they do not cite the author intellectualis of the idea of balance recessions, Richard Koo.
Elstat, the Greek statistical office, is still prosecuted for producing reliable statistics
British inflation is still at a historical low.
The increase in employment in the UK is mainly caused by an increase in self-employment. This increase in self-employmnent is mainly caused by fewer people leaving ‘self-employment’.
Despite declines of employment in Estonia and Latvia in the first quarter of 2014, unemployment in the Baltic states is declining (second quarter 2014). Second quarter employment data are not yet available.
In Italy, the business ‘birth rate’ increased in 2013. Turnover has however decreased for the fifth year in a row.
On Voxeu a book about secular stagnation has been published. Can I add something to this? Yes: information on the secular development of the rate of fixed investment (5 graphs).
The book contains a lot of interesting and important ideas about labour (ageing, declining male participation rates), technological possibilities (opinions differ about the magnitude of these possibilities but everybody sees possible improvements in life styles and health) and disequilibrium economics: tenacious interruptions of the flows of money which can not be cured or are even caused by changing relative prices (i.e. lowering then interest rate) are preponderant in the book. And only Smets (from the ECB…), Jimeno and Yiangou still believe in the confidence fairy. But even they advocate a smaller financial sector. ‘Fixed capital’ does however not get enough attention. According to me, progress will be increasingly dependent on household purchases of specialized consumer durables (in combination with cultural changes in life styles) instead of upon government and company ‘fixed investments’ which means that households will have to get the means (i.e. higher incomes) to finance these ‘household investments’. This will not only enable these purchases but it will also be necessary to fill the expenditure gap left by the decrease of government and business fixed investment. Read more…
And it’s an engineered slump. A striking fact of the graph above is the sudden stalling of the European recovery around 2011, Q1. This stalling was deliberately caused by Eurozone monetary policies. One can of course point to the ECB interest rate increases of April as well as July 2011. But these increases were, in the end, limited to ‘only’ 0,5%. Much more important, however, is what happened to ‘real economy interest rates’, like those paid by governments and, as governments nowadays are the financer of last resort for banks, therewith to rates paid by households and non-financial companies (graph 2).
Graph 2. Difference between interest rates paid by Italian, Spanish and French governments and the German government Read more…
The UK labour market does well. The number of jobs increased with 2,7%, year on year. The total number of hours worked increased with 3,4% which means, as earnings per hour show (low) growth of about +0,6% and consumer price inflation is about 2%, an increase of 2% in total spending power. As a lot of the increase in jobs as well the increase in wages is in low wage occupations (the high wage financial sector is still under siege), where people have a high marginal propensity to spend additional income, the fast increase of the number of jobs together with rather low pay increases boosts consumer spending. Also, according to Eurostat, UK GDP increased with 3,1% which indicates that average (!) productivity is still declining, albeit slightly. Caveat: all these data are based upon three month averages, the not-official single month data for June show somewhat less positive developments.
The ONS (the UK statistical Office) does not only measure the level of unemployment but also flows of people in and out of employment, unemployment and inactivity. According to these data, during Read more…
According to official data, by far the larger part of fixed assets in Germany consist of land and land related investments like houses and buildings. This pattern is typical for rich countries. Note that Germany was one of the few countries to escape the international house price boom of the 1990-2008 period. Note that the data do not even include agricultural land.’Machinery and equipment’, i.e. trucks, cars, planes and machinery and the like, are of relatively minor importance, to an extent because they depriciate faster than buildings.
Printing income. When I borrow money to buy an existing house this is not counted as ‘production’ in the national accounts (though it does increase the amount of money). When I borrow money to buy a house and to pay the fee of the real estate agent the fee is counted as an increase in income and production. Large scale constructions like this one (IPO’s…) drove profit growth in the banking sector, since 1990.
Leaving the train station. In 2013, use of public means of transport in Spain declined with about 6% – for the fifth year in a row.
Isaac Asimov and the representative consumer. <strong>Foundation and earth is an interesting science fiction novel by Asimov about the representative consumer (the hive-mind of the Gaia planet), agent based modelling (‘psycho history’), a world inhabited by 1200 homo economicus individuals (who, interestingly, changed themselves into ultra-intelligent hermaphrodites who never meet in the flesh and only trade with each other via video) Read more…
from Dean Baker and Jared Bernstein
As predictable as August vacations, numerous economists and Federal Reserve watchers are arguing that the nation’s central bank must raise interest rates or risk an outbreak of spiraling inflation. Their campaign has heated up a bit in recent months, as one can cherry pick an indicator or two showing slightly faster growth in prices or wages.
But an objective analysis of the recent data, along with longer-term wage trends, reveals that the stakes of premature tightening are unacceptably high. The vast majority of the population depends on their paychecks, not their stock portfolios. If the Fed were to slam on the breaks by raising interest rates as soon as workers started to see some long-awaited real wage gains, it would be acting to prevent most of the country from seeing improvements in living standards.
To understand why continued support from the Fed is unlikely to be inflationary, consider three factors: the current state of key variables, the mechanics of inflationary pressures and the sharp rise in profits as a share of national income in recent years, along with its corollary, the fall in the compensation share. (See figure.)
World student movement could become major player in the struggle to bring pluralism and freedom of inquiry to economics
from Edward Fullbrook
An emergent worldwide grassroots movement of economics students, the International Student Initiative, has the potential of becoming a major force that could work alongside the academics’ World Economics Association (now 13,000 strong) to break the neoclassical stranglehold on economics and to bring the real world back into the classroom. Launched in May, the ISI already boasts 65 associations of economics students from 30 countries, 5 continents and representing 13 languages groups. For the most part they are based in individual universities. Together they constitute a coordinated grassroots base that has the potential of serving as the launch pad for a massive worldwide student rebellion in the coming academic year, one that would see 100s more of these associations formed, each focused on reforming the economics curriculum of their university.
The formation of these student associations can be greatly facilitated by encouragement and moral support from faculty members. If you would like to help please go to http://www.isipe.net/supportus/
Below is the ISI‘s manifesto, a partial list of the student organizations, a partial linked list of their websites, and a linked list (67) of media coverage. Here to begin with is a world map showing ISI associations to date: Read more…
Not much blogging from my side as Edward tricked me into constructing ‘Piketty series’ for the Netherlands – but this is a game changer (via left foot forward): the Bundesbank finally understands. Economic policies aimed at financial deregulation, low wages and asset price increases instead of low unemployment, high employment and high income have failed.
* Spending in the Eurozone is too low, unemployment is disastrously high, people are getting evicted from their houses while the number of empty houses increases and in quite some countries poverty is rising.
* For obvious reasons, not every country can export itself out of unemployment at the same time (a classic example of a ‘zero sum game’).
* Present policies to engineer current account surpluses are anyway not based upon any kind of serious export strategy but upon restricting domestic demand, which leads to a ‘race to the bottom’
* Households and companies are heavily indebted while low spending and high unemployment causes increasing problems with non-performing loans
* Companies are not going to invest when demand stays low, even when interest rates are low
* Quite some people do not want the government to act as a ‘spender of last resort’
Which leaves wage increases as the only way to restore demand, increase prosperity and lower unemployment (getting unemployment down to 4% in five years, with 1% productivity growth and 1% inflation and a share of wages (including mixed income) of 70% means that wages can increase with 4 to 5% a year, a little bit less when investments increase). Economies are of course quite unpredictable, but we can start with ‘forward guided’ 4% wage increases for two or three years.
Germany’s Bundesbank, Europe’s largest central bank, has backed a call for higher wages to boost the flat-lining Eurozone economy.
Jens Ulbrich, the bank’s chief economist, has joined a growing list of key players calling for widespread pay rises to fend off the crippling effects of failed austerity and low inflation and to crawl back the falling wage share in national wealth. Read more…
from Steve Keen
What are your preconceptions about the author of a book with the title The Next Economic Disaster: Why It’s Coming and How to Avoid It? Academic? Leftist? Anti-capitalist? Anti-banker certainly?
Prepare to drop them all, because the author is none of the above. Taking the last first, the majority of his career has been in banking — and as a founder and CEO.
To put it in his own words: Read more…
In economics, there is an unfortunate rift between academics and the economists who actually measure the economy. Which means that academic economists give little attention to the extremely important question how economic concepts relate to actual measurements – one reason why so much of their work is naïve (the ‘Ricardian’ household, which cuts consumption when government spending increases and the like). Fortunately, economic historians, who often have to do the measurements themselves, often bridge part of the gap. Robert Gallman has some highly relevant remarks about different ways to measure (nineteenth century USA) capital – and how these relate to the future, the past, uncertainty, savings, consumption foregone and replacement costs. This still leaves out important parts of the concept of capital like liquidity, ownership and the ‘overlapping generations’ problem – which however does not make these remarks less valuable. Read more…
The ‘Statistisches Bundesamt’ has a kind of app which helps companies to use data on historical inflation to insert ‘real price’ clauses in contracts – which can lead to a ‘price-price’ spiral. Interesting, as many economic models suppose that historical inflation is caused by expectations about future inflation (really!).
The German Handelsblatt has a very interesting article (sorry, no link) about business credit in the north (+1,4%) and the south (-5,9%) of the Euro Area. Which shows the difficulties of monetary policy in the Euro Area: one size fits none.
Eurostat published, coincidentally on July 17, data on EU energy imports from Russia. 39% of EU imports of natural gas and 34% of oil imports come from Russia. Also (including re-exports):
For seven Member States (Bulgaria, Czech Republic, Finland, Hungary, Lithuania, Poland, Slovakia) more than 75 % of their petroleum oils imports came from Russia. Twelve countries (Austria, Bulgaria, Czech Republic, Estonia, Finland, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia), imported more than 75 % of total national imports of natural gas from Russia.
Price increases caused a surge in imports from Russia from 80 million euro in 2005 to 140 billion in 2013.
Recently, Eurostat published data on European house prices. Prices are, on average, falling with 0,3%, Year on year. Which is a good thing, especially for the young ones. More good news: deflated Euro area and European Union house prices indexes are however about 12% lower than at the height of the bubble, in 2007. I’m of the opinion that young people establishing a family should not be burdened with paying high tributes to the middle aged and elderly or to banks reaping unearned rent incomes! Houses have to be and can be affordable (and available) and lower prices in combination with lower interest and, in a number of countries, a limited increase in nominal wage rates did lead to increased affordability (the idea that low interest rates necessarily have to lead to high house prices is bad economics!). Good.
However – signs of exuberance are returning. These increases are, as such, maybe not yet alarming. But whenever they are associated with rising private debt – we’re in trouble.
And part of these increases are alarming. Prices in London (which is about ten times as large as Estonia) ewcwntly increased with 20% YoY, a record. In Dublin (where prices declined during the crisis, but not to anything like a low level), prices are increasing at a double-digit rate, too. The 2013 the German rate of change seems to be about 10% (Eurostat does not have recent German data), though the most recent data seem to indicate that this rise has abated. Read more…
Dear mrs. Sekera,
thank you for your very clear and insightful blogpost on this blog about economists and their distorted concept of public goods. But I’m afraid you’re way to positive about at least mainstream macro models and ‘public goods’. Very often – these models do not have a concept of public goods.
Too often, neoclassical ‘macro’ models do not have any logical space for public goods or ‘government consumption’ (i.e. consumption by households produced or financed by the government, like education) at all. Which is daft. My country – the Netherlands - would not even exist without coastal defences. And believe me – we learned about the necessity of well maintained large-scale public coastal defences the
New Orleans hard way (Knibbe, forthcoming). But in the default DSGE (Dynamic Stochastic General Equilibrium) models, public expenditure on coastal defences is, by definition, ‘wasteful’ – as it’s government expenditure. You are attacking Samuelson – but Samuelson in fact crafted his ideas – which as you state do have basic flaws – to combat exactly this kind of thinking! But he failed. This kind of thinking is alive and kicking. And kicking hard – as the over five million unemployed in Spain can testify. Even incorporating the ideas of Samuelson into these models would be a huge step forward – these at least consider the existence of public goods and services.
The Oosterscheldekering coastal defence. Wasteful?
There are endeavours to change this. But the very fact that these articles have to state, in an explicit way, their difference with ‘standard’ neoclassical ‘macro’ by introducing the notion that public expenditure can serve a purpose shows the ‘state of the mainstream art': Read more…
from June Sekera
A year ago last May, the Real World Economics Review blog published my post, “Why Aren’t We Talking About Public Goods?” In that article I argued that we need to revive and reframe the concept of public goods. A concept of public goods is immensely important because:
- The absence of a widely-held, constructive idea of public goods in public discourse denies citizens the ability to have an informed conversation, or to make informed decisions, about things that matter mightily to the quality of their lives and their communities.
- Its absence robs public policy makers, leaders and managers of the concept that is most central to the reason for their being.
- The current economics definition of public goods feeds and supports the marketization and privatization of government, and the consequent undermining of governments’ ability to operate.
Since last May I have met with economists and other social scientists across the US and in the UK and have been in discussion with people responding to my post from several other countries. I have also been conducting further research.
In this post I summarize the results of my discussions and findings to date and offer for consideration some criteria for a possible “instrumental” definition of public goods. Ultimately, an instrumental definition of public goods must be accompanied by a concordant theory of non-market production in the public economy. Both are needed to ground an improved theory and practice of governance.
1. The Existing Definition and Its Inadequacies Read more…
The ONS has published new data on British productivity. These show that the unprecedented 5% productivity decline has to quite an extent a lasting nature as it was mainly located in finance and the oil industry, which means that potential GDP also declined with the same amount. According to the ONS,
New analysis of industry contributions to productivity movements since the economic downturn shows large negative contributions from production industries other than manufacturers and from the financial services industry.
See also my take on this from a year ago (including productivity graph). Look also here. Productivity has however started to increase again, which means that potential GDP, though lower than before 2008, is increasing again (Okun’s law) while the surprising increase of British employment is not due to special productivity lowering British labour market mechanics (the British labour market is not special, despite flexibility) but to buoyant demand in non-financial, non-oil sectors (possibly to an extent caused by lower income inequality):
UK labour productivity was little changed in the first quarter of 2014, as growth of labour inputs broadly matched the expansion of economic output. Output per hour grew by 0.2% in the first quarter in service industries, and by 0.5% in production industries
The rise in productivity was to be expected.
For quite some time Latvia was an austerity and internal devaluation poster child. Lately, however, the voices lauding ultra-unemployment and the crushing of already very low wages have silenced – as wages are rising rapidly. For a time I suspected, cynically, that this wage shock might be a cunning plan of these sly Baltics – once they joined the Euro they increased their wage level (Latvia business economy wages increased at a healthy 7% rate, 2014 Q1 (Eurostat), directly after Latvia joined the Euro), to obtain a free Bratwurst.
But this was probably not the case. According to a new NBER working paper by Cavallo, Neiman and Rigobon, market forces might be at work. Joining the Euro seems to lead to a fast convergence of price levels:
Does membership in a currency union matter for prices and for a country’s real exchange rate? The answer to this question is critical for thinking about the implications of joining (or exiting) a common currency area. This paper is the first to use high-frequency good-level data to demonstrate that the answer is yes, at least for an important subset of consumption goods. We consider the case of Latvia, which recently dropped its pegged exchange rate and joined the euro zone. We analyze the prices of thousands of differentiated goods sold by Zara, the world’s largest clothing retailer. Price dispersion between Latvia and euro zone countries collapsed swiftly following entry to the euro. The percentage of goods with nearly identical prices in Latvia and Germany increased from 6 percent to 89 percent. The median size of price differentials declined from 7 percent to zero.
The ECB published a report on the results of the Macro Prudential Research Network. It’s the scientific answer of the ECB to the crisis: what has to change in our view of the economy? Considering the subject the paper, basically a dense abstract of post 2008 ECB research on this subject, is well written, though it’s clearly not intended for people who haven’t finished economics 101 (or 202).
I have read only a few of the many reports cited in this paper. Based upon the little I’ve read and the paper itself the next things can be stated about this potential pathbreaking (it’s intended to be pathbreaking!) piece of economics:
It’s a step away from rational expectations and general equilibrium: good. It tries to model the financial sector using insights of people like Minsky and Kindleberger: good. It does not just pay attention to the flow economy but also to the stock economy (debts, assets like houses): good. It tries to model a financial sector: good. Despite the fact that the monthly monetary statistics of the ECB are totally endogenous by nature and based upon the idea that credit and money are two sides of the same coin (of course they are, as they try to measure the real world), endogenous money still seems to be a bridge too far: bad (but I, or the person who wrote the abstract, might have missed something). Not enough attention is given to the ECB reports on international trade, which again and again show that lowering wages is not the way towards buoyant exports. Lower wages do decrease imports, as domestic expenditure goes down (duh….). But they do not lead to any noticeable break in the long run pattern of export growth (Spain!). The reader should be aware that a ‘VAR’ is a multidimensional moving average. Caveat (again): I did read only a few of the research papers behind this impressing document.
The policy take away: money (and monetary credit) matters. It’s not just a ‘veil’ over the real economy. To be precise: it’s not a ‘classical’ veil. Read Minsky (1992) about this (who bases his view on Schumpeter (1933), Fischer (1934), Keynes (1936), Kindleberger (1978). The insights above are, when push comes to play not exactly fresh and pathbreaking – but a rediscovery of received wisdom. Not too little – but too late. As millions of needless unemployed in the Euro Area can testify.
Is the BIS right to warn about the long run dangers of long-term ultra accommodative monetary policies? Yes. But the BIS is wrong about the Eurozone. Interest rates policies in the Eurozone are not ultra-accommodative. They are only starting to become normally ‘accommodative’ – and not even for everyone. Also, not that long ago (the summer of 2012), ultra tight monetary policy almost led to the disorderly break up of the Euro Area. Eurozone monetary policy has not (repeat: not) led to ‘ultra accommodative’ interest rates and we’re only starting to recover from grave policy mistakes which induced tightening in the midst of the most severe post WW II recession to date.
* though banks have been paying low rates for quite some time now (and even these were increased, back in 2011…)
* it is has only been since some months that the same holds for the governments of, for instance, Spain, Italy and Greece. Rates paid by these countries were, totally unnecessary, immorally and destructively high and a main cause of the present Euro Area mess (graph 1 – as can be seen government rates were 7%-points higher in Italy than in Germany – while at that time inflation and government debt in both countries was about equal
Graph 1. Spread between italian and Spanish government rates and German rates. Courtesy: Erwan Mahé.
). Read more…