Americans, as we know, are forced to have the freedom to labor more hours than do workers in other advanced countries.
from David Ruccio
Links: tourism is a growth sector, four years of Greek wage decreases, Spanish economy did worse in 2011, 2012
Tourism is, at this moment, a growth sector in countries like Portugal, Greece, Spain, Ireland, the Baltic states and the UK. In the UK growth started (predictably) after the large depreciation of the pound in 2008/2009. Despite impressive increase, there are however no signs of ‘supply side constraints': the number of people working in tourism wanting to work more hours actually increased after 2009, according to the ONS:
- Employment in UK tourism industries increased at nearly double the rate of the rest of the UK labour market between 2009 and 2013 (5.4% increase, rising 143,000 from 2.66 million to 2.81 million)
- Most of the growth in tourism employment was part-time work between 2009 and 2013 increasing 6.8% or 72,000 from 1.06 million to 1.13 million.
- The number of workers who would like to work more hours within the food and beverage serving industry group has increased at over double the rate of the rest of the UK labour market between 2009 and 2013 (49.0% increase, rising 100,000 from 1.14 million to 1.24 million)
- Self-employment has increased at double the rate of the rest of the UK labour market within the UK cultural, sports, recreation and conference activities industry group between 2009 and 2013 (21.9% increase, rising 41,000 from 188,000 to 229,000)
- Temporary employment within main jobs in the UK tourism industry has grown cumulatively by 16.6% between 2009 and 2013, in comparison to 12.5% within UK non-tourism industries (rising 29,000 from 231,000 to 260,000)
Greek wages are flexible. But (just as in the Netherlands in the nineteen thirties) this does not solve demand side problems. In Greece, wages have been declining for four years in a stretch, sometimes at a double digit rate. Despite of this – to a large extent: because of this – the country is to the ropes. Lowering wages clearly is not the solutions to demand side problems. I guess that this will become a text book classic.
Revisions to the Spanish national accounts show larger decreases in 2011 and 2012 (look at cuadro 3). Which is in line with expectations based upon the fast increase of unemployment in those years. Eurozone austerity was even more detrimental than we already thought.
1) In the Financial Times Robin Hardin has a good article about the land tax. He suggests (based upon micro-economic work of Morris Davis, Rutger Stephen Oliner and Edward Pinto which I did not read) that a ‘land underlying houses’ value index might be a good indicator of housing bubbles. Macro data show this, too. The ‘Piketty style’ national accounts balance sheet data contain information on the value of land underlying houses. For the Netherlands I’ve extrapolated these data (roughly: market value of houses minus building costs of houses) backwards to 1965 and they clearly show the two post WW II Dutch housing bubbles. Technical detail: due to the introduction of new national accounts concepts there is a break in the series between 2008 and 2009; the data on NIP are consistent with the old concepts, not with the new concepts). See Jesse Frederik (in Dutch) on the first bubble.
2) Unemployment in Estonia keeps getting down – but employment is not getting up. The working age population is shrinking.
from Lars Syll
Important and far-reaching problems still beset regression analysis and econometrics – many of which basically are a result of an unsustainable ontological view.
Most econometricians have a nominalist-positivist view of science and models, according to which science can only deal with observable regularity patterns of a more or less lawlike kind. Only data matters and trying to (ontologically) go beyond observed data in search of underlying real factors and relations that generate the data is not admissable. All has to take place in the model of the econometric mind, since the real factors and relations according to the econometric (epistemologically based) methodology are beyond reach, since they, allegedly, are both unobservable and unmeasurable. This also means that instead of treating the model-based findings as interesting clues for digging deepeer into real structures and mechanisms, they are treated as the end points of the investigation.
As mathematical statistician David Freedman writes in Statistical Models and Causal Inference (2010): Read more…
Links: real estate problems, the importance of being employed, economic weight watching, banking in the USA
Fergal McCann and Tara McIndoe-Calder show, on Voxeu, with micro data on small and medium enterprises, that Richard Koo is right: real estate cycles lead to debt overhangs which lead to balance sheet recessions.
Shortly after World War II, i.e. about seventy years ago, the ‘money purification’ in the Netherlands led to a situation in which in fact all households were ‘banked’, i.e. had access to bank accounts. Claire Célérier and Adrian Matray show, on Voxeu, that, in 2014, the US of A are still lagging Read more…
from David Ruccio
from Dean Baker
Developing explanations for the growth in inequality over the last three decades has been a huge growth industry in economics and policy circles. Many economists have made their careers with a novel explanation of how the natural development of technology and the market has concentrated income and wealth in the top one percent. It’s even better if you can show that inequality hasn’t risen. While the explanations that blame inequality on technology can get complicated, there were three items in the last week that painted the picture very clearly for the rest of us.
First, we got new data from the Federal Reserve Board and the Census Bureau, both of which showed that typical families are still seeing very little benefit from the recovery to date. The Fed released the 2013 Survey of Consumer Finance which showed median family wealth was still below the 2010 level in spite of the run-up in the stock market.
The Census Bureau released its annual data on income, poverty, and health insurance coverage. While there was some good news on the latter two, median income remained flat. The story in both the Fed and Census analysis remains the same; those at the top continue to get the bulk of the benefits from economic growth. Read more…
from Asad Zaman and the WEA Pedagogical Blog
In my paper of this name (which has been published in Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39), I show that the apparently objective concept of scarcity is built on THREE normative assumptions. This argument destroys one of the basic ideas strongly argued in most conventional texts, that economics is a POSITIVE study of facts of our economic existence, and does not involve value judgement. The three normative pillars on which scarcity stands as the fundamental principle of economics are the following:
ONE: Private Property.
This is a cultural norm. For example, the Cherokee constitution states that the lands of the Cherokee Nations shall remain common property. If there is a cultural norm of sharing public resources, then the issue of scarcity would not arise (or at least, would be much less frequent). Anthropologists have shown that there is no starvation in subsistence societies because of strong norms of sharing. If the society as a whole has enough food, then EVERYBODY will get to eat. Note the violent contrast with the private property norm. In conventional economics, the Pareto principle embodies the normative idea that the right to property takes precedence over the right to life. If a poor man is starving, the rich man is NOT obligated to provide for him.
TWO: Consumer Sovereignty
Economists argue the we SHOULD not question consumer preferences as to where they come from and whether they are legitimate. Also, economists argue that we SHOULD design an economic system which fulfills ALL preferences (to the extent possible). Obviously if we differentiate between legitimate demands, and idle desires, scarcity would be much reduced. As Gandhi said, there is enough for everyone’s need, but not enough for everyone’s greed. The noxious NORMATIVE idea that the right of the super-rich to private jets trumps the right of the poor hungry child to bread is what leads to scarcity becoming the foundation of economics. If we change our norms to advocate and encourage simple lifestyles, and also consider the goal of an economic system to be that of taking care of the NEEDS of ALL, instead of maximizing the wealth of the wealthy. the problem of scarcity would not arise. read more
Update Data on job growth in Ireland can be found here. Employment increased with 1,7%, Year on Year. Together with a 7,7% increase of the volume of production this implies a whopping 6% increase of productivity. Which fits in the picture of catch up growth in a country with an absolutely massive output gap.
After years and years of grave, creditor centered deflationaqry liquiditionist policy mistakes Ireland recently finally got a chance to grow again – and it did. GDP in the second quarter of 2014 was 7,7% larger than one year earlier. The triumph of austerity policies!? Not really. The volume of government expenditure increased with 7,9%, even more than production. Government expenditure in current prices however only increased with 1,6% which meant that prices paid by the government (mainly wages) were a whopping 6% lower… Growth was not export led either: imports grew about as fast as exports (which, as Ireland has an export surplus, of course meant that the surplus increased a little). The most surprising thing: a 18,5% increase of the volume of investments! I can’t at the moment explain this (construction? equipment?). But it shows the power of domestic demand. I could not find second quarter employment data – but it seems that productivity growth went through the roof.
from Gustavo Marqués
According to the dominant view of financial markets, access to easy credit driven by central banks in both the U.S. and the developed countries of the European Union, should have led to economic growth. The transmission mechanism is the following: availability of easy credit (at rates of zero or near zero interest) will raise the price of stocks (including real estate within this category), generating a wealth effect that will in turn increase consumption and the GDP. See some testimonies.
“Before the current turmoil began, Federal Reserve Chairman Ben Bernanke’s hope was that rising asset prices would lead to a ‘wealth effect’ that would encourage the American consumer to start spending again, and thus help the American economy finally leave the ‘Great Recession’ behind” (Keen, 2013, p. 3).
Alan Greenspan has been even more explicit. Read more…
from Neva Goodwin
There are some true and useful things to be learned in standard 20th century economics, such as the basic concepts of supply and demand intersecting to create wages and prices. However if you ever took an economics course you may have since discovered that many other things also affect prices, such as advertising, or consumers’ lack of information. And wages involve even more complicated human interactions, habits and expectations. These complexities and exceptions don’t get much hearing in introductory courses – and, surprisingly, they get even less at the upper levels, where, instead, progressively more mathematics are imposed on a progressively more abstract picture of an economy. Meanwhile the students are also being taught a lot that is dangerous. Here are some of the take-aways from the standard economics course: Read more…
According to INSEE, the French statistical institute, the French labour market became much more flexible. But it also became less flexible, according to the same study…
How to explain ‘Ces constats apparemment contradictoires?’
Apparently, more flexibility led to ever shorter contracts at the bottom of the labour market and therewith to segmentation and less dynamism, many people are increasingly trapped:
tout ceci suggère que le fonctionnement du marché du travail se rapproche d’un modèle segmenté, où les emplois stables et les emplois instables forment deux mondes séparés, les emplois instables constituant une « trappe » pour ceux qui les occupent
Grumpy update: yes, I can and do read french, albeit somewhat slowly, and more people talking about France should be able to do that.
Should this problem be solved by a more flexible upper half of the labour market? Hmmm… that’s the USA solution, a country characterized by extreme income inequality and loads of ‘working poor’. And when we look at the 1995-2014 period less than impressive job growth and a declining participation rate. I do not say that French labour market rules, habits and culture are perfect. But economists should stop analysing the labour market assuming a situation of full employment. But we we’ll first have to solve the macro-economic problems: mind that european countries with medium or, regionally, even low unemployment like Switzerland, Germany and the Netherlands have been able to fill the macro economic ‘spending gap’ with current account surpluses of 7 to (over) 10% and even this did not prevent a double dip in Germany and outright stagnation the Netherlands… Also and obviously not every country can have such surpluses at the same time. A ‘flexible’ labour market in a situation of high output gaps (look at the high rates of unemployment) is a totally different ball game than in a situation of full employment and will trap people into poverty.
from David Ruccio
Neil King, Jr., for the Wall Street Journal, is perplexed:
It is in many ways both the ultimate economic puzzle and the great political challenge: Why have American incomes remained so flat, for so long, and what can be done to change that?
Uh, well. Maybe it’s this, maybe it’s that. King just can’t be bothered to figure it out.
So, let’s help him out: American incomes are flat precisely because of the anti-union, free-trade, decrease-taxes, cut-social-programs, don’t-raise-the-minimum-wage policies
The labour market in the UK is doing well. Unemployment is going down, employment is going up, contrary to the situation in the USA participation rates are slightly increasing and total wage income is increasing too, especially in the lower brackets. And the number of real jobs relative to
day labourers self employment might increase a little (look here at EMPo1, quarterly data to correct for the privatization of the Royal Post). Time to tighten? Hmmm… unemployment is still high (i.e. above 6%) and wage increases are at a historical low. There are, at this moment, NO signs of wage inflation. There are ever clearer signs of a housing bubble and house price inflation – but that kind of inflation does not require higher interest rates but a land tax and, as far as I know the British situation, more construction, especially in and around London. If Scotland becomes independent they can only hope to leave before this bubble bursts and they really have introduce a Scottish currency asap and to curb any Scottish housing bubble right away. That might save them quite a bit of economic fall out.
from Lars Syll
Twenty years ago, yours truly had an article in History of Political Economy (no. 25, 1993) on revealed preference theory.
Paul Samuelson wrote a kind letter and informed me that he was the one who had recommended it for publication. But although he liked a lot in it, he also wrote a comment — published in the same volume of HOPE — saying:
Between 1938 and 1947, and since then as Pålsson Syll points out, I have been scrupulously careful not to claim for revealed preference theory novelties and advantages it does not merit. But Pålsson Syll’s readers must not believe that it was all redundant fuss about not very much.
I came to think about this little episode when, prepairing for a lecture on the law of demand, I re-read Stanley Wong’s minor classic on Samuelson’s revealed preference theory. And I have to admit I still find the theory much fuss about not very much. Read more…
On the ‘Cato at liberty‘ blog Steve Hanke states:
In 1981, Margaret Thatcher was prime minister and my friend and collaborator, the late Sir Alan Walters, was her economic guru. Britain’s fiscal deficit was relatively large, 5.6% of its gross domestic product, and the economy was in the middle of a nasty slump. To restart the economy, Thatcher instituted a fierce fiscal squeeze, coupled with an expansionary monetary policy. This was immediately condemned by 364 dyed-in-the-wool Keynesian economists – virtually all of the British establishment. In a letter to the Times, they wrote, “Present policies will deepen the depression, erode the industrial base of our economy and threaten its social and political stability.”
Thatcher and Walters were vindicated quickly. No sooner had the 364 affixed their signatures than the economy turned around and boomed for the next five years. That result provoked disbelief among the Keynesians. After all, according to their dogma, the relationship between the direction of a fiscal impulse and economic activity is supposed to be positive, not negative.
The 364’s dogma was proven wrong. Thatcher and Walters were right.
NO, they weren’t. After 1981 the British economy tanked and British unemployment rapidly increased to a post war high of 12% in…1984. Hanke, possibly inspired by the year ‘1984’, rewrites history.
from Dean Baker
If there had been political support for massive spending in these areas, the Depression could have ended in 1931 instead of 1941.
Today marks the sixth anniversary of the collapse of Lehman Brothers. The investment bank’s bankruptcy accelerated the financial meltdown that began with the near collapse of the investment bank Bear Stearns in March 2008 (saved by the Federal Reserve and JPMorgan) and picked up steam with Fannie Mae and Freddie Mac going under the week before Lehman’s demise. The day after Lehman failed, the giant insurer AIG was set to collapse, only to be rescued by the Fed.
With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment to bail out the banks. In a message repeated endlessly by the punditocracy ever since, the failure to cough up the money would have led to a second Great Depression.
The claim was nonsense then, and it’s even greater nonsense now. Read more…
from David Ruccio
Americans, as we know, work many more hours than people in other advanced countries. As it turns out, they also work many more strange hours: on weekends and at night.
from Lars Syll
Earlier this autumn yours truly was invited to participate in the New York Rethinking Economics conference. A busy schedule didn’t allow me to “go over there.” Fortunately some of the debates and presentations have been made available on the web, as for example here . Listening a couple of minutes into that video one can hear Paul Krugman strongly defending the loanable funds theory.
Unfortunately this is not an exception among “New Keynesian” economists.
Neglecting anything resembling a real-world finance system, Greg Mankiw — in the 8th edition of his intermediate textbook Macroeconomics — has appended a new chapter to the other nineteen chapters where finance more or less is equated to the neoclassical thought-construction of a “market for loanable funds.”
On the subject of financial crises he admits that Read more…
from David Ruccio