CEO-to-worker compensation ratio, USA 1965 – 2013

June 25, 2014 3 comments

from David Ruccio


In charting the amount of the surplus that ends up in the hands (or, if you prefer, pockets or bank accounts) of CEOs, the Economic Policy Institute finds that:  Read more…

free 800 page book: Bubble Economics

June 24, 2014 2 comments

Here is a free 800 page book from the World Economics Association

Bubble Economics

Paul D. Egan and Philip Soos


In Bubble Economics, Paul Egan and Philip Soos explore a depressed Australia in the 1840s, 1890s and 1930s. They detail recurrent patterns of boom-bust credit and asset cycles which heralded financial instability, particularly following speculation in commercial and residential land markets.A financial stability model is put forward to predict economic downturns which is based on Georgist, post-Keynesian and behavioural finance schools of economic thought, informed by data from 1830 to 2013. The trends in Australia’s current trade settings, residential property market and banking sector are ominously similar to the key precursors to Australia’s ‘Great Depression’ of the 1890s – a recession or depression may now be imminent. Egan and Soos expose ‘rentier economics’ in the land down under and discard the dominant neoclassical paradigm, bringing a fresh perspective to the intense debate about Australia’s economic future.

Download Bubble Economics (PDF, 6.4Mb) »

Categories: housing bubble

Why Europe’s austerity experiment is doomed to fail (7 graphs)

June 24, 2014 3 comments

from Steve Keen

I’ve spent the past two weeks in Europe, with speaking engagements in Italy, Greece and Austria. This was my first visit to Greece, and my first chance to get an admittedly superficial tourist’s view of what a country with Great Depression levels of unemployment looks like.

It didn’t look like anything in particular until the drive from Athens, Greece’s capital and largest city, to Thessaloniki, its second largest. Then it struck me: the roads were near empty — as the toll booth shown in Figure 1 illustrates. My host Nikos reckons he has done a million kilometers over the years on this 500km drive, and he confirmed that roads which were now virtually empty were once full of cars, and especially trucks — that mobile sign of a thriving economy.

Figure 1: A toll booth on Greece’s main highway at about 5pm: no vehicles in either direction
Graph for Why Europe's austerity experiment is doomed to fail

This is a very different manifestation of economic stagnation than the mental picture I had of it from the historical record of the Great Depression, when the overwhelming impression was of crowds: crowds lined up at soup kitchens, crowds outside dole offices. Today, the 28 per cent of Greek’s workforce that is unemployed is mainly at home (if they have homes), and surviving on electronically transmitted dole payments. The social organisation of the unemployed that marked the Great Depression is not apparent today — though the political shifts are beginning. Read more…

Categories: The Economy

Mystery Growth Theory

June 24, 2014 7 comments

from Peter Radford

I have been reading Gregory Clark’s brief history of the world economy “A Farewell to Alms” as part of my continuing reading on inequality. Somehow I think I need to know more about the entire arc of growth in our modern era and inevitably that means reading more about the great mystery of the surge in living standards since about 1750. Clark gives me a fairly standard view. He divides history into two distinct positions. An older “Malthusian” era, where growth was negligible, and a modern era dominated by “innovation”.

On page 197 he tells us:

“For, although modern economies are deeply complex machines, they have at heart a surprisingly simple structure. We can construct a simple model of this complex economy and in that model catch all the features that are relevant to understanding growth.”

That ought to encourage us all.

A simple model – how economists love those – but all inclusive.

Read on: Read more…

The Jobs Gap (3 graphs)

June 23, 2014 2 comments

from David Ruccio

Screen Shot 2014-06-06 at 11.30.08 AM

With 217,000 new jobs created in May, the U.S. economy is finally—finally, after 50 months!—back to the pre-recession employment level.

Except it isn’t. Not by a long shot. Not when we consider the “jobs gap”—which we can calculate in one of two ways: by the amount of time it will take at this rate to get back to pre-recession employment levels while also absorbing the people who enter the labor force each month (4 years) or by the difference between payroll employment and the number of jobs needed to keep up with the growth in the potential labor force (6.9 million jobs). Read more…

Categories: unemployment

Wage rigidty and the importance of checking assumptions

June 23, 2014 Leave a comment

from Lars Syll 

bewleyThe task of this book is to explain wage rigidities … It seems reasonable to hope that a successful explanation of wage rigidity would contribute to understanding the extent of the welfare loss associated with unemployment and what can be done to reduce it … Many theories of wage rigidity and unemployment include partial answers to these questions as part of their assumptions, so that the phenomena of real interest … are described in the theories’ assumptions. For instance, Lucas concludes that increased unemployment during recessions implies little welfare loss … Lucas’s policy conclusions are not strongly supported … Good support can come only from information that distinguishes his microeconomic assumptions from others yielding different policy recommendations.

A fanciful example may illustrate the danger of taking too narrow a view of instrumentalism. You are an explorer seeking contact with the Dafs, an isolated tribe about which almost nothing is known. You observe one of their villages through binoculars from far away … You observe that every morning on sunny days, men wearing bright yellow hats stand in the backyards and make sweeping gestures toward the sky … When you finally arrange a meeting with some Dafs, you meet a few men with yellow hats and a few other plainer people. Believing the first to be leaders, you offer them presents, at which point all the Dafs are outraged and assault you. What you have not observed is that yellow hats mark slaves, who throw grain to the household chickens in the yard on sunny days and inside on rainy ones …  Read more…

Oh my. Do DSGE economists really misunderstand the concept of ‘government consumption’?

June 22, 2014 7 comments

Do DSGE economists really exclude ‘government consumption’ from their concept of household prosperity? Yes, they do.

Scientific economists explain ‘government consumption’ as follows:

Government acquisition of goods and services for current use to directly satisfy individual or collective needs of the members of the community is called government final consumption expenditure (GFCE.) It is a purchase from the national accounts “use of income account” for goods and services directly satisfying of individual needs (individual consumption) or collective needs of members of the community (collective consumption). GFCE consists of the value of the goods and services produced by the government itself other than own-account capital formation and sales and of purchases by the government of goods and services produced by market producers that are supplied to households – without any transformation – as “social transfers” in kind.

Source: Wikipedia, which shows that this isn’t any kind of secret – it’s  has been ‘received wisdom’ since the fifties of the twentieth century.

Also, total, i.e. individual (education) plus collective (property rights) government, consumption is a well-defined and fully measured part of the National Accounts. It’s not like a fuzzy, unmeasurable, pre-scientific concept like neoclassical ‘utility’. Look here for the most recent Eurostat estimates of  what’s called ‘Actual Individual Consumption’: Read more…

Categories: Uncategorized

Piketty and the fixed-investment rate

A central argument of Piketty is the idea that if ‘r’, the realized return on all kind of capital (houses, bonds, stock, land,…) turns out to be larger than the rate of growth, capital, estimated as a % of total GDP, will tend to increase as the extra money can be reinvested in new capital (or (via securitized mortgages?) increase prices of existing capital: the famous ‘search for yield’).


Sources: Bank of England, Sveriges Riksbank, Centraal Bureau voor de Statistiek, Eurostat.

The rate of growth is, however, a variable. Read more…

Categories: Uncategorized

What does LSE mean?

June 20, 2014 2 comments

From: Peter Radford

I just received an email from the London School of Economics asking me to donate, as a loyal alumni, so that they can devote funds to “innovation”. The university of the future seems to be the objective of this innovation.

What on earth is this?

What about higher education needs innovating?

Why the imperative?

I understand that higher education productivity measured in business terms is, to be blunt, weak. And I understand that more modern techniques as enabled by digital technologies will, no doubt, disintermediate education and make the classic class/lecture room setting look antiquated. But what are the consequences?

For universities.

For students.

For teachers. Read more…

Categories: Uncategorized

The British recovery. No conundrum there… (4 graphs)

June 20, 2014 1 comment

The British economy has not yet recovered in any meaningful sense of the word. Production per capita is not back to historical levels, private debts are still sky-high, the number of crappy jobs is increasing and productivity is about 7 to 8% below ‘trend’ (a downward adjusted trend, that is), which is of course consistent with the increase of crappy jobs. Also, according to the PSE

The percentage of households who fall below society’s minimum standard of living has increased from 14 per cent to 33 per cent over the last 30 years, despite the size of the economy doubling. This is one of the stark findings from the largest study of poverty and deprivation ever conducted in the UK. Other key figures reveal that almost 18 million people cannot afford adequate housing conditions; 12 million people are too poor to engage in common social activities; one in three people cannot afford to heat their homes adequately in the winter and four million children and adults aren’t properly fed by today’s standards …  full-time work is not always sufficient to escape from poverty.

But…… Read more…

Categories: Uncategorized

Links. The UK recovery , ‘extrinsic unpredictability’ and models, social protection, labour market

1) Tyler Cowen is slightly bullish about the UK economy and calls it a ‘classical’ recovery, i.e. caused by market induced changes in relative prices. Cowen mentions the labour market but forgets about the decline of the price of the British pound (and about the recent house price bubble, too – though house prices estimated in Euro of course declined more/increased less, post 2008).

Graph 1: pound/dollar exchange rate.


Source: trading economics.

2). At Voxeu, David Hendry and Grayham Mizon explain how in the real world  unpredictable shifts make a mess of modern economic models which assume ‘ergodicity’, i.e. a kind of predictable predestination of our economies:

Figure 1 Location shifts over 1860–2011 in UK unemployment, with major historical events


Extrinsic unpredictability Read more…

Categories: Uncategorized

Robert Skidelsky on the economics curriculum

June 19, 2014 13 comments

According to Brad deLong, ‘the extremely wise Robert Skidelsky has an excellent rant against Anglo-Saxon economics departments‘, on Project Syndicate. First a Skidelsky excerpt, below this some Brad.

The deeper message is that mainstream economics is in fact an ideology – the ideology of the free market. Its tools and assumptions define its topics. If we assume perfect rationality and complete markets, we are debarred from exploring the causes of large-scale economic failures. Unfortunately, such assumptions have a profound influence on policy.

The efficient-market hypothesis – the belief that financial markets price risks correctly on average – provided the intellectual argument for extensive deregulation of banking in the 1980s and 1990s. Similarly, the austerity policies that Europe used to fight the recession from 2010 on were based on the belief that there was no recession to fight.

These ideas were tailored to the views of the financial oligarchy. But the tools of economics, as currently taught, provide little scope for investigating the links between economists’ ideas and the structures of power.

Today’s “post-crash” students are right.: Read more…

Categories: Uncategorized

Beveridge curves for the European Union (kudos to Eurostat)

Yesterday, Eurostat published (new!) Beveridge curves for the European Union. The data suggest to me that the curve is essentially horizontal when unemployment is higher than 10%, regardless of the institutional structure of a country. Which means that trying to make labour markets more efficient will not lead to a lower job vacancy rate and, i.e., not to a (short-term) employment gain. An ‘efficient’ labour market is not necessarily the same thing as a ‘flexible’ labour market, see the Eurostat remarks below the graph. Efficiency gains might be possible in the UK, Belgium and Germany, see however the Eurostat remarks below the graph .


Read more…

Categories: Uncategorized

What — really — is ‘effective demand’?

June 18, 2014 5 comments

from Lars Syll

J__Jespersen_683346aEconomists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory (chapter 6, M.K.)

Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing neoclassical general equilibrium framework:

Effective demand is one of the distinctive analytical concepts that Keynes developed in The General Theory. Demand and demand management have thereby come to represent one of the distinct trademarks of Keynesian macroeconomic theory and policy. It is not without reason that the central position of this concept has left the impression that Keynes’s macroeconomic model predominantly consists of theories for determining demand, while the supply side is neglected. From here it is a short step within a superficial interpretation to conclude that Keynes (and post-Keynesians) had ended up in a theoretical dead end, where macroeconomic development is exclusively determined by demand factors …

It is the behaviour of profit-seeking firms acting under the ontological condition of uncertainty that is at the centre of post-Keynesian concept of effective demand. Read more…

Categories: Uncategorized

Keynes: a closet market monetarist?

Market monetarists like Scott Sumner totally focus on nominal GDP. And employment. Keynes, of course, totally did the same thing. Remember, by the way, that the accounting identities of the national accounts which are so crucial to the Keynesian system are only true when it comes to values in current prices! There are some differences, too, between market monetarists and Keynes, especial when it comes to expectations: are these fallible but influential or rational and inconsequential? Anyway, much of what Scott Sumner wrote sounds a lot like chapter 4 of the General Theory (sometimes even the style):

The three perplexities which most impeded my progress in writing this book, so that I could not express myself conveniently until I had found some solution for them, are: firstly, the choice of the units of quantity appropriate to the problems of the economic system as a whole; secondly, the part played by expectation in economic analysis; and, thirdly, the definition of income.


That the units, in terms of which economists commonly work, are unsatisfactory can be illustrated by the concepts of the National Dividend, the stock of real capital and the general price-level:—

(i) The National Dividend, as defined by Marshall and Professor Pigou, measures the volume of current output or real income and not the value of output or money-income. Read more…

Categories: Uncategorized

Renewable energy in Europe

June 18, 2014 1 comment

In the European Union, production of renewable energy is increasing (graph 1, 2) and consumption of lignite and coal (CO2 wise the dirtiest of all fossil fuels because of a very high Carbon/Hydrogen content) is going down (graph 3,4), though especially in recent years not as fast as needed. Mind that actual use of solar energy is much higher than indicated by these graphs as ‘passive’ solar energy is not included. When the sun shines into our chambers in wintertime, we need less fossil fuels for heating. Despite this direct trade-off, this use of solar is not included in the data. Production of ‘renewable’ energy (see, for details, the Eurostat links) seems to be on an exponential growth path. Total use of energy however still has to decrease, in the near future, to enable long-term prosperity.

1. Production of renewable energy as a percentage of total energy production


2. Primary production of renewable energy


3. Gross consumption of hard coal


4. Gross consumption of lignite



Categories: Uncategorized

Three European links and two global ones

UK link: GDP-inflation metrics down (consumer price index, wage increases, producer prices), asset price inflation up (house prices, into dangerous territory)

Italy link: natural population decrease, 2013: -86.000

Why Germany should take the increasing number of potholes in its Authobahn-system more serious

Ryan Avent on how the lure of the modern city in combination with zoning and the difficulty of increasing the number of homes in cities anyway increases the price of land and houses as well as wealth inequality

The ILO has started a campaign against child labour (and does not forget the statistics): “There are over 168 million children in child labour worldwide. More than half of them are doing work that puts their health and safety at risk. This is unacceptable. Be part of the global movement, hold the red card against child labour, and help give children around the world a brand new start

Categories: Uncategorized

Ricardian equivalence put to the test (LOL)

According to Investopedia (which is not entirely precise about this, but which is roughly right), Ricardian Equivalence is:

An economic theory that suggests that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged. This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt.

Does this theory fit the facts? On Voxeu, Jonathan A. Parker summarizes a number of recent papers which put the theory to the test. The main finding: many households really need the money while others fancy a new car – which means that Ricardian Equivalence does not hold.

So how do consumers respond to cash flow from stimulus in recessions?
•First, we find that the arrival of a payment causes a large spike in spending the week that the payment arrives: 10% of spending on household goods in response to payments averaging $900 in the US in 2008.
•Second, this effect decays over time, but remains present, so that cumulative effects are economically quite large – in the order of 2 to 4% of spending on household goods over the three months following arrival.

On broader measures of spending, Parker et al. find that households spend 25% of payments during the three months in which they arrive on a broad measure of nondurable goods, and roughly three-quarters of the payment in total. Interestingly, the difference between the two measures largely reflects spending on new cars.
•Finally, the majority of spending is done by household with insufficient liquid assets to cover two months of expenditures (about 40% of households). These households spend at a rate six times that of households with sufficient liquid wealth.

Clearly, an argument can be made that economists have to start to talk and think about real people, instead of the neoclassical atomicon.

Categories: Uncategorized

Euro-area austerity fails again – even on its own terms (3 graphs)

June 17, 2014 1 comment

Today, Eurostat published new data on wage increases in the Euro area

A) Nominal wage increases are ever lower, which contributes to (considering the level of private and public debt) destructive deflationary pressures (graph 1).


(B) One of the main foundation of austerity ideology is the idea that lowering wage costs will enable countries to export their way out of a severe crisis. Doesn’t happen… Read more…

Categories: Uncategorized

The filth and the corruption – how to wreck social housing

In the Netherlands, the use of derivates contributed quite a bit to the demise of social housing. Needless to say that corruption and bribery and specialized bankster teams of, among other banks, Deutsche Bank were involved. Below, some of the sorry details. Aside – derivatives lead to topsy turvy macro-economics, as low interest rates actually increased the ‘interest’ burden of social housing corporations and led to a cosiderable cut in construction.

From: Ernst Labruyere

It had been silent, with respect to the infamous Vestia case… very silent.

The Vestia case was the most high profile fraud case of 2012… Vestia, a ‘simple’, but very large (90,000 houses) Dutch building cooperative, lost €2.5 billion on interest rate swaps gone awry [i.e. 28.000 Euro per house, M.K.]. This happened after the official interest rate made ‘unexpected’ 0.25% drops in December 2011 and January 2012, instead of going further up again after a few months of cautious rises.

The official Refinancing Rate of the European Central Bank


Chart by: Ernst’s Economy for You
Data courtesy of: ECB

Initially, the Vestia case seemed to be a case in which all parties involved played such a controversial role, that it was almost ‘screaming’ to be thoroughly investigated: without prejudice and without the investigators pointing quickly at the most obvious guilty parties. However, after a few months everything had seemingly been brought back to the ‘bare essence’:

The real vilains of this case were:
Arjan G., an independent financial advisor, who had bribed Chief Financial Officer Marcel de V. of Vestia with millions in commission money from Vestia’s derivative trades;
Marcel de V. himself, who had made (on his own(?)) all the decisions to buy the interest rate swaps and who had been bribed in various ways; with money and ‘services rendered to him in person’;
Erik Staal, the chairman (aka the ‘Sun King’ of Vestia) and his Board of Commissioners had neglected their duties to thoroughly check the financial obligations that CFO Marcel de V. entered into, on behalf of Vestia;
The accountants had been too late with signalling the emerging financial misery in which Vestia had entered;
The banks, which were involved in the Vestia case, had neglected their duty to guide and warn their customer, in order to prevent overcrediting.

The banks defended themselves by stating that Vestia was a professional institution, of which professional investor’s knowledge and likewise behaviour could be expected. And that was about it for the Vestia case in the public eye… The case slowly faded away from the attention of the general public, in favour of new financial scandals and controversy (SNS Reaal, Liborgate). The only visible result that the Vestia case eventually had, was that the Dutch Second Chamber of Parliament recently started a Parliamentary Enquiry into the ubiquitous financial issues, alleged fraudulent behaviour and bad management, which surrounded Vestia and other building cooperatives in The Netherlands.

This very enquiry currently takes place in The Hague, but to these eyes it seems to suffer from superficiality and uninformedness about the subject, with on top of that the blatant anger and prejudice of the enquirers. Instead of trying to dig up the truth, the enquirers want to address the public outrage at the protagonists, who in general suffer from applicable amnesia and aggrievance about the way they are treated by the enquiring commission. This is the best recipe to find… nothing. Further, the investigation into the Vestia case seemed to be at a dead end…

However, this morning ‘pitbull’ reporter Bart Mos of newspaper De Financieele Telegraaf printed a remarkable article, in which he stated that the Dutch Justice Department had laid a distress upon milllions in commissions, owned by financial advisor Arjan G. This money had been stashed away at Swiss banks in 2012; allegedly by the father of G.

Here are the pertinent snips of this article:

Distress on Vestia millions

The [Dutch] Justice Department laid a distress on approximately ten million euros in Switzerland, which financial advisor Arjan G. – currently suspected of fraud – earned with the sale of speculative banking products to building cooperative Vestia.

Arjan G. used half of the €20 million in commission money, which he earned from the banks, to bribe former Chief Financial Officer Marcel de V. of building cooperative Vestia. He has allegedly stashed the other half on a Swiss bank account.

This is confirmed by various sources, close to the criminal investigation into the million euro fraud at Vestia. The Dutch justice department tries to recover this money for The Netherlands, through a request for legal assistence. According to Willem Koops, solicitor for defendant Arjan G., his client gave full disclosure: “to Vestia, as well as the public prosecution”.

Today, both Arjan G., as well as the bribed CFO of Vestia Marcel de V., will be grilled by the Parliamentary Commission ‘Building Cooperatives’.

Marcel de V. allegedly received €9 million in bribe money from G., in exchange for him purchasing the interest rate swaps on behalf of Vestia. [The combined purchases of interest rate swaps amounted to a staggering total of €40 billion, according to Het Financieele Dagblad - EL]. Both will be prosecuted for this crime.

Personally, I am very pleased that this event brings back the attention to the Vestia case. This case has been a blatant failure of litterally every executive and supervisor inside and outside this giant building cooperative: CEO, Board of Commissioners, accountants / auditors and every other official / government supervisor being involved in Vestia.

Besides that, the disclosure of this case opened the floodgates for a host of other derivative trades gone awry, at other institutions: building cooperatives, universities and educational institutions and even Small and Medium Enterprise companies.

What the Vestia case really deserves is a proper investigation into the role of especially the banks, which have been directly involved in this fraud case: With derivative trades to the tune of €23 billion at the end of 2011, the overcrediting of Vestia has been really mindboggling. How could this come this far…?!As the chart in the beginning of this article shows, the interest rate change of early 2012 had been peanuts in comparison with the vertigo-spurring rate drop of early 2009.

Why did this 0.5% rate drop cause so much havoc at Vestia’s portfolio and why had the building derivative not been warned earlier: the 0.5% refi rate drop of late 2011 / early 2012 took place in two stages of each 0.25%?
The commission payments, which took place after (or before(?)) the purchases of the interest rate swaps in the Vestia case, had allegedly been ten times higher than usually, in comparable cases.

What light does this shed on the role of the banks involved?! The Vestia case deserves to be on our retinas in the coming months, as it has been one of the most tell-tale cases of the havoc that ignorance, bad supervision, fraud and executive ‘Sun King’ behaviour can cause in a small country, like The Netherlands. It should not sink into oblivion again.

Categories: Uncategorized

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