I’ve tried to extend the analysis of unemployment policies by Joan Muysken en Wiliam Mitchell, Full employment abandoned. Shifting sands and policy failures, by adding a few years and a number of countries to their sample and by incorporating new concepts and estimates on the flow of labour and broad unemployment. Here, the full paper. Below, the abstract.
In 2008 William Mitchell and Joan Muysken argued that after about 1978 there had been a shift from public policies aimed at full employment at the macro level to full employability at the micro level, accompanied by a larger emphasis on the budget balance of the government and low inflation. At the same time, unemployment rose to levels unheard of in decades. After 2008, however, unemployment increased to even higher levels, while extending the analysis to countries from the ‘fringe’ of Europe and to data on ‘broad’ unemployment reveals that extreme levels of unemployment in these regions were a rule instead of an exception. Flow data on the labour market show that during crises there is a temporary and relatively small increase of inflows into unemployment and a decrease of outflows out of unemployment, which, however, combine into a fast increase in the stock of unemployment – which is not countered by higher rates of outflow and inflow after the crisis. This evidence shows that major crises tend to shift countries to a semi-permanent situation of higher unemployment. Read more…
Does the Euro need a transnational government to become a succes? According tot Tara Koning and Tom Vleeschhouwer: yes. Do we want such a government? Ehm… Here, their paper for the WEA internet conference on the European crisis, below the abstract.
This paper studies three important problems that have led to or have aggravated the euro crisis: moral hazard in accumulating debt by sovereigns, lack of macroeconomic policy coordination and stabilization, and macroeconomic imbalances. We use both theoretical and empirical evidence to argue that these problems were largely caused by coordination problems. We will then investigate whether a supranational government, a layer of government above all euro member countries, can alleviate these problems. We will find that macroeconomic stabilization and macroeconomic imbalances can be improved by such a government, though moral hazard cannot be solved. The only, but certainly not insignificant, obstacle seems to be that politicians and voters may not be willing to transfer their authority to this government.
from Dean Baker
Trade deals seem to enjoy a special status among economists. While they are happy to use the economic toolbox to take apart policy proposals on minimum wage, financial regulation or almost anything else, for some reason they don’t like to use standard economic tools when it comes to the impact of trade deals like the Trans-Pacific Partnership (TPP).
There was no shortage of economists who were prepared to ridicule Donald Trump’s claim that his tax cut proposal would lead to 6% annual GDP growth. But where are the economists who will ridicule the Obama administration’s claims that the this new trade deal will lead to more rapid growth? Read more…
from: Erwan Mahé (guest post)
“Do not speak, unless it improves on silence.” (Buddhist Sayings)
This Buddhist aphorism pretty much sums up the reason for the lack of a new Thaler’s Corner in more than thirty days, which, excluding the holiday periods, amounts to a first for me (the last being “Sad September”, on 3 September). At the time, I emphasised the danger of market indices falling back to the “Black Market” levels of last August 24th, like they did in the wake of the flash crash of May 2010. The idiosyncratic shocks triggered by the Volkswagen and then the Glencore scandals, the prolonged weakness of emerging markets and the Fed’s relentless caution initially seemed to suggest I was right, as the Euro Stoxx 50 dipped below 3,000 points at the end of September, i.e. nearly 10% below the level at the time of my last Thaler’s Corner.
But I am obliged to return to the drawing board, given the market’s behaviour since the release last Friday of the disappointing jobs figures in the United States, with about a 3% rebound in intraday indices Friday and the new surge of the Euro Stoxx 20 to 3,170, as I write these lines. As usual, in times of confusion, Read more…
from Dean Baker
Remember when then Federal Reserve Board Chair Ben Bernanke assured the public that the problems in the financial system will be restricted to the subprime market? This one ranks, along with some comments from and about Alan Greenspan, as one of the worst economic predictions of all time. In other words, the folks at the Fed really missed it.
This is worth remembering because it seems that the Fed is trying to get the excuse making going in advance for the next economic crisis. The NYT reported on a Fed conference where they expressed skepticism as to whether they could stop the next crisis.
There are a range of views presented, not all of them silly. (Using interest rates as the primary tool against bubbles is not a good strategy.) However the idea that the Fed is helpless against bubbles looks like some serious lowering of expectations. Read more…
from David Ruccio
In the United States, there are now somewhere between 270 million and 310 million guns, according to the Pew Research Center. That’s almost one gun for every person in the nation.
While we spend a lot of time discussing Second Amendment rights and gun-control measures, the fact is guns are big business in the United States.
According to the U.S. Bureau of Alcohol, Tobacco, Firearms, and Explosives, U.S. gun manufacturing has more than tripled since 2001 (from 2.9 million to 10.8 million total firearms produced). Read more…
The WEA has organized an internet conference about ‘The European crisis‘.
Nicola Acocella has a paper about ‘signaling imbalances in the EMU’. Below, the abstract. Here, the full paper.
Markets show well known difficulties in delivering the right signals of looming imbalances, may underreact or overreact to them and cannot properly correct them. Pure monetary union add no significant system of signaling and re-adjustment and can even cause further imbalances. The more so if the asymmetries producing such imbalances have a structural nature, as in this case some markets, such as labour markets, may not work in an appropriate way. In this situation moral hazard and adverse selection are easy to arise, making correction of imbalances more difficult. The system should then be helped to deliver proper signals and to correct them. The OCA theory [Optimum Currency Area, M.K.] must be made to work and appropriate non-market institutions, mainly at the union level, should be created. In particular, a common financial regulation, fiscal, industrial and labour policies should be introduced, while devising consistent institutions at the country level.
from Lars Syll
Modern neoclassical economics relies to a large degree on the notion of probability.
To at all be amenable to applied economic analysis, economic observations allegedly have to be conceived as random events that are analyzable within a probabilistic framework.
But is it really necessary to model the economic system as a system where randomness can only be analyzed and understood when based on an a priori notion of probability?
When attempting to convince us of the necessity of founding empirical economic analysis on probability models, neoclassical economics actually forces us to (implicitly) interpret events as random variables generated by an underlying probability density function.
This is at odds with reality. Randomness obviously is a fact of the real world. Probability, on the other hand, attaches (if at all) to the world via intellectually constructed models, and a fortiori is only a fact of a probability generating (nomological) machine or a well constructed experimental arrangement or “chance set-up”.
In probabilistic econometrics randomness is often defined with the help of independent trials – two events are said to be independent if the occurrence or nonoccurrence of either one has no effect on the probability of the occurrence of the other – as drawing cards from a deck, picking balls from an urn, spinning a roulette wheel or tossing coins – trials which are only definable if somehow set in a probabilistic context. Read more…
- In agriculture cloning animals has become routine. Cloning your favorite but old pet is getting fashionable. What’s next? A younger version of your husband or wife? To me, it’s somewhat unsettling.
- The Lidl budget supermarket is shifting to 100% animal welfare friendly meat. A problem: slower growing chickens use more feed, which is less sustainable.
- After London and New York (and some other places) the spectacular exhibition Animals Inside Out Read more…
- On Voxeu Jon Danielsson, Marcela Valenzuela, Ilknur Zer argue that Minsky was (and is) right. “This column presents the first empirical results that find a strong validation of Minsky’s hypothesis – obtained from 200 years of historical cross-sectional data – that low volatility increases the likelihood of a future financial crisis by increasing risk-taking”.
- Peter Praet, chief economist of the ECB, argues that the Euro was a disaster (he doesn’t state this, but his slides do). A significant detail: Praet uses not just the normal but also the broad concept of unemployment (which I stressed again and again on this blog and which still does not get enough attention in Europe), very encouraging. Kudo’s to the economic statisticians, which,led by the ILO, developed and measured this variable.
- Claudio Borio (chief economist of the BIS), Leonardo Gambacorta and Boris Hofmann argue that low interest rates are, net, bad for bank profits, which adds more than a little credibility to Paul Krugman‘s recent statements that the ‘raise USA rates now’ squad is led by financial interests.
- Paul Krugman also links to a speech by Jason Furman, chairman of the council of economic advisors, which shows that it has become possible to mention the ‘accelerator’ (the idea that rising government or consumer expenditure during a crisis might induce an increase in investments) again.
- Aside: Ekhatimerini has an article which shows that the ECB can (A) effectively rule Greek banks, which means that these should in essence be understood as owned by the Troika, and (B) even seems to be able to prevent these banks from paying their creditors. I’m not sure if this includes depositors.
from Dean Baker
The Labor Department reported the economy created just 142,000 jobs in September, well below most forecasts. Furthermore, the prior two months’ numbers were revised down as well, bringing the average for the last three months to 167,000. In addition, there was a drop in the length of the average workweek of 0.1 hour causing the index of aggregate hours to decline by 0.2 percent. The household survey also showed a weak picture of the labor market. While the unemployment rate was unchanged at 5.1 percent there was a drop of 0.2 percentage points in both the labor force participation rate and the employment-to-population (EPOP) ratio. The drop in the EPOP brought the ratio back to its level of October 2014. Read more…
The Irish economy is booming. GDP increased with 6,7% year on year while, due to a net outflow of ‘factor incomes’ (read: profits) GNP (the income of the Irish) increased with 5,3%. The boom is not fired by exports: over the same period net exports declined with 177 million. It is a domestic, investment led boom: investments increased with a whopping 34,2%. Employment is up with 3%. And retail sales, especially of cars but also of other items, are booming, too.
The boom is puzzling, as the exemplary Financial Statistics Summary Chart Pack of the Irish Central Bank shows that households and non-financial companies are still deleveraging: total debt of these sectors declined with an (again) whopping 11%. So, where did the money come from to increase investments with that much (as well as to finance a double digit increase in house prices and to finance a boom in car sales)?
Part of the answer is: from the UK. A lot of english as well as chinese seem to buy Irish property. The capital balance indeed shows an extreme inflow of foreign direct investment into Ireland, especially in the first but also in the second quarter of 2015 – though this flow is somehow mirrored by an outflow of ‘portfolio investment’ (shares and the like) which is almost as large. It is almost as if foreign investors traded Irish shares for Irish houses (which, though about 1/3 cheaper than during the boom, are still not a bargain, according to me). Does anybody have opinions about this?
from David Ruccio
from Peter Radford
History always has something doesn’t it?
Here is John Aziz writing at Pieria:
“So what does that mean today, as we get caught up in this great new tsunami of technological innovation and Schumpeterian creative destruction?
It means that we shoudn’t really fear the process we are going through. Yes, technology destroys some jobs. But the historical record suggests that automation will free us up to do more interesting ones. For sure, nobody precisely knows the future. And — just as there was during the Great Depression, when the U.S. economy transformed from a predominantly agricultural economy into a predominantly manufacturing economy — there may be great dislocation and major bumps in the road (one possibility is rising inequality if the robots are heavily centralized, although many argue not, and I am on the latter side of the argument).”
There is no doubt that the current wave of automation is changing the economy. That change is both having an accumulating impact. There are about 260,000 ‘robots’ working in America right now. That number will rise to an estimated 700,000 over the next decade. Read more…
from Lars Syll
A complete modeling system which yields definitive predictions (or at least multiple equilibria) requires the following conditions: given structures with fixed (or at least predictably random) interrelations between separable parts (e.g., economic agents) and predictable (or at least predictably random) outside influences. Such a system is … a‘closed’ system. Such a system, correctly applied, promotes internal consistency but risks inconsistency with the nature of the economic system unless that too is closed …
from Dean Baker
Even those who have little respect for the state of corporate ethics must have been surprised by the news from Volkswagen. It turns out that the largest car company in world deliberately designed software to allow its cars to deceive emissions testing in the United States.
It’s hard to envision the process that led to this outcome. Did some bright and ambitious young executive suggest to his superiors that, rather than finding a way to comply with emission standards, it would be cheaper to design a software program to cheat on the test? They then presumably discussed what would be involved and gave a green light. The scene ends with the executive reporting back the success of cheating software and the German version of The Simpsons’ Mr. Burns rubbing his fingers together and saying, “excellent.”
We may never know the details of how the top brass at Volkswagen thought it would be a good idea to cheat on emissions tests, but they obviously decided that the savings from going this route was worth the risk of detection and the potential punishment. And, if the only punishment is a stretch of unemployment for people who have spent years in high-paying jobs, they are probably right. Read more…
from David Ruccio
Marx, it seems, just won’t go away.
According to Charles Moore in the Wall Street Journal,
When things go backward in nations accustomed to middle-class stability, people start to ask questions. What is the use of capitalism if its rewards go to the few and its risks are dumped on the many? The rights of property do not seem so enticing if the value of what you own collapses or if that property is trapped by debt. What is so great about globalization if it means that the products and services you offer are undercut by foreign competition and that millions of new people can come to your country, take your jobs and enjoy your welfare benefits?
Great international banks and other corporations—and their top executives—can devise a life that escapes normal tax jurisdictions. Their successes are globalized and accrue chiefly to them; their failures crawl back home to die, at the expense of the rest of us.
So instead of feeling that it is a privilege to be an ordinary citizen of a free country, many of us start to feel a bit like suckers. Hope—the inseparable companion of progress—fades and is replaced by disappointment, even bitterness. It has always been understood that opportunity carries some price of insecurity, but what happens if insecurity rises and opportunity contracts?
- In 2014 Morgan Knibbe (nephew in the nth degree) made the documentary ‘shipwreck Lampedusa‘, about the aftermath of the capsizing of a ship with migrants in the Mediterranean. The documentary is as brutal as ever. The text accompanying it is however hopelessly outdated: íf the problem was still only that small!
‘Over the weekend of April 18th and 19th, an estimated number of between eight hundred and nine hundred people, migrants and asylum seekers that had set off from Lybia, drowned in the Mediterranean. The were packed onto a single boat that capsized. Each year, roughly twenty thousand people set out to cross the Mediterranean Read more…
from Peter Radford
While preparing for a speech here I came across this:
The shrinking of the middle class is not a failure of capitalism. It’s a failure of government. Capitalism is doing exactly what it was designed to do: concentrating wealth in the ownership class … That’s the natural drift of the relationship between capital and labor, and it can only be arrested by an activist government that chooses to step in as a referee.”
That’s Ed McClelland writing in Slate.
It’s also the point I have been making here for ages. The conflict between capitalism and democracy needs to be managed. We cannot leave either unattended. Unfortunately America has, for four decades or so, bent over backwards to privilege capitalism over democracy. The result is the ongoing economic crisis that we continue to live through.
It also accounts for the egregious levels of inequality we are suffering through and which threaten our social cohesion. perhaps it will take the demise of the middle class to focus voters on the need to re-establish a balance between the two. In the meantime it behooves us on the left to remember that we have the antidote to capitalism at hand. It is a force that allows us to constrain capital and make it work for all of us and not just the ownership class. And it is a force that allows us to accomplish the redistribution of the fruits of economic advance without risking the loss of that advance. Nor does it rely on exaggerated or extravagant claims that its utopian rivals are built upon. Nowhere within it are claims of great historic movements towards salvation that inevitably deteriorate into authoritarian dictatorship. Nor are there naive reductive claims of individualism that bear no relation to reality. Read more…
Summary. One of the most influential critics of the ideas of Piketty is Matthew Rognlie – who, to be able to write down his criticisms and following the national accounts, reintroduced the idea of ‘land’, or unproduced inputs like land and natural resources including land underlying buildings, in a neoclassical world. Herewith he undid the work of John Bates Clark, who purged ‘land’ from the concept of capital of classical economics, therewith enabling the rise of neoclassical economics. But this is not the only example of the return of land into economic discourse – land has made quite a return. Some examples:
Classical economists made a distinction between the factors of production ‘land, labour and capital’ while neoclassical economists only distinguish ‘capital and labour’ – which, as this disables any analysis of incomes related to the ownership of ‘land’ (not just land but also other unproduced inputs like oil or clean air), enabled neoclassical economists to restrict their attention to the asset side of the national balance sheet and to describe the distribution of income as a process unrelated to ‘property’ and ‘ownership’. According to economists like Mason Gaffney and Fred Harrison, purging the concept of ‘land’ from neoclassical economic discourse was a deliberate act, sponsored by people owning ‘land’, to enable exactly such a class free, a-historical, harmonious description of modern economies.. ‘Land’ has, however, made a glorious comeback. Below, Read more…