Graph of the day. The rapid rise of Italian unemployment

August 31, 2015 Leave a comment

‘Headline’ unemployment in Italy is, since the end of 2013, stable around a very high 12,5%. Don’t let this fool you – there is more between work and inactivity than headline unemployment. ‘Disillusioned’ workers, which do not have a job and are able to start working within two weeks but which are not actively seeking are not counted as ‘officially unemployed’. And in Italy the amount of ‘disillusioned workers’ – already by far the highest of Europe – is rising rapidly. I.e.: ‘broad’ unemployment in Italy is rising rapidly, too. Which makes the failure of Italian and Eurozone economic policies even larger. Mind the low amount of ‘disillusioned workers’ in Greece – broad unemployment in Greece and Italy is at about the same level!





Mea Culpa: Storytelling Part Two

August 31, 2015 3 comments

from Peter Radford

I have been accused of a few things. I appear to have upset some people. For this I apologize.

I need to explain in order that we can all move on.

Let me begin my stating my belief that economics, in all its multiple instantiations, is a vital discipline. It seeks to get at the heart of one of our most important activities, and it seeks to discover what can be called truths about those activities. It then propagates what it learns and passes its wisdom along to those outside and who might then act upon that wisdom in order to organize human life more properly. However they define ‘properly’.

So I begin with a profound belief in the importance of economics. Read more…

Anatomy of a bubble

August 30, 2015 9 comments

from David Ruccio

I’ve been listening to and reading lots of financial pundits over the course of the past week—all of whom use the same lingo (the U.S. economy as the “cleanest shirt in the hamper,” the “deterioration in risk appetite” around the globe, and so on) and try to explain the volatility of the stock markets in terms of economic “fundamentals” (like the slowing of the Chinese economy, the prospect of deflation in Europe, and so on).

Me, I’m much more inclined to think of terms of uncertainty, unknowability, and “shit happens.”

Let’s face it: stock markets are speculative markets, in the sense that individual and institutional investors are always speculating (with the aid of computer programs) about how others view the market in order to make their bets—with fundamental uncertainty, unknowability, and the idea that shit happens. That is, they have hunches, and they have no idea if their hunches are correct until others respond—with the same amount of uncertainty, unknowability, and the idea that shit happens. And then all of them make up stories (using the lingo of the day and often referring to changes in the “fundamentals”) after the fact, to justify whatever actions they took and their advice to others.  Read more…

DSGE macro-models criticism, a round up. Part 7. Claudio Borio on the current account.

August 29, 2015 3 comments

Looking at neoclassical macro-models through the lens of economic statistics. Today: consumption. See at the end for part 1-6.

Claudio Borio, chief economist of the Bank of International Settlements, gave a speech on how the concept of the current account is used in neoclassical macro models and is not happy. Without any reservation in can be included in this series (even includes some ‘Lucas bashing’ as it states that the ‘Lucas Paradox’ (Robert Lucas, before 2008 the most influential neoclassical macro economists, coined this idea to explay why capital often flows from poor to rich countries) is based upon a poor understanding of the concept of the current account). According to Borio:

As these models are often non-monetary in nature, a ‘sudden stop’ (i.e. foreign and domestic banks which suddenly stop financing imports of a country companies like supermarkets or car dealers which want to import) can’t be modelled as a change in the behaviour of banks (which is what actually takes place) but has to be modelled either as a sudden change in the propensity to import of the importing country or a sudden change in the propensity to export of the exporting country. Banks and financial flows are outside the scope of the models.

Economists conflate the micro and macro concept of saving. On the micro level, when you save money your stock of money (or, when you invest it in other financial assets, your stock of financial assets) increases. On the macro level, this micro behaviour however does not lead to an increase in the amount of money and the only real saving takes place when the money is invested in new real assets (houses, new medicines, etcetera).

Read more…

Does capitalism cause poverty? Let me count the ways

August 29, 2015 3 comments

from David Ruccio

Clearly, Pope Francis’s criticisms of capitalism (as I have discussed here and here) have touched a nerve. They certainly have in the case of Harvard’s Ricardo Hausmann, who attempts to argue both that capitalism is not responsible for causing poverty and that more capitalism will eventually eliminate poverty.

Hausmann’s story is a very familiar one. What it comes down to is the idea that the majority of people before capitalism arrived one the scene were poor and as capitalism develops and more and more people became wage-laborers with rising real wages. But areas of the world still remain outside of capitalism and those people will remain poor unless and until capitalism is allowed to fully develop.

It’s a story that is as old as Adam Smith’s Wealth of Nations, and it’s been told and retold by generations of classical and neoclassical economists ever since. Read more…

Market truths or obscured views?

August 28, 2015 2 comments

from Peter Radford

This is meant as a friendly gentle nudge:

As we all know markets are heavenly creations of exquisite perfection. Free and impersonal markets that is. We just know this. It just is. Free impersonal markets are what have delivered us all from the abominations of servitude and the darkest poverty. They have enlightened us. The have illuminated us. They are what have enabled us to discover what we now know. Our literature, our arts, our politics, our cultures, our very beings are due entirely to the ability of free impersonal markets to grab hold of the tyrannical state and demolish its suffocating grip.

Markets said free, and they were free.

That in a democracy we the people are the state and so apparently have our own hands on our own throats is of no consequence. That ‘we the people’ stuff is just a veil behind which lurks the monster of the state waiting to bash us with another calamitous and inevitably doomed policy. Even if that policy was conceived with the best intentions. Read more…

Why China had to crash: Part 1

August 27, 2015 1 comment

from Steve Keen

In this post I consider the economy in general: I’ll cover asset markets in particular in the next column, but you’ll need to understand today’s post to comprehend the stock and property market dynamics at play. Having said that, the Shanghai Index fell another 7.5% on Tuesday, after losing 8.5% on Monday, and is now down over 45% from its peak—so I’ll try to write the stock-market-specific post by tomorrow. In this post I’ll show, very simply, why a slowdown in the rate of growth of private debt will cause a crisis, if both the level and the rate of change of debt are high at the time of the slowdown. Read more…

Keep calm?!

August 27, 2015 1 comment

from David Ruccio

All the advice today—as the the Dow Jones Industrial Average fell by 1,089 points in the morning and, at this writing, remains almost 450 points below the opening—has been the same: keep calm and carry on investing.


Ron Lieber is typical: Read more…

Rogoff on China: Was Mr. 90 Percent right again?

August 27, 2015 1 comment

from Dean Baker

Andrew Ross Sorkin seems prepared to pronounce Ken Rogoff to be prescient once again with his prediction that China would run into a debt crisis. Rogoff’s past claims to prescience might be viewed as somewhat questionable. He, along with co-author Carmen Reinhardt, famously argued that countries face a severe slowdown in growth when their debt to GDP ratios exceed 90 percent. It turned out that this claim was driven by an error in an Excel spreadsheet, nonetheless it was used to justify austerity in the euro zone, the United States and elsewhere. This austerity did help to worsen the downturns caused by the collapse of asset bubbles, in effect contributing to the crisis that Sorkin credits Rogoff with predicting. Read more…

Quick thoughts on the stock market and the economy

August 26, 2015 15 comments

from Dean Baker

We are seeing the usual hysteria over the sharp drop in the markets in Asia, Europe, and perhaps the U.S. (Wall Street seems to be rallying as I write.) There are a few items worth noting as we enjoy the panic.

First and most importantly, the stock market is not the economy. The stock market has fluctuations all the time that have nothing to do with the real economy. The most famous was the 1987 crash which did not correspond to any real world bad event that anyone could identify.

Even over longer periods there is no direct correlation between the stock market and GDP. In the decade of the 1970s the stock market lost more than 40 percent of its value in real terms, in the decade of the 1980s it more than doubled. GDP growth averaged 3.3 percent from 1980 to 1990 compared to 3.2 percent from 1970 to 1980.

Apart from its erratic movements, the stock market is not even in principle supposed to be a measure of economic activity. It is supposed to represent the present value of future profits. This means that if people are expecting the economy to slowdown, but also expect a big shift in income from wages to profits, then we should expect to see the market rise. So there is no sense in treating the stock market as a gauge of economic activity, it isn’t.

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Employment growth in Spain and OECD sillynomics.

August 26, 2015 3 comments


For over a year now Spain shows high year on year employment growth. Excellent news and a clear sign of a serious recovery! But does this also mean that structural reforms are paying off? Four remarks:

A) The graph shows that. before 2008 (i.e.: before the reforms of the labour market), the Spanish labour market was extremely dynamic already, showing the highest rates of job growth of the entire North Atlantic economy. Which means that the 3% growth we witness at this moment is not any kind of proof of the success of structural reforms.

Read more…

Quick Question

August 26, 2015 5 comments

from Peter Radford

How do you calculate the marginal productivity of an economics professor? Especially a tenured professor. Especially a tenured professor who advocates economics theories based upon ‘marginalist’ thought.

And do they apply those theories to their own lives?

Do they?

Do they believe that the theories they advocate and promulgate are representations of reality?

If so they must surely live by those theories. Their lives must reflect those ideas. Their day to day existence must mimic the ideas they fill student’s heads with.

I am not so much interested in the fun discussions of cutting edge ideas that occupy their time in graduate seminars, professional meetings, conferences and the like, but, rather, in what they teach everyday students. What do they teach students who are taking only one of two economics classes and whose knowledge of the economy will rest entirely on that exposure? Read more…

A critique of Samuelson’s and Nordhaus’s Principles of Economics

August 25, 2015 2 comments

Econ 101 textbooks are misleading more than a million students a year in the U.S. alone because they leave the lasting impression that markets could solve all our economic problems if only they were left to themselves. Not even the horrendous sub-prime mortgage-crisis bailout in 2008 and 2009, amounting to trillions of dollars, shook the professions’ faith that the markets know best. They continue to invoke the “invisible hand” metaphor coined by Adam Smith in 1776, without conceding that the global economy has undergone several revolutions and changed profoundly during the intervening centuries. Outdated metaphors will not help but only hinder any effort to understand where we have gone wrong, and why, and what to do about it.  

Happily, some students are beginning to see the disconnect between the idealized, theoretical version of economics thought on blackboards and its real-world variant. That is exactly why students walked out of Gregory Mankiw’s Principles of Economics (Econ 10) class at Harvard in 2011,1 and provided him a written explanation for this symbolic gesture:   Read more…

Shadow government banking

August 25, 2015 Leave a comment

Governments have, just like banks, quite some ‘off balance sheet’ debt, which is considered not to to be part of the ‘official’ debt of the government as it is not primarily owed by the government but by a government controlled ‘entity’. The government is, however, often responsible when things go wrong. Especially Germany has a lot of this kind of debt. Greece has remarkably few of such contingent debts. What kind of organizations make up these ‘entities’?  A full 121%-point of the 126% of GDP contingent debt of Germany is caused by ‘units involved in financial activities’ (Sparkassen and the like, 40% of all banking assets in Germany are owned by public banks). Mind that these banks have assets too, of course. But ‘contingent government liabilities’ for banks not controlled by the government, the kind of liabilities which cause Brussels to wreck the European welfare states (cut pensions to save the bankers), are not included in these data. Fun fact: the third bailout memorandum for Greece states in a rather shrill, almost hysterical way that CEO’s of banks have to be independent of the government. The German Sparkassen of course aren’t.  Germany was one of the very few countries which did not have a house ownership and price bubble.


U.S. and Europe face different political situations but common problems

August 25, 2015 Leave a comment

from Mark Weisbrot

As the ever-lengthening U.S. election season begins to heat up, it is interesting to compare the U.S. and Europe regarding the evolution of their politics since the world financial crisis and recession (2008-09). In Europe, there has been quite a bit of political upheaval, with center-left parties often losing a large part of their voters. In Greece, to take the most dramatic example, the Panhellenic Socialist Movement (PASOK) is now polling just 3 percent of the electorate, after decades of wining around 40 percent or more of the vote. There have been significant losses of popularity for similar center-left parties in Spain, Italy, France and other countries — although some have yet to materialize in elections. In Greece, the leftist Syriza party has gotten most of the disaffected voters and took power this year; in Spain, the newly created leftist Podemos party shot up to the top quickly, although it has fallen some in polls recently. In France it has been the extreme right National Front that gained most, and in Italy, the new populist Five Star Movement.  Read more…

Krugman is right — public debt is good!

August 24, 2015 9 comments

from Lars Syll

The U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the Syll-Aug2015government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.

But is the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?

Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.

Paul Krugman


Krugman is absolutely right.

Why?  Read more…

Links. (Super-)markets. And Project Syndicate really needs a better fact checker.

August 24, 2015 2 comments

I love (most) companies. I love (most) markets. And like Ricardo Hausmann I totally think that investments and increases in scale led to unimaginable increases in productivity, though we have to remember that the largest absolute increase in productivity in spinning took place when the distaff was replaced by the spinningwheel – according to a woman I once talked with at a local fair, who had mastered the distaff as well as the spinning wheel, the wheel is two to three times as productive. I.e. – it cut the time needed to spin a certain amount in half.  Such improvements in productivity also enabled increases in prosperity – including shorter working weeks, though we should not forger that people spinning in putting out systems using the spinning wheel or the many single women in pre industrial revolution urban centers were, ahem, not always the most prosperous members of society – though they took part in a well defined market system. Unlike Hausmann, however, I do think that government production (most roads, most education, large parts of healthcare and insurance) is an important part of our present prosperity, too. Hausmann does not even mention this – just like the neoclassical macro models, which almost always assume that government production has zero value by nature. Hausmann also forgets about rent extraction, for instance by multinationals who want to drill for oil and natural gas in Peru and are not taxed enough. And Hausmann is wrong about Peru, too. That’s not a dirt poor country and poverty is (according to world bank data) falling fast, while economic growth is, compared with the South American average, high and stable. Again: why doesn’t Project Syndicate (the site which published the Hausmann blog) have a better fact checker!  Read more…

From the comfortable obscurity of academia to become one of the most recognised politicians on the planet

August 23, 2015 2 comments

from The Observer

The island of Aegina is just 17 miles from Athens, a mere 40 minutes’ dash on a hydrofoil. Owing to its proximity to the Greek capital, it’s less a tourist island than a second-home sanctuary for wealthy Athenians, but it boasts several impressive classical sites and a distinguished history. Not only was it briefly the capital of a newly liberated Greece in the 19th century but back in the 7th century BC it was the first Greek state to mint its own coins.  Varoufakis1

Given Greece’s current predicament, trapped in the euro and an ever-expanding debt crisis, that last fact is a monetary irony not lost on one particular wealthy Athenian on Aegina. Sitting on top of a hill a few minutes’ drive from the port is the holiday home of Yanis Varoufakis. He is the former finance minister of Greece, although that’s hardly a description that befits the man’s legend. Gikas Hardouvelis is also a former finance minister of Greece, but no one has heard of him.  

It would be more accurate to say that Varoufakis is the former finance minister of Greece who took on the global banking system, the European political elite and, in the minds of many, the great god of capitalism itself. His is a story so full of drama and symbolism that it contains more than a hint of Greek myth. 

An economics professor by occupation, he went in a few months from the comfortable obscurity of academia to become one of the most recognised politicians on the planet.  read much more

Talking about the real-world: Karl Polanyi and the neoliberal way of life

August 23, 2015 Leave a comment

from Maria Alejandra Madi and the WEA Pedagogical Blog

The expansion of neoliberalism in the last four decades has increasingly expressed the tensions between the expansion of the market economy and the consolidation of a new way of life. Indeed, the neoliberal way of life can be apprehended if considering Karl Polanyi´s concern about the way in which the economy relates to social organization and culture and the impacts of social and political institutions in relation to human livelihood. In his opinion, since the proper self-regulation of the market entails that nothing must be allowed to inhibit the formation of markets, the institutional patterns and principles of behavior turn out to adjust perfectly.

Taking into account the current effects of the neoliberal modernization process on the way of life, Karl Polanyi´s critique of the liberal myth and of the disruptive forces inherent to the self-regulated markets it is inspiring to think about the deep impacts of neoliberal policies and institutions on livelihoods. In accordance to Polanyi, the centrality of the market entails that “Nothing must be allowed to inhibit the formation of markets, nor must incomes be permitted to be formed otherwise than through sales” (Polanyi 1944: 69). In other words, labor, land and money turn out to be seen as commodities and are produced for sale. As the commodity fiction proves to be the vital organizing process, the self-regulated markets demand the institutional separation of society into an economic and a political sphere. In other words, the commodity fiction implies that the market economy demands the institutional separation of society into an economic and political sphere, that is, in the market society the social relations are embedded in the economy rather than the economy embedded in social relations.  read more

Asylum seekers: an unmanageable problem?

August 23, 2015 3 comments

Yesterday alone the italian coastguard saved 4.400 refugees. Germany expects 800.000 asylum seekers in 2015.Are such numbers manageable?

In a purely quantitative way: easily. Let’s take Germany: in 2014 the number of births increased with 5% to 715.000, leaving Germany with a natural decrease of minus 153.000. Subtracting this from the 800.000 refugees and adding about 400.000 people coming in from other EU countries leaves population growth of about a million or 1,3%. many countries have successfully coped with such growth rates, there is no  reason why Germany couldn’t (and mind: the natural decrease is set to increase).

The problem is of course that the babies born in Germany will get at least 10 years of education, will speak German and understand German culture. Many of the asylum seekers will have had quite some education – but a not inconsiderable part of them will be illiterate even in their own language. Few of them will speak German. Not all of them will adapt to core western values, for instance in the case of gender relations.

It won’t solve all of these problems. But it seems that investing in these refugees – i.e:for many of them (young, old, men women)  years of education in german (or french or Dutch or whatever) and vocational training – is a necessary part of the solution.

And the Italian coast guard is of course doing a good job.


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