Remarks given at the Harvard Club UK Southwark Cathedral dinner, London.
- 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…
from Peter Radford
The Fed’s decision last week not to raise interest rates has produced a predictable burst of apoplexy in the banking industry.
Banks would be more profitable if rates were higher. These low rates have squeezed their net interest margins and banker are prone to bleat very loudly if their bonus opportunities are damaged slightly.
I was asked over the weekend whether this prolonged period of low interest rates was politically rather than economically driven. I am not quite sure what my questioner had in mind about the political motivation. It was probably some deep Obama plot to deprive retirees of their interest income. I tried to present the basic argument explaining low rates and their persistence. I don’t think I made much impression.
It seems that the bankers and their friends in the right wing media have managed to bludgeon their message into the public’s minds. Plenty of people who normally ignore economics are suddenly experts on Wicksell. Or so it seems. Read more…
from Asad Zaman and the WEA Pedagogical Blog
Reviewers have called it a 700-page punch in the plutocracy’s gut. The title of Thomas Piketty’s magnum opus suggests that he is updating Das Kapital, to bring Marx into the 21st century. Piketty documents a sharp increase in income inequalities over the last 25 years, not only in the US, but also in Canada, Britain, Australia, New Zealand, China, India, Indonesia and South Africa, with people with the highest incomes far outstripping the rest of society. However, he goes far beyond the compilation of statistics and provides a grand unified theory about the deep forces which have shaped human history over centuries. His analysis points out a fundamental conflict between free markets and democracy, directly contrary to widely accepted conventional wisdom that the two go together.
As one illustrative statistic, the bottom 80 per cent of the US population has only five per cent of the wealth, while the top five per cent has 72 per cent. This level of inequality matches the inequality levels seen around the Great Depression. Why is there so much inequality, and why does it continue to rise? Piketty’s answer is brilliantly simple: r > g. The ‘r’ is the rate of return to wealth. This is the profit that the wealthy can make when they invest. The ‘g’ is the growth rate of the economy, currently around 3.3 per cent, globally. There are two types of people in the economy. The wealthy earn money by investing their wealth, while rest must work for a living. If return to wealth is larger than the growth rate, the wealthy grow richer faster than the growth of the economy, while the earnings of the salaried classes grow at a slower rate. As a natural consequence, the rich get richer, while the bottom 99 per cent gets squeezed. read more
from David Ruccio
Back in the nineteenth century, the union movement demanded an 8-hour workday.
Here’s the question I often pose to my students: when did the United States finally pass legislation limiting the workday to 8 hours? It’s a trick question, of course. The answer is: never.
Reinhart and Trebesch: “The pitfalls of external dependence. Greece 1829-2015”. How to loot and weaken a state.
In 1833 the young Greek state was bailed out for the first time. Greece could not pay the loans taken on even before Greece was an independent state anymore. Remarkably, the state-to-be had received not even half of this money as, aside from high fees, there was a 40% haircut on the money Greece received. See p. 13 of a new paper by Reinhart and Trebesch, The pitfalls of external dependence, Greece 1929-2015, on the history of the four to six bail outs of Greece. The total sum of the 1833 bail out loan (financed by governments and which in fact bailed out private creditors, not Greece) was 45,5 million gold Drachme. Five million went to the Rothschild bank, as a fee. Another 7,6 million did not go to the Greek government but to the lenders as an interest advance for 1833 and 1834. Greece had to pay interest on a loan used to pay interest in advance. And the rest of the money? According to Reinhart and Trebesch, this is what happened: Read more…
from Peter Radford
I am not sure I understand the point of Alexander Kaufman’s column in the Huffington Post. In it he takes Paul Krugman to task for being repetitive and talking about just there things: austerity is bad, inflation fears are overblown, and Keynes was right.
Whether or not we have disagreements with Krugman – and I know many of you do – those disagreements pale in comparison with those we all have with the arguments of the people Krugman is targeting in his columns. Yes Krugman can be annoying with his emphasis on his version of the Hicks version of Keynes. But if it serves to get a vital message across to a public largely unaware of the internecine struggles within economics, so what? I don’t care. Nor should you.
And if he sounds repetitive, then we should ponder the reason: far too many policy makers are still stubbornly clinging to disproven theories. Yes, disproven. So are far too many academics. Read more…
For years, trade and justice activists from across North America have proposed renegotiating the North American Free Trade Agreement to address some of the deal’s most damaging features. Top priorities would include removing the anti-democratic investor-state dispute settlement (ISDS) provisions of Chapter 11, linking trade benefits to genuine protections for human and labour rights (crucial given the deteriorating democratic situation in Mexico, with mass disappearances and regular suppression of journalists and organizers), and establishing a continent-wide strategy to fairly allocate investment and production in key industries like auto manufacturing (thus curtailing the race-to-the-bottom the that currently shapes those patterns).
We were always told that renegotiating NAFTA was a pipe dream: it would not be possible to open the text and get all three countries on board with reforms, no matter how legitimate the concerns. So imagine our collective surprise to see that the entire NAFTA is suddenly now being renegotiated on a wholesale basis – but through a back-door method. The Trans-Pacific Partnership talks, as usual behind closed doors, have jumped right into the deep end, opening up the entire text of NAFTA to wholesale reform and renegotiation. Read more…
Looking at neoclassical macro-models through the lens of economic statistics. Today part 8: financial markets. On 21 september Mark Carney (governor of the Bank of England), held a speech for Harvardians in London, about financial markets. It totally fits in this series even though it´s not too explicit about statistics. These are, however, used in a welcome, inductive way. When they do not fit the models the statistical data are not ignored but the models are questioned. See at the end for part 1-7.
Three Truths for Finance – speech by Mark Carney21 September 2015“All England is an American shrine, full of rich records of the makers of their nation.” 1None more so than glorious St Saviour’s – Southwark Cathedral – a few minutes south of the river from here.
from David Wessel in the Wall Street Journal
The typical man with a full-time job–the one at the statistical middle of the middle–earned $50,383 last year, the Census Bureau reported this week.
The typical man with a full-time job in 1973 earned $53,294, measured in 2014 dollars to adjust for inflation.
You read that right: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs.
This one fact, tucked in Table A-4 of the Census Bureau’s annual report on income, is both a symptom of an economy that isn’t delivering for many ordinary Americans and at least one reason for the dissatisfaction, anger, and distrust that voters are displaying in the 2016 presidential campaign. read more