Archive for January, 2012

Quantitative easing in the UK did not lead to an increase in the supply of money (graph)

January 16, 2012 8 comments

from Merijn Knibbe

“You can lead a horse to water, but you can’t make it drink”

Did ‘quantitative easing’ in the UK lead to an inflationary increase in the supply of money and did it, therewith, increase inflationary risk? Not in the UK. At least, not at this point in time, as households and companies are deleveraging. The graph shows ‘M-3 money’. But other definitions of money (according to data of the Bank of England) show the same pattern. The increase of the money supply is either way below the increase of nominal GDP (the divisia index, a weighted average of different kinds of ‘money like’ assets wich more or less ranks these assets according to liquidity) or even show decreases (M-1 and M-2). A severe (oil-)price shock, low unemployment leading to high wage increases or a tight housing might change this, once upon a time. Or, to quote the results of some econometric testing (using methods pioneered by Sims): Read more…

Michael Hudson on the making of the crisis

January 13, 2012 6 comments

from Merijn Knibbe

I stumbled upon what for me is the best analysis of the crisis I’ve read up to know: an article from Michael Hudson. An excerpt:

In this new financialized warfare, governments are being directed to act as enforcement agents on behalf of the financial conquerors against their own domestic populations. This is not new, to be sure. We have seen the IMF and World Bank impose austerity on Latin American dictatorships, African military chiefdoms and other client oligarchies from the 1960s through the 1980s. Ireland and Greece, Spain and Portugal are now to be subjected to similar asset stripping as public policy making is shifted into the hands of supra-governmental financial agencies acting on behalf of bankers – and thereby for the top 1% of the population. Read more…

The housing bubble and what Greenspan should have done

January 11, 2012 31 comments

from Dean Baker

In Washington policy circles, money and influence can be used to make even the most simple and obvious things complicated and confusing. This is certainly the case with the housing bubble and its aftermath. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame.  Read more…

Economists may contribute to a “lost decade” for America

January 10, 2012 5 comments

from Mark Weisbrot

The American Economic Association’s annual meetings are a scary sight, with thousands of economists all gathered in the same place – a veritable weapon of mass destruction.  Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”

The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it.  Yawn. Read more…

Long-term hardship

January 10, 2012 2 comments

from John Schmitt

In a new CEPR report (pdf), Janelle Jones and I argue for rethinking our understanding of “long-term unemployment.”

From the executive summary:

First, we encourage shifting from a narrow focus on long-term unemployment toward a broader concept of “long-term hardship” in the labor market. Many workers or potential workers who do not fit the official definition of long-term unemployment – including “discouraged” and “marginally attached” workers and those involuntarily working part-time jobs – face long-term hardship in the labor market, but are not captured in the standard measure of long-term unemployment. Read more…

Meanwhile, in Europe… Unemployment hits a record, differences larger than ever (Nov 2011, graph)

January 9, 2012 2 comments

from Merijn Knibbe

According to last weeks Eurostat unemployment report the EZ unemployment rate did not change in November, compared with the month before (10,3%). The number of unemployed in the European Union however increased with 55.000 to a new record. According to the press release, ‘Compared with November 2010, unemployment rose by 723 000 in the EU27 and by 587 000 in the euro area’. But averages do not serve us well when we look at either the European Union or the Eurozone, as differences between countries are still increasing (graph). When we look at a somewhat longer period we see employment rates converging up to 2008. After about january 2008, i.e. quite some time before ‘Lehmann’, rates in Ireland and Spain start to explode and differences bertween countries became larger than ever. Read more…

Republican tax plans to date in one convenient graphic

January 8, 2012 6 comments

from David Ruccio

Kevin Drum has collected charts showing all the Republican tax plans to date in one convenient graphic.

It’s really pretty spectacular seeing them all together like this. It’s not just the amount of pandering to the super-rich that’s so breathtaking, it’s the lockstep unanimity. At all costs, every single Republican candidate knows that he has to promise the ultra-wealthy a huge tax break as the price of staying in the race. This, ladies and gentlemen, is the modern Republican Party in a nutshell.  Read more…

Dangerous Misconceptions

January 6, 2012 3 comments

from Peter Radford

Words. They can hurt. They can purvey pernicious thoughts behind attractive or clever sounding draperies. They can, as with orthodox economics, do substantial damage to ordinary people who are completely unaware of the meaning of those words, or the dire consequences that those distant and stuffy sounding thoughts can bring raining down on the innocent. This is, of course not a novel thought. But I reflect on it now and again when confronted by comments designed to lead the unaware to an extreme conclusion.

Alan Greenspan is particularly adept at tossing out seemingly clever ideas. He pontificates well. He tries to hide his agenda. Like a lot of orthodox economists, he speaks as if he is being objective or scientific rather than pressing an ideological perspective. This is the worst kind of dangerous misconception: when a person poses as an expert in order to press the world into a preferred shape, rather than to act as a dispassionate advisor. The untrained ear hears sagacity, the knowing mind abhors the trickery. Read more…

US unemployment falls to 8.5 percent, but job growth remains weak

January 6, 2012 Leave a comment

from Dean Baker

The unemployment rate fell to 8.5 percent in December, the lowest level since the 8.3 percent rate reported for February of 2009, the month that Congress approved the stimulus package. The drop was driven primarily by a 0.3 percentage point decline in the unemployment rate for men to 8.0 percent. The unemployment rate for women edged up slightly to 7.9 percent. Over the last year, the gap in unemployment rates between the sexes has virtually disappeared as the unemployment rate for men fell by 1.4 percentage points, while the rate for women only dropped by 0.2 percentage points. The employment-to-population ratio (EPOP) for women has actually fallen by 0.4 percentage points over this period, while it has risen by 0.8 percentage points for men. Overall, the EPOP stands at 58.5 percent, 0.2 percentage points above its year-ago level and 0.4 percentage points above the lows hit in the summer. Read more…

The Euro is leaving Greece – and a new Great Depression has entered.

January 5, 2012 6 comments

from Merijn Knibbe

Do Great Depression’ policies lead to ‘Great Depression’ results? Yes, they do. Look at this chart showing the development of the money supply in Greece: Read more…

The bogus case against the minimum wage hike

January 5, 2012 4 comments

from Dean Baker

Eight states and one city (San Francisco) raised their minimum wage this week, providing a pay raise to just over 1 million workers. In the face of this good news, the opponents of the minimum wage are warning of serious job loss. They are likely to be proved wrong, yet again.

A simple Econ 101 story argues that a higher minimum wage will lead to fewer jobs for teenagers and other workers at the bottom rungs of the labor market. However, at this point a large body of research shows that increases in the minimum wage at the national, state and even local levels have not cost jobs. That may sound counterintuitive; after all, economists always say that when the price rises, demand falls. This should mean that with a higher minimum wage, employers will want fewer workers.

The real story, however, is somewhat more complex. Employers not only care about the wages they pay, they also care about workers’ productivity, and the rise in the pay by itself may cause workers to be more productive.  Read more…

Chart of the day: US profit and wage shares 1970 – 2011

January 4, 2012 17 comments

This graph shows that:

  1. since the early 1980s the underlying trend in the United States has been for a bigger share of national income going to corporate profits and less to employees, and
  2. now under Obama the rate of redistribution has reached an unprecedented level.    Read more…

The Debtwatch Manifesto

January 3, 2012 7 comments

from Steve Keen


Click here for this post in PDF

The fundamental cause of the economic and financial crisis that began in late 2007 was lending by the finance sector that primarily financed speculation rather than investment. The private debt bubble this caused is unprecedented, probably in human history and certainly in the last century (see Figure 1). Its unwinding now is the primary cause of the sustained slump in economic growth. The recent growth in sovereign debt is a symptom of this underlying crisis, not the cause, and the current political obsession with reducing sovereign debt will exacerbate the root problem of private sector deleveraging. Read more…

What is economics’ breakthrough of the year?

January 2, 2012 11 comments

frm Merijn Knibbe

Some of the more important economic studies are never published in journals – let alone A+ journals. They stay within the walls of the Statistical Institutes, like Eurostat. Or they are published, anonimously, in the Bulletins of Central Banks. See Box 1 on p. 22 of the Bulletin of the Central Bank of Ireland, 2011, first quarter.. That’s a problem, as such publications do not count when economists apply for jobs at universities – which means that people working at for instance the Statistical Institutes will have problems when they apply for a university job. Which means that Universities do not employ people with first hand experience with the construction of economic statistics… That’s bad. And it’s also rather daft – people like Friedrich Hayek, Jan Tinbergen, Milton Friedman and John Maynard Keynes did do this kind of work, for an extended time!

Also, on this site, complaints about the (small) world of university economics are sometimes posted. Who ares! But it seems to be increasingly important that an economist can show a track record of publications in ‘important’ journals (i.e. when they want to apply for a job), prices and comparable tokens of prestige. But ‘prestige’ nowadays seems to have a rather ‘old school’ definition… Time for a change. Maybe this an idea for the World Economics Association:

‘Science’ every year publishes the ‘breakthrough of the year’. Economics are, however, absent from this list. .The newsletter of the World Economics Association might, every year, publish the ‘economic breakthrough of the year’. Possible rules: Read more…

Debt Britannia (with 16 graphs)

January 1, 2012 2 comments

from Steve Keen

As much as I criticize the US of A for its economic management, I can’t fault its statistical agencies on the collection and dissemination of data: data is readily available and almost always in an easily accessible format. That, and the fact that it’s the world’s biggest economy, is why most of my analysis is of the US. Australia’s ABS deserves similar accolades for making data readily accessible and relatively easy to locate.

The UK data source, the Office of National Statistics, is almost impenetrable by comparison—it’s the statistical system that Sir Humphrey Appleby would design. It gives the appearance of accessibility, yet either drowns you in so much data in response to any query that you give up, or which, when you get to what you think you want, returns rubbish. Read more…