Graphs of the year. Two old ones and two new ones.

I´ve posted some graphs on this blog. Some I especially like:

1. In normal sciences you earn a Nobel price when you estimate or discover something new or enable the measurement of something, like the Higgs particle. Not so in economics. But the ILO, the Bureau of Labor Statistics in the USA and Eurostat deserve the economics ´Nobel´ for defining and estimating ´broad´ U-6 unemployment next to ´normal´ U-3 unemployment. Since about a year, Eurostat publishes estimates this metric of broad unemployment which, among many other things, shows that the situation in Italy is much more dire than indicated by ´normal´ U-3 unemployment. For reasons which I do not understand Eurostat does not publish this graph, so I did it. These data deserve much more attention, in this article I compare the European data with the USA data (p. 152), which is possible because the data are in both cases based upon the ILO definitions.

Graph 1. Broad unemployment in Europe

2. To keep in touch with businesses I teach ´horse economics´. One of the companies my students and I visited, somewhere in Friesland, part of the Netherlands, breeds celebrated show horses and sells these to… the Amish. Which shows that ´competitivity´ is not so much about low wages but also and even mainly about ´export quality´ (and customers who are not allowed to drive a Mercedes). But even when you believe in the ´lower wages are the only way to increase competitivity´ story you first have to show that lowering wages indeed leads to a lower, more ´competitive´ price level, compared with your competitors. But it doesn´t, at least not when your price level is already very low (and therewith, supposedly, already very competitive…). Except for Ireland 2011 differences with 2008 where next to negligible, except for some countries were the relative price level actually increased… Investments and (in the example: A.I.) technology, not low wages or low price levels, are key, especially in the long run. Countries like Poland and Turkey, which devaluated, did however manager to lower their price level. And prevented a slump, which means that their neighbours actually profited from this devaluation!

Graph 2. The failure of price level targeting in Europe

3. These graphs are new. The first graph shows the interest rate people in Tietjerksteradeel, in Friesland, the Netherlands, had to pay when they borrowed money between 1605 and 1660. This money was not borrowed from banks as these did not exist in this area. The money was either borrowed from people with cash to spare or the loan originated from ´commercial credit´ (´payables´) which had been used to buy textiles, wood, rye and other grains or even entire mills. The second shows the average long-term interest rate in the Netherlands, 1590-2011. The nice thing about this rather unique combination of graphs is that it shows how the collectivity of individual, micro contracts was related to the large macro developments (for instance the decline of the interest rate after about 1655). As far as I´m concerned: real micro foundations, instead of phony neo-classical ones. It also shows that interest rates in rural backwaters were not much higher than in Amsterdam, in those days the financial center of Europe, underscoring the monetary nature as well as the existence of something like ´the economy of the Republic of the United Netherlands´. One historical addendum: these kinds of interest rates were sort of Protestant invention and only allowed since 1580. Up to that time the Catholic church did not allow outright interest though people often ´sold´ a land rent of for instance 10,00 a year for what was officially not a loan of 200,–, such ´rents´ however seem to have excluded compound interest. Interestingly, almost al contracts, inscribed in the official ´mortgage books´,  were between inhabitants (mainly couples, your spouse was part of your collateral in those days) of different villages. In those cases additional trust seems to have been needed.

Graph 3. Number of loan contracts with a specified interest rate, Tietjersteradeel, 1605-1660

Sources:

CBS (2001), Tweehonderd jaar statistiek in tijdreeksen (Heerlen/Voorburg)
Dehing, P. (2012), Geld in Amsterdam. Amsterdam.
Dehing, P. and M ’t Hart (1997), ‘Linking the fortunes: currency and banking, 1550-1800’ in: ‘t Hart, M., J. Jonker and J.L. van Zanden (eds.) A financial history of The Netherlands. Amsterdam.
Nijboer, H. (2007), De fatsoenering van het bestaan. Consumptie in Leeuwarden in de gouden eeuw. Groningen.

This last reference is a book of unusual quality (albeit in Dutch):

Paping, R., (1995) Voor een handvol stuivers’. Werken, verdienen en besteden: de levensstandaard van boeren, arbeiders en middenstanders op de Groninger klei, 1770-1860 (Dissertatie Groningen 1995, Historiae agriculturae XXVII). (For a fist full of stuivers. Work, earnings and expenditure: the standard of living of farmers, labourers and ´Mittelstand´ in the Groningen clay soil area, 1770/1860. Much of the stunning amount of statistics in this book compare well with modern day ones!)

• Internet site Tresoar, http://www2.tresoar.nl/nieuwland/