Archive for February, 2013

Employment growth in the UK: the sectoral view

February 26, 2013 4 comments

Considering the state of the economy, employment growth in the UK is, with 1,7%, quite high. Which sectors added most jobs? Remarkably, about half of total job growth is located in education and health. In the UK, education is a female dominated sector (71%). More than half of the net new entrants were male, however. Does anybody know why education added so much jobs in the UK?


Source: ONS

By the way – I severely disagree with Scott Sumner when he, when writing about employment in the UK, complains that “Europe appears incapable of creating a St Louis Fred-type data set that doesn’t require a PhD in computer science to navigate“. He should not complain. Being able to navigate the large number of economic datasets available on the internet and to understand the concepts of the statistics is a basic skill for the modern economist, with or without a PhD, and students of economics should spend a lot of time on acquiring it (Paul Krugman is remarkably good at this).

I do however agree with the caveats mentioned by Scott, when he tries to analyse these data. And not just the jobs data indicate higher growth than at present estimated by the ONS, the increasing deficit on the current account points in the same direction. Remember, however, that employment is a lagging variable and the decline of the British economy in the fourth quarter still has to show up in the employment data – I expect Britsh employment growth to go down and unemployment to go up in the January-March period. An interesting development in Germany: moderate job growth in Germany (for a large part concentrated in ‘health!’) in 2012 was to a very considerable extent caused by people working fewer hours per person.

Graphs of 27/2/2013. Bad debts in Spain, Ireland and the Netherlands

February 26, 2013 Leave a comment

Update: Bad debt costs for the RABO, a larg Dutch bank, increased with 46% in 2012, to 2,3 billion Euro. h/t Hans de Geus


Creditor centred policies did not turn out as expected in the Eurozone. Cutting wages and pensions and decreasing employment did not lead to more money being available to serve the debts but to less money being available to serve the debts. I expect these data to be too low – but even then the increase is amazing. Sources: national central banks.




Myth of free trade

February 26, 2013 7 comments

from David Ruccio

Matthew O’Brien does a pretty good job capturing the myth of free trade:

There’s only one thing economists love more than free trade. That’s telling everyone else why they should love free trade too.

This rare exuberance from the practitioners of the dismal science is understandable. Free trade is the closet thing economics has to magic. The trick, and it’s quite a trick, is you don’t even need to be better at making something than somebody else for you both to be better off from you specializing in it (and trading it). As long as you both make different goods with different efficiencies, you can both gain from trade by focusing on your more efficient good. And these gains can be big — similar to inventing new, labor-saving technology — since specialization lets you produce more in less time.

But — Read more…

Keynes on mathematical economics

February 25, 2013 16 comments

from Lars Syll

But I am unfamiliar with the methods involved and it may be that my impression that nothing emerges at the end which has not been introduced expressly or tacitly at the beginning is quite wrong … It seems to me essential in an article of this sort to put in the fullest and most explicit manner at the beginning the assumptions which are made and the methods by which the price indexes are derived; and then to state at the end what substantially novel conclusions has been arrived at … I cannot persuade myself that this sort of treatment of economic theory has anything significant to contribute. I suspect it of being nothing better than a contraption proceeding from premises which are not stated with precision to conclusions which have no clear application … [This creates] a mass of symbolism which covers up all kinds of unstated special assumptions.

Keynes to Frisch 28 November 1935

Graph of the day. Unemployment in the UK

February 22, 2013 1 comment

The english economy is decreasingly defying gravity. Consumption and job growth did held up quite well, despite VAT increases, higher taxes, cuts in government jobs and lower real wages. Unemployment even went down despite an increase in the participation rate  (a phenomenon partly caused by the Olympics spending boom) and a rapidly increasing deficit on the current account even pointed towards some kind of economic boom outside the manufacturing sector, despite low overall growth. Great. But it seems that the economy is returning to ‘normal’. Job growth is declining and retail sales are really going down (source: ONS). All things are relative, however. When we compare english unemployment with unemployment in the eurozone (which is 11,7%, at the moment) it shows that UK unemployment still is much lower than the Eurozone average. Which is at the moment about as high as during the worst period of the Thatcher years, when British economic policy was deliberately aimed at not letting labour work. The difference: in those days, interest rates in Brittain were high. And at present, ‘retail’ interest rates in the Eurozone are pushing, at least in some countries, against the Zero Lower Bound. Despite this, GDP is declining quite fast even in countries like Germany and the Netherlands.


Graph of the 2nd American Revolution

February 22, 2013 1 comment

from David Ruccio


Read more…

US wages and productivity 1968 – 2012 (minimum, average and The 1%)

February 21, 2013 6 comments

from David Ruccio


Read more…

US minimum wage: Who decided workers should fall behind?

February 20, 2013 10 comments

from Dean Baker

It was encouraging to see President Obama propose an increase in the minimum wage in his State of the Union Address, even if the $9.00 target did not seem especially ambitious. If the $9.00 minimum wage were in effect this year, the inflation-adjusted value of the minimum wage would still be more than 2.0 percent lower than it had been in the late 1960s. And this proposed target would not even be reached until 2015, when inflation is predicted to lower the value by another 6 percent.

While giving a raise worth more than $3,000 a year to the country’s lowest paid workers is definitely a good thing, it is hard to get too excited about a situation in which these workers will still be earning less than their counterparts did almost 50 years ago. Read more…

Economist of the day

February 20, 2013 6 comments

from David Ruccio

Ecuador’s president Rafael Correa [ht: ke] has been elected to a third term in power.

What policies has your government pursued in order to reduce inequality?

Latin America holds the grim title of most unequal region in the world, and the Andean countries are the most unequal part of that region. This is why it was crazy to apply the neoliberal system, supposedly based on competition and the liberation of the market, in countries like Ecuador in recent decades. What competition were they talking about? It was a massacre. Now we are reducing inequality, and poverty with it, through a combination of four things. Firstly, making the rich pay more taxes. We have instituted a much more progressive taxation system, and people now actually pay their taxes—collection has doubled. These resources, together with oil revenues and the money saved by reducing the debt burden, can be devoted to education, health and so on. This is the second point: giving equality of opportunities. People no longer have to pay for healthcare or education, which were quite expensive for the poor—school enrolment cost $25 per child, but is now completely free; some children are given books and uniforms too.

Thirdly, Read more…

Robert Lucas on the slump

February 19, 2013 9 comments

from Lars Syll

In a recent lecture on the US recession – Robert Lucas gave an outline of what the New Classical school of macroeconomics today thinks on the latest downturn in the US economy and its future prospects.

Lucas starts by showing that real US GDP has grown at an average yearly rate of 3 per cent since 1870, with one big dip during the Depression of the 1930s and a big – but smaller – dip in the recent recession.

After stating his view that the US recession that started in 2008 was basically caused by a run for liquidity, Lucas then goes on to discuss the prospect of recovery, maintaining that past experience would suggest an “automatic” recovery, if the free market system is left to repair itself to equilibrium unimpeded by social welfare activities of the government.

As could be expected there is no room for any Keynesian type considerations on eventual shortages of aggregate demand discouraging the recovery of the economy. No, as usual in the New Classical macroeconomic school’s explanations and prescriptions, the blame game points to the government and its lack of supply side policies.

Lucas is convinced that what might arrest the recovery are higher taxes on the rich, Read more…

Income redistribution in the United States 1913-2011 (2 graphs)

February 18, 2013 7 comments

from David Ruccio

top decile

Read more…

Graph of the day – a deflation shock in Japan

February 17, 2013 4 comments

We should not read too much in one data-point. But we also should take it serious: there might well be some kind of deflation shock in Japan. Which adds some background to the aggressive reflation policies proposed by Shinzo Abe. A 4% deflation rate is a massive failure of central bank policies and preliminary data must have been buzzing around for quite some time, by now.


Source: Eurostat

How the Belgians really broke the repression by the financial markets

February 15, 2013 2 comments

According to Olli Rehn, financial repressor employed by the european Union, states in a letter dated 13 February 2013,

Update 17/2/2012: the ‘picture’ of the text of the letter suddenly blacked out, click on it and you can read the text.


Why don’t such amateurs ever do their homework. What really happened was quite a bit different. In November 2011 Belgium indeed ran the risk of getting stuck in a ‘bad equilibrium’, a situation where a government has to pay high interest rates as the deficit is high because interest rates are high. You get the idea. At its wits end the non-government of Belgium (at that moment there was no official government) decided to pull a trick and, in a rather old-fashioned way, to borrow money directly from the Belgian people: the so-called staatsbons (available at the post office). This yielded eleven times the amount of money targeted and interest rates went down again, clearly before the new government took office on 6 December.


And it’s of course not just Rehn who tries to embezzle the truth and the re-write history. Klaas Knot, president of the Dutch central bank, also still prefers the ‘callibrated’ a-empirical neo-classical economic models with fantasy values of the parameters above scientific, estimated models which are subjected to empirical discipline. Or should we call this ‘Diederik Stapeled models’ instead of ‘callibrated’ models?

What’s Missing?

February 15, 2013 5 comments

from Peter Radford

A couple of days ago I complained about the misrepresentation of Federal spending under Obama. It hasn’t risen anywhere near as much as some folks say it has. Indeed it has been under control since that first burst during the heat of crisis.

That drew the ire of one or two of you who complained that the real issue is not the budget, but the economy and its chronic under performance.

I agree.

I look at this chart and wonder why our fearless leaders don’t see what’s missing:

Because it’s pretty obvious to me.   Read more…

Fix the Debt and a Wall Street Sales Tax

February 15, 2013 8 comments

from Dean Baker

At this point everyone knows about Fix the Debt. It is a collection of corporate CEOs put together by Peter Peterson, the Wall Street private equity mogul. Ostensibly they want to reduce budget deficits and the national debt, but for some reason their attention always seems focused on cutting Social Security and Medicare. While some in this group will allow for minor tax increases, budget cuts are explicitly a priority, with these two programs firmly in their crosshairs.

Given that the stated goal of this group is to reduce budget deficits, it is worth asking why taxes don’t figure more prominently on their agenda. After all, the United States ranks near the bottom of wealthy countries in its tax take as a share of GDP. It is also worth asking why one tax in particular, a financial transactions tax, never seems to get mentioned in anything the group or its members do.  Read more…

The productivity dividend for dummies: Raising pay while working less

February 14, 2013 11 comments

from David Rosnick

I am greatly pleased to see such interest in CEPR’s recent report on work hours and climate change.  All evidence points to the idea that gradually reducing annual labor hours per worker will reduce the amount of climate change with which the world will have to cope.  But this does not mean that ordinary workers will have to make a sacrifice.  Rather, this is about how workers may choose to enjoy the fruits of increased productivity—if only they are given the chance to share fully in economic progress.

Throughout the 1950s, workers in the United States enjoyed fewer hours of labor than almost every country in Western Europe.  On average, an employed American worked 1,909 hours in 1950.  Only Sweden—at 1,871 hours—worked less.  By contrast, Greeks averaged 2,712 hours that year; the Irish put in 2,753.

Today, workers in Greece are second only to Poland for the longest working hours in all Europe and labored 330 hours longer in 2012 than their American counterparts.  However, productivities of these countries have climbed dramatically since 1950 as hours have fallen.  In each hour of work in 2012, each American produced 3.2 times as much as in 1950.  This allowed workers to build 2.9 times as much in each year— and do so in 200 fewer hours than in 1950.  In this way, American workers labored a bit less and still prospered materially.

These same Americans might have enjoyed a little more time off and still produced far more than did workers in 1950.  Over those same 62 years, the average French work-year fell by 684 hours and still workers produce 4.7 times as much in a year. Read more…

US federal spending facts (2 graphs)

February 13, 2013 3 comments

from Peter Radford

Like many people I am perplexed by claims that federal spending has ‘exploded’ on Obama’s watch. The claim is generally made by someone on the right of center in politics and is stated as if it is a well known fact. So well known that no one can possibly refute it. The conversation is then meant to proceed immediately to what we can do about said ‘explosion’ and how we can restrain the Federal government.

The problem I have is factual.

Here is a chart of Federal spending from way back when:

Read more…

Graph of the day: house prices in the European Union

February 13, 2013 6 comments

According to Scott Sumner, decreases of house prices are quite exceptional, which proves that the housing market is rational in the neo-classical sense, which proves that markets are rational in the neo-classical sense. Is he right? Or might the housing market be characterized by ‘house price illusion’, the idea that when one house sells for a higher price all houses will, eventually, sell for a higher price? And might there be a fallacy of composition: when one house gets more expensive, individual wealth of the owner increases. But when all houses get more expensive – this is just house price inflation and the total stock of real wealth does not increase a dime as we have to deflate this with the index of house prices? Anyway – the idea that house price decreases are the exception is just not right.

House prices Source: the new Eurostat house price data. Caveat: the data are not entirely comparable, Dutch house prices for instance decreased despite a decrease of the sales tax from 6% to 2% (while the same government at the same time increased house rents…).

Ergodicity – the biggest mistake ever made in economics

February 12, 2013 25 comments

from Lars Syll


Paul Samuelson claimed that the “ergodic hypothesis” is essential for advancing economics from the realm of history to the realm of science.

But is it really tenable to assume – as Samuelson and most other neoclassical economists – that ergodicity is essential to economics?

The answer can only be – as I have argued here, here, here, here and here – NO WAY!

Samuelson said that we should accept the ergodic hypothesis because if a system is not ergodic you cannot treat it scientifically. First of all, that’s incorrect, although I think I understand how he ended up with this impression: ergodicity means that a system is very insensitive to initial conditions or perturbations and details of the dynamics, and that makes it easy to make universal statements about such systems …

Another problem with Samuelson’s statement is the logic: Read more…

The housing bubble should not have been hard to see

February 12, 2013 3 comments

from Dean Baker

Economists and other policy types are working hard to maintain the absurdity that the housing bubble was hard to see. Hence we have Federal Reserve Board Governor Jeremy Stein pontificating on how the Fed should deal with bubbles and the Post playing along with the gag.

Let’s just run through the basic facts. Read more…