Author Archive

A prize for public servants

Via June Sekera and the Public Goods Post website (see also below). This post is of course USA centered, but I’ll be glad to put up comparable posts for other countries. Ideas anybody?

The 2016 Samuel J. Heyman Service to America Medal finalists were announced this month. As described recently in The Washington Post, these medals honor civil servants who have performed breakthrough work in the public sector, resolving formidable challenges to public well-being. You are likely familiar with these challenges. Especially as they impact public health and the environment, they have made national headlines. But you probably have not heard about how a problem was solved or a public need met, because solutions are not considered newsworthy. For many of the public workers on this list, their contributions are being recognized for the first time. ….”


Dr. Burke Healey Department of Agriculture
“Halted the spread of the largest animal disease outbreak in U.S. history, an avian influenza virus that threatened human health, the poultry industry and the jobs of 1.8 million people.”

Background Avian Flu Outbreak Takes Poultry Producers Into Uncharted Territory | NPR

Thomas A. Mariani, Jr., Steven O’Rourke, Sarah Himmelhoch Department of Justice
“Secured a record $20.8 billion legal settlement against BP Read more…

Timo Boppart and Per Krusell are wrong: involuntary unemployment exists and does matter

May 22, 2016 5 comments

New Deal
Timo Boppart and Per Krusell have written an interesting but flawed article about the long run decline in the average hours worked. As they do not account for changes in involuntary unemployment and do not even seem to know the concept they are led to an understanding of their (interesting!) data which is at odds with reality Read more…

The shame of Europe

The problem of the 720.000 Palestinians who fled their homes in 1947 has not yet been solved (understatement). Should the way these refugees were and are treated however become the template for how we treat the Syrian refugees? The Economist gives an answer. No.

From The economist

Unaccompanied children are the neediest kind of refugee

In 1939, at great personal risk, an English stockbroker rescued 669 Jewish children from Nazi-occupied Czechoslovakia. Nicholas Winton travelled to Prague, helped the children onto trains and battled with his own country’s bureaucrats to have them admitted to Britain. Among those he saved from the gas chambers was Alf Dubs, now a Labour peer, who is pressing Britain’s government to grant asylum to refugee children in Europe without their parents.

He has met stout resistance. On April 25th the House of Commons, including nearly all MPs from the ruling Conservative Party, voted against Lord Dubs’s proposal to admit 3,000 of these children. Read more…

Ireland, money and Münchhausen

One of the problems with the present Irish upswing is the curious case of the missing money. Economic growth (estimated at 7%) may be somewhat cosmetic (look here) but employment and consumption have been increasing at a brisk rate, too. Which is, also considering the upswing in house prices, remarkable as Irish households are deleveraging and rapidly so, while companies are not really borrowing, according to the Bank of Ireland. Total loans owed by non financial companies behave slightly erratic but are still lower than in 2012.This runs counter to ideas about balance sheet recessions: deleveraging should lead to less consumption and investment. So, where does all the money come from? Trade credits. See graph 1 (the flow of funds data from the Irish central bank show that this increase went on at least until the third quarter of 2016 and possibly even at a faster rate). Irish companies are accepting ‘promises to pay’ from their customers as a (legally binding) means of payment, therewith pulling themselves and the Irish economy out of the morass.

Read more…

Links. Lessons, the Mobuto-Anglo Irish connection, models and statistics,

May 4, 2016 1 comment
  1. A very dense and very long 2013 speech by Joseph Stiglitz: A Revolution in Monetary Policy: Lessons in the Wake of the Global Financial Crisis. Quote: “Thus, I take strong issue with Bernanke who has tried to suggest that there was nothing wrong with standard macroeconomic and monetary theory; there were only some minor flaws in its implementation.”
  2. Josh Mason, ‘Only the debt is national‘. The economics and accounting of how the Mobutus of the world and banks like Anglo-Irish succeeded in borrowing abroad, siphoning off the money for private gain and socializing the debt. Quote: “Financial commitments create obligations; when circumstances change, sometimes they can’t be met. Someone isn’t going to get what they were promised. In modern economies, the state (often in the guise of the central bank) steps in to assume or redominate claims, to impose an ex post consistency on the inconsistent contracts signed by private agents. But with foreign-currency commitments to foreigners the authorities’ usual tools aren’t available. And just as important, there are other authorities — the ECB in the case of Greece, the US federal court system in the case of Argentina — that are ready to use their privileged position in the larger payments system to enforce the claims of creditors. In effect, while domestic contracts are always subject to political renegotiation, foreign contracts are — or can be made to seem — objective fact.”
  3. Conference paper by N. Bokan, A. Gerali, S. Gomes, P. Jacquinot and M. Pisani about the ECB flagship ‘Eagle model'(a so-called neoclassical DSGE model). They added a banking sector to the model of the ECB (and call it ‘Eagle Fli’…). Yes, right, it was only in 2015 a banking sector was added to the flagship model of the European Central Bank… As in this model the government still creates all the money, while in reality the banks create most of the money (and the ECB is even phasing out the 500,– bill) these central bank economists still have some way to go. But at least they gave it a try; the original ECB New Area Wide Model (precursor of the Eagle model) model of the ECB did not even have money in the model…
  4. The chapter about DSGE models in the 7th edition of Mankiw economics textbook starts with the next William Bragg quote: “The important thing in science is not so much to obtain new facts as to discover new ways of thinking about them“.  Wrong. The PhD thesis of Benjamin Hav Mitra Kahn, ‘Redefining the Economy’, clearly shows that students of famous economists which taught us to think in another way about the economy, like Alfred Marshall, went on to redefine economic statistics to find new facts. Keynes was an exception: he himself guided this process. Mitra Kahn does not mention Veblen, his student Wesley Mitchell became head of the NBER, his student Morris Copeland conceived the flow of funds statistics and his student and friend Isador Lublin became head of the Bureau of Labour Statistics. It’s clearly one of the mayor failings of neoclassical macro-economists that they have not been able to spawn a system of statistics consistent with their models.

Labour day. Rejuvenating the concept of involuntary unemployment

Labour day (no, not ‘labor day’…). Here a labour day special of Eurostat. Below, the labor day special of this blog.

The percentage of labour force which is unemployed and which, in the next quarter, is still unemployed can reasonably be called ‘involuntary unemployment’. Unemployment on the micro level is, by definition, a situation which people are actively trying to change, if this does not result in employment in a reasonable period of time (one quarter) this indicates, also considering the very large and cyclically sensitive differences between countries and cyclically induced changes in individual countries, that unemployment is not just involuntary on the micro level but also on the macro level.


Read more…

Unemployment, Europe, regional data

April 29, 2016 Leave a comment


Eurostat has published regional data on unemployment (map). For several reasons I include Turkey in Europe, hence the title of this blog. In the rest of Europe, there is some bewilderment why these Turks (often smart, well-educated people) vote for an unenlightened autocrat like Erdogan. The map gives a clue: except for the Kurdish area of Turkey, unemployment is at least not disastrous and sometimes even pretty low. Turkey does much better than either Greece, Italy or Spain. At this moment, Greek emigration to Turkey is a more realistic idea than Turkish emigration to the rest of Europe. Read more…

Are Eurozone national banks providing credit to their governments? Wonkish

April 26, 2016 7 comments

In the comments to this post, there is some discussion about credit provided by Eurozone banks to their governments. I stated that ‘credit to the government’ is at this moment (!) the most important reason the stock of money in the Eurozone is increasing, some comments are skeptical. A re-investigations shows that it is all slightly complicated. According to the Eurozone law, national central banks are not allowed to provide credit to their governments. Normal banks are however allowed to do so. And according to ECB statistics, they do (see the graph, source). Bank ‘credit’ to the government is growing at a 10% a year rate, while the growth rate of credit to other Euro area residents is barely positive.  I do however seem to have misread or at least misunderstood the word ‘credit’ in this graph.


According to this source (p. 111), credit is defined by the statisticians of the ECB as: Read more…

From the comments: inflation, monetary and economic stability and central banks

April 24, 2016 17 comments

Larry Motuz, Paul Davidson and Don John weigh in on this post about central banks, different inflation metrics and monetary stability. What can we learn from them? Below, the comments. Below these, some remarks from me. First, however, the fact that a broader metric of inflation like domestic demand inflation (graph, source: Eurostat) shows a dramatically different development than consumer price inflation. ‘Dramatically’ as the differences add up. The total increase of the consumer price level in Germany between 1999 and 2009 was about 22%, the total increase in the domestic demand price level (which includes consumer prices!) was about 12%. Looking at one of the other does make a difference (and small wonder German households are so inflation averse!)! The comments:

  • Motuz totally agrees with the idea that central banks should not target (only) the price level but ‘monetary stability’ which includes sustainable (private) debts.
  • Paul Davidson is however quite critical:

Read more…

Alcidi, Busse and Gros: mistaken about inflation

April 23, 2016 4 comments


In an interesting article Cinzia Alcidi, Matthias Brusse and Daniel Gros argue that central banks should not target consumer price inflation but should look at GDP inflation instead. They are right to discuss the target variable of central banks. They are wrong about the alternative. As the GDP deflator (which is used to calculate GDP inflation) is influenced by the terms of trade, it is not a reliable indicator of domestic price developments.

Read more…

Money matters. Explaining the role of households in the 2008/2009 downturn

April 18, 2016 5 comments

The savings ratio of British households according to two different estimates of savings, UK


When we, as the ONS (Office for National Statistics) recently did,  exclude all kinds of non-monetary imputations from the data on household income and household saving the resulting data show that the Great Financial Crisis caused a much larger upturn in household saving (and subsequently: a much larger decline in expenditure) than indicated by the national accounts data. Which means that the consequences of household behaviour on aggrevating the crisis were much larger and immoderate than previously thought.Why didn’t we see this? What troubled our perception? Why didn’t we understand that household income had to be sustained instead of cut, to stem the crisis?

Read more…

Links. What do we need the state for?

April 12, 2016 1 comment
  1. In and after 2008 banks have received an in-cre-di-ble amount of state money. It can be argued that a main reason why pensions have to be cut, again, in Greece is this perceived need to shore up the banks. Matthew Klein argues (based upon a BIS paper) that the need for government transfers to banks would have been much smaller why lending would have been higher if the banks had paid less dividends and had bought back less dividends.
  2. A disillusioned Thomas Fazi argues that ´The Left´ should not so much embrace but at least acknowledge the importance of nationalism: ´So unless we develop a progressive, well, a progressive nationalism sounds quite bad, so we definitely need to find a better word, but we have to develop a progressive agenda that understands that change – especially in the eurozone – must first happen at the national level. If not, we are doomed.´Mind that authoritarian nationalism is the main theme of the populist backlash (Le Pen, Wilders, Trump, Alternative fùr Deutschland) which at this moment in many countries seems to be backed by about 30% of the vote.
  3. Frances Coppola shows what happens when a not-so-progressive agenda hijacks the state. Too much German savings which, predictably, drives down interest rates. Schauble, not Draghi, is the real ´low interst monster´.
  4. An increasingly less neoclassical Brad deLong argues that the state will grow – as we need more non-market coordination, not because of market failures but because of non-market opportunities. And much more.


Links. The importance of jobs.

Arna Vardardottir on Voxeu: “One of the many impacts of the Global Crisis was on stress levels, and these can be a risk factor for adverse birth outcomes. This column shows that exposure to the Crisis resulted in a significant reduction in the birth weight of babies in Iceland, comparable in size to the effect of smoking during pregnancy. The full costs of poor health at birth as a result of the Crisis will not materialise until the children exposed in utero become adults

Mathieu Couttenier, Veronica Preotu and Mathias Thoenig on Voxeu: “The refugee crisis that erupted in 2015 has raised concerns about potential violence and criminality of the migrants. This column investigates whether past exposure to conflict makes asylum seekers in Switzerland more violent. The findings show that cohorts exposed to civil conflicts/mass killings during childhood are, on average, 40% more prone to violent crimes than their co-nationals born after the conflict. Certain policies can mitigate this result. In particular, offering labour market access to asylum seekers eliminates all the effectRead more…

Non tariff trade policies meet Joseph Schumpeter: the case of baby milk

March 29, 2016 Leave a comment
  1. Breast feeding is best, according to the World Health Organization
  2. Taking that (and therewith the need for long, paid, maternity leave) as a given, baby milk powder sheds an interesting light on the present price centered discussions about international trade: it’s not just about prices. And the present discussion does not take Schumpeterian entrepreneurs (and the regulatory state) serious enough. In 2008 the lack of apt government regulation in China led to the poisoning of 300.000 babies wich were bottle fed with baby milk contaminated with, mainly, melamine. This was of course a boon for foreign high-end baby milk producers, which saw they exports to China soar. Recently, however, China is increasing safety standards for (among other food products) dairy products. This drive includes rigid rules for imported baby milk.
  3. This caused the Dutch/Chinese/Taiwanese baby milk producer Ausnutria Hypocra to write down 11 million Euro of inventories of already produced baby food. This persuaded them also, however, to beef up investments in a new plant which they already were building to 100 million, to enable this plant to produce baby milk powder (a very complicated product) which complied with the new regulations not only based on cows’ milk but also on goat milk (which contains less allergens).
  4. Read more…

Robert Lucas: weasel writer

March 28, 2016 3 comments

How Robert Lucas ridiculed the unemployed and defined the concept of unemployment out of existence.

I’m investigating differences between statistical and model definitions of economic variables. While doing this I hit on the article ‘Understanding business cycles‘ by Nobel prize winner Robert Lucas. This article aims to demolish chapter II of Keynes’ General Theory and especially the concept of involuntary unemployment. What a mess. Some points:

A) Lucas starts by embracing the investigations of the business cycle by Mitchell – but conveniently  ‘forgets’ to mention that unemployment, a prime interest of Mitchell, was a core element of such investigations.

B) He states about chapter II of the general theory:  Read more…

Jeroen Bosch, Marten Luther and the shifting boundary of market exchange

March 28, 2016 2 comments

I visited the ‘Jeroen Bosch died 500 years ago‘ exposition (go!). Some musings.

At present, there is quite a bit of uneasiness about the limits of the market. Should everything be for sale? Such uneasiness is not new. Jeroen Bosch and Marten Luther, contemporaries, were creative, talented and pious men and shared comparable ideas about devotion, good and evil and, probably, even about the limits of market exchange. Remarkably, the works of Bosch were embraced by the powerful while the ideas of Luther were condemned – even though, not much later, the catholic counter-reformation also rolled back the boundaries of (religious) market exchange – just what Luther wanted. Why this difference? And why did people pay such a lot of attention to the limits of market exchange around 1500?

Lucas_Cranach_(I)_workshop_-_Martin_Luther_(Uffizi)      Bosch  XCF263510 Christ Mocked (The Crowning with Thorns) c.1490-1500 (oil on panel) (detail of 29114); by Bosch, Hieronymus (c.1450-1516); 73.5x59.1 cm; National Gallery, London, UK; Netherlandish, out of copyright

Read more…

Schumpeter about Wesley Claire Mitchell, 1952.

March 19, 2016 4 comments

Wesley Claire Mitchell (1874-1948) was an USA institutional economist who founded the NBER, the National Bureau for Economic Research. His methods for business cycle estimation and analysis still have direct influence on the methods used today (outside of academia). He is not the only institutionalist who played a decisive role in developing the concepts and estimation methods to track and understand our economy, look here for Clarence Ayres (the definition of capital) – and who are more or less forgotten. More knowledge of the ideas of Ayres would have enhanced the work of Piketty as it would have helped him to understand the concept and nature of capital – using the textbook ‘definition’ (if this is available at all, I checked!) is not enough. In 1952 Schumpeter wrote a glowing obituary for Mitchell, mainly about the importance of his work and methodology for economics, in a way warning for the Piketty mistake mentioned above. Below, an excerpt, about the confused state of economics around 1900 It’s a pleasure to read the whole thing.   Read more…

The arrival of helicopter money

March 18, 2016 3 comments

from: Erwan Mahé, who argues that the ECB is getting really, really serious about its entire mandate

Money exists not by Nature but by law. Aristotle.

18 March 2016

In fact, I am going to talk about the ECB (European Central Bank) today because the other central banks did not veer far from expectations. The BOJ (Bank of Japan) is still trying to figure out why the yen appreciated following the implementation of its NIRP (Negative Interest Rate Policy), the FED (Cental bank of the USA) and the BOE (Bank of England) remain data dependent and worried about financial market turbulence whilst the SNB (Swiss National Bank) is keeping tabs on the CHF (Swiss Frank) .

As for the ECB, however, I have biting at the bit for days now, as I try to reconcile the behaviour of the various asset classes with the decisions communicated. All of the measures, especially the new focus on the central bank’s balance sheet (“Asset Purchase Programme”), as opposed to a heightened reliance on the NIRP, and on the new, potentially negative-interest rate TLTRO (Targeted Long Term Refinancing Operations) the beginning of ’Helicopter Money), are perfectly consistent with our suggestions (see the “new VLTROs” and a “Pumped up QE” sections of the last Thaler’s Corner) and are very positive for risky assets and macroeconomic data. Read more…

Explaining (part of) the Irish growth anomaly (2 graphs)

March 15, 2016 3 comments


Update. On second thought I’m probably too skeptical. Scientists should be skeptical but they also have to expect the unexpected. The extreme levels of investment in intellectual property rights in Q3 (and probably Q4) won’t be sustainable but a permanently higher level might be the ‘new normal to come’. Even then, the growth impetus will diminish and probably become negative in 2016.

Somewhat shady acquisitions and production of ‘property rights’ might explain an important part of the extra ordinary high growth of Irish Gross Domestic Product (GDP) in 2015. Irish 2015 ‘real’ growth is, at 7,8% YoY, extremely high in a European as well a historical context. When we look at growth from the demand side the surprise is even greater, as two of the main sources of demand (net exports and government expenditure) both declined. This does not mean that international trade was not dynamic: ‘Import growth during the year of 16.4 per cent outpaced that of exports at 13.8 per cent’. But it did not contribute to a net increase of domestic demand, even though tourism (which is counted as an export) increased at a double digit rate. Also, government employment (education + public administration) increased with about 3%, despite the decrease of real government expenditure.

Read more…

A public good, the public good

March 13, 2016 1 comment

In the beginning, there were public goods. The deer killed by the hunter – was not his individual property. The mushrooms and hazelnuts gathered by the women – were not their individual property. Individual property of tradeable goods did hardly exist. Nowadays it sometimes seems (DSGE models!) as if public goods hardly exist. Via June Sekera some news about a new journal, The Public Goods Post. It’s about public goods.


To begin with…

How do we talk about the loss of public goods – clean drinking water, affordable college education, public libraries, safe bridges all across America?

How can people even see the multitude of essential products and services they get from the public economy, since those things are often invisible, or unrecognized until they are taken away, or are veiled by free market proselytizers and privatizers? What name can we give to all those essential public products that come from what we call “government,” now so maligned?

At the Public Goods Institute we are launching the Public Goods Post to address the question of public messaging, the problem of invisibility, and the degradation of our common wealth.

Go here to read About Public Goods and what they are. Go to our Website to find news and information about public goods. Read below for our first issue of the Public Goods Post.

Read more…


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