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…
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.
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:
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.
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?
- 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.
- 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.
- 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´.
- 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.
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 effect” Read more…
- Breast feeding is best, according to the World Health Organization
- 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.
- 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).
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…
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?
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…
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…
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.
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.
@BrankoMilan leads us to Clara Elisabetti Mattei who writes about austerity and Il Duce (Italy in the twenties). Very brief: after World War I there was a short but highly important phase in European history when people got voting rights, 8 hour working days and comparable welfare enhancing amenities. Also in Italy. In quite some countries this led to a backlash, in Italy in 1922 to Mussolini’s ‘March on Rome’ which pretty much ended the democratic phase and led to Mussolini assuming dictatorial powers in 1925. Mussolini surrounded himself with proudly neoclassical, ‘marginal’ thinkers. These imposed austerity (even the phrase was already used). And it’s all there: privatization, ‘sound’ money policies, the laments about lack of discipline and profligate spending by the state and labor, the importance of saving, the idea of a virtuous elite which has to lead the irresponsible people. And of course the moral and economic virtues of low wages.Troika speak avant la lettre (except for the high exchange rate which Mussolini sanctified). The question is: did it work?
No, it didn’t.Not by a long shot. Absolutely not. It was a disaster. An unmitigated disaster.
Eurozone inflation continues to be low, even in Germany where unemployment is less high (Graph 1, Eurostat, inflation defined as Domestic Demand Inflation, which does not just cover consumer prices but also investment and health care and education price and export prices). A country like Greece even experiences grinding deflation. Which seems nice: everything is getting cheaper. But which also means that it is getting ever harder to pay down your debts, as incomes and profits decline (Greece was the EZ country with the highest deflation in the Eurozone, Germany the country with the highest inflation).
Does this low inflation mean that QE (Quantitative Easing, i.e. a central bank which buys bonds) does not work? At this moment a lot of people tend to look at a graph like graph 1 and answer ‘It doesn’t!’. Read more…
As noted on this blog, the Eurostat data showed a somewhat surprising decline of French unemployment after the summer of 2015. Was this just a quirk of the data or a robust trend? Insee, the French statistical institute, measures employment and unemployment only once every three months and the monthly data are calculated using some auxiliary information. But now, Insee has new quarterly data. These show that:
- French normal unemployment has been high and more or less stable during the last year. I.e.: no clear decline, it was a quirk of the data.
- But French broad unemployment (as they call it: ‘Le halo autour du chômage’) has declined quite a bit during the last year.
- The employment rate of especially the 55-64 generation is increasing, albeit not in a spectacular fashion
- But it went down a little in the 25-49 age group
A slightly boring though not entirely negative situation. However, countries bordering France show high (Spain), serious (UK) or moderate job growth (Germany) and declining unemployment. Is the, in comparison, mediocre French development due to supply side constraints? At the very least not in its entirety: between 2006 and 2008 unemployment went down fast – I see no reason why that could not happen again. But considering low interest rates, low oil prices and the virtual end of austerity the stagnation is reason for concern.
I love markets. But I’m not a market fundamentalist. Non-market organisations or institutions, like unions, often do, in their social space, a better job than market organisations do in the market space. Despite this these non-market organisations are only marginally included in economic models, if at all, and neglected in neoliberal policies. Or: neglected? Neoliberal policies often lead to the destruction of at least part of the ‘social space’ of these ‘NPISH’, or Non Profit Institutions Serving Households’ as statisticians call them. As these organisations, though neglected by economic models, are routinely measured by economic statisticians. Which leads to the question: why are they neglected in the models when we do have the data? To enable policies which, consequently, also neglect the consequences of for instance austerity on these NPISH and what they do?
Anyway, we do measure them. Which is one step. What kind of organisations are included in this concept? (By the way: ‘not for profits’ or ‘non-profits’ is a pretty biased phrase.)
- Charities, relief and aid organisations financed by voluntary transfers in cash or in kind from other institutional units
- Further Education Colleges (classification decision awaiting implementation – see section 3.7)
- Trade Unions
- Political Parties
- Professional or learned societies
- Consumers’ associations
- Churches or religious societies
- Social, cultural, recreational and sports clubs
If we also think of households themselves, it quickly becomes clear that the time spent by people in non-market social spaces is quite a bit larger than the time spent in the market space…
Normal unemployment in Europe (EU) is going down. Which is a good thing. Thank you, mister Draghi. And mister Salman bin Abdulaziz Al Saud.
But…. some remarks have to be made and not just the one about the unique and no doubt temporary combination of less austerity (zero, in fact, when my information is correct), low interest rates, low oil prices and a shift of tourism from troubled ´Arab´ countries along the Mediterranean towards ´European´ mediterranean countries and islands (I count Malta as a European island as it is a member of the EU).
First, the fine print:
Dutch drinking water is despite the absence of the use of chlorine the best. According to Science. Look also here. And here is Wikipedia. The secret? Good maintenance (according De Volkskrant of today, no link). And state of the art purification (without chlorine). Also, Dutch water companies do not have to pay dividends. They are government owned companies at arms length of the bureaucrats. They do not have to pay dividends and have, therewith, the money as well as the long term orientation to care about their product. This is a conscious choice. According to Wikipedia (didn’t know this before preparing this blog, thank you mister Pronk): ‘In 2004 the Netherlands passed a law which prevents any privately owned company from providing drinking water services to the public‘.