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June Sekera on ‘Economics and the Near-Death Experience of democratic governance’

May 27, 2015 2 comments

June Sekera has published a new working paper which sets out to  “outline the elements of a theory of the public non-market, and suggest a model to explain its forces, flows and dynamics“. She wants to do this because: “More than a century ago, the effective operation of the public economy was a significant, active concern of economics. But, with the rise of market-centrism and rational choice economics, government was devalued and allowed a role only in cases of “market failure.” The very idea of a valid, valuable public non-market almost disappeared from sight. So today we lack a coherent, comprehensive theory of the public economy“.

Sadly,  Read more…

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Links: structural reforms and macro-economic resilience

According to Mario Draghi, structural reforms should make the Eurozone economies more flexible, to enable them to recover faster from a crisis. A faster decline of wages should have lead to faster economic recovery. Hmmmm…

1) Without directly attacking this point of view Frances Coppola argues (using Latvia as an example) that high inequality increases the volatility of an economy (via a leverage channel) – implying that structural reforms aimed at lower inequality will reduce the need to recover from crises as they might well be less deep. Look here and here .

2) The same idea is stressed by IMF economists Kumhof and Ranciere

3) While Aidan Regan states that the recent Irish export success is not caused by lower wages but by companies which after 2008 actually increased wages Read more…

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The Draghi speech on structural reforms: mistakes, misunderstandings and defunct models

May 23, 2015 1 comment

“As of 2005 Spain had the second highest immigration rates within the EU, just after Cyprus, and the second highest absolute net migration in the World (after the USA). …  In fact, booming Spain was Europe’s largest absorber of migrants from 2002 to 2007, with its immigrant population more than doubling as 2.5 million people arrived.”

Contrary to what Mario Draghi tells us in his recent speech ‘structural reforms, inflation and monetary policy’, more ‘flexibility’ is not the answer to the Eurozone woes. Maybe even to the contrary. Flexible labour markets and deregulated financial markets did not just enable the buildup of housing bubbles and an oversized financial sector and unsustainable private debt levels in countries like Spain, Ireland and the Netherlands but also caused them. Fast ‘reallocation of resources between sectors’, lauded by Draghi, like mass immigration of construction workers in Spain and Ireland, mitigated wage increases. Which led to an even larger bubbles Read more…

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Links. The standard of living and how to measure it.

May 21, 2015 3 comments

How to measure the standard of living? Is it about market production? Or about happiness? Or about market production plus home production (the washing machine!) plus government production? Or about utility? Or even about ‘the biological standard of living’? Or where we live? Or all of these? Below, three excerpts from recent articles about this, from John Komlos, Diane Coyle and Eurostat.

My take:(1) we should be wary of national averages while (2) national accounts are highly useful and even indispensable to calculate (using input-output models) the change in CO2 production caused by a change in final demand, technology or gasoline taxes. These accounts are not just about GDP, though GDP is, in an accounting sense, the emergent statistical keystone of a national money based economy. And (3), as Komlos shows social differences permeate our entire life. Read more…

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DSGE macro models criticism, a round up. Part 5, the intertemporal government budget constraint

May 20, 2015 9 comments

Guest post by Brian Romanchuk (see also his blog Bond Economics)

Earlier posts in this series, which consists of concise posts looking at DSGE models using the lens of statistical concepts, were about money, market fundamentalism, unemployment and capital.

Problems With Fiscal Policy In DSGE Models

Dynamic Stochastic General Equilibrium (DSGE) models suffer from a great many defects, but the specification of fiscal policy in standard models stands out. Given the ongoing wave of publications of these models, it is hard to generalise about them. My statements here are based on how fiscal policy is represented within the models presented in the Chapter 12 of the text Advanced Macroeconomics by Paul Romer (fourth edition). The models in Romer are fairly indicative of much of the literature, but my criticisms here will not apply to all of them.

Behavioural Assumptions

One of the key results used within DSGE models is that the timing of taxes has no effect on household behaviour.  This assumption is known as “Ricardian Equivalence”. There is an academic literature which questions this behavioural assumption. Although this is an interesting debate, my view is that the specification of fiscal policy within DSGE is internally inconsistent, and so the quality of the behavioural assumptions around Ricardian Equivalence appears to be a secondary issue. Read more…

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Greece, cognitive dissonance edition

Did I ever tell you that the extremely hostile reaction of the Troika towards the Syriza government made it miss a unique chance? Well, it did. As I see it, the window of opportunity has closed. For the first time in decades Greece had (and still has) a responsible government. But all available Troika-energy was directed at derailing the Greek economy, corrupting information, saving the Troika ego’s and toppling Syriza. I’m afraid the derailment program succeeded, despite the green shoots mentioned below.

From Bruegel.org:

The State budget balance records a deficit of EUR 508 mn over January- April 2015, against the target of deficit of EUR 2.9 bn set in the 2015 budget, and significantly lower than for the same period of 2014 (when the deficit was EUR 1.15 bn). The State budget primary balance records instead a surplus of EUR 2.16 bn over the first four months of the year, against the target primary deficit of EUR 287 mn. This implies that in cumulative terms the State primary balance has over-performed the target by as much as EUR 2.45 bn

Read more…

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Deflation in Greece: a hideous loose-loose situation

May 18, 2015 1 comment

Deflation in Greece is serious. In the fourth quarter of 2014 the price level was 8% lower than in the third quarter of 2009 (seasonally adjusted data) – which means that total income (wages, profits, mixed income of the self-employed) is 8% lower than it would have been if the price level had not changed. As this, predictably, leads to a decline of tax income of the government of about the same size this makes it quite difficult for the government to balance the budget. One of the goals of austerity is a decline of the relative price level of countries. Greece did accomplish this. Compared with the Eurozone average the price level of Greece has deteriorated with about 12% (2010-I – 2014-IV). The decline of the Greek price level is, in the medium run, much larger than the decline of the Spanish and Portuguese price level, which makes one wonder why other, less ‘succesful’ austerity countries like Spain and Portugal are so critical of Greece. As austerity was imposed upon Greece by the creditors it seems less than fair that these same creditors do not take responsibility for their actions and write down the debts. It was not Greece which shot the creditors in the foot. Source: Eurostat.

Greek deflation

Read more…

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Fact checking Jens Wedmann – deflation and ELA edition

May 17, 2015 2 comments

Update: the GDP price level of Greece deteriorated, according to the most recent estimates, with 8% (quarterly data), not 10%. Post adapted.

As the head of the Bundesbank Jens Weidmann has a large responsibility. His acts and remarks influence the lifes of millioins. But he’s not up to this task. He at least does not seem to know what he is talking about. In a recent interview in the German Handelsblatt he makes, as far as I’m concerned, two major mistakes.

1) He states that the weekly increases in ECB ‘ELA-money’ (Emergency Liquidity Assitance’), which keep the Greek banks afloat, are not to be accepted as the freshly printed money is used to ramp up lending to the Greek government, which means that these increases violate the ban on monetary financing of the government by the ECB. Probably, somebody told Weidmann that the net position of the Greek government vis-a-vis the Greek banks is deteriorating. Which is right. But balance sheets have two sides. And looking at both of these shows that this deterioration is not caused by an increase of bank lending to the government (to the contrary – bank loans to the government have diminished a little between December 2014 and March 2015). Read more…

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The new BIS ‘Handbook on security statistics’. A reason to celebrate.

May 12, 2015 1 comment

The BIS (Bank for International Settlements) has, together with the IMF and the ECB, published a new handbook on how to estimate debt. A reason to celebrate. Mainly, of course, as the handbook enables more consistent and better measurement of debt-securities (mortgages, bonds and the like). But also as this handbook shows how much economic statistics are consistent with the ideas and concepts of institutional and Post-Keynesian statistics. And how inconsistent with mainstream economics. About the first fact we can cite the website blurb (which does not mention the phrase ‘The Great North Atlantic post 2008 debt crisis’ but we all know what this is about):

The importance of securities markets in intermediating financial flows, both domestically and internationally, underscores the need for relevant, coherent and internationally comparable statistics. This need was recognised by the G20 Data Gaps Initiative Read more…

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Production of greenhouse gas and global warming: the sectoral cumulative carbon emission budget view

Recently a new report on global warming has been published: how much do sectors like agriculture, construction and households have to increase the ‘Carbon-efficiency’ of their ‘production process’ to limit global warming to 2%? Oops – the report states (using a refined version of a methodology which has been pioneered by Ben and Jerry’s) freight transport has (as I understand it, the report is not explicit about this) increase its efficiency seven fold.

Some graphs and an excerpt.

Graph 1. Historical production of greenhouse gas, mind the increasing rate of increase.

CO2

Agriculture is a very, very important source of greenhouse gases. Read more…

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DSGE macro models criticism 4. Capital.

Earlier posts in this series, which takes short looks at DSGE models using the lens of statistical concepts, were about money, market fundamentalism and unemployment.

There are at least three fundamental differences between ‘capital as statisticians measure it’ and ‘capital as a concept in neoclassical macro models’. Next to this, statisticians as well as neoclassical economists shy away from a crucial aspect of the ownership of capital: it’s forged in the fire of revolutions. Examples are the Protestant revolution (Cromwell, the Dutch Revolt, the  Glorious Revolution, expropriation of the massive wealth (land!) of many cloisters), the Enlightenment revolutions (the French revolution, the abolishment of slavery and the Civil War) or the decolonization revolutions. This last point won’t be elaborated but it is good to remember it when rating the statistics and the models – just read ‘Capital in the twenty first century’ to get an idea about the importance of slaves as a main asset on USA balance sheets before the civil war.

The three differences (to be elaborated below): Read more…

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Links. Banks, Money, Solar energy unbound, Great Depression and money, competitivety and productivity.

May 6, 2015 4 comments

1) Tim Worstall has a nice piece on the shortage of (hotel quality) toilet paper in Venezuela, which shows that he mastered institutional ideas about how markets work (there is more between heaven and earth than USA chartered listed companies).

2) Nice piece about the plunging costs of storing energy. Yes, ‘Tesla batteries’ but also something as simple as compressed air. We will see hundreds of billions of investments in decentralized, sustainable energy production and storage in the coming decades (around the North Sea this even cheap storage of wind and solar will however not solve the problem of foggy december days). Read more…

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Bob Solow, Matt Rognlie, Paul Romer, Mason Gaffney, the economic statisticians and rent incomes.

May 4, 2015 4 comments

Are we witnessing one of these rare moments when rock solid intellectual positions suddenly become fluid and start flowing? One of the problems of neoclassical economics is the replacement of the classical ‘land, labour, capital’ trichotomy with the ‘labour, capital’ dichotomy. But suddenly it seems to leap back into the mind of economists. This might seem like an arcane detail of the history of economic though – but it isn’t. Removing ‘land’ (i.e. unproduced but valuable inputs like land, aquifers, stocks of oil, clean water and the like) from the income equations rules out rent incomes. According to Mason Gaffney (here) removing ‘land’ from economic theory was a conscious act, subsidized by land owners, to disable for instance the systematic taxation of land rent incomes. And with, according to Gaffney, dire consequences. Writing about Henry George he states  Read more…

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Job growth in europe since 1995. Not what we are told to expect.

Do low wages lead to high job growth? Or are UK-style ‘flexible’ job markets in combination with house price subsidies the answer to the European jobs problem? In the long run – not really. Low wage Poland did not do too well, since 1996. And in a longer term perspective UK job growth – at present about the highest of the EU – is not really special. Job growth does not seem to be about flexibility and low wages but about ‘dynamism’, the growth and decline of entire sectors of the economy in combination with the changes in productivity, events which are to an extent itself enabled by flows of labour towards new sectors.

MerijnKnibbe1

In the UK this meant, after 2008, an outflow from high productivity oil and finance and an inflow into low productivity ‘hospitality’. In Spain, health care did well, after 1995. In the somewhat longer run, the growth of sectors seems influenced by supply side reactions like the monetization of modern life itself – i.e. the fast post 1995 rise of the (female) participation rate in a country like Spain. We have to face the fact that the bubbles (not so much the price bubbles but the income generating building bubbles) might have enabled the growth of new sectors like health care which, after the bust, can hold their own… Read more…

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‘DSGE’ macro models criticism: a limited round up. Part 3: Unemployment.

May 1, 2015 4 comments

This series tries to give a concise oversight of criticisms of neoclassical macro models looking through the lense of statistics. Today: unemployment. Part 1 (money) here. Part 2 (market fundamentalism) here.

On the micro level, the difference between the statistical definition of unemployment and the neoclassical ‘micro-founded’ concept of ‘unemployment’ can not be starker.

1) Economic statisticians count somebody as ‘unemployed’ when he or she actively tries to escape this situation. If you’re not seeking a job and try to change your situation, you’re not counted as ‘unemployed’. But according to Lawrence Christiano, neoclassical macro models (if these include unemployment at all!) assume that “Unemployed workers enjoy higher utility than the employed because they receive the same level of consumption, but without having to work“. Christiano goes on by stating tha this is daft, citing scores of articles which show that, in the real world, unemployed are poorer and not happy – and really, really try to change their situation (see also Lars Syll and  Simon Wren-Lewis about this). Read more…

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Links, Labour Day edition. Germany, Portugal, forced labour, Small and Medium sized Enterprises

1) In Germany, the number of 1 year olds is less than 50% of the number of fifty year olds.

2) The remarkable decline of Portuguese unemployment has stalled and despite out-migration of 300.000 mainly young and well-educated people the level is still more than twice the pre-Euro level. According to these specialists, the decline was to an extent caused by the creation of loads of unpaid, ‘cosmetic’ jobs, which allowed the government to move the unemployed from the statistics. By the way – even without counting emigration the Portuguese population is shrinking.

Portugal

3) The ILO has a report about forced labour Read more…

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Graph of the day: Greek government deposits

April 29, 2015 Leave a comment

The Greek govenrment is not yet out of money. There is a staggering amount of misinformation about Greece. Again and again we have been told that Greece could not pay off its loans. This might happen in the future – when market parties like the ECB or the European funds, which clearly are part of the market, though not of the private market, continue to refuse to roll over old debts. In such a case, even a sizeable surplus does not Ensure a country the ability to honour its debts. There was however no reason at all to doubt this ability in the past months and even at this very moment, as there still is a lot of deposit money left, especially in the coffers of the central government. Ironically, this money of course also serves to fund Greek banks and if it’s used to pay off loans, the ECB will have to step in |(as Greece honours its debts. By the way – did the people who, at the moment, are furious that the Greek central government forces local governments to shift their money to the central also furious when the Portuguese and Irish governments, two austerity darlings, grabbed pension money of households?

Source: Bank of Greece.

Deposits

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Fact checking Charles Wyplosz: more than a little wrong about the Greek government deficit

April 27, 2015 3 comments

Why is everybody loosing track of the data when it’s about Greece…?

In a recent, interesting blogpost on Voxeu, Charles Wyplosz states about policy options for the Greek government:

In the short run, after a first default, even a partial one, the Greek government will have to balance its books because no one will lend anything any more. ‘Balancing the books’ can mean different things, however.

  • One option is to run an overall balanced budget, thus continuing to service the debt after the initial wave of defaults.

Recent forecasts for 2015 are for a deficit of 3.5% of GDP, an improbably huge improvement over last year’s 12.3% deficit.

This is totally odds with the data. Wyplosz is wrong about the years and mistakes a recent estimate with a recent preidction. According to the dataset of the April 2015 World Economic Outlook these are the data for Greece:

Greece1

Clearly, the government deficit is, according to the IMF, quite a bit smaller than indicated by Wyplosz Read more…

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Employment around the Baltic Sea and the lasting scars of hard money policies: the case of Latvia

April 27, 2015 1 comment

Is Latvia a lodestar for other distressed countries, like Greece? Has, after a very severe shock, the economy returned to normalcy? Should Greece follow the Latvian example? Chirstop Schmidt, a Brussels based journalist who writes for the Dutch journal Trouw, seems to think so. In an article in last ‘Trouw’ about the recent financial top in Riga (the capital of Latvia) he inserts a ‘box’ with as a title (my translation): ‘Latvia, a guide?’. In the article he states that, after a severe dip, the Latvian economy is in robust health, again (actually, the Dutch ‘blakend’ or ‘glowing’ is even stronger than ‘robust’). But he’s wrong. It’s not. It’s not even catchng up…  Read more…

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Ecomodernism, yes or no?

April 24, 2015 4 comments

Recently, I coverd the ecomodernist manifesto on this blog. Not everybody is too happy with this manifesto. José Sousa and (in a direct mail) remind us of this rebuttal (which might underestimate the alarmist nature of the manifesto). Below, some excerpts.First, however, 2 cents and 1 Euro from me.

1) The first cent: the first steps to limit global heating are simple and of an economic nature: energy nutcases like the USA and Venezuela have to end energy subsidies and to introduce energy taxes. While all countries have to start to tax kerosene. Water and meat have to become more expensive, too (low income households can be compensated using part of the proceeds). See (via Brad the Long) also this piece about the fast desertification of Texas.

2) The second cent: we are already really living in the ‘anthropocene’, the destiny of the earth is decided by man- and womankind. For better or worse. And there will, relatively fast, be 4 or 5 billion more of us (low scenario). We can’t deny these additional people (as well as the present poor) decent housing, decent food, decent healthcare and the like – which means that we do have to develop technological fixes: energy and water producing houses, better and denser cities which require less traveling by car, more productive agriculture. More and better houses and healthcare will show as ‘economic growth’. Growth is not the solution – it will be the arithmetical consequence of the solution. ‘Pay for levees, or for the ferryman‘. Aside: birth rates in many places of the earth are still way too high. But in a pretty conservative state like Iran it (the total fertility rate) has been below 2 for quite some time while in even more conservative Saoudi-Arabia it has dropped from around 7  in 1980-1985 to around 3 in 2005-2010Read more…

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