Author Archive

Draghi’s “Shock and Awe”?

November 24, 2015 1 comment

Reading this post (below) from Erwan Mahé makes one ponder if the people at the head of the ECB have understood that we’re fighting for the future of Europe… and not just of the banks and the well to do.

From: Erwan Mahé (guest post)

“His references to core inflation and wage growth represent another semantic shift toward the dual mandate of the Fed, which also argues for a further monetary easing”.

The consensus of investors on what sort of moves the ECB may take following its next meeting on 3 December seems to dovetail with the opinion expressed in my last Thaler’s Corner 

… “a 10-bps cut in the deposit rate, bringing it to -0.30%, and a 6-month extension of the QE to March 2017. And we cannot exclude additional measures like ending the 25% QE limit on triple-A issues and a corporate QE programme.”

Read more…

Links. Monetary history.

November 21, 2015 9 comments
  1. Via Voxeu Jacques Melitz provides us with a more precise dating and geography of the origin of coins.  My take away: production of coins started around 630 BC, coins spread much slower than I thought (partly because denominations were large) and especially hubs of trade were late to adopt coins as they had other means of payment. It was very much a state led innovation used, among other things, to organize armies.
  2. Jan Lucassen tells us, for a much later period (Netherlands, 1200-1940), how the state (again) solved the large denominations problem by producing ‘small change’. These small coins facilitated petty trade as well as the labour market. As producing small coins was not profitable, producing them could not be left to the market. This ‘coinisation’ of petty trade is nowadays called ‘deep monetization’ – mind that in the latter part of this period most trade was petty trade. Interesting fact: the Dutch VOC exported a billion of such coins to ‘The East’. Also interesting: different kinds of trade used different kinds of money – at the end of the eighteenth century there may have been as many as 14 of such ‘spheres’, all with their own markets and institutions and the like.  Small change seems to have been much less of a problem in the Netherlands than in the UK.
  3. I’m working on the ‘loanable funds’ market in Friesland, 1537-1580. I’ve been reading a bit and, also using the data on Friesland which Paul Borghaerts unearthed and which Paul and I are starting to analyse, the next stylized patterns about pre-banking era rural lending and borrowing seem to emerge (at this moment: hypotheses!):

Read more…

Links. ‘We told you so’. And prosperity. And violence in France

November 20, 2015 Leave a comment

On Voxeu an impressive number of economists are quite alarmed at the political and social fall out of the present situation and argue that the Financial Crisis and the Euro Crisis were not government debt crises: “Importantly, the EZ Crisis should not be thought of as a government debt crisis in its origin – even though it evolved into one. Apart from Greece, the nations that ended up with bailouts were not those with the highest debt-to-GDP ratios. Belgium and Italy sailed into the Crisis with public debts of about 100% of GDP and yet did not end up with Troika programmes; Ireland and Spain, with ratios under 40%, needed bailouts. The real culprits were the large intra-EZ capital flows that emerged in the decade before the Crisis. These imbalances baked problems into the EZ ‘cake’ that would explode in the 2010s. All the nations stricken by the Crisis were running current account deficits. None of those running current account surpluses were hit.

Mario Draghi states that QE is a success as borrowing rates for periphery non financial companies have come down quite a bit (which, though it will not by itself be a solution, is a very good thing). And I had to read this twice: “an increase in core services inflation – today close to an all-time minimum – will depend on rising nominal wage growth.” Read more…

About IS. And the west.

November 15, 2015 7 comments
  1. IS has an ideology which glorifies hatred, pillage, slavery, executions, subservient women and, as I see it, rape. Which is abhorrent and totally alien to everything I stand for. To hell with that. And not with this.
  2. The war in Syria of course leads to refugees: thousands in 2011, tens of thousands in 2012, hundreds of thousands in 2013 and millions in 2014. At this moment, this wave has of course finally reached the shores of Europe.
  3. ‘The west’ (which as I understand the world includes Russia, nowadays) is part of this war, for one thing as it is at war with IS for quite some time now, France for instance uses an aircraft carrier. Read more…

Links. Secular stagnation is not a supply side phenomenon.

November 14, 2015 6 comments
  1. More and more economists are writing about ‘secular stagnation’: a ‘lack of demand’ induced situation of lacklustre growth. think of high private debts, high inequality, high unemployment and an overgrown financial sector and a house price bust.
  2. In the meanwhile, a hospital in Rotterdam introduces a robot-bed-washer. And surgeons are experimenting with using 3-D printing during in-womb surgery on unborn children. Which is good: when robots wash bed, nurses have more time to wash patients (unless we embrace neoliberal ideology and only look at caring for people from a cost perspective).
  3. Despite such technological progress, economic growth in the Eurozone is, despite low interest rates, low oil prices and an increase in total wages, measly.
  4. The interesting Eurozone countries are, when it comes to the latest data on economic growth, Spain (robust growth), Greece (-1,8% decrease of nominal GDP – which is much better than expected) and Ireland (data on job growth and economic growth do not seem to match). And Germany, which still increasingly relies on foreign demand,  Which is dangerous, as the growth impetus of the increase of foreign demand (measured as an increase in net exports not caused by declining imports) will eventually come to a halt –  which however won’t stop the growing imbalances caused by an extreme surplus on the current account. Growth of total nominal wages in Germany must be close t 4% which, once upon a time, will lead to an expenditure boom. I will return to Ireland, but the Irish data are quite puzzling: no credit growth (to the contrary) – but a 100% increase of investment in some sectors (Q2). It seems as if some large companies are transferring intellectual ownership to Ireland.
  5. I was clearly wrong about Greece. Closing the banks did not tank the economy: money kept flowing. However, at this moment renewed austerity (higher VAT rates, lower pensions and the like) is starting to bite. And this is tanking the economy: net number of jobs in october -56.000. Which is extreme. I should have known about these banks, by the way, as there was no outright money destruction and bail in of depositors.

DSGE macro economic models and secular stagnation in the Eurozone – not a happy marriage

November 12, 2015 1 comment

Ansgar Rannenberg, Christian Schoder and Jan Strasky do a good job dissecting some DSGE models (The ECB NAWM model and the EU Quest model). They want to show that, if you tweak these models enough, they can account for the decline of output in the euro zone following (real) interest rate increases and fiscal consolidation in 2011/2012. What they do show, however, is that even despite such tweaking one of the central assumptions of these models, the unavoidable return to full production equilibrium and the primacy of supply, causes a large divergence between the world of the models and the real world (graph 1, RoT and FA are specific assumptions, see below).


How do they tweak the models? Read more…

Europe has not yet hit the zero lower bound and interest rates are not yet extremely low

November 9, 2015 4 comments

At this moment, the ECB is increasingly chided for keeping interest rates low. Hmmm… ECB interest rates are indeed at a historical low. And so are interest rates paid by most Euro Area states. But it is only since 2012 (four years after the crisis!) that average Euro Area interest rates for non financial companies and households (new loans) are cheaper than before the financial bubble. But even then, the present average 3% on outstanding loans is, when we take the decline of core inflation of around 1 to 1,5% into account, not extremely low. Considering higher interest rates and a larger decline of inflation and, at present, even deflation in Spain and Portugal this holds of course a forteriori for these countries.

Outstanding amount Read more…

Links. Labour flows, short-termism, retired bankers and the proposed EU fiscal board

November 7, 2015 Leave a comment

1) Why is German unemployment relatively low? Partly, because of a steady increase in jobs. But also because people left the labour force. According to a new Eurostat study about worker flows in 11 EU countries, it was also because of:

“the decrease of the flows from inactivity into unemployment in Germany, whose contributions to keeping unemployment low were relatively important. In contrast, in the rest of the countries, the contribution of (increased) flows from inactivity into unemployment and (decreased) flows from inactivity into employment was towards pushing the unemployment rate up, while the (decreased) flows from unemployment into inactivity contributed to increasing the unemployment rate (except in Portugal).”

Translated: in many country the response to rising unemployment was to increase the labour force, despite the decline in available jobs. In Germany, the opposite happened. And oh, are Austrians right and do crises lead to ‘cleansing’, i.e. a purge of unproductive, outdated companies? Nope: “we examine if the crisis has led to some employment reallocation across sectors, finding that, so far, there is no clear evidence in favor of cleansing effects“. The whole thing shows that high unemployment, contrary to classical ideas, does not spur economic development.

Read more…

The first coins – no ‘means of market exchange’ but ‘means of gift exchange’?

November 2, 2015 2 comments

Somewhat to my surprise, I find myself reading numismatic articles. Money existed before coins were invented. So, where and why were coins invented? According to Reid Goldsborough, in an nuanced article, it’s not unlikely that the first Lydian coins (about 600 BC) were not used for ‘market exchange’ – at first they might well have been used for ‘gift exchange’, somewhat like we exchange wedding rings. What’s not a ‘maybe’ or a ‘likely’ in the history of this innovation is the crucial role of the state. An excerpt:

The Lydian Lion is the one coin I’d personally call “The Coin.” It directly preceded ancient Greek coinage, which through Rome begot all Western coinage, and which through the Seleukids, Parthians, and Sassanians begot all Islamic coinage. Indian coinage has largely been a product of Greek, Roman, and Islamic influences. Read more…

The new Eurostat data on labour flows: more ‘job churn’ is not the answer.

October 30, 2015 1 comment

Main point: changes in net labour flows do not seem to be related to the level of unemployment which means that at least part of total unemployment can be called ‘involuntary’

On October 26 Eurostat published an important new European statistic on labour flows (on October 24 this blog had a little scoop). Such data is/are not entirely new. But it is the first time a consistent data set for Europe is available. The data require very thorough investigation, this blogpost is mainly intended to draw some attention to them. Graph 1 shows quarterly job turnover in the EU countries with the highest (Spain, Portugal)  and lowest (Romania) job churn as well as for some large countries and Denmark, which is supposedly the country which most enthusiastically embraced the ‘flexicurity’ agenda: cut job and income security and increase employability of the unemployed as well as the employed. Graph 2 shows data for all countries. Data for Germany are, alas, not available.Total flows consist of flows into and out of employment, unemployment and inactivity, only one of these flows is shown here.


The data Read more…

Transparency Everywhere! My fees and the troika’s latest vilification drive

October 28, 2015 Leave a comment

From: Yanis Varoufakis

Since my resignation from the finance ministry, in protest at our government’s capitulation to the troika, I have been spending my time and energy to transfer the spirit of the Athens Spring to the heart of Europe – to promote the urgent need to shine the light of transparency on Europe’s decision making as a prerequisite to tackling Europe’s gargantuan democratic deficit.

In practice, this meant endless travel, and more than twenty appearances in different European cities over the space of a couple of months. As expected, the same troika-friendly media that attempted to vilify the Athens Spring during our tug-of-war with the troika also invested effort in vilifying my latest endeavours. After all, nothing upsets the powers-that-be in Brussels, Frankfurt, etc. more than the exposure of their deep contempt for democratic principles and practice.

Beginning with some Greek media outlets which have an impecable record of defamation (e.g. a grubby newspaper that ‘reported’, during my ministry, that I was conspiring with a Singaporean company to make Bitcoin Greece’s currency), a fresh campaign of vilification has begun the purpose of which is to portray my recent efforts, and travels, as part of a self-enrichment drive.

Transparency is one of the pillars of the European democracy network that I, and many others, are working towards these days, and which my travels and talks are intended to promote. For this reason, I owe a debt of gratitude to the troika-led media in the sense that, through their vilification campaign, have given me a wonderful opportunity to demonstrate in practice the principle of transparency that we want to bring to European politics.

Our campaign for Transparency Everywhere! can thus begin now, in this post. Below the reader will find, in response to the reports regarding the fees, format and travel costs of my recent and future speeches an account of where I have been, whom have I addressed, complete with fees and travel costs. Read more…

Labour market flows and the musical chairs economy

October 24, 2015 Leave a comment


Net employment has been increasing at a brisk pace in the UK and, since the third quarter of 2013, in Spain. Eurostat (kudo’s) has new data about this: labour market flows. This statistic shows how many employed people became unemployed, how many unemployed people became employed, how many ‘inactive’ people became ‘active'(i.e. became employed or started looking for a job) and how many ‘active’ people became ‘inactive’.

The graph shows that in Spain, the main cause why net employment is increasing fast is a decline in the number of people who are getting unemployed, though the number of unemployed who get a job has increased, too (the flows into and out of activity have been neglected in the graph). In the UK, both flows have declined but the net difference, which is what counts, has stayed more or less stable. As the number of ‘active’ people in Spain also declines (mainly females), unemployment is plummeting. Read more…

Economics, concepts, language and the progress of science

October 23, 2015 6 comments

Update: thanks to Calgacus (comments), we have a link to the 1913 book by Pigou – which happens to be another book than the 1933 Theory of Unemployment book criticized by Keynes

After, say, 1700 an increasing share of the population became dependent on wage labour – an could, hence, become unemployed. Despite Über and the like this process still seems to continue. Economics as a science adapted – but this took time. A lot of time (and dare I say that neoclassical macro models still deny its existence…). Peter Rodenburg about this:

The word ‘unemployment’ is now widely used both in research and in everyday language. Although one might expect it to be an old term, it is in fact a fairly new one. In the Netherlands the term came into use in the last quarter of the nineteenth century. It is first mentioned in the Encyclopaedia Britannica in 1911, while the first theoretical work in economics explicitly devoted to the problem of ‘joblessness’ was (as far as we know) Pigou’s Unemployment in 1913. It may come as a surprise that even in the work of important nineteenth century writers like Marx, who studied and discussed the issue of joblessness extensively – the notion of involuntary unemployment is in fact one of the key concepts in his work – the term itself is absent. Read more…

The Greek payment system was not the problem, in the summer of 2015… Banks were.

October 18, 2015 2 comments


Greek tax payers have to foot a 25 billion bill (excluding interest!) for another rescue of their banks. What happened? The ECB did not prevent – nay, even triggered! –  an bank run. A very limited bank run, in fact, as the amount of money on sight and overnight deposits (the accounts one uses to pay her or his bills) barely changed. The payment system was not in jeopardy. The banks were, of course. But let those banks go bust (and finance all deposit claims with money printing, cash, by the ECB, to prevent money destruction). The truth is however: trust your mattress – not the ECB. I mean – aren’t Eurozone citizens allowed to use the magic of the market and move their deposits to another bank, or another place once they do not trust a bank anymore? No, they aren’t. We are allowed to change to another supermarket. Not to change to another bank.

The definition of capital as a social, historical relation – and TTIP

October 18, 2015 1 comment

A negro is a negro. In certain circumstances he becomes a slave. A mule is a machine for spinning cotton. Only under certain circumstances does it become capital. Outside these circumstances, it is no more capital than gold is intrinsically money, or sugar is the price of sugar…. Capital is a social relation of production. It is a historical relation of production.”

Karl Marx

Economists do not like to discuss their concepts. Fortunately, however, things are changing. The famous book by Piketty for one thing gave a big impetus to the discussion about the concept of ‘capital’. Piketty states that he uses a market oriented definition of capital and uses market prices to value capital. Which is not true, as he uses the concept and data of the national accounts, which use market prices whenever there is a market price – but other methods when a market price is not available (for instance in the case of non-tradable public capital goods, like urban roads). Read more…

Don’t throw away Angus Deaton with the bathwater of the Riksbank prize – he’s good!

October 14, 2015 2 comments

Look here for an inspiring Angus Deaton lecture on ‘the political economy of data’ (h/t Jesse Frederik, here in dutch about Deaton)

A few days ago Angus Deaton received the ‘Nobel’ prize for economics. The good thing about this is that Angus Deaton received this price. Academic economists are not good at measuring the real world – for one thing because the very process of measurement might force economists to kill their darling concepts, like ‘the representative consumer’. Angus Deaton is good at this (at a meta level, though he does now about the gritty details of measurement) and managed to convince academic economists of the importance and necessity of the (messy, political) process of measurement (in the process shredding ‘the representative consumer’ in many, diverging pieces) and the importance of using the right statistics, instead of easy shortcuts, to answer questions like: how many poor people are with us Read more…

Links. Mario Draghi, a female Stan and Ollie and female employment, Josh Mason, incentives, productivity

October 11, 2015 Leave a comment

1) Mario Draghi is a civil servant. Norbert Häring thinks it is strange that a civil servant takes part in the G30, providing sensitive information to third parties and committing himself, implicitly or explicitly, to the views of these co-opted bankers.

2) Mario Daghi, in the meanwhile, thinks Greece needs debt restructuring. But first it has to go to the naughty step.

3) Josh Mason has a couple of posts on how business finances investments dividends: “For the corporate sector as a whole, we have the familiar story. Over the past twenty-five years annual shareholder payouts (dividends plus share repurchases) have approximately doubled, rising from around 3 percent of sales in the 1950s, 60s and 70s to around 6 percent today. Payouts have also become more variable, with periods of high and low payouts corresponding with high and low borrowing.”

4) Eurostat has a new map on the difference between male and female employment rates, 25-34. Note for instance the differences between East Germany and Austria on one side and West Germany on the other side. Note that regions with relatively high female employment rates do not have lower birth rates (for West-Germany: to the contrary!). Read more…

Yap stone money as an example of a blockchain kind of technology

October 9, 2015 Leave a comment

I’m reading up on the famous stone money from Yap (Cora Lee Gillilland, The stone money of Yap. A numismatic survey. Washington, 1975). About this:

1) This was a kind of blockchain money avant-la-lettre
2) And not your typical western kind of individual owned money. Because of its blockchain character it could serve as ‘ritual’, ‘gidigen’ gift-money (compare our wedding rings) as well as ‘normal’ money. Fascinating. From the link:

Local Interpretation of Value. A Judicial Account

The rai monetary system has been subjected to the influence of foreign monetary values, resulting in a conflict between traditional and modern concepts within the Yapese society. These changing concepts are exemplified in the landmark case known in Micronesia as Civil Action No. 25 …. Read more…

The WEA internet conference on ‘The crisis of Europe’. Unemployment.

October 7, 2015 Leave a comment

I’ve tried to extend the analysis of unemployment policies by Joan Muysken en Wiliam Mitchell, Full employment abandoned. Shifting sands and policy failures, by adding a few years and a number of countries to their sample and by incorporating new concepts and estimates on the flow of labour and broad unemployment. Here, the full paper. Below, the abstract.

In 2008 William Mitchell and Joan Muysken argued that after about 1978 there had been a shift from public policies aimed at full employment at the macro level to full employability at the micro level, accompanied by a larger emphasis on the budget balance of the government and low inflation. At the same time, unemployment rose to levels unheard of in decades. After 2008, however, unemployment increased to even higher levels, while extending the analysis to countries from the ‘fringe’ of Europe and to data on ‘broad’ unemployment reveals that extreme levels of unemployment in these regions were a rule instead of an exception.  Flow data on the labour market show that during crises there is a temporary and relatively small increase of inflows into unemployment and a decrease of outflows out of unemployment, which, however, combine into a fast increase in the stock of unemployment – which is not countered by higher rates of outflow and inflow after the crisis. This evidence shows that major crises tend to shift countries to a semi-permanent situation of higher unemployment. Read more…

The WEA internet conference ‘The European crisis’. Tom Vleeschhouwer and Tara Koning

October 7, 2015 1 comment

Does the Euro need a transnational government to become a succes? According tot Tara Koning and Tom Vleeschhouwer: yes. Do we want such a government? Ehm… Here, their paper for the WEA internet conference on the European crisis, below the abstract.

This paper studies three important problems that have led to or have aggravated the euro crisis: moral hazard in accumulating debt by sovereigns, lack of macroeconomic policy coordination and stabilization, and macroeconomic imbalances. We use both theoretical and empirical evidence to argue that these problems were largely caused by coordination problems. We will then investigate whether a supranational government, a layer of government above all euro member countries, can alleviate these problems. We will find that macroeconomic stabilization and macroeconomic imbalances can be improved by such a government, though moral hazard cannot be solved. The only, but certainly not insignificant, obstacle seems to be that politicians and voters may not be willing to transfer their authority to this government.


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