Author Archive

Da wird jetzt wider in die Hände gespuckt! (Omurgasız sırtını oraya yasla!). Marxloh edition.

February 25, 2017 Leave a comment


Hi from Marxloh! I’m finding myself with junior in Marloh (to watch Schalke ’04)and it happens to be the most steampunk city I’ve ever been. It is part of Duisberg, a city inside the ‘Ruhrgebiet’, the German equivalent of the USA rust belt except that it’s not rusty but Europe’s largest steelhub (according to a sign along the road). Marxloh, which became a suburb for labourers can nowadays really be called Little Turkey (with capitals. It’s population increased from 352 in 1895 to 35.872 only twenty years later, in 1925. Nowadays, 18.000 people are living here, more than half of them ‘foreigners’ (mainly Turks and on the main street Turkish is omnipresent). But the number of inhabitants is fortunately increasing again. The main street (Wellenstrasse) is great. When there is one bridal shop in town it is probably thriving. When there are two in town, both of them will be struggling. But when you have 20 – people will come flocking to your bridal hub, which seems to have happened to the Wellenstrasse. The bridal shops are Turkish but the style is very much the typically western romantic white gown style (and an occasional suit for the groom, too). Also lots of extreme bling shops (and small supermarkets with a larger array of vegetables than large supermarkets in the Netherlands). The bling contributes with the steel industry to the steampunk feeling.

Read more…

Links. Debt as a social connivance

February 23, 2017 Leave a comment
  1. Action! ‘the campaign to demand that the ECB publish the legal opinion it commissioned on whether its closure of Greece’s banks in 2015 was… legal’. Sign!
  2. Europe is waking up to its gargantuan, awkward and 100% home made bad private debts problem. Any solution requires writing down hundreds of billions of debt.
  3. Michael Hudson on ‘clean sheet’ debt policies in Mesopotamia. Fun fact: cuneiform records show that clerks had to master compound interest calculations.
  4. Low interest policies of modern central banks are not really ‘clean sheet’policies but they try to deal with the same debt problems as the rulers of Mesopotamia. The 2015 annual report of the Bundesbank shows that Germany earned 0,05% interest on its Target2 assets (p.92). Still, quite a profit: 279 million (p. 93, at the beginning of the year the interest rate was higher).
  5. Positive money has a model which shows that if interest received is spent again people do not necessarily have to borrow more money to be able to pay interest. But the model abstract from the problem that some debts are owed to banks and others to non-banks. If the debts to the banks are paid down – the amount of money will actually decline as borrowing from the banks is what created modern money in the first place.
  6. Nowadays, making a connection between low interest rates and low population growth is in vogue. Samuelson predicted this relation in his 1958 article ‘An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money’.

The Indian ‘no more cash’ experiment

February 22, 2017 2 comments

“Our major competitor is cash. Cash is what we seek to eliminate”

Recently, the Indian government overnight abolished most cash. With dire consequences. What are the economic consequences, why did the Indian government do this?

    1. Economies like those of India have, for a bunch of reasons, often relatively high rates of inflation. After the abolishing of cash, India suddenly experienced ‘ugly’ deflation (‘ugly’ i.e. provoked by a fall in demand as well as contributing to this fall in demand)india2
    2. Norbert Häring convincingly argues that the Indian government was pushed by ‘fintech’ and the USA government, with Bill Gates playing an especially important role. And we haven’t seen the end of this. No quotes, soon a separate blogpost.
    3. Zerohedge shows some of the micro consequences. Money is a ‘social contrivance’, as shown by this quote:

      “It was a booming sunrise industry before November 8th. Not now,” said Vipin Malhan, president of the Noida Entrepreneurs Association, who also runs a business that makes cellphone accessories here. “Many small factories and assembling units, which used to work round-the-clock, with three shifts, have scaled down to just a single shift. We are all in shock now. One word that businesses dread is ‘uncertainty.’ The government has thrown that at us.” Several small- and medium-scale industrial clusters, employing a total of more than 80 million people across India, are reporting declining sales, production slowdowns and layoffs since bills worth 500 and 1,000 Indian rupees were invalidated (500 Indian rupees is worth about $7.40). Towns famous for weavers, lockmakers, power looms, bicycle-parts manufacturers, ready-made garments and handicrafts face rising inventories of unsold goods. …Mishra’s office is conducting 50 training sessions every day in small industrial hubs to help residents transition to cashless transactions. But many business owners in these clusters say it is not easy to change because daily wage laborers do not accept checks and do not have smartphones with Internet”

    4. Here, an article by Kavya Sukamar, an Indian woman, about dowries. She and her husband refuse to pay up $ 500.000,– for her (Illegal!) sister-in-law’s dowry. Which will lead to a family crisis. Dowries are paid in cash. If there is no Indian cash, other cash will be used. The point: abolishing Indian currency won’t lead to the abolishment of the evil of dowry and other crimes (a very and intelligent good article but somehow the end of it strikes me as too polished).

Summarizing: the consequences for India are dire, the reasons why India did it are in the best interests of USA fintech.

Austerity, civil society and statistics

February 20, 2017 3 comments

From The lancet

Remarkably, 8 years after the onset of the global financial crisis, the consequences for health are still being debated, even in Greece, the country most severely affected by the economic downturn. There can be few better indications of the low priority accorded to health within governments than the difference between the concerted efforts dedicated to understanding the state of the economy and the apparent scarcity of concern about the health of populations. Economists are still divided about the causes of the crisis and how to respond to it, although many view austerity as a mistake.

There are several possible reasons for this scant discussion of health consequences of the recession. First, health issues rarely attract much political or media attention unless they threaten privileged elites. For example, the emergence of SARS in east Asia posed a clear threat to the global business community and thus an immediate, coordinated response occurred. By contrast, many months passed before the world paid any attention to the emergence of Ebola virus in west Africa. Only in the past decade have global leaders accepted the need to respond to the increased burden of non-communicable diseases in low-income and middle-income countries whereas the horrendous toll of death and disability from road traffic accidents in those countries remains largely unacknowledged.

Second … we still do not have timely data on mortality from many countries. Consequently, although financial data were available within days or weeks of the onset of the financial crisis, several years passed before corresponding mortality data were published. This delay keeps the effect on health from getting onto the political agenda, and reinforces its low priority. Because of the difficulty in obtaining data about what was happening to health in Greece, dismissal of the early signs of a crisis was easy. In 2011, echoing many reports by journalists, we reported what we considered to be “omens of a Greek tragedy”, describing a rising unmet need for health care, increasing suicides, and an HIV outbreak among injecting drug users.Yet others dismissed our concerns, arguing, for example, that “there is no evidence that it has affected health” or that budget cuts were “a positive result of improvements in financial management efficiency”.


The very global supply and demand chain of tuberculosis vaccin

February 14, 2017 2 comments

I’m working a bit on (multi-factor) productivity at the moment. Part of this endeavour is taking a hard look at the details which, in my case, means taking a hard look at the productivity of cows (over the long haul). How did farmers, studbooks, veterinarians, (cooperative) factories and the government together manage to increase the productivity of cows? This is not just about the fat content of milk and yields per cow but also about quality improvement, which I operationalize as the eradication of bovine tuberculosis and therewith a better quality of (tbc free) milk. Should such a quality improvement be incorporated into our metric of productivity? Anyway, I found the next interesting quotes about tbc vaccine on Wikipedia:

The BCG vaccine was first used medically in 1921. It is on the World Health Organization’s List of Essential Medicines, the most effective and safe medicines needed in a health system Between 2011 and 2014 the wholesale price was $0.16 to $1.11 USD a dose in the developing world In the United States it costs $100 to $200 USD As of 2004 the vaccine is given to about 100 million children per year globally ..

Global demand increases, but there are problems with production:

In the fall of 2011 the Sanofi Pasteur plant flooded causing problems with mold. The facility, located in Toronto, Ontario, Canada, produced BCG vaccine products, made with substrain Connaught, such as a tuberculosis vaccine ImmuCYST, a BCG Immunotherapeutic -a bladder cancer drug. By April 2012 the FDA had found dozens of documented problems with sterility at the plant including mold, nesting birds and rusted electrical conduits The resulting closure of the plant for over two years resulting in shortages of bladder cancer and tuberculosis vaccines. On October 29, 2014 Health Canada gave the permission for Sanofi to resume production of BCG.

Breaking: the Oroville dam

February 13, 2017 4 comments

According to the most recent updates, the Oroville dam in California (the highest dam in the USA) might be on the point of collapsing (more precisely: the emergency overflow might collapse). According to Piet Dircke, an engineer of Arcadis (which since 2010 is involved with Californian watermanagement in the San Fransisco-Stockton-Sacramento triangle) there is one overriding reason why this might happen: failing maintenance maintenance. “The overflow should have been replaced 10 years ago. This has not happened because of budgettary reasons“.  And yes, people had warned, official reports and all. Do I have to remind anyone that, according to modern neoclassical theory, government investments (including maintenance) are wasteful by definition?

Links. Wages, interest, money, markets. And free articles.

February 13, 2017 1 comment
  1. Lina Kahn wrote an excellent totally Veblenian analysis of Amazone and anti-trust policies. Or: why Chicago style price based anti-trust analysis does not work and we have to look at the nature and structure of the brave new internet markets.
  2. Journal of Economic Issues: 50th Anniversary Editor’s Choice Collection”. Until 10 march: ungated. Quite a bit about the nature and structure of markets.
  3. According to the ECB their QE policy was an astounding success. It got Southern European company and household interest rates down. In my view: this kept the Euro afloat. In the meanwhile government interest rates also declined: win-win.ecbinterest
  4. M2 is a metric of the amount of money in circulation (the ECB uses M3, a slightly less restrictive metric). Does an increase in M2 money cause inflation? Richard Vague made even my jaw drop: “Cases 5 and 6 underscore the lack of a causal relationship between rapid M2 growth and high inflation, because when we increase the threshold of nominal M2 growth to from 60 percent in five years to 200 percent in five years, it is followed by high inflation even less frequently than in Cases 3 and 4. This is, of course, the opposite of what one would expect if high M2 growth causes high inflation”. Especially surprising: many bouts of high consumer price inflation took place without any kind of fast increase of the amount of money in circulation.
  5. For the nerds: how did Keynes cope with data about real and nominal wages which did not fit his prediction. At the end of the linked article one can find the original, pretty good, articles from the thirties which presented the results of an investigation of the relation between real wages and money wages suggested by Keynes.

Spain: fast employment growth (but….)

February 5, 2017 Leave a comment


According to the European Commission, Spain does well. And it does: after 6 years of decline employment has increased with 1,2 million. This is, when it comes to EU job creation, a decisive development! But… well, look at graph 1. Employment is nowhere where it has to be. And double digit increases in the number of tourists won’t last forever – Spain will need a new growth sector (or a more equitable division of labor). When it comes to this:  half of the employment increase took place in the 55-64 age group (second graph). Good. The left wants people, including the middle aged, to work. Which of course includes ‘Ehrenamtliche arbeid’ or ‘Honourable work’, as the Germans call voluntering, as well  and family care. But it also includes paid work.

However – in a situation of less than full employment it also means that employment for the 20-55 groups (the people with families) is still 2,5 million down on the 2008 number (and remember: the 2008 bust was not caused by an overheated labor market). Steve Bannon has a point. We need full employment. Andhe European Elites failed these families. Read more…

Greece: it did not have to be this way

February 5, 2017 Leave a comment

Ashoka Mody on Bloomberg

Then came the cardinal error: At the IMF’s Board, over the fierce opposition of several executive directors, the Europeans and Americans pushed through a bailout program that, contrary to the fund’s rules, did not impose losses on Greece’s private creditors. The decision was based on a spurious claim that “restructuring” private debt would trigger a global financial meltdown.

Thus, European governments and the IMF lent Greece a vast sum to repay its existing creditors. Greece’s debt burden remained unchanged and onerous, and the most vulnerable Greeks were forced to accept crippling austerity to repay the country’s new official creditors. The economy quickly and predictably went into a tailspin.

Even when the IMF recognized the error of its ways, it didn’t change course. An internal “strictly confidential” report,  later made public, acknowledged that the program was riddled with “notable failures,” including the lack of private debt restructuring and excessive austerity.


Global warming: an update

February 5, 2017 20 comments

astonishingIn an article in today’s Mail on Sunday, David Rose makes the extraordinary claim that “world leaders were duped into investing billions over manipulated global warming data, accusing the US National Oceanic and Atmospheric Administration (NOAA) of manipulating the data to show more warming in a 2015 study by Tom Karl and coauthors. What he fails to mention is that the new NOAA results have been validated by independent data from satellites, buoys and Argo floats and that many other independent groups, including Berkeley Earth and the UK’s Hadley Centre, get effectively the same results.



The eurozone current account: some problems

February 1, 2017 Leave a comment

Update: after writing this post I discovered that today Matthew Klein wrote a much longer and much more in depth article about the same subject here. Same conclusion.

Should we start a trade war? Let’s, before doing this, take a closer look at current accounts: higher current account surpluses or smaller deficits are not necessarily associated with higher employment. To the contrary. Two examples:  Read more…

The Fed and the Crisis on the Eurozone

January 27, 2017 2 comments

Yes, he said it. One of the gems found by Erwan Mahé in the minutes of the FOMC meetings. Ben Bernanke: “Here we potentially have a comparison to Keynes’ The Economic Consequences of the Peace and the Versailles treaty, where he pointed out that forcing Germany into extreme austerity, although it might satisfy certain moral, ethical, or political urges, had macroeconomic consequences that might force Germany eventually to rebel. By the same token, if there’s not growth for the South, eventually they’re going to decide that default and leaving the euro are better options than what they have.”

From: Erwan Mahé        27 January 2017
Good morning! I would like to take this opportunity to wish everyone best wishes for 2017. Let us hope it will be less complicated than the one that just ended. 

Unfortunately, I fear that we will remain at the mercy of political events for some time to come. I have come to fear like the plague alternative facts analysis of politics relating to financial markets, with the real economy seemingly more and more directive than before, at least for the time being. But I also use this time of the year to plunge into the reading of the full, declassified minutes of FOMC meetings of the last five years, this time, from 2011 Read more…

A case for low Eurozone interest rates

January 25, 2017 Leave a comment

As far as I’m concerned, the ECB does not yet have to increase interest rates – as households still have to be able to refinance many billions high rate loans. As mister Draghi has shown, using sectoral balances, households have, unlike companies and governments not yet profited from low rates and QE! Individual EU countries have to reign in the housing market, though. Below, I’ll share some thoughts about this (as I’m a member of the ECB shadow council who gives advice on this, and I am reconsidering my point of view).

Graph 1: Net interest ‘income’ of banks, the government, non-financial companies and households.


Source: ECB

Read more…

European inflation is NOT soaring

January 8, 2017 12 comments


Predictably (as energy prices can’t fall forever) consumer price inflation in the EU recently increased. The present level is 1,1% which is, in a historical perspective, outright low. Also, ‘core’ inflation (which, unlike consumer price inflation, has never been negative) remained subdued and even below 1%. Predictably, however, people already start to scream that inflation is soaring and we should be afraid about worthless money.

They are wrong. Four reasons:

  1. Inflation does not measure the purchasing power of money. It measures the purchasing power of nominal income. A nice example of this: Read more…

Links: dowries are paid in cash. And disruptive technology.

January 7, 2017 1 comment
  1. Very cool webpage which maps CO2 content of electricity in different European countries in real time (i.e.: German content drops when sun start to shine in Germany), as well as international flows. Blackest country: Poland. Greenest: Norway (hydro), France (nuclear).
  2. I’ve been tweeting a bit with global warming deniers. They are soooooo conservative, at least when it comes to their (lack of) believe in the power of technology. The transition is taking place already. Here, a real life zero emission truck (hydrogen + electricity) which is cheaper, faster and stronger than a diesel truck. Costs of solar and wind continue to plunge. Wind power was so abundant in Germany with Christmas that electricity was free. Decentralised storage has great potential. They don’t want to know.
  3. Is reality starting to look more like neoclassical models? On websites like ‘mechanical Turk’ a total flexible load of work, subdivided in mini tasks, is performed by a total flexible, anonymous labour force. One of these ‘Turkers’ posted the next question on reddit (in Canada, Turkers are paid in amazon gift cards: “Hey guys, Canadian turker here and I just got my first 10 days and now able to take out my earnings ($20). What gift card would be the best to sell in /r/giftcardexchange to get the lowest loss? Also do you guys have any better idea to cash it out with minimal loss aside from gift cards? Thanks! Side question: Does netflix gift card bought in US can be used in canada?”
  4. Demonitisation in India is a disaster, according to this article (based upon careful investigation). Another view however states, invoking Minsky, that credit can cushion the epic liquidity crunch. Recent economic historical findings however indicate that an economy should be seen as a whole bunch of markets and other transactions systems which are interconnected but which also often use their own specialized kind of money and payment system which can’t easily be replaced by other systems. When one carefully reads the positive article this seems to be the case in India, too.

Read more…

The multiple equilibrium economy

December 30, 2016 2 comments

The employment rate in Finland: from a high level equilibrium to a low level equilibrium

finlandIs it possible for an economy to suddenly switch from a rather stable situation of high employment and prosperity to another rather stable situation of low unemployment which, surely in the longer run, puts the prosperity or large groups of people into jeopardy? Neoclassical economists say; ‘NO’! Lasting high unemployment is caused by real wages which are too high, which lures too many people into the labor force! (I’m not making this up – they want to cure unemployment by kicking people out of the labor market!). ‘Yes’ says Roger Farmer and say Marco Fioramanti and Robert Waldmann. Read more…

Have a 2016 Christmas

December 24, 2016 2 comments

The cemetery at Lampedusa were the locals and the drowned immigrants from Africa are buried.

Letter of Kropotkin to Lenin, March 1920

December 21, 2016 12 comments

Next year we’ll witness the hundreth anniversary of the Russian Revolution. Here a link from the Marginal Revolution blog. Below a letter by Pjotr Aleksejevitsj Prpotkin, a leading anarchist and one of the keenest scientific minds of the decades around 1900, to Vladimit Iljitsj Lenin. Note that he wrote this as early as March 1920, note also that at this time a civil war not completely unlike the present turmoil in Syria was raging in Russia. Read especially the last part. Read more…

Christian Odendahl and Ferdinando Giugliano: Fail.

December 20, 2016 3 comments

Oké. I’m a teacher. So, I’m primed and educated to be an arrogant nitpicker. But let’s make the best of a this dire situation and trash the work of Ferdinando Giugliano and Christian Odendahl who defile the language of scientific economics. Which is not just a mistake but a dangerous act which might cause misunderstandings and destructive economic policies. On the website of the Centre for European Reform they state about Italy: “But Italy mostly has itself to blame. The abysmal productivity growth over two decades is also down to successive governments’ failure to invest in infrastructure, research, education and skills; to make its public institutions and judicial system more efficient in order to help the most successful and productive businesses grow; to raise the employment rate of both men and women; and to promote the deployment of labour and capital to productive companies”. I agree (though not entirely, the investment rate in Italy is not that low and, as in other European countries, the average level of education is higher than ever while. And when good companies can not attract good workers they should fire the managers). But they also state: Italy should: ‘switch expenditure from public consumption, such as the pension system, towards public investment’.

Sigh. State financed pensions are not ‘government consumption’ but ‘transfer incomes’. ‘Government consumption’ is the kind of spending on education and the judicial system which Odendahl and Giugliano want to increase. As the Odendahl and Giugliano article will be read an all kind of civil servants will look at the statistics and advice the politicians to get ‘government consumption’ down, without realizing what ‘government consumption’ actually is, this might have dire consequences. This may sound far-fetched, but neoclassical macro-models make this grave mistake, too. And see this article about the demise of the Greek health system. One of the hallmarks of a proper science is a systematic use of words and definitions. Neoclassical macro does not pass this test. Which is a bad thing – and not just for science.

Some problems of the neoclassical concepts of employment and unemployment

December 18, 2016 4 comments

real-wagesAre neoclassical macro models post-truth? It might very well be. The ‘workhorse’ neoclassical macro  ‘DSGE’ models used by for instance central banks state that lower real wages will solve unemployment, largely because these lower wages will entice ‘marginal’ workers, like the elderly and women to leave the labor force (read this, by Lawrence Christiano, Mathias Trabandt and Karl Walentin (2011). Less workers, unemployment solved! But does this also happen? Ehhmmm…no (graph2). Read more…