Author Archive

Minskyan reflections on the ides of September

September 18, 2018 2 comments

from Jan Kregel  source

The 10th anniversary of the September collapse of the US financial system has led to a number of commentaries on the causes of the Lehman bankruptcy and cures for its aftermath. Most tend to focus on identifying the proximate causes of the crisis in an attempt to assess the adequacy of the regulations put in place after the crisis to prevent a repetition. It is interesting that while Hyman Minsky’s work became a touchstone of attempts to analyze the crisis as it was occurring last September, his work is notably absent in the current discussions.

While it is impossible to discern how Minsky might have answered these questions, his work does provide an indication of his likely response. Those familiar with Minsky’s work would recall his emphasis on the endogenous generation of fragility in the financial system, a process building up over time as borrowers and lenders use positive outcomes to increase their confidence in expectations of future success. The result is a slow erosion of the buffers available to cushion disappointment in those overconfident expectations. And disappointed these expectations must be, for, as Minsky argued, the confirmation of expectations of future results depends on decisions that will only be taken in the future. Since these decisions cannot be known with certainty, today’s expectations are extremely unlikely to be fully validated by future events. In a capitalist economy financial commitments are financed by incurring debt, so the disappointment of expectations will produce a failure to validate debt, leading to the inexorable transformation of financial positions from what Minsky called “hedge” to “speculative” to “Ponzi” financing structures. These structures refer to the ability of current cash flows to meet these commitments.

Read more…

D. Trump lies, again. But he has a point. A HUGE one.

September 10, 2018 4 comments

According to D. Trump “The GDP rate (4,2%) is higher than the unemployment rate (3,9%) for the first time in over 100 years!”. This tweet.  Comparing the rate of GDP growth with the unemployment rate surely is interesting. And situations where the unemployment rate is lower than the rate of growth (U<G) are rare and remarkable as well as agents of change.

D. Trump is wrong about the economic history of these events (graph). During WW II as well as during quite some years in the fifties and the sixties growth was higher than the unemployment rate, too. While the thirties show that we have to account for high rates of legacy unemployment. Using, as D. Trump does, annualized quarterly data would surely show more episodes. Even then, 1999 was the last time, which isn’t over 100 years ago. And personally, I would be delighted to get the source of his unemployment data for the period before 1929.

00TrumpHaving stated this, I totally agree that the ‘U<G’ situation surely is worth a presidential tweet! Josh Mason has been lambasted for pointing out the possibility for strong growth even when unemployment is low. Turns out he was right after all. Too bad we needed the policies of an egomaniac to proof this. For progressive economists, there is a lesson to be learned, here. Let’s go for a ‘BU<G’ situation, ‘B’ standing for ‘Black’.

Yves Mersch, ECB banker: we really don’t care (about house price inflation)

September 8, 2018 2 comments

There we go again. According to mister Mersch, a central banker, the ECB only has to care about consumer price inflation and not about financial stability. Mister Mersch knows this isn’t right. Legally, the ECB do has to care about financial stability. It’s part of the mandate of the bank. In a practical sense, caring about financial stability is what central banks do. While they do not excel at influencing the rate of consumer price inflation (which is influenced by wages, profit margins, productivity changes, prices of intermediate products like oil and also, but only to a limited extent, by interest costs). Mister Mersch knows all this. He is an old man. he must have studied ancient textbooks. What did the textbooks of yonder state about central banks (and I have little to add)?

  • They are the bank of banks
  • They are the bank of the government
  • They have to take care of  a well-functioning payment system
  • They guard financial stability
    • which means that they have to guard the liquidity and solvability of banks
    • which means that they have to investigate (not the same thing as ‘guard’) the liquidity and solvability of households as far as this is related to banks (read: mortgage lending, but also student loans and payday lending)
    • which means that they have to take care that banks and financial institutions are not overstepping their boundaries
    • which means that they have to make sure that money creating credit is provided for productive loans only, not for purchases of existing assets (read: houses)
  • They have a role to play when it comes to the external value of the currency
  • They do not really have a large role to play when it comes to the internal value of the currency. Central banks can control interest rates. They can control the economy downwards: just increase the interest rate to a very high level and the economy will tank. But they can’t really stimulate the economy (though they can create asset price bubbles). Proof: the investment rate in the EU is still low, after all these years of low rates.

Read more…

Bitcoin and Yap stone money, once again.

July 29, 2018 5 comments

In October 2015 I wrote a post in which I compared Bitcoin with Yap island stone money. Farfetched? No. Today, Sciencenews published an article by Bruce Bower. He states that archeologists nowadays argue the same thing. An excerpt:

Archaeologist Scott Fitzpatrick and finance professor Stephen McKeon, both of the University of Oregon in Eugene, see parallels between the public, decentralized way in which rai limestone money on the island of Yap was valued and distributed and the modern-day blockchain technology used for Bitcoin and other digital currency transactions. Read more…

Discussing the GDP production boundary in a serious way

July 21, 2018 14 comments

A well-known criticism of national income is thr\e ‘Ïf you marry your maid you will diminish national income‘ mrmr. Sigh. We should forget about this silly male fantasy and give women their due by replacing it by what really happened. Domestic workers did not marry their single masters. They left them, as they had better paying things to do. Or the income of their family rose, which enabled them to get an education or to care for their own kids. Unprotected labor by Vanessa May is a good book about the work and life of domestic servants in new York, 1870-1940. The influence of this on how we have to understand GDP is important. So, what happened?

Once upon a time, every middle class family and many other families had a maid living in. Read more…

Shifting attention: two ideas for a genuine micro founded macro-economic master thesis

July 16, 2018 9 comments

from Merijn Knibbe

I’m trying to write a book about the relation (not) of neoclassical macro-economic concepts to the concepts of macro-economic statistics. Which leads one to interesting places one can’t explore. If there is anybody out there in search for an interesting idea for a master thesis or something light that, these might do:

  1. A qualitative and quantitative exploration of ‘hoboism’ in the 1930’s looking at it using the lens of ‘involuntary part time unemployment’
  2. An international and historical extension of existing estimates of domestic servants and how this relates to our estimates of GDP.

Read more…

What did I learn from my students? Market boundaries are shifting.

July 13, 2018 2 comments

A lot of my students do internships or write theses based upon problems of companies or NGO’s. Many teachers want them to play the research game. I prefer them to design something for the company or organisation as I really want them to learn that they don’t have to learn what their teacher wants them to learn…. or wait….

Anyway: what did I learn? Read more…

Italian situation is highly worrisome!

June 9, 2018 10 comments

Considering the present architecture of the Eurozone – there is according to Erwan Mahé no obvious way to solve the Italian Euro crisis…

From: Erwan Mahé

I sent this little collage on 25 May, via IB Bloomberg chat, as the BTP began to decline, since it seemed to sum up the best attitude to take towards the near hysteria afflicting the Italian debt market at the time.


From a high of 132.88 on Monday 25 May, it plunged to as low as 120.10 the next day, reflecting a full one per cent rate shift on the eurozone on the 10-year maturity! Read more…

The big bad pension scare.

June 6, 2018 14 comments

On Voxeu, Hervé Boulhol and Christian Geppert  published an article a about population ageing and pensions which tries to scare us: “on average in the OECD, stabilising the old-age dependency ratio between 2015 and 2050 requires an increase in retirement age of a stunning 8.4 years. This number far exceeds the projected increase in longevity and increases in retirement age driven by pension reforms alone.”. The pension age has to go up. But not for the reasons and by the amount they state. What’s wrong with their article?

  1. Their base line is wrong. They calculate a post 1980 dependency ratio (the number of young and old people per person in the working age) by using a 20 year and a 65 year threshold. During the 1980-2015 period, many people retired before 65 which means that the dependency ratio was higher than calculated in the article. Which in it turn mean that the rise of the dependency will be lower which means that less of an increase in the pension age is needed to stabilize it.
  2. As they admit in a footnote, they do not take changes in employment rates into account. Employment rates of people and especially women above 50 are rising spectacularly, which means that the dependency ratio per working person rises less than they calculate.
  3. Their assumptions about the rise of the pension age between today and 2050 is wrong. They assume an increase to 66,5 years of age. At present the pension age in many countries (Italy, Greece) is already while the pension age in the Netherlands and in 2050 even the German retirement age will be higher. This will lower future dependency ratio’s.
  4. In their world, unemployment does not exist. In countries like Spain, Italy and Greece total unemployment (including unemployment) is however around 25% while in a country like France it is close to 20%. Putting a large part of these people to work will solve a large part of the problem.
  5. They assume that pensions have to be paid using a ‘paygo’ system, i.e. by taxes. Surprisingly, they assume that only wage incomes will be taxed. One could however also tax capital income (or raise the labour share).
  6. If need be, people can start to work longer. A 4 hour increase of working weeks which are on average 32 hours leads to a 12,5% in total hours worked per person, which can also solve a part of the problem.
  7. Productivity can increase. A modest 0,5% increase of productivity per year between now and 2050 translates in a total rise of productivity of 17%. Together with an increase of hours of 12% this translates in a growth of production of 30% per working person.

Read more…

‘Free EU movement of workers’: new rules. But we need better economic policies.

June 2, 2018 9 comments

Fig 1

Inter-EU flows of ‘labour’ have dramatically increased (figure 1, figure 2), which leads to problems in sending as well as receiving countries. New EU legislation tries to restrict the extent to which entrants can be used to circumvent existing labour laws to unfairly undercutting labour in the receiving countries (and ‘fairness’ is as fundamental an incentive to people working as their wage). This legislation is welcome. But it is too late. Or is it ‘too little’? Can sending countries afford to lose up to 15% of their active labour force in a few years? Can receiving countries deal with the influx? Aside – this is not just about the EU. Albania has a population of about 2,9 million people. About 500.000 of these seem to be residing in Italy alone… Read more…

President Mattarella of Italy: from moral drift to tactical blunder

May 28, 2018 2 comments

By Yanis Varoufakis.  Source

I concede that there are issues over which I would welcome the Italian President’s use of constitutional powers that (in my humble opinion) he should not have.(*)  One such issue is the outrageous policy of the Lega and the promise of its leader, Mr Salvini, to expel five hundred thousand migrants from Italy. Had President Mattarella refused Mr Salvini the post of Interior Minister, on the basis that he rejects such a monstrous project, I would be compelled to support him. But, no, Mr Mattarella had no such qualms. Not even for a moment did he consider vetoing the formation of a 5S-Lega government on the basis that there is no place in a European country for scenes involving security forces rounding up hundreds of thousands of people, caging them, and forcing them into trains, buses and ferries before expelling them goodness knows where. Read more…

Doubting the benefits of trade: a somewhat fuzzy discussion.

May 28, 2018 23 comments

There is a somewhat fuzzy discussion going on about exports, imports and the economy: are (net) exports (imports) good for Australia a country, or not. Look here. And here. It is a complicated question, which made Steve Keen state: “I don’t want to see, and obviously won’t tolerate, further arguments about exports as costs and imports as benefits. I want to see a detailed double-entry bookkeeping exploration of the monetary (and capacity-utilization/real GDP/physical) implications of trade surpluses and deficits“. The good news: such systems are available. No need to invent them. ‘Supply and use’ tables which also keep track of physical flows are alive and kicking, see graph, source here. Same for input-output models, here a bit on the influence of exports on German employment.


Read more…

A short note on the production boundary of neoclassical macro models

May 18, 2018 1 comment

The neoclassical macro ‘DSGE’ models do not seem to have a rigorous model consistent ‘production boundary’.

A ‘prior’ in macro economics is the production boundary: what are we talking about? Famously, Adam Smith more or less excluded services – or at least services from personal servants. While the present national accounts  basically include everything which yields a monetary income, including illegal activities. The phrases ‘more or less’ and ‘basically’ of course indicate that delineating the boundary is not easy. Daniel Urban wrote a very clear piece about the classical boundary, the national accounts boundary, the neoclassical micro boundary (everything which yields ‘utility’, whatever that is) and the Marxian boundary (everything wich employs wage labour which produces surplus value which can be used to increase ‘capital’ or wealth of the owning class). But he does not discuss neoclassical macro models. I do not know about any serious discussion of the production boundary of these models.

Implicitly, the boundary seems to be quite narrow. Take the next phrase from a long paper by Jesus Fernandez-Villaverde, Juan Rubio-Ramirez and Frank Schorfheide  about how to solve neoclassical macro models: “Consumption is defined as Personal Consumption Expenditure on Services (PCESV) plus Personal Consumption Expenditure on nondurable goods”. One has to distill this essential information about the models from a footnote… Of course, one can argue that durable consumption goods are in fact an investment – but the whole 150+ pages piece only mentions ‘investment’ once, in the sense that the model could be enriched with ‘a non-negative investment constraint’. Which to me, also considering other models, means that durable consumer goods are excluded. And this is not the only thing excluded in most models. A list:  Read more…

Marx, 200.0

Tomorrow will be the 200th anniversary of Marx. A lot of people write about this. The most interesting pieces I read were by Veblen (1906 part 1 and part 2). Some excerpts (the beginning of part 1 and the end of part 2, as always with Veblen one has to read the whole thing). One of the main points of Veblen is that Marx takes the ideas of ‘bourgeois’ economists more serious than these economists themselves, culminating among other things in the idea that, in an economics sense, ‘capital’ is not machines or buildings but ownership rights of such assets, ownership rights which enable the owners to drain money from companies and to boss labour around.

Part 1:  Read more…

Progress, farmers and the government – no easy solutions.

April 30, 2018 3 comments


I’ve always been wondering why small farmers enjoying ‘Fair Trade’ privileges are not modernizing faster in the sense that they invest and modernize, capture the market and do not need ‘us’ anymore. Yes, I know that many international trade rules are not exactly fair. And the words ‘Banana republic’ and ‘Banana wars‘ come from somewhere – the official phrase for such ‘politically enforced’ global value systems is ‘empire‘ (TTIP anyone?). But even then – why do many small farmers and even slaves (cocoa production!) in more or less stable countries still need western NGO’s and benevolent consumers and companies like Chocolonely? There are reasons for this – as it surely is possible that, when circumstances are ‘right’, development can be very fast. My ideas about this were influenced by my Ph. D. about Dutch agriculture. Between about 1890 and 1910 Dutch farmers managed to change input, output and credit markets in a fundamental way by establishing literally thousands of local cooperative purchasing, selling, production and saving and credit cooperatives while they also invested in new production systems; the government did its part by establishing an (grass roots) education and (grass roots) research system. Also, the Netherlands were in those days basically a low corruption, high trust society while the government (but also local dairy factories and railway entrepreneurs) enhanced basic education and roads and railways. On top of this, local teachers and other well-educated elite often did a very good job as voluntary secretaries or accountants of the boards of the cooperatives. Everything was ‘right’. And change did happen.  Read more…

John Stuart Mill and the end of monetarism

April 3, 2018 2 comments

I apprehend that bank notes, bills, or cheques, as such, do not act on prices at all. What does act on prices is Credit, in whatever shape given, and whether it gives rise to any transferable instruments capable of passing into circulation or not.

John Stuart Mill, 1848

The relation of changes in M (money) to Y (income) and r (the interest rate) depends, in the first instance, on the way in which changes in M come about.”

John Maynard Keynes, 1936

John Cochrane has an interesting post about a Milton Friedman article. But the post does, fifty years after Friedman published the article, still not address the Main Monetarist Mistake: ignoring credit.  The entire discussion if money is neutral is redundant as money creating credit is not. Definitely not. Changes in credit – to be more precise: in the stocks of debt, in the flows of new credit and in the terms of availability of credit –  do influence the short and the long term development of an economy. Debts and credits make a large difference to the long run development of countries. Here a fine Reinhart and Rogoff working paper about this, which also shows that financial crises are not rare. This is not just about bank credit – Microsoft financed the transfer of its intellectual property by intercompany payables which do show up in the statistics on international capital flows! Credit is an essential part of a capitalist and even a market economy. And, as Keynes suggested, it makes quite a difference if banks provide credit to enable households to buy existing houses or to enable companies or governments to invest in new roads and houses. Read more…

The interest rates. An institutional view.

Mortgage rateOnly after Mario Draghi’s ‘Whatever it takes’ (26 July 2012) low ECB policy interest rates started to translate decisively to lower rates for Mediterranean Eurozone borrowers. But ‘WIT’ did not only save (or at least: made live a little easier for) Italian and Spanish borrowers with legacy debts. Somehow, Dutch mortgage rates were also tied to the European bond rate instead of the ECB rate oor Dutch government bond rates (second graph) which meant that it was only after 26 July 2012, four years after the onset of the crisis, that Dutch households too could start with decreasing the amount of ‘debt service’ they had to pay (interest on savings accounts is of course also lower – but those rates did start to decline before 26 July 2012). Read more…

Female and male participation and employment


According to the accepted narrative after about 1950 female participation rates started to rise thanks to inventions like the washing machine and kept rising forever after. Reality is more confusing. According to a recent book by Julia Sophie Wörsdorfer, washing machines were, contrary to the ideas of Ha-Joon Chang, not that important. Neither cross sectional data nor time series analysis yields a strong correlation between ownership of a washing machine and high female labour force participation. But there is a strong link between the rise of the washing machine and a rise of public and personal cleanliness standards – more kinds of clothes were washed more often than before in less time. The Japanese data also contradict the washing machine thesis. It explains neither the post 1960 decline of the female Japanese participation rate nor the recent increase in Japan or, for that matter, Turkey.  Clearly, the female participation rate is to quite an extent a cultural phenomenon, though it is no doubt also influenced by education, fertility decisions and urbanization. The idea that the washing machine enabled women to emulate men is, however, wrong. They made and make their own choices, often more family oriented than those of men. Which is not necessarily a bad thing.  Read more…

Regraphing USA unemployment history. An addendum to the USA data

February 25, 2018 3 comments


Source: Bureau of Labor Statistics

Broad unemployment today is, compared with the period before 1994, worse than you think. A new way of estimating ‘part time workers for economic reasons’ shifted this series downward with almost 1% of the labor force. To gain a proper understanding of historical developments present day data have to be increased or historical data have to be decreased a little.  Read more…

Modern macro-economists: money is not ‘neutral’. Bordo, Meissner, Sufi and Mian do a good job.

February 16, 2018 1 comment

Hardcore neoclassical economist John Taylor has edited a new handbook of macro-economics. The good news: the sands are shifting. After 2008, more attention has been paid to the obvious fact that we’re living in a monetary world. Guess what: it  turns out that money is non-neutral after all. Two examples (summaries below):

(A) Bordo and Meissner claim that whenever a country has a large banking sector it has a choice, during a financial crisis. It can bail out the banks or it can try to mitigate the crisis and prevent unemployment to increase to extreme levels.

And (B): Mian and Sufi’s work implicates that the ‘representative consumer’ is bogus: differences between renters and house owners in combination with data on indebtedness and house price booms and busts explain a lot of the severity of the 2008 crisis.

Bordo and Meissner:

(A) Interconnections between banking crises and fiscal crises have a long history. We document the long-run evolution from classic banking panics toward modern banking crises where financial guarantees are associated with crisis resolution. Recent crises feature a feedback loop between bank guarantees and bank holdings of local sovereign debt thereby linking financial to fiscal crises. Earlier examples include the crises in Chile (early 1980s), Japan (1990), Sweden and Finland (1991), and the Asian crisis (1997). Read more…