Author Archive

Costs of owner occupied houses should be in the price index. But in the right way.

February 6, 2020 1 comment


The ECB rightly wants to pay more attention to costs of ‘owner occupied houses’ (OOH) when it comes to inflation. Statisticians often use ‘imputed rents’ to do this. The ECB shouldn’t do this but should look at actual costs of owners of houses. Read more…

Unemployment: the concept and its measurement

January 2, 2020 2 comments

Fred employment

Two days ago I posted ‘The macro economic graph of the decade‘. The comments were highly interesting and may be summarized as: “what does ‘headline’ unemployment measure anyway”. About this:

  1. Headline of ‘U-3’ unemployment only captures a part of labor slack and is designed to capture only part of total slack. It can however be supplemented with other unemployment measurements which are designed to measure additional slack, like underemployed workers or discouraged workers.
  2. But there are reasons to assume that it systematically underestimates what it tries to measure.

Read more…

The Macro economic graph of the decade

December 31, 2019 4 comments


Source: eurostat.

What did the last decade teach us about (macro-)economics? The graph above is clear:

* ‘Drunk driving’ financial crises do happen and cast a long shadow. Read more…

Twinkle, twinkle through 365 nights – on one battery!

December 24, 2019 1 comment

Merry christmas and a happy new year! And a picture of an off the shelf heart shaped 2018 Christmas adornment which managed to twinkle 365/24/7 (even when not very bright) on one off the shelf battery, showing the power and the glory of modern contemporary off the shelf led and battery technology. Let’s embrace and welcome the next 365. And dump the last remaining 19th century technology totally outdated short lived energy wasting heat squandering incandescent light bulbs before the next year starts, making 2020 a happy place in advance.
Read more…

The problem with ‘Divisia’ money

December 23, 2019 Leave a comment

According to some economists, ‘Divisia money’ is, as a monetary aggregate, a superior and neoclassical alternative to the more often used M2 or M3 ‘single sum’ aggregates. But looking at such money aggregates in isolation prevents economists from analyzing monetary developments using the integrated and statistically coherent Flow of Funds framework which ties the growth of money to the growth of credit. Divisia money is not a sound alternative. The Flow of Funds are.


The graph shows that aggregate lending data are much more indicative of the growth of financial vulnerabilities and booms and busts than data on money. Read more…

The EU Green New Deal. Fallen fruit first. And now.

December 15, 2019 8 comments

from Merijn Knibbe

The EU has announced a ‘Green Deal‘.  Good. But at this moment, this only a plan for a plan. But there’s no time to waste. So, what to do while we wait? Let’s unleash the economists’ neurotic obsession with efficiency! Identify ‘fallen fruit’, energy gobbling activities which shouldn’t have been there in the first place. And get rid of it. Three examples, non of which requries massive investment or path breaking research:

Media boxes. Problem: extreme stand by use. Solution: waiting for Netflix (for a few seconds). Almost every household has a media box, nowadays. And we literally can’t wait to see Netflix. Which means that these boxes are on ‘stand by’ which uses lots of energy.

In the case of Ziggo media boxes: 56 Watt. Suppose that 100.000.000 households in the EU have such a box this translates to 5.600 Mega Watt or twice the capacity of the largest coal fired power station in the world. How to do this: charge Ziggo and comparable companies (which own the mediaboxes, have a very good administration of these and are able to remote controle them!) with ten Euro per year per Watt (maximum use in standby mode). Use the money to lower VAT on labor hours charged by repair companies (including dentists and car repair and maintenance, the largest sectors of these). Read more…

Financialization, home ownership edition

December 11, 2019 2 comments

Recent research has emphasized the negative effects of finance on macroeconomic performance and even cautioned of a “finance curse.” As one of the main drivers of financial sector growth, mortgages have traditionally been hailed as increasing the number of homeowners in a country. This article uses long-run panel data for seventeen countries between 1920 (1950) and 2013 to show that the effect of the “great mortgaging” on homeownership rates is not universally positive. Increasing mortgage debt appears to be neither necessary nor sufficient for higher homeownership levels. There were periods of rising homeownership levels without much increase in mortgages before 1980, thanks to government programs, purchasing power increases, and less inflated house prices. There have also been mortgage increases without homeownership growth, but with house price bubbles thereafter. The liberalization of financial markets might after all be a poor substitute for more traditional housing policies.

That’s from Sebastian Kohl. Housing policies of course also include policies aimed at affordable rents.

Are low interest rates ‘fair value’?

October 28, 2019 1 comment

The next post is by Pierre Fouchet from HPC is interesting on different levels. First, interest rates are low and it shows that medium run changes in these rates can to quite some extent be ‘explained’ by a cocktail of:  economic variables, price setting by central banks and expectation variables (mind that the model is straightforward but the variables aren’t!). This, however, does not explain why USA rates are quite a bit higher than (in this case) German rates, even when inflation, growth and unemployment in the USA and Germany is not too different. Second, it’s an example of investigating Keynes’ ‘beauty contest‘ (what do others expect expectations to be) and Soros’ ‘reflexivity‘ (expectations may be dead wrong but do influence markets so people follow them as they are paid to make short term gains) as well as possibly a weak version of the rational financial markets idea (whenever ideas like this become common knowledge  you can’t exploit them anymore). Third, rates like these are used to set interest rates used to discount future pension liabilities of pension funds. These liabilities stretch six to seven decades into the future. The model shows that todays’ low rates, which lead to a quite high calculated present value of future liabilities and hence to less favorable calculated funding of pensions, are partly driven by short term upswings and downswings of the business cycle. Millions of people risk having lower pensions now or in ten or twenty years time because we’re now in a downswing, or at least we expect to be in a downswing. That sure is an example of reflexivity – and of a kind we do not need. Read more…

Changing the money meme

October 19, 2019 29 comments

Scientific economics needs more memes: short statements which capture the imagination and stick to the mind of lay people as well as economists. One of the well known memes of classical and neoclassical economics is the definition of money:

Money is:

* A means of exchange
* A store of value
* A unit of account

As such, it’s not bad. But it’s incomplete. The unit of account and the means of exchange do not have to be the same thing. In the olden days, in the Dutch Republic (as well as elswhere), the universal unit of account was the Stuiver and multiples thereof, like the Carolus Guilder of twenty Stuiver. While the means of exchange existed of a bewildering array of Pieces of eight, Guilders, Nobels, Thalers and whatever and sometimes, especially before 1650, even of products like rye which were used to pay ‘monetary’ rents. It’s good to make a clear distinction between the unit of account and the means of exchange! However – this meme is (neo)classical as it implicitly understands transactions as isolated here and now events, without social or historical or political embedding or repercussions. We have to change it. One way to do this is, as sometimes already happens, to add a fourth dimension to the definition, stating that money also is:

* the standard of deferred payments

The debt contracts using the unit of account as the standard of deferred payments tie the individual actors of (neo)classical economics together and, as their balance sheets and projected liquidity statements change, also change the economic nature of these people and companies. This adds a time as well as a social as well as a political dimension to the definition. See, for a depressing example, this story about debt collecting in Coeffeyville, Kansas. Money makes the world go round. And in Coffeyville, debt makes it stop. Other examples are mortgages or commercial credit which open up possibilities but also come with risk. Any money meme should encompass this part of our monetary world.


Should Olivier Blanchard still get credit?

June 27, 2019 6 comments


On June 17 Olivier Blanchard, an influential economist, held a dinner speech at the ECB Sintra Forum. Weird. Nothing changed. No Hyman Minsky. No Claudio Borio. No Ulrich Bindseil and intertemporal instability of the asset side of bank balance sheets. No Flow of Funds. Nothing of the kind. His solution for the problems of the Eurozone: get relative prices right and, trust me, general neoclassical equilibrium will return. Just plain old 2007 macro-economics. The whole reason we’re stuck in the mud is according to him that the – unobservable – ‘natural rate of interest’ has declined and has to increase again. Just get prices right (read: lower wages and the interest rate), which is more difficult when the natural rate of interest and inflation is low, and wait. In the meantime, as interest rates are lower government expenditure might be a little higher to ease the transition period and to boost investments. What does this man still miss, after all these years, monetary and otherwise? Read more…

The age of Doris Day…

May 13, 2019 9 comments

Let’s not forget that she once played a union worker, in ‘The pajama game’. With the song ‘racing with the clock‘. Also, here a blogpost of mine about how in ‘The Age of Doris Day’ apt new institutions enabled everybody to work less and have better lives, in stead of a part of the population being entirely unemployed and miserable.

New distributional financial accounts from the Federal Reserve!

May 6, 2019 1 comment


The Federal Reserve (Fed) publishes the Flow of Funds. It has recently made an important addition to these invaluable financial data: quarterly distributional financial accounts. They are more frequent, more detailed and much faster than existing accounts. Why did they do this? For one thing: distributional accounts are not a new idea. As stated in their first footnote (but note the gap between the fifties and 2014): Read more…

Putting the baby in the tub: unemployment in a neoclassical (?) macro model

April 23, 2019 12 comments

Is it possible to model unemployment in neoclassical ‘DSGE’ macro-economic models ? I’m occupied with a project which compares neoclassical macro concepts with statistical macro concepts. One of the glaring differences between the statistics and the models: we measure unemployment as a matter of routine but DSGE-models do not conceptualize or define, let alone operationalize it. When you model our society as a one person ‘Robinson Crusoë’ ‘society’ you will have somebody who works a little less or more but who will never be entirely unemployed. Models with heterogeneous agents have problems with this, too. On twitter, Lukas Freund however pointed me however to the 2018 article ‘Unemployment (fears) and deflationary spiral’ by Wouter J. den Haan, Pontus Rendahl and Markus Riegler, which does model unemployment.

Does this article require me to rewrite my stuff on ‘labor’? Nope. To be able to model unemployment they do not (yet) put a silver bullet through the heart of the models. But they do cut out its liver.

What do I mean? Read more…

What’s in a model… (an economic one, that is)

April 6, 2019 8 comments

What’s an economic model? A little semantic intro (don’t worry, we will get to Keynes in a moment)

I work together with biologists, agronomists and even test animal specialists on a regular basis. These people use words like ‘conceptual models’ or ‘even ‘animal model’ all the time. Check this:  ‘Mouse Models of Diabetic Nephropathy‘. Yes, a live animal is considered to be a scientific model. I had to get used to this as this use of the word ‘model’ transcended the boundaries used in the world I came from. But mastering these concepts prooved enightening. Conceptual models are described by Andrew Powell-Morse in the following way:

conceptual model is a representation of a system that uses concepts and ideas to form said representation… a model is intrinsically a thing unto itself, but that model also contains a concept of what that model represents — what a model is, as opposed to what a model represents.  (think of the mouse and diabetes, M.K.) … conceptual modeling is used as a way to describe physical or social aspects of the world in an abstract way. For example, in the realm of software development, a conceptual model may be used to represent the relationships of entities within a database. Whether written down via text or diagrammed visually, such a conceptual model can easily represent abstract concepts of the relationships between objects in the system, such as Users and their relationship to Accounts.

Read more…

Modern Money Theory and inflation control: look at constant tax inflation

February 17, 2019 45 comments


One of the tenets of Modern Monetary Theory (MMT) is that taxes are, ceteris paribus, deflationary. When prices of gasoline increase because of green taxes, people have less money left and know that their purchasing power declines. This is not consistent with neoclassical macro, at least not in its influential ‘Ricardian equivalence’ version, but that’s not interesting. The interesting thing is that MMT states that if inflation rises, taxes should increase to cool the economy. Which means that they will have to target some kind of inflation rate. Which rate? Read more…

The enduring popularity of ‘The Great Transformation’ by Polanyi

February 16, 2019 25 comments


Source: International Labour Organization

The most popular post on this blog is a summary of ‘The Great Transformation‘ by Polanyi. Which is remarkable as it is an old book about even older events: the transformation off traditional economies with a low rate of investment and little wage labor into modern economies with a high rate of investment and high levels of wage labor (Polanyi does not stress investments too much but see, in about the same period, Kuznets (1955) and Rostow (1959)). This economic process went together with a cultural revolution like the commodification of labor and time. Read more…

Let them pump biodiesel… Or: the French yellow vests are right about prices.

February 8, 2019 3 comments


There is a lot of ado about the French yellow vests who, somewhat violently and in a tenacious way protest the french government and battle the french police. The protests erupted when the Macron government increased gasoline and diesel prices.  Was this the proverbial drop which made the bucket overflow (”la goutte d’eau qui fait deborder la vase” or, to comply with Anglosaxon culture and to connect with the new nationalism in Anglosaxonia (not to be confused with Niedersachsen)): “the straw which broke the camels back”)? Yes, it was. Read more…

Ti auguro Buon Natale e un felicissimo Anno Nuovo

December 24, 2018 1 comment

Productivity in the Eurozone (and why it matters)

December 24, 2018 1 comment

@Brankomilan leads us to this (french) piece about Austria. It states that the Austrian government enacted a new law which authorizes working days of 12 hours and working weeks of 60 hours.

A). This is a clear case of retrogression. It’s good to read what, in 1921, the International Labor Office stated in its first annual report:  Read more…

Thomas Sargent discovered his inner Marxist. Really. Two graphs.

November 12, 2018 11 comments


Graph 1. Unemployment in the USA, % of the labor force, monthly data.

One of the central and most pressing questions of macro-economics is how to estimate and explain unemployment. Thomas Sargent, card-carrying member of the neoclassical cabal and winner of the ‘Sveriges Riksbank Prize In Economic Sciences In Memory Of Alfred Nobel’ (SRPIESIMOAN)  just made a shot at it. A somewhat Marxist shot, as far as I’m concerned. Which, considering the hard core neoclassical nature of the rest of the work of Sargent, is quite surprising. What’s the case? Read more…