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Merry Christmas and a happy Colchis challenge!

December 25, 2022 3 comments

Eurobonds – there they are.

December 20, 2022 1 comment

The EU-commission issued a tweet (below). Another step towards EU statehood. A large one. Since around 1500, access to credit was key for European (later: all) states waging war. The early development of central banks was intertwined with the history of national wars. Look here for the Wikipedia page on the history of the Bank of England -it literally starts with a ‘crushing defeat’ of England by France. Credit was needed to win. Government borrowing had to be enabled by central banks, the monetary system had to be able to function as a ‘weapon of war’. The ECB, however, is not allowed to provide credit to governments (even when it can keep interest rates low and make government debt ‘risk free’). And the EU is, or was, not allowed to issue its own bonds. A peaceful union. Which changed. There has been a lot of talk about Eurobonds, but suddenly they are there. And again war is midwife of change. Don’t underestimate this. The EU might as well aim to raise 800 instead of 80 billion Euro. Think trillions.

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Inflation and policy: conceptual models matter

December 11, 2022 Leave a comment

Summary: to understand inflation we should not use the neoclassical ‘one good, one worker, one sector, one piece of physical capital’ or Y = f(K,L) concept of production. We should use a concept looking at nominal production (Y(n)) with multiple interrelated sectors (‘S’), multiple products and capital conceptualized not as a physical entity but as ownership rights of land (including natural resources), depreciable capital and ‘non produced’ capital like patents and marketing rights: K’. These ownership rights enable as well as restrict access to and use of land, natural resources, depreciable capital, patents, markets and financial capital while the relations between sector show how shocks are propagated: Y(n) = f(S K’, L). Estimated models using such a concept exist and lead to quite another analysis of inflation than the neoclassical model.

Inflation, even when on the wane, is still unacceptably high.

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Monies

November 12, 2022 21 comments

What’s money? Wrong question. The right question: ‘which kinds of monies do we use for which purposes?’ as there are different kinds of money which are used for different purposes. Here, I want to stress that ‘receivables’ are: money. And are, at the moment, mainly used for inter-company purchases. The quarterly balance sheets (below) of Alphabet (formerly Google) show that, as of September 2020, Accounts Receivable had a value of almost 35 billion dollar. Accounts receivable are privately issued money. They are backed by the law but not created by banks or governments. They are created when a buyer promises to pay and a seller accepts this promise, a promise which can be legally enforced. But it’s not the payment by the debtor which defines the moment of the sale. The actual sale is legally finalized when the seller accepts the promise of the buyer. That’s the moment when ownership changes hands. Receivables are stated in a unit of account, they are a legal means of exchange and they surely are a store of value (that’s why they are included on the balance sheet).

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Graph of the day. Youth unemployment in the EU

November 7, 2022 Leave a comment

Unemployment in the EU is still going down a little. But youth unemployment, a slightly more sensitive cyclical indicator, is rising. The most distinct geographical pattern behind the average: the combination of high levels of youth unemployment (>20%) with clear increases in Greece, Italy and Spain, even when total unemployment in these countries is still going down or stable. France shows a remarkable decline in youth unemployment but is still in double digit territory. Average youth unemployment is lower than in 2008 but the >20% rates in several countries are unacceptable. The EU labour market is not tight, at this moment.

What’s Left?

November 6, 2022 3 comments

One of the successes of the right is their identification of the left with a sorry pastiche of ‘woke’. But the left is more than outspoken, individual awareness of the role of identities, however constructed and defined, whoever constructs and defines them and whatever role they plays in group dynamics of power and in- and exclusion. Which leads us to the question: What’s Left? I’ll state some points. Some points (many of which are related to social , economic and political in- and exclusion):

  • One person, one vote and universal unrestricted suffrage (incarcerated people should have the right to vote too, for instance). Voting rights should not be tied to income, wealth, property, race, gender or education (all of these variables have been used to restrict voting rights). Universal voting rights have been a huge success of ‘la gauche’.
  • The eight hour working day. There’s a nice wikipedia entry about this
  • Free, accessible and high quality education for everyone until at least 16 years of age
  • Cheap, accessible and high quality health care for everyone
  • Affordable, high quality, energy producing but not necessarily detached housing with access to running clean water, sewage systems, clean air and green surroundings and within walking or at least cycling distance from schools and sports facilities and designed to foster interactions with neighbors and to enable community care
  • Healthy, non-polluted environments outside, at work and in these houses
  • Full employment
  • Care free retirement (the age at which this starts might be over 65…)
  • Policies aimed at enabling people raising children to manage the financial and practical burden of the combination of paid labour and family responsibilities
  • government ownership of natural resources like oil, natural gas, aquifers and the like – let’s say anything more than 40 meters beneath the surface
  • Taxes on unearned wealth, like the value of unimproved land and inheritances
  • A long term environmental strategy (climate, biodiversity, nature). This is about survival.
  • free speech, fee unions and other non-profit organizations
  • thriving businesses which, however, have to be bridled in the political arena and which have to follow the rules (labour, environment, food safety, quality, liability – the list is long). Sensible patent policies.
  • A state which does not care about gender or race and which can be sued if it does
  • Which brings us to mechanisms of in- and exclusion. Many of these mechanisms will be countered by the combinations of full employment and access to education, health care and housing. But we will have to fight for this. Hard and long and mean fights.

Let’s be woke about that.

Inflation and wages in Greece

November 5, 2022 Leave a comment

Consumer price inflation in Greece is, at the moment, 12% (graph 1). This is high and surely bankrupting quite some families. The high level of inflation is surprising, as Greek inflation was quite low and often even negative in the 2012-2022 period. The questions are: (A) what caused this sudden increase? An overheated labour market and runaway wages increases? And: (B) how can we get inflation down again? Does the ECB have to tank the economy to crush wages? Below we will investigate these questions.

Graph 1. Consumer price inflation in Greece. Source: Elstat.

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Neoclassical induced financial fragility. Central bank pension fund regulation edition.

October 23, 2022 3 comments

Financial wizardry recently caused massive problems for UK pension funds and the Bank of England. The Bank of England forces pension funds to take part in ‘LDI’ contracts which aim to insure possible future liquidity problems. These contracts however lead to real liquidity problems, which forced the Bank of England to intervene to prevent a market melt down. The solution became the problem.

Deputy Governor John Cunliff of the Bank of England stated:

“The Bank was informed by a number of LDI fund managers that, at the prevailing yields, multiple LDI funds were likely to fall into negative net asset value. As a result, it was likely that these funds would have to begin the process of winding up the following morning… In that eventuality, a large quantity of gilts, held as collateral by banks that had lent to these LDI funds, was likely to be sold on the market, driving a potentially self-reinforcing spiral and threatening severe disruption of core funding markets and consequent widespread financial instability.”

Notice the ultra short periods whichm presumably, are specified in the LDI contracts: ‘Cash, Now!’. I haven’t read any of these contracts, if somebody can provide me with one: please! I do not see any reason for such ultra short periods.

This did not just happen in the UK. Related problems in the Netherlands in 2020 forced the ECB to intervene, to prevent a market melt down. This led Anil Kashyap, in a November 2020 speech at the Bank of England about the March 2020 crisis, to issue the next warning (emphasis added): Read more…

Liz Truss. Or: how not to pay for the war

October 1, 2022 3 comments

The Dutch September HICP inflation rate was 17,1%. One year ago it was 3,0%. Below, I will argue that this is a sign of kind of war economy, not of a cyclically overheated economy. Ways to mitigate inflation were pioneered by the English economist John Maynard Keynes in his ‘How to pay for the war‘. it’s useful to go back to his ideas.

The first version was published in three parts in The Times of november 1939. It was partly based on his experiences in World War I and partly on the new system of national accounting (extended and improved by Keynes). The ideas weere based upon the idea of a monetary economy where consumer spending and consumer prices, production and producer prices and the use of factors of production and factor prices (wages, profits, interests, rents) are intertwined. During a war, this system could lead to consumer and producer price inflation resulting in war time profits on one side and poverty on the other. He proposed changes to the system which would mitigate producer and consumer price inflation as well as war time profits. Fun fact: it’s about the opposite of the Liz Truss UK budget. The central idea of Keynes: we have to understand inflation not just as an increase of consumer prices but as interconnected changes in consumer, producer and factor prices, financed by income as well as borrowing/(forced) saving. Especially during a war, the connections will change in unwanted ways, policies to mitigate this can be enacted as long as we understand inflation as a system of interconnected expenditure, output and factor prices. Fun fact: Keynes acknowledges ‘Prof von Hayek’ for the idea of a post war levy on capital.

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Rosa Luxemburg on Czarist Russia

August 29, 2022 2 comments

After reading her contemporary Alfred Marshall, reading Rosa Luxemburg (born in Poland, 1871-1919) is a joy. The clarity of the prose, the consistence of the arguments, the sheer knowledge of events and facts. She backed an anti-imperialist socialist agenda coupled with – no, based upon – differences of view and discussion in combination with cultural and linguistic diversity. In my view, she would have backed the growth of international food supply chains binding Ukraine, Russia, Turkey and Morocco, among other countries together. But she would have despized the cartelization of the inernational grain trade (five companies rule the roost) and the preponderance of financial and shareholder interests. One of the points where Putin had to back off is the agreement that he will not attack ships transporting Ukrainian grain.. Might Luxemburg have seen this as an annti-imperialist glimmer of hope and a token of the growing power of non-western countries? Or as a cynical proof of the power of international grain trade cartels? About this we can be clear: she would have been totally against the Russian cultural assimilation policies in the Donbas. Here an excerpt from the Junius pamphlet, written when she was, during world war I, in jail. For me, it t rings some bells, even when you have to change ‘Dardanelles’ into ‘Crimea’ and ‘Austria’ to ‘USA’.

Russian imperialism, like that of western nations, consists of widely diversified elements. Its strongest strain is not, however, as in Germany or England, the economic expansion of capital, hungry for territorial accumulation, but the political interests of the nation. To be sure, Russian industry can show a considerable export to the Orient, to China, Persia and Central Asia, and the Czarist Government seeks to encourage this export trade because it furnishes a desirable foundation for its sphere of interest. But national policies here play an active, not a passive, role. On the one hand, the traditional tendencies of a conquest-loving Czardom, ruling over a mighty nation whose population today consists of 172 millions of human beings, demand free access to the ocean, to the Pacific Ocean on the East, to the Mediterranean on the South, for industrial as well as for strategic reasons. On the other hand, the very existence of absolutism, and the necessity of holding a respected place in the world-political field, and finally the need of financial credit in foreign countries without which Czarism cannot exist, all play their important part. We must add to these, as in every other monarchy, the dynastic interest. Foreign prestige and temporary forgetfulness of inner problems and difficulties are well known family remedies in the art of ruling, when a conflict arises between the government and the great mass of the people.

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Neoclassical clunkers. How economists’ ideas about risk aversion are duping pension pundits.

July 31, 2022 1 comment

(Part of) the Dutch pension system will, if everything goes according to plan, soon be replaced with a new neoliberal system based upon, among other things, measured neoclassical ‘risk aversion’. However – economists are not yet able to measure this – which will lead to big problems. let me explain.

The present system consists of:

  • a social democratic element (the ‘first pillar’), a kind of not means tested basic income for everybody above 67 financed by taxes.
  • Next to this is the corporatist ‘second pillar’, largely based on Christian social thought, which consists of non-government non-profit sectoral or, sometimes, company based pension funds which pay funded pensions. These are financed by mandatory pension savings by workers and their employers.
  • The ‘third pillar’ is based on classic liberalism and consists of voluntary pensions provided by private financial companies and funded by contractual savings.

The idea is to transform the collective second pillar part into a would be individual system, organized along neoclassical lines. How does this work? Read more…

Towards a ‘periodic table of prices’

July 12, 2022 6 comments

I do not have ‘physics envy‘. I do not want economics to look too much like physics. But I do have chemistry envy. I want economics to have something like the magnificent periodic table of elements, for prices. Input prices, output prices, mark up prices, shadow prices, market prices, administered prices, government prices, expenditure prices, asset prices, monopoly prices, monopsony prices – all of these and many more neatly ordered in a relatively simple table. Somebody still has to write the book about it but there sure are elements available. One can think of the work on prices by Frederic Lee. Or about the work of Gyun Cheol Gu, who provides us with this extremely useful overview of ideas about pricing (PK means: Post Keynesian):

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Inflation: should we take away the soup bowl?

July 3, 2022 2 comments

The graph below has been constructed by economists of the European Central Bank. It’s based on national accounts data. It shows that present day inflation is profit driven, not wage driven. Money flows to profits, not wages. What does this mean for monetary, fiscal and income policy, taking some other aspects of inflation into consideration? Quite a lot.

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Should Ukraine be part the EU?

June 24, 2022 15 comments

Ukraine applied for EU membership. The application has been accepted, the long journey towards membership has started. Good? Bad? Let’s first be honest about the EU. And the Russian empire – which of course is the main motivator behind the Ukrainian application.

We can be short about the Russian empire. It is large, resource rich, not exactly a failed state but governed by a closed self- enriching criminal gang of with fantasies about a Russian greatness which never existed. It’s also an economic dwarf, undemocratic, technological regressing, it has dismal demographics and a low life expectancy (especially for males). For the last twenty years of so, been extremely aggressive towards, especially, small neighbors. And its a stated aim of Putin to expand all this beyond the borders of Ukraine, whatever the means.

The EU is different. It’s not just an economic entity. It’s a military entity, too. According to the treaty:

If a Member State is the victim of armed aggression on its territory, the other Member States
shall have towards it an obligation of aid and assistance by all the means in their power, in
accordance with Article 51 of the United Nations Charter. This shall not prejudice the specific
character of the security and defence policy of certain Member States.

Commitments and cooperation in this area shall be consistent with commitments under the North
Atlantic Treaty Organisation, which, for those States which are members of it, remains the foundation of their collective defence and the forum for its implementation

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European life expectancies in times of Covid. A long term story.

May 30, 2022 1 comment

Life expectancies in Europe went down in 2019 and 2020 in all countries bar Norway (figure 1). They tended to go down more in countries with a relatively low life expectancy (figure 2) – strong and outspoken tendency. Correlation is not causation. But it can be argued that health and morbidity and life expectancy are influenced by health outcomes during, especially, childhood, including in the in-utero environment (look here, especially 3.1 b and 3.1 c. Look also here). If that’s right the data suggest that an important way to mitigate the (long term) consequences of Covid-19 is to have a strong long term public health system and policy (including policies aimed at diminishing poverty).

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Long term changes in the western rate of ‘Gross Fixed Capital Formation’. Patterns and anomalies.

May 25, 2022 3 comments

In 2019, the Irish rate of ‘gross fixed capital formation’ (which I hitherto will call fixed investment), was 54,6%. More than half of total national expenditure… This was over twice the rate in most other European countries. And three times the Irish rate in 2011 or the Italian rate in 2014. What happened? Was this real? Were they building three times as many houses and roads, buying three times as many planes and trucks and doing three times as much Research and Development (which is considered to be ‘gross fixed capital formation’) as only a few years before? Nope. But if that wasn’t the case, what was the case? Below, I’ll show the results of an update of my data on long term rates of fixed investments in a number of countries, adding 4 years to the series already published. This update shows (1) a moderate but welcome uptick of the rate of fixed investment in Europe and (2) a big, fat anomaly in (there we go again…) Ireland, which will be discussed. The piece will be laced with remarks about the (changed) concept of fixed investment

.

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Beveridge Curves – Covid edition

Beveridge curves are graphical representations of the historical relationship between unemployment and the job openings/job vacancy rate. They should be called ‘Beveridge Ellipsoids‘ as they are banana shaped (an ellipsoid with one bent axis, aside of banana-shaped there does not seem to be an official name for such an ellipsoid). Just calling it a ‘curve’ is somewhat misleading as the banana-shape is no coincidence but caused by labor market dynamics: high unemployment leads to an outward shift (away from the origin) of the relation between vacancies and unemployment. Calling it the ‘Beveridge ellipsoid’ (or, when explaining it to students, ‘The Beveridge Banana‘) catches these dynamics much better than calling it a curve. Anyway: How does that work and how is it related to the present, unprecedented labor market and the very large outward shift of the curve in at least the USA (Figure 1 shows USA data, below I’ll also show EU data)?

Figure 1. Beveridge Ellipsoids in the USA

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Consumer energy prices: stylized post 1960 facts

At this moment, retail energy prices (prices paid by consumers and companies for final use of energy) are, compared with other consumer prices, rising fast. Has this happened before? Yesterdays post shows that in the EU and since 2006 the rise is exceptional. But what shows when we look further back in time? For reasons of convenience and because the USA data stretch back to 1960 while the EU data only stretch back to 1997 I’ve tinkered a little with USA consumer price data. The answer to the question is clear: it has happened before – but the present spell of high energy price inflation (30+% a year) is starting to last exceptionally long. This answer leads to other questions: does, in a historical perspective, the present spell of energy price inflation also lead to a relatively high level of energy prices?

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The toll of high energy prices

April 5, 2022 5 comments

Inflation is up. A remarkable aspect of todays inflation is the relatively high increase of energy prices (graph), an international phenomenon. Rising prices are a bitch when nominal incomes stay behind, which at the moment is the case in Europe. This leads especially to problems for people with lower incomes who have less money to spare and who spent a relatively larger amount of their income on energy. So, what to do? Should we raise interest rates? Hmmm….

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Energy is getting cheaper (cost price). But: who profits?

April 2, 2022 2 comments

Does the switch to Green Energy mean that energy will be cheaper? To answer this question we’ll have to answer several sub-questionsfirst: is there a switch to Green Energy? Is capacity used efficiently? And is Green Energy cheap? As I will argue below, looking at the sub questions the answer to the lead question is: yes. But this answer leads to a related question: above, we’re talking about cost prices, which are down. You might have noticed that consumer prices of energy are up. Who’s getting rich?!

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