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Can we reopen primary schools? Iceland data suggest: yes (they didn’t close them in the first place)

April 18, 2020 7 comments

IJsland6

  1. Mortality and prevalence of Corona.

Iceland tests a lot and has some of the best, most complete and representative, data on Corona infections (graph above, which is consistent with comparable data for Iceland from surveys, h/t Jesse Frederik) and seems to have come to grips with Corona, for the moment. What do these data tell us about the prevalence and mortality rate of Corona? Read more…

Corona: a positive agenda

April 3, 2020 7 comments

The eight hour working day was a long standing aim of organized labor. For decades it seemed unattainable. ‘International competition’ often was a main reason why countries stubbornly refused to introduce it. But from 1915 on and starting in Uruguay it suddenly spread all over the world. Within a few years, in many countries the six day eight hour working week had become the new normal.

Corona won’t end the world. After World War I and despite the Spanish flu many countries rapidly bounced back to prosperity. The introduction of the eight hour day did not prevent this in any way! Too much of this prosperity was based upon flimsy finance the productive capacity was available – while more robust ways to finance investment are of course possible.  Prosperity never is the problem even when flimsy finance, long working hours or unsustainable methods of production might be.

After Corona, countries can bounce back, once again. Of course, we have to introduce measures like job guarantees and the like during the ordeal and finance these in a sustainable way – which for the time being might well be by printing money instead of issuing debt! Be aware: I did not write: ‘printing unlimited amounts of money’ or ‘competitive printing of money by states of the USA or Eurozone countries’. But for the time being printing money to the tune of 20% of GDP per year might not do any harm even when, this time is different, I do agree with Ted Sargent there has to be a credible exit strategy. Which, by the way, also is the MMT stance. If there is one school of thought which does not promote unlimited money printing it’s MMT! Read more…

Corona is like the flu. The Spanish one.

March 28, 2020 7 comments

Yesterday, the number of Corona deaths in Italy rose to 919. In one day. According to Eurostat,  the 2018 total Italian death tally was 633,000. Which translates to on average 1,734 deaths a day meaning that the level of Corona deaths was over half of the ‘normal’ amount of deaths. Already. Despite the lock down. Dear people: this is much worse than a bad flu. And it is as bad as the Spanish flu. Which is supposed to have killed, around 1919,  about 50,000,000 people. FYI: the latest estimate of the number of casualties of the Spanish flu in Italy sets this number at 466.000 in the 1918-1920 period. With 919 deaths a day – Italy will get there. The silver lining: China and South Korea do have it under control. It is possible.

Yesterday’s number of deaths in Italy was of course a record. But with Corona, every day witnesses new records. The world wide number of Corona deaths has been increasing with 10 to 14% A DAY for two weeks now, almost quintupling in this period (from 687 to 3,271 a day). Yeah.

And it’s not just Italy which is at risk. As we’ve all seen, this enemy has the capacity to overwhelm medical systems not in months but in weeks. The Netherlands (which, thanks to neoliberal ‘lean and mean’ changes has a medical system did with very limited redundant physical hospital capacity) already tries to outplace patients to Germany… And they are still not tracking and tracing, the only successful policy thus far. Read more…

A million Corona tests a day. In the short run.

March 25, 2020 3 comments

The news is as bad as it can be. Our most dependable indicator, people dying from Corona, suggest an exponential rate of growth of over 10%. Per day. Actually: 14%.  In a little over 2 weeks, 20.000 people will die. At least. Per day. If we do nothing.

The news is as good as it can be. High biotech companies are developing fast track tests at an unbelievable rate while the government offices which (rightly) have to approve these are working around the clock to do this. Korea will soon export 300.000 tests a week. That’s not enough to meet global demand. But if humankind has become good at anything it is at producing incredible amounts of stuff at an incredible speed. Tests, ventilators, masks – these will come. A million tests a day is feasible. And needed.

But other news is dire. Efficient production chain kind of thinking in the medical sector means that supplies of beds, ventilators, nose swabs and whatever have already run out. We will produce these, production of masks and ventilators is already ramped up. Are these ‘just in time’ stocks a market failing? No, they are a government failing (albeit not in Asian countries which learned from SARS). In many countries, like Brasil and the USA, the ‘takers and looters’ have taken command. BAD!

What we need is of governments guiding the way, paying costs while at the same time taking care of moral hazard and racketeering and taking care of public health tracking and tracing measures and companies doing what they do best: producing stuff. As some Asian countries show: this can be done.

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

February 6, 2020 1 comment

HICP

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

Unemployment_rates_EU-28,_EA-19,_US_and_Japan,_seasonally_adjusted,_January_2000_-_October_2019

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.
btrmdn
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.

Moneyandcredit

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

Credit1

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

DFA

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

CTinflation

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

Employees

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…