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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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Wheat

April 1, 2022 3 comments

Will the war in Europe affect availability of wheat, one of the staple foods of the world? One of the economic successes of the last two decades is an increase in the production of wheat which enabled stable average global consumption per capita (at around 68 kg. per year) and a slightly increased used as feed (close to 20% of total production). This was possible because of a surprisingly fast increase of yields per hectare (graph).

Source: FAO-AMIS

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Inflation and the War in Europe

March 18, 2022 3 comments

Headline as well as ‘core’ consumer price inflation in the EU has increased (graph 1). How to rate these increases? Do we have to jack up interest rates and to restrict spending? Below, I’ll argue that when we try to understand present inflation using a non-neoclassical frame of analyses we do have to take into consideration that:

  1. Not all increases are created equal
  2. We should not just look at expenditure prices (consumption, investments) but also at factor prices and cost prices (wages, wage costs)
  3. We have to look at the short term (purchasing power of household income) but at the medium term, too (prices go up but, for some articles, down too)
  4. But Europe is in a full scale war and Wars are Inflationary

What to do? At this moment the EU economy is not ‘overheated’ and inflation as shown in the graph must be rated to be transitory. The War in Europe will however lead, for a number of reasons, to additional inflationary pressures – which can only be countered by civilian investments in food and energy production.

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The disruption of food supply and distribution chains as a vile and criminal act

March 9, 2022 6 comments

In January 1980 Jimmy Carter enacted a grain export embargo against the Soviet Union because of the 1979 Soviet invasion of Afghanistan. The embargo was ineffective as the resulting gap in Soviet imports, at the time and for quite some years to come a net grain importer, was filled by countries like Argentina. In 2022 things have changed. After 2000, Russia as well as Ukraine became major grain exporters, playing an important role in global food supply chains. In both countries production as well as exports have increased by leaps and bounds, which was enabled by increases in acreage and yields (graph 1 for wheat, graph 2 for maize). All data from this source. The invasion of Ukraine and the ensuing war will disrupt these chains not by halting imports but by disrupting production and exports of grain (even when at the time of writing trucks with agricultural seeds are still driving from the Netherlands to Russia (private information)).

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The Ukraine war or the preponderance of ‘fertilizer and soil’ over ‘blood and soil’.

March 1, 2022 8 comments

Egypt is alarmed. And rightly so. A war in one of the grain baskets of the world, Ukraine, will affect us all but Egypt, and Turkey, will be hit even harder than many other countries. And they know it. According to Reuters,

Egypt, often the world’s top wheat importer, is working on a plan to buy wheat from other regions rather than Russia and Ukraine … “There are 14 approved countries Egypt could import wheat from, some of which are outside Europe” … Russia and Ukraine are frequently the top exporters of wheat to Egypt, making up around 50% and 30% of its wheat imports in 2021“. But this will not be enough as in the short run, i.e. two years, supply is more or less set.

Al Jazeera provides us with an infographic: Read more…

Do economists have the ‘periodic table’ of prices needed to pin down inflationary epochs?

February 12, 2022 2 comments
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  1. Are we living in an epoch of high inflation? it’s a difficult question to answer as we’re lacking the tools to do this. Economics – heterodox and mainstream alike – is lacking a profound ‘periodic table’ of prices. This hampers them when they write and talk about inflation. There are a lot of pieces to this puzzle. The framework of the national accounts provides us with the distinction between expenditure prices (investments, government purchases, household consumption, exports), factor prices (wages, rents) and producer prices, including and excluding taxes. Gardiner Means developed the idea of ‘administered’, in-company prices. Joan Robinson made practical distinctions between prices and systems of price-setting: monopsony, imperfect competition and the like. And there is, of course, the distinction between market prices (which are set before a transaction is finalized) and non-market prices, which are not part of a market transactions (like the already mentioned ‘administered’ prices or, in the Netherlands, the ‘rekenrente’ interest rate set by the central bank and which pension funds have to use to calculate the present value of their obligations. Somebody has to come up with such a ‘periodic table for prices’. 

  2. Having stated this, it still is interesting to analyze inflation from a political economy perspective. First, the question has to be posed: “what is inflation”. Restricting us to Consumer Price Inflation the answer is relatively straightforward: “it is a calculated composite number which enables us to gauge the purchasing power of household income (wages, rents received, profits, transfer incomes)”. There are however many ways to do this, look here for the differences between the Dutch Consumer Price Index and the Harmonized Index of Consumer Prices (HICP)for the Netherlands. One crucial difference: the Dutch CPI uses imputed rents to calculate housing costs of house owners (the monetarist founders of the European Central Bank wanted an inflation metric which was as monetary as possible). Consumer prices are, partly as CPI inflation will influence wage negotiations, also seen as a metric of macro economic stability. Highly variable prices like energy prices are often left out of the index to make it serve this purpose. Also, behavioral economists point out that the ‘feel’ of inflation is influenced by items which are actually paid by consumers (Frequently Out Of Pocket Purchases) and have designed, using the HICP as a basis, FROOPP inflation. Importantly, all of these 4 (!) consumer price indexes use the same basic classification of goods (developed for national accounting). The first graph shows that all kinds of consumer price inflation are increasing, even when the difference between ‘core’ inflation and ‘headline’ and FROOPP inflation is exceptionally large. Inflation is not what you make it to be. But it does have many sides. And expenditure inflation has increased, quite a bit.

  3. But, ass stated, there is expenditure inflation and factor price inflation. Below, the development of wages per sector in the Eurozone is shown. High inflation is nowhere to be seen. Let’s make this clear: the economy consists of different realms, like the expenditure realm, the factor prices realm and the producer prices realm. During non epochs of non transitory high inflation prices will increase in all of these. At this moment, this is not happening. Actually there is quite some room to increase wages! Seen from this angle, we’re not living in an high inflation epoch. Not at all.

4. Still, consumer price inflation is high, which erodes purchasing power (see also graph 2). Where does this come from? There seem to be two main culprits. One is the price of fossil ‘fuels’. High prices for fossil are what we want as these will ease the transition to a low carbon economy. But even as they stay as high as they were during the last months of last year the influence on the price level will be permanent but the influence on inflation, which measures the increase of the price level, will be transitory. The contribution of fossils fuels to inflation is in fact already waning. Another culprit are food prices. This is more of a problem. Looking at producer prices of a major food like milk it shows that prices went through the roof. These are not market prices but administrated prices paid by the cooperative FrieslandCampina based on costs on one side and prices of outputs like cheese and yoghurt and the like on the other side. Milk prices are way more complicated than one would imagine (these prices also contain some renumeratioin for capital provided by farmers and are in fact prices for fat, protein, milk sugar and even ‘weidegang’, or keeping the cows outside). But the question: does this make farmers rich? Hmmm… they complain about high prices for feed, fertilizer and energy. Mind that producing chemical fertilizer is quite energy intensive. This suggests that there might be some kind of ‘finite earth’ inflation going on and the owners of the scarcest resource, ‘land’, eventually win. If so, inflation could, considering the rather inelastic nature of food demand, become quite a bit higher. While we might also see changes in production chains as peoples and companies owning this scarce resource might want to change the institutions governing price setting in their favor, at least as governments let them do this. Their ownership rights might however also be restricted, or sold (‘land grab’). This is very much a political question – as, hence, is inflation. Anyway – there sure is a chance that we entered an era of ‘finite earth inflation’, a kind of the reverse of the long term price decline of food products and other ‘land’ based products which started after the end of the USA civil war.

Graph 3. MIlk prices paid by the large dairy cooperative FrieslandCampina to members of the cooperative.

 

Euro Area inflation: Putin wins. If we let him. By commuting too much.

January 9, 2022 15 comments

About one month ago I wroute about Euro Area inflation: “troubling but transitory“. One month more of data are in. It is even more troublesome but also more transitory. The increase of the consumer price index is dominated even more by energy prices than one month ago. As the Euro Area is a net importer of energy (among other items: natural gas from Russia.). This particular kind of inflation is, to use confusing terminology, highly deflationary… (for the non-energy sectors).

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A golden age of macro economic statistics 5. Rates of return.

January 7, 2022 2 comments

It still has to feed into the management of pension funds or global wealth funds. Or, does it? It seems that Black Rock is already investing more in real estate… Look here and here. It might well be that this happens because because the smarties at Black Rock read the work of Jorda, Knoll, Kuvshinov, Schularick and Taylor, who gathered data on ‘‘The Rate of Return on Everything, 1870–2015”, including the rate of return on ‘houses’ (better: the rate of return on ‘land underlying houses’), for quite a period and a whole number of countries. We now know more, much more, about rates of return on, well, ‘everything’ than ever before. Macro can finally be Macro. But: what is a “rate of return”? And why is this important?

Source: Jordà, Òscar, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, Alan M. Taylor. 2017. “The
Rate of Return on Everything, 1870–2015” Federal Reserve Bank of San Francisco Working
Paper 2017-25. https://doi.org/10.24148/wp2017-25 p. 13.

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A golden age of macro economic statistics 4. A Bank of England treasure trove.

December 27, 2021 2 comments

The Bank of England has a 28 MB Excel dataset containing: “A millenium of macro economic data”. A treasure trove. A good thing about it: as it are long term series and as these are roughly based on national accounts data and not just on economics 101 it’s not only focused on GDP but also on sectoral developments and flows between and within sectors. I can’t show it all, and…

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Happy Christmas and a healthy 2022

December 24, 2021 2 comments
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