From: David Ruccio
Seven years after the global financial crash, we’re still in the midst of a full-scale war of finance.
On one side of the Atlantic, U.S. Court of Claims Judge Thomas Wheeler found that former AIG head Hank Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its “unduly harsh treatment of AIG in comparison to other institutions” that was “misguided and had no legitimate purpose.” The ruling basically confirmed the Fed’s right to create a gigantic bailout of Wall Street but denied its ability to actually determine the use of the funds by the “taking of equity” in essentially worthless financial institutions like AIG.
Finance thus continues to win the war in the United States.
And, as Ambrose Evans-Pritchard [ht: sw] explains, finance is engaged in all-out war in Europe.
Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world.
The spectacle is astonishing. The European Central Bank, the EMU bailout fund, and the International Monetary Fund, among others, are lashing out in fury against an elected government that refuses to do what it is told. They entirely duck their own responsibility for five years of policy blunders that have led to this impasse.
They want to see these rebel Klephts hanged from the columns of the Parthenon – or impaled as Ottoman forces preferred, deeming them bandits even if they degrade their own institutions in the process.
The European Central Bank is actively inciting a bank run in Greece and threatening to throw that country out of the euro zone if it resists the demands of the creditors, represented by the troika, without ever seriously considering the proposals put forward by the democratically elected Syriza government.
The truth is that the creditor power structure never even looked at the Greek proposals. They never entertained the possibility of tearing up their own stale, discredited, legalistic, fatuous Troika script.
The decision was made from the outset to demand strict enforcement of the terms agreed in the original Memorandum, which even the last conservative proTroika government was unable to implement regardless of whether it makes any sense, or actually increases the chance that Germany and other lenders will recoup their money.
At best, it is bureaucratic inertia, a prime exhibit of why the EU has become unworkable, almost genetically incapable of recognising and correcting its own errors.
At worst, it is nasty, bullying, insistence on ritual capitulation for the sake of it.
The troika, in other words, is acting like a unified debt collector, and is willing to go so far as to threaten to topple a democratically elected government to set an example that, in Greece and elsewhere in Europe, finance is willing to do anything and everything to win the war.
Unemployment in Poland is depressingly high. But quite a bit lower than in most other Euro Area periphery countries. Only Romania, Hungary and the Czech Republic (not included in the graph) do better and of these three only the Czech Republic seems to have had a kind of stable development since the middle of the nineties. The other countries did not only see very high levels of unemployment but often also enormous changes in the level of unemployment. In the long run you will be unemployed – again. The Polish and the Czech example however shot that it does not have to be like that. Countries can also pursue policies aimed at stabilizing the flow of spending instead of increasing prices of existing financial and real assets (houses!) by maximizing the stock of private debt. All data Eurostat.
One of the most astonishing recent developments is the breakneck speed with which the Italian employment rate for the 55-64 generation has been increasing (graph 1). For people who are not too familiar with these statistics: the Italian change is extremely fast.
Employment rates in countries like Sweden and Iceland are, respectively, about 70 and 80% (this is the highest rate of Europe), which means that the Italian rate is still quite low (graph 2).To quite an extent the difference can be explained by low Italian employment rates for 54+ women. But the flexibility and dynamism Italy shows comes at a cost. Employment of the 25-54 generation is declining (graph 2). This contrary to the situation in Spain, where employment rates for the younger as well as the old are still pretty low but increasing. Italy does not need job swapping dynamism and musical chairs flexibility at this moment – it needs jobs.
In the fourth quarter of 2014 employment (measured in persons) in the Euro area was still 4,5 million below the level in the fourth quarter of 2008. In the non-Euro countries, employment has increased a little in this period. The main difference between the two areas: considering the fact that the population of the non-Euro area (dominated by the UK, Poland and Romania) is (very roughly) half the size of the population of the Euro area the graph shows that the decrease of employment in sectors like manufacturing and construction was, relatively, roughly as large in the non-Euro area as in the Euro area. The increases in employment in sectors like hospitality and education were however much larger than in the non-Euro area – sometimes even in an absolute sense! Only the health and social sector did really well, in the Euro area. Mind that the growth sectors shown in the graph are, except for hospitality, mainly dependent on domestic demand.
Employment in Europe is growing – but at a somewhat disappointing rate (graph 1). Around 2006, when unemployment was quite a bit lower than today, the rate of employment creation was about twice the present rate – which indicates that there are labour supply is not a significant constraint for a much higher rate of increase. Europe might however chose to follow the German example. In recent years, most of German job growth was caused by shorter work weeks. Job growth for women was consistently higher than job growth for men (graph 2), which is connected to ‘Schumpeterian’ changes in the economy. Employment in male dominated sectors like manufacturing and (after 2008) construction declined, employment in female dominated sectors like health care and education increased. More on this tomorrow. All data: Eurostat. Mind that employment growth in the non-Euro block has been positive since 2021Q3, despite the austerity slump in the Euro area.
from Peter Radford
Sorry I have been absent here lately: I am in the middle of several projects that take priority.
Nonetheless in the course of one of those projects I have found myself immersed in the many faces of economic theory with respect to the role of government in an economy. That role appears to lurch from one extreme to the other, which leaves the impressionable outsider having to resort to their political predisposition in order to seek an answer. Economics, you see, has many answers. Some of which flatly contradict others.
So much for science. Read more…
Looking at neoclassical macro-models through the lens of economic statistics. Today: consumption.
According to a Eurostat headline, “In 2014, CO2 emissions in the EU estimated to have decreased by 5% compared with 2013“. It is important to know if this decline was caused by technological progress or by lower consumption and/or investment. Alas, these data are too vague and fuzzy to answer such questions, as the article also states:
It should … be noted that imports and exports of energy products have an impact on CO2 emissions in the country where fossil fuels are burned: for example if coal is imported this leads to an increase in emissions, while if electricity is imported, it has no direct effect on emissions in the importing country
from Egmont Kakarot-Handtke
In a recent critique of Steve Keen’s approach Severin Reissl announces: “It is also shown that many weaknesses in Keen’s argument stem from a lack of terminological clarity which originates in his interpretation of the works of Hyman Minsky.” (Reissl, 2015, Abstract)
This is true as I have shown with regard to Keen’s definition of profit (2013) but Reissl argues from an unacceptable reference point, that is, from Stützel’s version of balance mechanics. It has to be emphasized that balance mechanics is an indispensable tool of economic analysis; the crucial point is that Stützel got it not exactly right. For a start, a succinct summary of the different strands that treat the interconnection between the circular flow, the creation of credit/money, and balance mechanics is to be found in (Schmitt and Greppi, 1996). Read more…
Today both the Financial Times and the Wall Street Journal are talking about the increasing possibility of a parallel currency solution for Greece. Primary sources of this idea are four papers from the Real-World Economics Review:
Trond Andresen and Robert W. Parenteau, “A program proposal for creating a complementary currency in Greece”, real-world economics review, issue no. 71, 29 May 2015, pp. 2-10, http://www.paecon.net/PAEReview/issue71/AndresenParenteau71.pdf
Alan Harvey, “Updated proposal for a complementary currency for Greece (with response to critics)”, real-world economics review, issue no. 71, 29 May 2015, pp. 12-18, http://www.paecon.net/PAEReview/issue71/Harvey71.pdf
Claude Hillinger, “From TREXIT to GREXIT? – Quo vadis hellas?”, real-world economics review, issue no. 70, 20 Feb 2015, pp. 161-163, http://www.paecon.net/PAEReview/issue70/Hillinger70.pdf
Trond Andresen, (2013). Improved Macroeconomic Control with Electronic Money and Modern Monetary Theory, real-world economics review, issue 63, http://www.paecon.net/PAEReview/issue63/whole63.pdf
from David Ruccio
It’s a story that could have appeared in the pages of George Packer’s magnificent book, The Unwinding: An Inner History of the New America. Or from the pen of Molly Ivins—which is good, since Esther Kaplan was recently awarded the 2015 MOLLY National Journalism Prize for her article, “Losing Sparta: The Bitter Truth Behind the Gospel of Productivity” [ht: bn]. Read more…
from Dean Baker
Regular readers of the NYT opinion pages must really be wondering what is going on in China. Just a few days ago the paper ran a piece giving us the terrible news that robots are taking all the jobs. According to a column by Martin Ford, China is rapidly bringing robots into its factories, leading to massive displacement of manufacturing workers. Ford tells readers:
“Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries.”
This left us all wondering what China would do with all these workers displaced by robots. But today we discover that China is relaxing its one-child policy, not out of human rights considerations but because it doesn’t have enough people: Read more…
from Lars Syll
The increasing use of natural and quasi-natural experiments in economics during the last couple of decades has led Noah Smith to — on his blog Noahpinion today — triumphantly declare it as a major step on a recent path toward empirics, where instead of being a “deductive, philosophical field,” economics is now increasingly becoming an “inductive, scientific field.”
Smith is especially apostrophizing the work of Joshua Angrist and Jörn-Steffen Pischke, so lets start with one of their later books and see if there is any real reason to share Smith’s optimism on this ’empirical turn’ in economics.
In their new book, Mastering ‘Metrics: The Path from Cause to Effect, Angrist and Pischke write: Read more…
from Lars Syll
In a laboratory experiment run by James Andreoni and Tymofiy Mylovanov — presented here — the researchers induced common probability priors, and then told all participants of the actions taken by the others. Their findings is very interesting, and says something rather profound on the value of the rational expectations hypothesis in standard neoclassical economic models: Read more…
from Mark Weisbrot
You can ignore all the talk of a “Grexit,” the bluff and bluster of right-wing German ideologues such as Finance Minister Wolfgang Schäuble who would celebrate it, and repetitive, stubbornly dire warnings that time is running out. Did you notice that the much-hyped June 5 deadline for the Greece’s payment to the International Monetary Fund (IMF) came and went, Greece didn’t pay and nobody fell off a cliff? Trust me, this is not a cliffhanger.
Although there have been numerous references to game theory in the ongoing commentary, it’s really not necessary if you look at the revealed preferences of those whom the Syriza government is polite and diplomatic enough to call its European partners. Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone. Read more…
One of the stated goals of the Euro Area institutions (including the ECB) is a high and stable level of employment. Male employment in southern European countries is however way below historical levels and showed large swings, while male employment in ’emerging europe’ is sometimes even lower than around 2000, when levels were pretty disastrous. To state it otherwise: in 2007 and 2008 no country had a male employment level below 75%, in 2014 only tiny Estonia had a level above 75%.
Let me start this post by making clear what everybody knows: people behave differently in different kinds of situation, but we can effectively recognise these kinds of situation and use them to understand, and even predict, how to behave and what people will do in these situations. For example we all recognise a lecture and know the social norms, habits, conventions, roles etc. that pertain there. If the lecture is declared finished and coffee or wine served to celebrate something the context has changed and everybody will behave differently.
Perhaps it is the desire to be like physics with universal laws, but economics (like other quantitative social sciences) ignores the context-dependency of human behaviour and cognition. Maybe the fact that people do not only use different information to make decisions in different contexts but seem to decide in different ways, is just too complicated and awkward to acknowledge. It certainly makes understanding and modelling economic behaviour much more difficult! Read more…
from David Ruccio
There is something fundamentally unstable—and ultimately dangerous—about the liberal critique of austerity.
Consider the recent essay on “The Economic Consequences of Austerity” by Amartya Sen. On one hand, he correctly criticizes the austerity effects associated with the deficit-cutting measures that have been imposed in Western Europe in the years following the crash of 2007-08 (and reminds readers of Keynes’s critique of the austerity measures the Allied Powers were threatening to impose on Germany in the Treaty of Versailles).
But then Sen accepts, without any further argument, the need for “real institutional reform” in Europe: “from the avoidance of tax evasion and the fixing of more reasonable retiring ages to sensible working hours and the elimination of institutional rigidities, including those in the labour markets.”
In other words, Sen is attempting to distinguish between the “antibiotic” of institutional reform and the “rat poison” of austerity. Read more…
In the curious case of the Icelandic economy the admirable economist Tyler Cowen misses the wood for the trees. The situation is simpler than he indicates:
A) Thanks to financial machinations of out of control banks Iceland experienced a terrible financial crisis from which it has not yet fully recovered (graph), despite capital controls and the right sizing of debts and devaluation ( Mind: devaluation does not seem to increase exports. See this recent ECB study, look here for J.W. Mason on this. Devaluation might however direct domestic demand from imported to domestic goods).
B) It did, however much better than, for instance, the Baltic states (and Ireland, see below), Read more…
from Lars Syll
A popular idea in quantitative social sciences is to think of a cause (C) as something that increases the probability of its effect or outcome (O). That is:
P(O|C) > P(O|-C)
However, as is also well-known, a correlation between two variables, say A and B, does not necessarily imply that that one is a cause of the other, or the other way around, since they may both be an effect of a common cause, C.
In statistics and econometrics we usually solve this “confounder” problem by “controlling for” C, i. e. by holding C fixed. This means that we actually look at different “populations” – those in which C occurs in every case, and those in which C doesn’t occur at all. This means that knowing the value of A does not influence the probability of C [P(C|A) = P(C)]. So if there then still exist a correlation between A and B in either of these populations, there has to be some other cause operating. But if all other possible causes have been “controlled for” too, and there is still a correlation between A and B, we may safely conclude that A is a cause of B, since by “controlling for” all other possible causes, the correlation between the putative cause A and all the other possible causes (D, E,. F …) is broken. Read more…
from Maria Alejandra Madi and the WEA Pedagogy Blog
The target of economics education is the comprehension of the reality in its economic dimensions, that is to say, the understanding of the practices and ideas that support the evolution of the reproduction of material life. However, following John Kenneth Galbraith, we can say that economics is overwhelmed by an “uncorrected obsolescence”. Consequently, each generation faces many new economic and social challenges. As Alfred Marshall wrote in the preface to his Principles of Economics, “economic conditions are constantly changing and each generation looks at its own problems in its own way”.
Indeed, the current political, economic and social features of globalization configures a rupture in relation to the Bretton Woods institutions. The contemporary institutional set up is the result of deep transformations that characterized the outcomes of the crisis of the accumulation pattern in the 1970s and 1980s. The financialization of the global economy produced great transformations in the growth dynamics since the decisions related to investment, production and employment are increasingly subordinated to the short-term financial commitments of big corporations. Besides, further deep structural changes have involved increasing capital mobility and the growing importance of institutional investors as managers of “financial savings”. Read more…