Eurostat provides us (kudo’s) with data on total unemployment but also on unemployment of people from the EU living in another EU country (an Irishmen living in Italy) and on people from outside the EU living in a EU country (Moroccans or Japanese living in Spain, this excludes people from, say, Turkey who have received citizenship of one of the EU countries).
Let’s start with the silver lining: differences between total unemployment and unemployment of people from another EU country are (to me) surprisingly small (graph 1). Differences with people from outside the EU are however enormous.. Differences between countries are exceedingly large, too (graph 2). Read more…
The elephant in the room: in a historical perspective, unemployment in the Eurozone is still very elevated, not only in Spain and Greece, but also in France and even Germany. I’ve updated and completed my long-term unemployment series with 2013 and 2014 data (Eurostat) as well as 1948-1983 data for France and the UK (UK: Bank of England, I increased the BoE data a little as the BoE data are systematically lower than the Eurostat data. Read more…
According to Eurostat, “The employment rate of older people has increased in both in the long term since 2002 and in the short term since 2009. The positive trend has been consistent for both men and women over the entire time period. Because the employment rate for older women has grown faster than for older men, the gap between men and women has narrowed slightly“. Which means that at least part of the dreaded ‘dependency’ crisis has been solved: less 55 to 64 year olds are dependent, more have a job (which means that the denominator of the dependency ratio also increased). Developments in countries like Germany and Italy are in fact: spectacular. Even in Spain – which saw a mind numbing increase of unemployment after 2008 – the percentage of 55 to 64 years old with paid work increased. The crisis struck countries Portugal, Cyprus and Greece were however the only countries were the employment rate for older people decreased, due to the increase in unemployment. Aside for the consequences for the dependency ratio, a high employment rate for 55 to 64 year olds is of course a positive development anyway – at least as long as it’s not caused by an increase of crappy jobs. Work has to be dignified, in some way or another. And surely so for seniors.
People are streaming into Europe. The real question is: why did this take such a long time! American and Dutch and IS and Syrian and (since today) French bombs are part of the answer. And it might well be the case that IS is not only actively dislocating people but is also a supplier of trafficking services… Create your own market! But hey, between 1945 and 1948 12 million displaced Germans flocked to West-Germany and Austria but within ten years these countries knew labour shortages and West-Germany started to sign treaties with countries like Italy which enabled an inflow of immigrants from these countries. And the real problem may not be the inflow of people…
The real problem may be this:
The number of Germans between 0 and 5 years old is less than half the number of 50 – 55 years old…
In 1965 the German fertility rate plummeted and has never really recovered. At the moment (2013) it is 1,4, slightly higher than in the preceding years but still way below the 2,1 children per women which are needed for a stable population. At the same time, average life expectation in the entire EU is still rising with almost 3 months a year – Germany is rapidly becoming a granny state. And Germany is not the only European state heading that way (personally I welcome dwindling populations. But a fertility rate of 1,2, like in Portugal, is not consistent with ‘dwindling’ but with ‘plummeting’ – within a few decades the number of 0-5 year olds in Portugal will be much less than hafl the number of 50-55 year olds). Read more…
Recent research shows that credit fuelled housing bubbles are extremely dangerous and detrimental. Two examples:
Dirk Bezemer and Lu Zhang have a new paper. About leveraged housing bubbles. Ahem:
Using new data on four types of bank credit over 2000-2012 for 51 economies in OLS and Bayesian averaging models, we find that changes in the share of household mortgage credit in total credit before the crisis are significantly associated with recession depth and growth loss after the 2007 crisis. This finding is robust to a wide range of control variables and to the different responses across advanced and emerging economies. The evidence also suggests that mortgage growth combined with increasing bank leverage was particularly damaging to output growth.
Drawing on 140 years of data, this column argues that leverage is the critical determinant of crisis damage. When fuelled by credit booms, asset price bubbles are associated with high financial crisis risk; upon collapse, they coincide with weaker growth and slower recoveries. Highly leveraged housing bubbles are the worst case of all.
from Peter Radford
Economics is contextual. At its inception this context was the struggle for power as entrepreneurial and landowner citizens tried to wriggle free of the impress of ages old monarchical rule. As political freedoms steadily grew and different societies obtained an ability to critique their rulers and as they managed to change the institutional set up in which their economies were embedded the study of economics became a coherent field of enquiry.
This early economics was almost invariably an attempt to demonstrate why it was that monarchs ought to interfere less in the workings of the economy. Such interference was seen as arbitrary and inefficient, whereas the operation of the entrepreneurs and landowners was seen as obeying ‘natural laws’ that would, inevitably, produce better outcomes than those obtaining under state rule.
The market versus state conflict was thus built into classical economic thought from the beginning. Indeed much of the original impetus for economic theorizing was precisely to ‘prove’ the efficacy of markets. Read more…
Two books which I haven’t read (yet). Reviews welcome.
Piet Keizer (full disclosure: former teacher of mine):
Multidisciplinary Economics. A methodological account.
Part I: Science, Social Science, Economics
2: The Character of Science
3: Genesis and Development of Economics and Sociology
Part II: Orthodox Economics
4: Orthodox Microeconomics
5: Orthodox Macroeconomics
Part III: Heterodox Economics
6: Evolution and Entrepreneurship, an Evolutionary and an Austrian View
7: Radical Economics
8: Post-Keynesian Economics
9: Social Economics
Part IV: Psychology for Economists
10: Psychology for Economists
Part V: Sociology for Economists
11: Macro and Micro Approaches in Sociology
12: The Historical Approach in Sociology
13: Multidisciplinary Sociology and The Social World
Part VI: Towards an Integration of the Three worlds
14: Integration of the Three Worlds
15: Applications of the Multi-motivational Framework of Interpretation
Part VII: Conclusions
A. The Logical World
B. Kant for Economists
C. Jung for Economists
D. Adam Smith as the Founding Father of Multidisciplinary Economics
And William Mitchell,
from Peter Radford
The 2012 Page, Bartels, and Seawright paper makes interesting reading. I came across it via the Krugman blog and recommend it to you all.
The key is that this is a first small attempt to quantify the difference in perspective between the ‘wealthy’ and the ‘general public’. The paper is thus an important step along the way towards understanding why it is that so much of our political discourse seems totally blind to the reality as experienced by the vast majority of our citizens.
If, like me, you have come to believe that our policy makers have a narrow focus and that their focus overlaps more with that of the wealthy and/or big business than it does with ordinary folk, then this paper is a start to getting empirical support for that feeling.
The paper’s concluding paragraph is worth quoting in full: Read more…
from Dean Baker
Volatility in the stock market over the last couple of weeks has caused enormous unease among investors big and small. Tens of millions of people with much of their retirement money in the market are worried about seeing a sudden plunge in prices. Many of these people will sell their stock to protect themselves from further losses, which demonstrates the basic problem with making retirement income dependent on an unstable, unpredictable exchange.
The story is that people tend to make bad decisions when they manage their money in the stock market. They are likely to sell at a low point after the market has just taken a big tumble, as has happened in the last two weeks. Then they buy back in during a run-up, paying much more than if they’d just held on to their stock. Read more…
‘Headline’ unemployment in Italy is, since the end of 2013, stable around a very high 12,5%. Don’t let this fool you – there is more between work and inactivity than headline unemployment. ‘Disillusioned’ workers, which do not have a job and are able to start working within two weeks but which are not actively seeking are not counted as ‘officially unemployed’. And in Italy the amount of ‘disillusioned workers’ – already by far the highest of Europe – is rising rapidly. I.e.: ‘broad’ unemployment in Italy is rising rapidly, too. Which makes the failure of Italian and Eurozone economic policies even larger. Mind the low amount of ‘disillusioned workers’ in Greece – broad unemployment in Greece and Italy is at about the same level!
from Peter Radford
I have been accused of a few things. I appear to have upset some people. For this I apologize.
I need to explain in order that we can all move on.
Let me begin my stating my belief that economics, in all its multiple instantiations, is a vital discipline. It seeks to get at the heart of one of our most important activities, and it seeks to discover what can be called truths about those activities. It then propagates what it learns and passes its wisdom along to those outside and who might then act upon that wisdom in order to organize human life more properly. However they define ‘properly’.
So I begin with a profound belief in the importance of economics. Read more…
from David Ruccio
I’ve been listening to and reading lots of financial pundits over the course of the past week—all of whom use the same lingo (the U.S. economy as the “cleanest shirt in the hamper,” the “deterioration in risk appetite” around the globe, and so on) and try to explain the volatility of the stock markets in terms of economic “fundamentals” (like the slowing of the Chinese economy, the prospect of deflation in Europe, and so on).
Me, I’m much more inclined to think of terms of uncertainty, unknowability, and “shit happens.”
Let’s face it: stock markets are speculative markets, in the sense that individual and institutional investors are always speculating (with the aid of computer programs) about how others view the market in order to make their bets—with fundamental uncertainty, unknowability, and the idea that shit happens. That is, they have hunches, and they have no idea if their hunches are correct until others respond—with the same amount of uncertainty, unknowability, and the idea that shit happens. And then all of them make up stories (using the lingo of the day and often referring to changes in the “fundamentals”) after the fact, to justify whatever actions they took and their advice to others. Read more…
Looking at neoclassical macro-models through the lens of economic statistics. Today: the current account. See at the end for part 1-6.
Claudio Borio, chief economist of the Bank of International Settlements, gave a speech on how the concept of the current account is used in neoclassical macro models and is not happy. Without any reservation in can be included in this series (even includes some ‘Lucas bashing’ as it states that the ‘Lucas Paradox’ (Robert Lucas, before 2008 the most influential neoclassical macro economists, coined this idea to explay why capital often flows from poor to rich countries) is based upon a poor understanding of the concept of the current account). According to Borio:
As these models are often non-monetary in nature, a ‘sudden stop’ (i.e. foreign and domestic banks which suddenly stop financing
imports of a country companies like supermarkets or car dealers which want to import) can’t be modelled as a change in the behaviour of banks (which is what actually takes place) but has to be modelled either as a sudden change in the propensity to import of the importing country or a sudden change in the propensity to export of the exporting country. Banks and financial flows are outside the scope of the models.
Economists conflate the micro and macro concept of saving. On the micro level, when you save money your stock of money (or, when you invest it in other financial assets, your stock of financial assets) increases. On the macro level, this micro behaviour however does not lead to an increase in the amount of money and the only real saving takes place when the money is invested in new real assets (houses, new medicines, etcetera).
from David Ruccio
Clearly, Pope Francis’s criticisms of capitalism (as I have discussed here and here) have touched a nerve. They certainly have in the case of Harvard’s Ricardo Hausmann, who attempts to argue both that capitalism is not responsible for causing poverty and that more capitalism will eventually eliminate poverty.
Hausmann’s story is a very familiar one. What it comes down to is the idea that the majority of people before capitalism arrived one the scene were poor and as capitalism develops and more and more people became wage-laborers with rising real wages. But areas of the world still remain outside of capitalism and those people will remain poor unless and until capitalism is allowed to fully develop.
It’s a story that is as old as Adam Smith’s Wealth of Nations, and it’s been told and retold by generations of classical and neoclassical economists ever since. Read more…
from Peter Radford
This is meant as a friendly gentle nudge:
As we all know markets are heavenly creations of exquisite perfection. Free and impersonal markets that is. We just know this. It just is. Free impersonal markets are what have delivered us all from the abominations of servitude and the darkest poverty. They have enlightened us. The have illuminated us. They are what have enabled us to discover what we now know. Our literature, our arts, our politics, our cultures, our very beings are due entirely to the ability of free impersonal markets to grab hold of the tyrannical state and demolish its suffocating grip.
Markets said free, and they were free.
That in a democracy we the people are the state and so apparently have our own hands on our own throats is of no consequence. That ‘we the people’ stuff is just a veil behind which lurks the monster of the state waiting to bash us with another calamitous and inevitably doomed policy. Even if that policy was conceived with the best intentions. Read more…
from Steve Keen
In this post I consider the economy in general: I’ll cover asset markets in particular in the next column, but you’ll need to understand today’s post to comprehend the stock and property market dynamics at play. Having said that, the Shanghai Index fell another 7.5% on Tuesday, after losing 8.5% on Monday, and is now down over 45% from its peak—so I’ll try to write the stock-market-specific post by tomorrow. In this post I’ll show, very simply, why a slowdown in the rate of growth of private debt will cause a crisis, if both the level and the rate of change of debt are high at the time of the slowdown. Read more…
from David Ruccio
All the advice today—as the the Dow Jones Industrial Average fell by 1,089 points in the morning and, at this writing, remains almost 450 points below the opening—has been the same: keep calm and carry on investing.
from Dean Baker
Andrew Ross Sorkin seems prepared to pronounce Ken Rogoff to be prescient once again with his prediction that China would run into a debt crisis. Rogoff’s past claims to prescience might be viewed as somewhat questionable. He, along with co-author Carmen Reinhardt, famously argued that countries face a severe slowdown in growth when their debt to GDP ratios exceed 90 percent. It turned out that this claim was driven by an error in an Excel spreadsheet, nonetheless it was used to justify austerity in the euro zone, the United States and elsewhere. This austerity did help to worsen the downturns caused by the collapse of asset bubbles, in effect contributing to the crisis that Sorkin credits Rogoff with predicting. Read more…
from Dean Baker
We are seeing the usual hysteria over the sharp drop in the markets in Asia, Europe, and perhaps the U.S. (Wall Street seems to be rallying as I write.) There are a few items worth noting as we enjoy the panic.
First and most importantly, the stock market is not the economy. The stock market has fluctuations all the time that have nothing to do with the real economy. The most famous was the 1987 crash which did not correspond to any real world bad event that anyone could identify.
Even over longer periods there is no direct correlation between the stock market and GDP. In the decade of the 1970s the stock market lost more than 40 percent of its value in real terms, in the decade of the 1980s it more than doubled. GDP growth averaged 3.3 percent from 1980 to 1990 compared to 3.2 percent from 1970 to 1980.
Apart from its erratic movements, the stock market is not even in principle supposed to be a measure of economic activity. It is supposed to represent the present value of future profits. This means that if people are expecting the economy to slowdown, but also expect a big shift in income from wages to profits, then we should expect to see the market rise. So there is no sense in treating the stock market as a gauge of economic activity, it isn’t.
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For over a year now Spain shows high year on year employment growth. Excellent news and a clear sign of a serious recovery! But does this also mean that structural reforms are paying off? Four remarks:
A) The graph shows that. before 2008 (i.e.: before the reforms of the labour market), the Spanish labour market was extremely dynamic already, showing the highest rates of job growth of the entire North Atlantic economy. Which means that the 3% growth we witness at this moment is not any kind of proof of the success of structural reforms.