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Periphery, migration & decline

by Metatone Fri Aug 14th, 2015 at 01:33:38 PM EST

So old-timers will recall that I've spent countless electrons worrying about the lack of thinking about how centralising forces in our modern economies creates regional wastelands.

At least in the context of the Euro, it seems Krugman has noticed the issue:

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Grexit and Propaganda

by Metatone Mon Jun 29th, 2015 at 03:49:18 AM EST

At the heart of this crisis is the misinformation put out by the Eurogroup & Troika and by media sources across Europe.

Jake said it best in a comment on the other thread. (quoted below) But it's worth highlighting. He's responding to a critique of all the things the Greeks are not doing...

It appears that many members of the Eurogroup are resolved to "throw Greece up against the wall as a warning to others" and leaking and misinforming to justify that.

The IMF's desire to force tax rises and spending cuts when there is no possibility of devaluation goes against their own policies. Again, it's hard to find sane motives for such an action.

The great irony for me is that none in the IMF/Eurogroup seem to understand that their policy stance is only going to lead to vast market pressure and forthcoming crisis in Portugal and Italy. Just as with the ERM, once you show that there is money to be made in betting against the system, people will bet against the system.

This is a solvency crisis - and most of the periphery is insolvent - as others have noted, it's an inevitable result of the accounting identities. For Germany to run surpluses inside the EZ, other EZ countries have to be in the opposite state. In a real single currency this does not matter, but since the Eurogroup have decided this is not a real single currency, it will matter a lot - and it's very hard to see how it is not the end of the Euro.

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So economics teaching isn't the problem?

by Metatone Wed Dec 31st, 2014 at 07:23:09 AM EST

There's yet another "status quo in economic education is basically fine" piece penned by a fairly eminent educator:

In the interests of brevity (it's a long piece), I'll only quote the beginning and the end:


Thoughts on "Teaching Economics After the Crash" -- Medium

This is a long post on the state of economics and how it is taught to undergraduates. The world is not crying out for another such discussion, so blame Tony Yates, via whom I ended up listening to Aditya Chakrabortty's documentary "Teaching Economics After the Crash" for BBC Radio 4.

Like Tony, I viewed the programme as a hopelessly one-sided critique of the economics profession. Still, it was useful in the sense that it packed all the regular criticisms about economics into one short piece. I agree with most of what Tony wrote but I want to take a different approach because I think it's worth engaging a bit more positively with the criticisms raised.

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by Metatone Sat Aug 30th, 2014 at 04:09:42 AM EST


Posted by Frances Coppola on Aug 27th 2014, 2 Comments

This is the first of several posts covering topics discussed at the recent Lindau Meeting for Economic Sciences.

Several economists at the Lindau meeting were severely critical of central banks' conduct of monetary policy in the light of continuing depression in the US, Japan and much of Europe, and called for greater use of fiscal policy to bring about recovery. Among the most critical was Christopher Sims, who gave a trenchant presentation on "Inflation, Fear of Inflation and Public Debt".

He started by announcing the death of the quantity theory of money, MV=PY. Due to interest on reserves and near-zero interest rates, "money" can no longer be clearly distinguished from other financial assets. This is a fundamental point which requires some explanation.

These days, nearly all forms of money bear interest, which makes them indistinguishable from interest-bearing assets. For Sims, the paying of interest on bank reserves, coupled with the decline of physical currency, all but eliminates the distinction between interest-bearing safe assets such as Treasury bills and what we traditionally call "money". All assets can be regarded as "money" to a greater or lesser extent: the extent to which assets have "moneyness" is really a matter of liquidity.

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Wither Italy?

by Metatone Fri Aug 22nd, 2014 at 04:42:03 PM EST

For those who notice, the bad pun is intentional...

From Pieria - an alarming piece that suggests Italian is basically doomed:

Italian Tragedy

Anyone with an interest in government finances and public spending must, by now, have developed a morbid fascination with Italy.

The country slid into recession again this month, wiping out not only its post-recession growth but much of its growth since it joined the Euro.

 Chart via Matt O'Brien at the Washington Post.

The pattern of Italy's GDP growth has become detached from that of the rest of the G7. Since the crash, all the other major economies have grown, albeit at different rates. Italy, though, is on a severe downward slide.

Chart via Ben Chu.

Some people blame the Euro for this but Italy was in trouble before it joined the single currency. Both Italy and the UK crashed out of the ERM in 1992. For the UK, this was the start of a decade of high growth but Italy's economy stalled in the years after and grew much more slowly for the rest of the decade. Briefly, in 1991, Italy overtook Britain and France to become the world's 4th largest economy. Since then, though, it has been a tale of slow decline.

The Italian government had borrowed heavily during the boom years and the slowdown saw its debt-to-GDP levels steadily rise.

Chart via Paul Krugman

This excellent piece by Economics Help explains the story in detail. The upshot, though, was that by the start of the recession, Italy's debt was way ahead of most of the other major economies.

Source: IMF World Economic Outlook 2014

But here's the twist. Italy reduced its deficits drastically in the 1990s. For many years now, it has run a primary surplus. This means that, before debt interest, its government revenue is higher than its public spending. Unlike many other countries, including Britain and the USA, it is not borrowing to fund public services and social security.

Chart via Igor Di Giovanni

It is, however, having to borrow to fund the debt repayments on its historic borrowing which is why, despite its primary surplus, it is still running a deficit and its debt is still going up.

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Metatone Jumps the Shark II - The Economist on capital, labour and productivity

by Metatone Fri Feb 28th, 2014 at 07:08:19 AM EST

Here's how the author sums up their piece - which is well worth reading in full:

Labour markets: A theory of troubles | The Economist

Since this post is long and not exactly bursting with colour, I'll go ahead and share the gist of the story in hopes of enticing you to read on: because we rely on market wages to allocate purchasing power we have resisted technology-driven reductions in employment, and because we have resisted that decline in work we have trapped ourselves in a world of self-limiting productivity growth. Enticed? Good.

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The long run... US agriculture and immigration

by Metatone Thu Dec 5th, 2013 at 10:44:38 AM EST

A few hopeful signs that this period we live in, where a large pool of labour has entered the world economy and as a by-product put "capital" in an incredibly strong position can come to an end:

Farmers Face Labor Shortages As Workers Find Other Jobs

FRESNO, Calif. -- With the harvest in full swing on the West Coast, farmers in California and other states say they can't find enough people to pick high value crops such as grapes, peppers, apples and pears.

In some cases, workers have walked off fields in the middle of harvest, lured by offers of better pay or easier work elsewhere.

The shortage and competition for workers means labor expenses have climbed, harvests are getting delayed and less fruit and vegetable products are being picked, prompting some growers to say their income is suffering. Experts say, however, the shortage is not expected to affect prices for consumers.

But farmworkers, whose incomes are some of the lowest in the nation, have benefited, their wages jumping in California to $2 to $3 over the $8 hourly minimum wage and even more for those working piece rate.

The shortage - driven by a struggling U.S. economy, more jobs in Mexico, and bigger hurdles to illegal border crossings - has led some farmers to offer unusual incentives: they're buying meals for their workers, paying for transportation to and from fields, even giving bonuses to those who stay for the whole season.

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Recommend a book

by Metatone Wed Nov 20th, 2013 at 04:53:51 PM EST

I've been asked for a list of books by someone who wants to become more aware of politics and economics.

They have a long trip coming up, likely without internet - hence the need for books, rather than me just saying "Read ET."

All suggestions welcome!

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Investment and Employment in the Internet Age?

by Metatone Sun Aug 18th, 2013 at 05:44:49 PM EST

Jarod Lanier has taken a lot of (largely deserved) flak for his clumsy statement comparing Kodak and Instagram in employment terms - and using that as a "proof" that the Internet age is undermining employment.

Including in gmoke's review of his book here.

And yet... many people wonder if there is something going on...

So I thought it would be interesting to apply some more figures from the Industrial and Internet sectors and see what we can see.

I used Enterprise Value (which tries to correct Market Cap with data on borrowing and cash reserves) as some measure of the investment by the financial system in the companies. I didn't include any banks because the metric doesn't compute properly for them. EV figures from Yahoo, except for the Twitter estimate, which is from Forbes (Twitter is not yet a public company.)

Employment figures are from news articles around the internet, mostly reputable. Amazon's highlights a calculation problem - it's not clear how various corrections are made for full time vs part time. At least half of the 88,000 are part time.

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LQD: the 70s again.

by Metatone Mon Jul 22nd, 2013 at 04:47:00 AM EST

A couple of days ago Krugman posted a very interesting graph on his blog:

Unprecedented Globalization - NYTimes.com

A couple of weeks ago I posted a chart showing the long-term trend of world trade in manufactures relative to world production. The paper I took the chart from, however, only went up to 2000. And I decided to update it for the next edition of Krugman Obstfeld Melitz. And it's pretty striking:

You see the interwar trade decline; the growth in world trade after World War II didn't return to 1913 levels of globalization until around 1970. But since then, trade has grown incredibly. Interestingly, the big tariff cuts in GATT rounds had already happened; what we're looking at here is trade liberalization in developing countries plus containerization, and the emergence of massive vertical specialization (iWhatevers being made in many stages in different countries).

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LQD: A different failure mode

by Metatone Mon Jul 8th, 2013 at 01:26:05 AM EST

Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com

I've been having a strange reaction to recent news about economic policy. Stuff is happening: the Fed bungled its communications, doing its bit to undermine modest economic progress; the European Commission is sorta kinda relaxing its demands for austerity; the Bank of England appears to have issued forward guidance that it's going to issue forward guidance; and so on. But with the possible exception of Abenomics, it's all pretty small-bore stuff.

And that's disappointing. We had what felt like an epic intellectual debate over austerity economics, which ended, insofar as such debates ever end, with a stunning victory for the anti-austerity side -- and hardly anything changed in the real world. Meanwhile, the pain caucus has found a new target, inventing dubious reasons for monetary tightening. And mass unemployment goes on.

So how does this end? Here's a depressing thought: maybe it doesn't.

Thus starts Krugman's blog today. As usual, I recommend you read it all, it's not that long and it's interesting. I post this though more out of psychological interest than anything. I think most of us in part cope with our political malaise using that old Marxist theory in the back of our minds - the notion that as things roll along badly, eventually it sows the seeds of change. We fear a descent into fascism or failed states, we hope for (flavour depending on who you ask) the rise of the left.

However, as Krugman suggests, there's another way for our societies to fail, not with a bang, but a whimper, a fall back into permanent high unemployment, poverty and inequality:

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Histories of Neoliberalism?

by Metatone Sat Jun 8th, 2013 at 10:08:27 AM EST

Over the years, I've made quite a few references to "The Right Nation" by John Micklethwait and Adrian Wooldridge. It wasn't written to be a history of the way the right created what may be called the "neoliberal project" but in the course of the book, that's what it does.

This convinced me, along with the documentaries of Adam Curtis and all the discussions over the years at ET that part of "how we got here" is that the right engaged in a cultural project on whole range of levels, including:

  • Writing a narrative of the 70s that justified their economics
  • Working to undermine collective action as a justified response to anything

and many more.

All this alongside other projects in influencing academics and politics in a more direct fashion.

So anyway, over this time it seems to me that I haven't read a definitive history of all this - so I'm looking for book recommendations:

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Standing on the Shoulders of Giants - Europe and the Mongol Empire

by Metatone Tue May 14th, 2013 at 01:38:44 AM EST

Since Niall Ferguson is back in the news it seemed like a good time to write about Jack Weatherford's excellent book - Genghis Khan and the Making of the Modern World as it is a great antidote to many previous attempts by Ferguson and others to rewrite the history of the world and create a narrative of inherent European superiority. As usual, serendipity was the key element.

Fundamentally, Europe's renaissance was built on the flowering of civilisation inside the Mongol Empire:

Although never ruled by the Mongols, in many ways Europe gained the most from their world system. The Europeans received all the benefits of trade, technology transfer, and the Global Awakening without paying the cost of Mongol conquest. The Mongols had killed off the knights in Hungary and Germany, but they had not destroyed or occupied the cities. The Europeans, who had been cut off from the mainstream of civilization since the fall of Rome, eagerly drank in the new knowledge, put on the new clothes, listened to the new music, ate the new foods, and enjoyed a rapidly escalating standard of living in almost every regard.

Of course, Ferguson and his ilk would leap to the "never ruled by the Mongols" as the first evidence of European superiority. However, this seems to be a real misunderstanding. Rather, when the Mongols invaded in the East of Europe they won some huge victories and large areas of territory. However, the booty gained was not on the scale found in other areas neighbouring the Mongol Empire - notably the Sung Kingdom in China and the Muslim states in the Middle East. Thus, the Mongols turned their armies back towards more profitable regions. In effect, Europe escaped being part of the Mongol Empire because it was too poor and backward to be a target.

This turned out to be a stroke of luck, because Europe was able to receive the benefits of all the cultural and technological advances in the Mongol Empire through trade, but it was separate when a cataclysm destroyed the fabric of the Empire.

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Corporate Profits and Aggregate Demand

by Metatone Sun Apr 28th, 2013 at 04:16:31 AM EST

Some random reading on the internet got me thinking today:

Apple's new pitch to investors | Felix Salmon

Apple is trading at an astonishingly low valuation, with a p/e ratio in single digits, because it has now become that animal investors like least: a slow-growing tech stock. Either one is fine on its own, and both slow-growing stocks and fast-growing tech stocks can support much higher multiples than Apple is seeing right now. But conservative investors, who like slow-growing stocks with high dividends, are constitutionally uncomfortable with the volatility inherent in the tech world. And technology investors, who are happy taking that kind of risk, want to see substantial growth. Apple, notwithstanding the fact that it's one of the most valuable companies in the world, is falling through the capital-markets cracks.

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A soundbite on Thatcher...

by Metatone Tue Apr 16th, 2013 at 12:20:18 PM EST

In The Guardian, Lucy Mangan has a good column on her personal experience of growing up in the Thatcher era. It's worth reading in full, but I'd like to draw attention to one little section:

Lucy Mangan: why I won't forget Margaret Thatcher in a hurry | Life and style | The Guardian

At school, things started disappearing. Milk, obviously. Playing fields. Sports and science equipment, overhead projectors, art materials broke, wore out, got used up and weren't replaced. When I started school, there was a textbook per pupil. By the time I left, we were down to one for every two or three.

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Metatone Jumps the Shark - Tom Friedman on economic equilbiria

by Metatone Mon Feb 18th, 2013 at 02:29:58 AM EST

[Moustache of Understanding Alert]

I've been banging on for years (as have others here, but I do it in a slightly more tortured style)  about the fact that economics has assumed linkages and beneficial equilbria in analysis. And now I know I've jumped the shark, because Tom Friedman is quoting people saying similar things in his latest column...

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The 70s redux...

by Metatone Thu Jan 10th, 2013 at 05:35:07 AM EST

Benjamin Studebaker has published an interesting blog on this topic:

Stagflation: What Really Happened in the 70′s « Benjamin Studebaker

If you argue long enough about economics, you are bound to run into the stagflation argument. The stagflation argument claims that the big state and stimulus caused high inflation, high unemployment, and poor growth during the seventies. Usually this argument is not fully argued by those who believe in it-it is merely asserted, and the rest of us are expected to accept that it is simply the case that the seventies happened that way. Today I'd like to endeavour to illustrate what actually happened in the seventies, what the real causes of stagflation were, and what sort of lessons might be pulled from it.

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Krugman asks: What's the matter with Italy?

by Metatone Tue Nov 27th, 2012 at 04:00:34 AM EST

And it seems to me, ET is a good place to look for people with some theories of an answer:

Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com

Italy is often grouped with Greece, Spain, etc. in discussions of the euro crisis. Yet its story is quite different. There were no massive capital inflows; debt is high, but deficits aren't. The most striking thing about Italy is a remarkably dismal productivity performance since the mid to late 1990s. Here's a comparison of Italian with French productivity, as measured by output per worjer, from the Total Economy Database:

I've been reading many attempts to explain what happened; while there's a lot of interesting stuff about everything from regulation to firm size to export mix, I really don't see anything that feels like a slam dunk.

And no, it's not just a too-big welfare state -- France's welfare state is even bigger.

I'm not going to answer this; truly, I don't know. But it's important.

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TYR on choice and action

by Metatone Sun Sep 23rd, 2012 at 06:21:53 PM EST

I've written about Learned Helplessness in our current political ideologies, but The Yorkshire Ranter has blogged a far more cogent description:

Economic reality is yesterday's political choice » The Yorkshire Ranter

Economics is an agenda-setting system. Here's a working example - Noah Smith engaging Robert Gordon (who is in his turn drinking from the poisoned well of Tyler Cowan). Gordon's big idea is that y'know how things aren't so great? Well, they're always going to be awful, so there's nothing can be done about it! And therefore, we don't need to discuss any action and shut up.

He argues this for the following reasons. One, he thinks technological progress is slowing down. Two, he thinks the US labour force won't grow as fast as it did. Three, educational attainment has "plateaued", based on the OECD PISA comparison. Four, high income inequality means structurally weak demand from the "consumer" (aka labour) sector. Five, globalisation. Six, the environment. Seven, "debt" of whatever sort.

Well, the first of these is an arguable proposition. Personally, I can think of plenty of people who are convinced that technical progress is accelerating, others who think it is slowing down, and still others who think (like David Harvey) that it is illusory or even undesirable. I would argue that both the declinist and Kurzweil-ist views are wrong for the same reason: they are both exercises in cherry-picking the data. Singularitarians love computing and sometimes genetics, because both fields give you an instant optimism hit. Declinists prefer to pick problems that remain unsolved and projects that failed, because that's what their prior assumptions are set to. Both views are dependent on prior value judgments.

But I have a more subtle and useful critique. Economists tend to think technology is exogenous. Historians of technology couldn't disagree more. In their view, technical progress happens through learning-by-doing. This has an important corollary - you learn nothing by being unemployed except that it sucks, and a set of survival strategies that aren't much use except in the context of being on the dole. Technology is, in part, endogenous, and therefore it is influenced by macroeconomic policy.

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by Metatone Sun Sep 2nd, 2012 at 03:45:14 AM EST

This is a very short piece - inspired by recent discussions both in my diary about the 1970s and Migeru's latest Eurozone diary.

(The next 1970s diary is coming soon...)

I've been musing on simple models of how we increase societal income/wealth/well-being.

Particularly if we consider countries in the European periphery - we need to find a way to improve their wealth that isn't dependent on out-trading other countries.

PerCLupi didn't like the word "income" as it puts us into a particular frame, but I think it's important not to lose sight of the system as is, as well as the system we'd like.

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