Must-Read: Yes, a lot of discouraged workers a year ago did not say they were discouraged workers. And the same is highly likely to be true today. Why do you ask?
Joe Weisenthal: @TheStalwart: “Per Goldman, the biggest contributors to the LFPR rebound were drops in the disabled and ‘don’t want a job’ category.”
Must-Read: Ricardo J. Caballero and Alp Simsek: A Model of Fickle Capital Flows and Retrenchment: Global Liquidity Creation and Reach for Safety and Yield: “Gross capital flows are very large and highly cyclical…
…They are a central aspect of global liquidity creation and destruction. They also exhibit rich internal dynamics that shape fluctuations in domestic liquidity, such as the fickleness of foreign capital inflows and the retrenchment of domestic capital outflows during crises. In this paper we provide a model that builds on these observations to address some of the main questions and concerns in the capital flows literature. Within this model, we find that for symmetric economies, the liquidity provision aspect of capital flows vastly outweighs their fickleness cost, so that taxing capital flows, while could prove useful for a country in isolation, backfires as a global equilibrium outcome. However, if the system is heterogeneous and includes economies with abundant (DM) and with limited (EM) natural domestic liquidity, there can be scenarios when global liquidity uncertainty is high and EM’s reach for safety can destabilize DMs, as well as risk-on scenarios in which DM’s reach for yield can destabilize EMs.
Must-Read: Izabella Kaminska: The Robot Revolution May Be Exaggerated: “UBS is back… 34-page[s]… re-shoring and automation trend much touted by tech utopians as the silver lining to the [globalization] reversal may be exaggerated…
…You will have heard the narrative…. Automation, algorithms and robotics… means developed countries will soon be able to reshore all production, leading to a productivity boom which leads to only major downside: the associated loss of millions of middle class jobs as algos and robots displace not just blue collar workers but the middle management and intellectual jobs as well. Except… there’s no quantifiable evidence anything like that is happening yet…. As for our friends the robots:
We also don’t find clues of items being made by robots at such a scale that it is shutting down factories and killing exports in EM. For instance, DM imports of low value added items such as textiles, apparel, shoes and toys have slowed down, but only in line with the slowdown in overall imports. To the extent that there is demand for them, these items still seemed to be shipped from the emerging world rather than produced by or printed by machines at home….
The analysts don’t want to be deemed unimaginative ‘tech utopia’ killjoys…. It’s just that. Well. None of it is likely to make an significant impact on the macro level in the next five years…
Daniel Boffey: Brexit: leading banks set to pull out of UK early next year: Anthony Browne, head of the British Bankers’ Association, warns that major lenders are poised to hit relocate button
Brahman: A Few Thoughts…: “Trouble is that even @MarkFieldMP MP for the City can’t be bothered to fight to stay within the Single Market…
…A few thoughts on this Observer piece this morning:
Finance firms (FF) have high operational gearing – v high fixed costs and v low marginal costs so profitability depends on scale in capturing revenues – hence front line staff bonuses linked to revenue until quite recently not profits. This makes this a scale game in which a few successful firms do v well, (& pay a lot) & a large tail just do enough. Many FF of course are vanity projects that lose money all the time but are subsidised by offshore parents… that’s how the big US IBs built up their London activities in the first place, as famous paper by @JamesvS father Piers described so well in the late 1980s when he was at Warburgs.
The key is to keep fixed costs down and revenues high. Operating costs almost incidental and scale has implications. As only a few biz can be very profitable most just get by because scaled firms can pay more and weaken smaller biz and command wage premium for key staff Key staff can be reduced if biz is located in a fin centre where lots of qualified ppl work.
London big beneficiary of both passport that allows London firms to capture revenue scale across EU market and labour pool helps reduce labour costs. Remember that given operational gearing small falls (or increases) in revenue have big effects in firm profits in %. London faces TWO challenges – much higher fixed costs – regs and compliance, security, capital and IT move breakeven point for revenue & loss of passport may mean loss of some revenue. Even small loss could be an issue for many firms. Passport works now b/c whole EU has the same rules, regulators monitored by EU bodies and ECJ has final say. Hard to see how this survives post Brexit.
Fin Firms have to weigh loss of revenue involved in passport and higher costs of some things in Lon with wage premium needed to move key staff. Risk Lon firms face is that if any EU based firm manages to secure scale they could poach key staff and undermine profitability of London based business. It’s not just about whether Lon firms move. It’s also about competitive dynamics and risk.
If firms stay in London and no where emerges in EU as alt centre then London firms have to scale back given lower revenues & higher fixed costs. Not sure what Govt can do about this given Brexit direction of travel <end>
Must-Read: I used to tell people that the United States did not have a long-run exploding deficit problem or an exploding debt problem or a sustainability-of-the-social-insurance system problem. I used to tell people that the United States had a dysfunctional health care finance regulatory system problem.
And, lo and behold, we pass ObamaCare and make health care finance regulation somewhat less dysfunctional:
Has the CRFB noticed this? Do they highlight this in any of their reports?
Paul Krugman: Debt, Diversion, Distraction: “There was a time… when deficit scolds were actively dangerous…
…raising the Medicare age (which wouldn’t even have saved money) and short-term fiscal austerity…. They continue to play a malign role in our national discourse… distract[ing] attention… [and] depriving crucial issues of political oxygen….
Why is this a crucial issue right now? Are debt scolds demanding that we slash spending and raise taxes right away? Actually, no: the economy is still weak, interest rates still low (meaning that the Fed can’t offset fiscal tightening with easy money), and as a matter of macroeconomic prudence we should probably be running bigger, not smaller deficits in the medium term. So proposals… don’t involve actual policy moves now, or for the next 5-10 years…. If you try really hard, you can argue that locking in policies now for this future adjustment will make the transition smoother. But that is really a second-order issue…. By putting the debt question aside, we are NOT in any material way making the future worse… a total contrast with climate change….
So my message to the deficit scolds… I would respectfully request that you people just go away.
Must-Read: Simon Wren-Lewis: Neoliberalism and Austerity: “Austerity could [not] have happened on the scale that it did without this dominance of this neoliberal ethos…
…Mark Blyth has described austerity as the biggest bait and switch…. It took two forms…. (1) The financial crisis, caused by an under regulated financial sector lending too much, led to bank bailouts that increased public sector debt. This leads to an outcry about public debt, rather than the financial sector…. (2) The financial crisis causes a deep recession which – as it always does – creates a large budget deficit. Spending like drunken sailors goes the cry, we must have austerity now.
In both cases the nature of what was going on was pretty obvious to anyone who bothered to find out the facts. That so few did so… can be partly explained by a neoliberal ethos. Having spent years seeing the big banks lauded as wealth creating titans, it was difficult for many to comprehend that their basic business model was fundamentally flawed and required a huge implicit state subsidy…. They found it much easier to imagine that past minor indiscretions by governments were the cause of a full blown debt crisis….
Austerity was popular, but then so was bashing bankers. We got austerity in spades…. [Perhaps] the Eurozone crisis was pivotal, but… austerity plans were already well laid on the political right… before that crisis… [and] the Eurozone crisis went beyond Greece because the ECB failed to act… as a sovereign lender of last resort…. The Greek crisis was made far worse … because politicians used bailouts to Greece as a cover to support their own fragile banks. Another form of bait and switch….
But I do not think you can go further and suggest that austerity was somehow bound to happen because it was necessary to the ‘neoliberal project’…. I can imagine governments of the right not going down the austerity path because they understood the damage it would do. Austerity is partly a problem created by ideology, but it also reflects incompetent governments that failed to listen to good economic advice. An interesting question is whether the same applies to right wing governments in the UK and US that used immigration/race as a tactic for winning power…. Brexit is a major setback for neoliberalism. Not only is it directly bad for business, it involves (for both trade and migration) a large increase in bureaucratic interference in market processes. To the extent she wants to take us back to the 1950s, Theresa May’s brand of conservatism may be very different from Margaret Thatcher’s neoliberal philosophy.
Should Reads:
This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.
Despite the well-understood temporal and pecuniary chaos that is pregnancy and early parenthood, there is relatively little quantitative documentation on just how much a new child affects household finances in the Unied States. But new research provides new data on this front that Kavya Vaghul and Austin Clemens present with a number of graphs.
Last week, Federal Reserve Chair Janet Yellen gave a speech on the state of macroeconomics research in the wake of the Great Recession. The questions she posed are important, and investigations into those areas would be very worthwhile.
How much do U.S. workers value a choice in their work schedules especially when it comes to flexibility? Bridget Ansel digs into recent research on this questions and highlights the variation among the results.
Research on cash transfer programs in the United States focus, for the most part, on the effects of the program in the short run. But a new paper takes a look at the long-run effects on both parents and children. The paper can inform our understanding of the effect of different kinds of cash transfer programs.
Is radically cutting the corporate income tax the best way to boost a flagging economy? Alana Semuels takes a look at the experience of Ireland and the United Kingdom to see if such a policy would be beneficial for the United States. [the atlantic]
The state of the federal budget deficit was brought up several times during the presidential debates this fall. But it’s not entirely clear that the deficit is an urgent or pressing policy concern right now. Richard Rubin and Nick Timiraos take a look at the level of concern among experts. [wsj]
A common narrative about U.S. manufacturing is that the sector is doing well because productivity growth is strong, leading to declining employment. But research by economist Susan Houseman of the Upjohn Institute challenges that story. Jared Bernstein interviews her about this work. [on the economy]
The homeownership rate in the United States has been on the decline since the peak of the housing bubble in 2006. Will this trend continue apace or will the rate level off or even climb? Timothy Taylor reviews a few projections. [conversable economist]
A recent survey finds about a quarter of Americans don’t trust official U.S. economic data. Why is that? Claudia Sahm runs through a number of hypotheses for why so many people don’t believe data from the federal government. [claudiasahm]
Figure from “Economic insecurity rises around childbirth, explained in four charts” by Kavya Vaghul and Austin Clemens
Must-Read: Cardiff Garcia: Bengt Holmstrom: Money Markets and Opacity: “Stock markets are about price discovery for the purpose of allocating risk efficiently…
…Money markets are about obviating the need for price discovery using over-collateralised debt to reduce the cost of lending. Yet, attempts to reform credit markets in the wake of the recent financial crisis often draw on insights grounded in our understanding of stock markets. This can be very misleading. The paper presents a perspective on the logic of credit markets and the structure of debt contracts that highlights the information insensitivity of debt. This perspective explains among other things why opacity often enhances liquidity in credit markets and therefore why all financial panics involve debt. These basic insights into the nature of debt and credit markets are simple but important for thinking about policies on transparency, on capital buffers and other regulatory issues concerning banking and money markets.
Must-Read: I am starting to think Phil Mirowski has lost what he needs to play the game:
Noah Smith: Do Economists Have Physics Envy?: “Philip Mirowski… is not too happy with my post. In a recent interview, he explains why…
…Let’s take a recent example of a popular contemporary economist blogger, insisting that economists don’t suffer from physics envy…. He just blurts out some random impressions…. I cannot make this stuff up…. The level of arrogance combined with parochial ignorance is pretty stunning, but not unusual. He has no conception of the historical track record of the disciplines of economics and physics evolving through time, with earlier points of interaction being masked by later developments, and further waves of strange action at a distance…
A couple of observations here. First, responses that rely on phrases like “I cannot make this stuff up” and “the level of arrogance combined with parochial ignorance”, but fail to substantively address the argument in question, are indicative of a degraded discourse…. There’s no reason at all that Mirowski should spend time and effort addressing or rebutting my points… but if he’s not going to, at least he might consider ignoring my post completely instead of lobbing some sputtering disdain in my direction and moving on!…
I think this is very good advice from Noah.
I would add: if you are going to attack someone in such terms, it is very bad manners not to name them, and not to link to what they wrote: calling them “a popular contemporary economist blogger” rather than “SUNY finance professor Noah Smith” is untold.
And if you want to demonstrate that you understand–or even have read–the literature in physics, you do not misquote: Einstein did not say “strange action at a distance”. What he said was: “spooky action at a distance”.