Things to Read on the Afternoon of October 20, 2014
Must- and Shall-Reads:
- The right’s Lena Dunham delusion: Anger, misogyny and the dangers of business as usual
- Why did Britain’s political class buy into the Tories’ economic fairytale?
- Eurozone stagnation is a greater threat than debt
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Five Known Unknowns About the Future of the Global Economy: “Here are my top five known unknowns about the future of the global economy…. 1) The Summers/Gordon Question…. What if the elevated rates of economic growth that started with the Industrial Revolution are now petering out in the developed world? What if all the low-hanging fruit that have kept growth high for the last two centuries have been exhausted? 2) The Eichengreen/Rodrik Question. The default assumption that most economists make is that the developing world in general, and the BRICS in particular, will converge towards the affluence level of the developed world. This might not be the case… there is a very real ‘middle income trap’ that can lead to a serious growth slowdown in the advanced developing countries. Even more disturbing is Dani Rodrik’s contention that while globalization has led to a true convergence in manufacturing productivity, it hasn’t caused any convergence in the rest…. 3) The Angell/Gartzke Question…. What if geopolitical tensions force a re-ordering of economic ties? This could erode the pacifying effects of commercial liberalism that scholars from Norman Angell to Erik Gartzke have observed…. 4) The Fukuyama/Kirshner Question…. Jonathan Kirshner’s new book… argu[es] that China and others are now rejecting the U.S. financial model. If Kirshner is right, what will this mean for the future of economic growth? More radically, what if other countries reject the capitalist model wholesale?…. 5) The Piketty/Freeland… argument… that, left to its own devices, capitalism will produce a dystopia where elites will grab an ever-growing share of the economic pie. What happens to the global economy if he’s right? What kind of political backlash will it produce?…. Enjoy the week!”
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A Tale of Two Economies–It Was the Better of Times, It Was the Worst of Times: “As quantitative easing comes to an end (apparently) by the Fed and is taken up by the European Central Bank (ECB), let’s compare the behavior of nominal domestic demand in each central bank’s economy and venture a reason for any differences. Plotted in Chart 1 are index values of the nominal Gross Domestic Purchases in the U.S. and the eurozone, respectively…. Now, let’s examine the behavior of credit created by the central banks and depository institutions in each of these economies. This is credit that is created figuratively out of thin air. When central banks purchase securities in the open market, such as they do when they engage in quantitative easing (QE), they create credit out of thin air. When the depository institution system expands its loan and securities portfolios, it creates credit out of thin air. Credit created out of thin air enables the borrower to increase his/her current nominal spending while not requiring any other entity to reduce its current spending…”
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European Banking Stress Tests–Pour Encourager les Autres?: “It will turn out, I think, that a lot of banks will fail on the front cover, but pass at the back of the book–this would happen, for example, if a bank was made aware early in the year that it was at risk, and decided to do something about it. I think I can see the thinking behind this way of presenting the results. The Euroland supervisors are hoping that the headline news will be made by the front pages of the reports, so they will be able to have it both ways–a big headline in the Financial Times and the Wall Street Journal saying that their test was credible because it failed so many big names, while at the same time tipping the wink to market analysts that most of the ‘failures’ were not really failures at all, and that nearly all of the required recapitalisations have already happened. To be honest, I find this communication strategy rather clever…”
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Unemployment, and product and labour-market tightness: “We do not have a model that is rich enough… and simple enough to lend itself to pencil-and-paper analysis…. Michaillat and Saez (2014)… retains the architecture of the Barro-Grossman model but replaces the disequilibrium framework on the product and labour markets with an equilibrium matching framework…. Both meal prices and product market tightness can adjust to equilibrate supply and demand for meals…. Both wages and labour market tightness adjust to equilibrate labour supply and demand…. If product and labour market tightness remain constant, the equilibrium is reached by price adjustment…. If prices are rigid, the equilibrium is reached by adjustment of product and labour market tightness…. A negative labour demand shock leads to falls in both employment and labour market tightness…. A negative labour supply shock leads to a fall in employment but an increase in labour market tightness…. Output and product market tightness move in the same direction with demand shocks…. Output and product market tightness move in opposite direction with technology shocks…. Through the lens of our simple model, the empirical evidence suggests that price and real wage are somewhat rigid, and that unemployment fluctuations are mainly driven by aggregate demand shocks…” -
Asiaphoria Meets Regression to the Mean: “Consensus forecasts for the global economy over the medium and long term predict the world’s economic gravity will substantially shift towards Asia and especially towards the Asian Giants, China and India. While such forecasts may pan out, there are substantial reasons that China and India may grow much less rapidly than is currently anticipated. Most importantly, history teaches that abnormally rapid growth is rarely persistent, even though economic forecasts invariably extrapolate recent growth. Indeed, regression to the mean is the empirically most salient feature of economic growth. It is far more robust in the data than, say, the much-discussed middle-income trap. Furthermore, statistical analysis of growth reveals that in developing countries, episodes of rapid growth are frequently punctuated by discontinuous drop-offs in growth. Such discontinuities account for a large fraction of the variation in growth rates. We suggest that salient characteristics of China—high levels of state control and corruption along with high measures of authoritarian rule—make a discontinuous decline in growth even more likely than general experience would suggest. China’s growth record in the past 35 years has been remarkable, and nothing in our analysis suggests that a sharp slowdown is inevitable. Still, our analysis suggests that forecasters and planners looking at China would do well to contemplate a much wider range of outcomes than are typically considered.”
Should Be Aware of:
- The Cambridge University Worshippers of Cthulhu Society Home Page
- Return of the Space Shh!uttle | File 770
- The Pythagorean Theorem
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The history of inequality: Breaking the camel’s back: “Average heights have risen almost everywhere (by 1.1cm more in America in 1820-1990 than in China). The purchasing power of construction workers’ wages has grown everywhere, though in Britain the rise was tenfold in 1820-2000; in Indonesia it was only twice…. In China, Thailand, Germany and Egypt, income inequality was about the same in 2000 as it had been in 1820. Brazil and Mexico are even more unequal than they were at the time of Simón Bolívar. Only in a few rich nations—such as France and Japan—do you find the expected long-term decline in income inequality. What is true for individual countries is also true if you treat the world…. The two-century rise in global inequality… come[s] from…‘between-country inequality’, the gap between rich and poor nations…. In 1820 the world’s richest country—Britain—was about five times richer than the average poor nation. Now America is about 25 times wealthier than the average poor country…”
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When I draw comparisons between libertarians and slaveholders… : “When I put libertarians and slaveholders in the same orbit, libertarians go ape-shit. But when they do it— ‘We [Alex Tabarrok and Tyler Cowen] treat John C. Calhoun as a precursor of modern public choice theory. Calhoun anticipates the doctrine of public choice contractarianism as developed by Buchanan and Tullock and expands this approach in original directions. We consider Calhoun’s theory of why democracy fails to preserve liberty and Calhoun’s suggested constitutional reform, rule by unanimity. We also draw out parallels between Calhoun and Hayek with regard to theories of social change and Hayek’s analysis of ‘why the worst get to the top.’ The paper concludes with some remarks on problems in Calhoun’s theory.’ —it’s all good. Of course, it helps if you can resolve that pesky question of slavery like so: ‘Furthermore, Calhoun furnishes only weak ethical foundations for his advocacy of the concurrent majority…. This lack of ethical foundation shows up in Calhoun’s defense of slavery, which continues to hurt his reputation and draw attention from his more valid and interesting contributions’.”