The latest World Trade Monitor showed the volume of world trade falling in May by 1.2 per cent. It slid in four out of five months in 2015 and risen just 1.5 per cent in the past 12 months — less than the growth in global output and far below the long-term average of about 7 per cent a year.
The problem has been getting worse for some time. Trade bounced back fairly well in 2010 after the global recession but it has disappointed ever since, growing by barely 3 per cent in 2012 and 2013. Now it seems the world cannot manage even that.
That is from Stephanie Flanders.
The author is Edward Peter Stringham and the subtitle is Creating Order in Economic and Social Life. I haven’t looked through this book yet, but I am very much an admirer of the underlying research by Ed. Here is Peter Thiel’s blurb:
“Stringham dispels state-worshipping fiction with historical fact to show how good governance has preceded Leviathan, ignores it when necessary, and can surpass it when it fails.”
Peter Thiel, Entrepreneur
Annual real growth in gross capital formation hit 6.6 per cent in 2014, down from 10.2 per cent in 2013 and a peak of 25 per cent in 2009.
Thomas Gatley, China corporate analyst at Gavekal Dragonomics, a research firm, estimates that so far this year GFCF may be running at around 4 to 5 per cent.
That is from James Kynge at the FT. Here is from Ambrose Evans-Pritchard:
David Cui, from Bank of America, said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said.
Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said.
This in turn risks setting off a “bank run” on the shadow banking system as investors lose trust in wealth management funds, fearing that their deposits in the $2.1 trillion industry no longer have an implicit guarantee.
As Arnold Kling would say, have a nice day…
From the report of the President of the university, Raj Chetty and Matt Gentzkow will be starting at the school this fall.
And John Cochrane is moving to Hoover full-time.
In the late 1970s and 80s, MIT was undoubtedly number one as a place to study economics, even if Chicago ideas were more important and more fundamental (Becker, Fama, Posner, etc.). Harvard passed MIT a bit later for a good twenty year run at the top.
Stanford is next.
Everyone wants to find a version of history under which all the problems of the Eurozone are Germany’s fault, because everyone knows that all the solutions involve Germany paying. But it’s not really true; Germany spent the early years of ERM/EMU paying far more than anyone else was prepared to in order to smooth the adjustment path for the former Communist states. And after fifty years of structuring everything in Europe to prevent German hegemony, is it really a big surprise that Germany isn’t well set up to act as a hegemon? Imagine if the USA had lost the war in the Pacific and was today being blamed for its failure to ensure the economic development of the Phillippines.
That is from Daniel Davies, there are other good points at the link.
Here is yet another NBER Working Paper to shout from the rooftops:
How are optimal taxes affected by the presence of superstar phenomena at the top of the earnings distribution? To answer this question, we extend the Mirrlees model to incorporate an assignment problem in the labor market that generates superstar effects. Perhaps surprisingly, rather than providing a rationale for higher taxes, we show that superstar effects provides a force for lower marginal taxes, conditional on the observed distribution of earnings. Superstar effects make the earnings schedule convex, which increases the responsiveness of individual earnings to tax changes. We show that various common elasticity measures are not sufficient statistics and must be adjusted upwards in optimal tax formulas. Finally, we study a comparative static that does not keep the observed earnings distribution fixed: when superstar technologies are introduced, inequality increases but we obtain a neutrality result, finding tax rates at the top unaltered.
That is from Florian Scheuer and Iván Werning.
It depends on the Communist Party.
Of course you are free to leave alternative nominations in the comments.
1. How bad were the Black Panthers?
2. Spending a night in the robot-staffed hotel.
3. The Chinese stock market crash is worse than you think.
4. New Yorker profile of Varoufakis. Interesting throughout, covers Obama too, not just the usual even if this seems like familiar territory by now. “Adding up is the essence of democracy.” What an excellent line. The piece is by Ian Parker, and it deserves one of those David Brooks awards.
5. Brains striving for coherence.
6. Daniel Klein on who is a liberal.
7. “…even in relatively egalitarian Sweden, wealth begets wealth.”
Around 97% of existing yuan-denominated bonds hold ratings of double-A to triple-A—the best a company can get.
That is from Fiona Law, cited by Christopher Balding, and ultimately Alex Frangos, those are ratings from Chinese sources. Law reports:
With nine Chinese ratings firms to choose among, “bond issuers are encouraged to pick the highest ratings among agencies,” said Guan Jianzhong, chairman of Dagong Global, the country’s third-biggest ratings company in terms of market share. The fact that the bonds are rated double-A-minus or above, they “are not without risks,” he said.
By the way, the Shanghai Composite Index closes down 8.5%.
We’re going to be hearing more about this topic I suspect, so let’s start by looking at some of the evidence. For now I’ll turn the microphone over to Xuemin (Sterling) Yan and Zhe Zhang (pdf):
We show that the positive relation between institutional ownership and future stock returns documented in Gompers and Metrick (2001) is driven by short-term institutions. Furthermore, short-term institutions’ trading forecasts future stock returns. This predictability does not reverse in the long run and is stronger for small and growth stocks. Short-term institutions’ trading is also positively related to future earnings surprises. By contrast, long-term institutions’ trading does not forecast future returns, nor is it related to future earnings news. Our results are consistent with the view that short-term institutions are better informed and they trade actively to exploit their informational advantage.
And here is from the Geoff Warren 2014 survey (pdf):
The link between investor short-termism and corporate myopia is not clear cut – While there is some evidence in support of such a link, it is by no mean compelling. Laverty (1996) examines arguments on the existence of short-termism, and points out there is: (1) no clear evidence of flawed short-term oriented management practices; (2) only mixed evidence that stock market myopia encourages corporate short-termism, noting for instance findings of positive stock market reactions to long-term investment by some papers; and, (3) an absence of empirical support for the supposed influence of ‘fluid capital’ on corporate behaviour.
Results of a survey of company management by Marston and Craven (1998) also question the extent to which institutional investors are short-term in focus. While their survey uncovers a perception that sell-side (broking) analysts are focused on the short-term, company management did not consider this the case for buy-side analysts and fund managers. When asked if the buy-side was too concerned with short-term profit opportunities, only 21% agreed while 53% disagreed.
There is more evidence to consider, but I will start by introducing the idea that the standard anti-publicly traded company tropes are not self-evidently true, or at the very least we do not know them to be true.
They are not good, as evidenced by a new paper by Buggle and Nafziger (pdf):
This paper examines the long-run consequences of serfdom in the countries of the former Russian Empire. We combine novel data measuring the intensity of labor coercion on the district level in 1861 with several intermediate and present-day outcomes. Our results show that past serfdom goes along with lower economic well-being today. We apply an instrumental variable strategy that exploits the transfer of serfs on monastic lands in 1764 to establish a causal link between past serfdom and current economic development. Tracking the evolution of city populations throughout Soviet times corroborates the finding of persistent economic differences. Furthermore, our results suggest a political economy mechanisms linking higher historical economic inequality with worse public goods provision (roads and education), as well as lower urbanization and structural change towards factory production, as explanation for this persistence. We do not find differences in contemporaneous cultural attitudes and preferences.
The pointer is from Pseudoerasmus.
Baan Thai at 1326 14th St. serves regional Thai cuisine, from four different parts of the country, the attached sushi restaurant serves as a talisman against the uninformed. Get the tapioca chicken, the Isan sausage, and the Thai vermicelli in chili peanut sauce. This is one of three or four local places with real Thai food, and thus one of the best dining spots in DC. The Yelp reviews are nearly worthless, but here is useful WaPo coverage.