Category: Current Affairs
Greek priorities
The new far-left government in Greece dropped a bombshell on its first day in office by abjuring an EU statement on Russia.
There is more here, via Anders Aslund. I guess they don’t have any other European issues they need to spend their political capital on…
Yanis Varoufakis
He is an economist, taught last year at UT Austin, and is now the new finance minister of Greece. You can find him here on scholar.google.com. And here is his 2011 proposal for overcoming the euro crisis, another version of that here (pdf). Here is his blog post on the Scottish Enlightenment. Previously he was working as an economist for Valve, a video game company. Here is Yanis on EconTalk with Russ Roberts. The discussion of Greece and the eurozone starts at about 48:22.
His blog is here, he claims he will continue blogging:
The time to put up or shut up has, I have been told, arrived. My plan is to defy such advice. To continue blogging here even though it is normally considered irresponsible for a Finance Minister to indulge in such crass forms of communication. Naturally, my blog posts will become more infrequent and shorter. But I do hope they compensate with juicier views, comments and insights.
Here is a good Telegraph profile of the man. Here is his Wikipedia page, and here is one excerpt:
In 2005/6, Varoufakis travelled extensively with artist Danae Stratou along seven dividing lines around the world (in Palestine, Ethiopia-Eritrea, Kosovo, Belfast, Cyprus, Kashmir and the US-Mexico border). Stratou produced the installation CUT: 7 dividing lines, while Varoufakis wrote texts that then became a political-economic account of these divisions, entitled The Globalising Wall. In 2010 Stratou and Varoufakis founded the project Vital Space.
Stay tuned, this will be fun.
An awkward question about Greece and the eurozone
“How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have, but we still need to give them debt forgiveness?” said Mr Darvas.
That is from Ferdinando Giugliano at the FT, who is referring to the possibility that the Greek debt load might be sustainable. Don’t focus on the debt to gdp ratio of 175 percent, consider that the interest rates are low and the term structure of the debt is long. Here is your Greece fact of the day:
Mr Darvas calculates that total interest expenditure in 2014 [for Greece] was 2.6 per cent, only marginally above France’s 2.2 per cent.
Yet I do not find the Greek position to be sustainable. As has been the case from the beginning, the real problem in the eurozone is in the politics, not the raw numbers of the economics. It is worth noting that there are Maoist and Trotskyite factions in Syriza, so if we are going to moralize about the National Front in France, or other disreputable groups, let’s be a little more consistent here…
How much did cutting unemployment benefits help the labor market?
Quite a bit. There is a new NBER Working Paper on this topic by Hagedorn, Manovskii, and Mitman, showing (once again) that most supply curves slope upward, here is one key part from the abstract:
In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.
There is an ungated copy here (pdf). Like the sequester, this is another area where the Keynesian analysts simply have not proven a good guide to understanding recent macroeconomic events.
The evolution of northern Virginia
When I visited Santa Monica in January it struck me how much it reminded me of…Arlington. Arlington is now essentially a part of Northwest, at least Arlington above Route 50 or so. Arlington and Santa Monica have never been more alike, or less distinctive.
Parts of east Falls Church will meld into Arlington, and south Arlington will become more like north Arlington. Real estate prices east/north of a particular line are rising and west of that line are falling. Fairfax is definitely west of that line.
The Tysons Corner remake will fail, Vienna is not the new Clarendon, and the Silver Line and the monstrously wide Rt.7 will form a new dividing line between parts of Virginia which resemble Santa Monica and parts which do not.
Incumbents aside, no one lives in Fairfax any more to commute into D.C. Why would you? The alternatives are getting better and Metro parking became too difficult some time ago. Fairfax is not being transformed, although some parts are morphing into “the new Shirlington.” Most of it will stay dumpy on the retail side. Annandale will stay with Fairfax, whether it likes it or not.
For ten years now I have been predicting various Fairfax restaurants will close — casualties of too-high rents — and mostly I have been wrong. The good Annandale restaurants are running strong too. Annandale won’t look much better anytime soon, thank goodness for that.
“Northern Virginia” is becoming two different places, albeit slowly.
Tabarrok on Econ Talk on Private Cities
Based on my paper, Lessons from Gurgaon, India’s Private City (with Shruti Rajagopalan) I discuss private cities with Russ Roberts over at EconTalk this week.
I think the conversation went well but I haven’t heard it yet so let me also take the time to point you to my favorite recent EconTalk, Russ interviewing Greg Page, the former CEO of Cargill, the largest privately-held company in America. Their discussion covers the global food supply, false definitions of national food security, the role of prices, comparative advantage and more. It’s a great discussion.
Is Greece already seeing some fiscal collapse?
Kerin Hope from the FT reports:
A reluctance to pay taxes was much criticised by Greece’s creditors as one reason why the country needed a big international bailout. Now many Greeks are again avoiding the taxman as they bet the radical left Syriza party will quickly loosen fiscal policy if it comes to power in Sunday’s general election.
A finance ministry official confirmed on Friday that state revenues had collapsed this month. “It’s normal for the tax take to decline during an election campaign but this time it’s more noticeable,” the official said, avoiding any specific figures on the projected shortfall.
However, two private sector economists forecast the shortfall could exceed €1.5bn, or more than 40 per cent of projected revenues for January.
File under “In case you had not been paying attention…” And here is Antonio Fatás with a Grexit scenario. That is still not what most people expect, however.
Elsewhere in central banking news…here are the real stories…
Fighters for one of the factions battling for control of Libya seized the Benghazi branch of the country’s central bank on Thursday, threatening to set off an armed scramble for the bank’s vast stores of money and gold, and cripple one of the last functioning institutions in the country.
The central bank is the repository for Libya’s oil revenue and holds nearly $100 billion in foreign currency reserves. It is the great prize at the center of the armed struggles that have raged here since the overthrow of Col. Muammar el-Qaddafi in 2011.
There is more here. And in collapsing Yemen, the Iran-funded Houthi fighters seem to have the central bank tightly under guard. Mario Draghi does not in fact have the toughest job in the world.
What we really need to know about QE
From the letters page of the FT:
Sir, Whether the European Central Bank chooses to embark on a programme of sovereign QE (or quantitative easing, as it used to be known) is of little day-to-day interest to most citizens of the EU. Whether the compilers of dictionaries accept that QE is now a word in its own right — as opposed to an abbreviation — is of far more relevance to us scrabble players. Using a Q without needing a free U it would rapidly be up there with Qi (the Chinese word for life force) as one of the most useful words in the lexicon.
Richard Kemmish
Surbiton, Surrey, UK
I would think that for the foreseeable future QE would be ruled an abbreviation, not a word, although enough years of macroeconomic misery eventually could flip this the other way.
Here are other “Q without U” words which are eligible for use in Scrabble.
John Bayley has passed away
China (Venezuela) fact of the day
China started to lend massively to Venezuela in 2007. Since then it has lent more than $45bn, of which about $20bn is still outstanding.
That is from Ricardo Hausmann at the FT.
The Chinese money supply
Derek Scissors reports:
Broad money M2 breached $20tn at the end of December, a staggering 70 per cent larger than in the US, where monetary policy has hardly been tight.
There’s a tremendous amount of liquidity, the problem is no one is using it. Growth in narrow money M1 has collapsed. It was a dangerously excessive 32.4 per cent in 2009. It was a dangerously anemic 3.2 per cent in 2014.
M1 is money being held ready for use in anticipated transactions. It should correlate very well with GDP, which is a sum of transaction values. But while M1 flies around over time, GDP growth barely budges in comparison. It strains credulity that the amount of money held for use could grow at one-tenth the speed in 2014 as it did in 2009, yet growth in uses of that money (GDP) drops less than 2 points.
The FT post is of more interest generally on Chinese economic statistics.
The Danish domino?
The Danish central bank has cut its deposit rate even deeper into negative territory as it fights to keep its currency peg against the euro steady ahead of an expected sovereign quantitative easing programme from the European Central Bank.
The Swiss National Bank last week threw in the towel on its currency ceiling versus the euro, heightening interest in Denmark’s longer-standing peg.
To lessen the attraction of depositing money in Denmark the central bank lowered its deposit rate from minus 0.05 per cent to minus 0.2 per cent, according to a statement from the bank.
It is wrong to claim that Switzerland and Denmark (and Cyprus?) are the first countries to leave the eurozone, but not uninstructive either. There is more here, hat tip goes to my Twitter feed, and a bit more detail here. This is further evidence that credibility, for central banks, is an international public good and thus arguably undersupplied. And if the Danes cut their peg, I am loathe to call this a “mistake” (even though it likely will hurt their economy), rather it would be an inevitability.
Addendum: Scott Sumner comments.
Frances Coppola asks
In short, did the ECB tell the SNB to remove the cap in order to clear the way for ECB QE?
Don’t stand in the way of a forthcoming freight train. There is more here.
Do central banks need capital?
Here is the abstract of a 1997 Peter Stella paper:
Central banks may operate perfectly well without capital as conventionally defined. A large negative net worth, however, is likely to compromise central bank independence and interfere with its ability to attain policy objectives. If society values an independent central bank capable of effectively implementing monetary policy, recapitalization may become essential. Proper accounting practice in determining central bank profit or loss and rules governing the transfer of the central bank`s operating result to the treasury are also important. A variety of country-specific central bank practices are reviewed to support the argument.
More concretely, I am not persuaded by the view that a kind of sheer internal commitment to good outcomes, however sincere, can sustain a peg or nominal target. The outside world always impinges on the logic of commitment, and thus capital is required. This is also why I do not agree with Scott Sumner’s claim that a truly credible Swiss target, eliminating the need to expand the SNB balance sheet to make it stick, is possible circa January 2015 or for that matter anytime soon.
I do not, however, see time inconsistency as the central problem. More likely the government either just doesn’t want to take the specified action (e.g., Germany with higher inflation), or part of the government would like to do something but it doesn’t have enough political capital (Draghi at the ECB). Time consistency models have some neat analytic properties but often they distract our attention from these more fundamental constraints.
The pointer is from Alen Mattich, a financial journalist who by the way has just published another detective novel, Heart of Hell.