Category: Uncategorized
Assorted links
The balance sheet recession and The Great Stagnation
Many people point out that we are in a balance sheet recession. I agree with this view but wish to push it one step deeper. The negative wealth and income effects on debtors are positive wealth and income effects for the creditors. If the creditors were keener to invest that money in useful, productive activities the economy would be much stronger. Balance sheet recessions are most problematic when the investment channel is for some reason broken or especially weak.
You might think “Ah, the weak investment channel is due to weak AD.” And in part it is. But, if I may quote the Austrians, production takes time and recoveries do not take forever. Investors are often keen to invest into the swoosh of a future, not too far away, post-recession boom. But this desire has been much weaker than in many times past. A lot of the weakness of AD comes from the investment side, and in fact it predated the recession.
From the comments, on the UK
This is from a loyal reader named “a”:
How high are marginal rates of deductions in the UK?:
Consider an employee paid £50,000 gross who gets a £1,000 pay rise.
Let’s assume they are yet to pay off their student loan and contribute 7.5% to a (underfunded*) pension scheme and get 8% employer contributions to their pension.
Our employee’s employer will also pay the government an extra £218 pension contributions and national insurance (payroll) contributions, 8% and 13.8% of gross earnings respectively.
So the total increase in cost to the employer is £1,218.
Of their pay rise our employee pays £75 pension contributions, £90 student loan repayments, and £370 in income tax, giving total employee deductions £555.
This gives a marginal deduction rate of 63.46% (£445/£1,218).
If our employee buys goods which are liable for VAT they will lose a further 20%, resulting in a 70.77% marginal rate of deductions.
Oh and our employee must pay a local government lump sum tax of around £1,500 from their net wages.
So our employee faces a marginal rate of deductions 63.46% on non-VAT items, 70.77% on VAT items, and an average rate of deduction of 52% of pre-deduction earnings.
A similar analysis on a worker paid the minimum wage (around £12,500 a year), or £1000 above the minimum wage results in a marginal rate of deduction of 32% and an average rate of deduction of 52%. This ignores the withdrawal of means tested benefits.
Might this be the supply side explanation Scott Sumner has been looking for?
* UK private pension schemes currently have a £265bn deficit.
Assorted links
1. China markets in everything, fake iPhone signature.
2. Remastering music for the iPod age.
3. It appears the Slovaks will name a bridge after Chuck Norris.
4. Incorporating physiological observations into economics.
5. Via The Browser, predictions about Syria.
Assorted links
1. Will China be the last to emerge from the global economic crisis?
2. Which English-speaking country is most likely to be overrun by Spanish speakers?, and claims about the poverty trap which I do not believe.
3. Cleaner fish.
4. One metric of which professions are the most sleep-deprived.
5. The Google glasses, and Ozimek here.
The economics of TV pundit panels
@ModeledBehavior tweets:
Who’ll write “the economics of CNNs extremely, extremely ****ing banal pundit panel”. Surely, there must be a reason for it?
Except he spelt out the entire word.
The goal is to keep people on the same channel, by whatever means possible. The true end of the debate event means the TV will be turned off or the channel switched. It’s not like the old days when on Saturday night the people who wanted to see “Mary Tyler Moore Show” then wanted to watch Bob Newhart afterwards. There is no real sequel to these “debates,” or at least no appropriate sequel which can be enacted with the aid of a television.
So they will do everything possible to stretch out the event. Furthermore, the viewers actually want to talk to each other about the debates, so the continuation should be something which does not command too much viewer attention. No Evil Knievel. The panel is a signal of “now is the focal time to make fun of these guys with the other people on your sofa,” don’t stop, keep up the jokes guys, and the panel members, perhaps unintentionally, try to stretch out that period of your witty mockery for as long as possible. Which isn’t that long, but hey they have to try.
Facts about the United Kingdom
Despite a 25 per cent devaluation of sterling, UK exports to Asia in the last three years have grown at a slower rate than those from Greece and Spain. In 2011, per capita gross domestic product in Ireland was greater than that in the UK. Meanwhile, the role of the state in the UK economy has grown and taxes have risen.
…More generally, individual risk and effort is not rewarded when the UK government share of GDP has risen from 38 per cent in 1999 to 51 per cent in 2011, the effective top rate of tax is over 50 per cent, and CPI inflation for the last five years has averaged 3.5 per cent.
That is from MP Liam Fox, more at the link. Elsewhere (gated, at The London Times) I have written that the UK is especially vulnerable to The Great Stagnation.
Assorted links
1. New Carl Zimmer project on science eBook reviews.
2. Empirical tests of how much “cold start” is a problem in labor economics. From this general blog on on-line labor markets and their implications.
3. Markets in everything: dog TV.
4. NYT symposium on the farm bill, including yours truly.
6. CrookedTimber is running a symposium on Graeber’s debt book.
7. Early John Nash on cryptography, written to the NSA.
Questions that are rarely asked
From Arnold Kling (and the graph is from Karl Smith):
I challenge any supporter of the sticky-wage story (Bryan? Scott?) to write a 500-word essay explaining how this graph does not contradict their view. If employment fluctuations consisted of movements along an aggregate labor demand schedule, then employment should be at an all-time high right now.
My view is “sticky nominal wages for some, negative AD shock, ongoing stagnation and thus low job creation, and the progress we have is in some sectors immense but typically labor-saving rather than job-creating, all topped off with a liquidity shock-induced revelation that two percent of the previous work force was ZMP.” (Try screaming that from the rooftops.) I read the above graph as consistent with that mixed and moderate view. As Arnold notes, it’s harder to square with an AD-only view. If I wanted to push back a bit on Arnold’s take, and save some room for AD stories, I would cite the “Apple Fact of the Day,” and also note that stock prices have not responded nearly as well as have measured corporate profits. Still, we economists are not taking this graph seriously enough.
Addendum: Arnold Kling responds to responses.
Assorted links
Assorted links
Books in my pile, real or virtual
1. The Economists’ Voice: Top Economists Take On Today’s Problems, edited by Stiglitz, Edlin, and DeLong, useful excerpts from the journal.
2. Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled the Recovery. I enjoyed reading this book very much, though I am not the one to judge its account of “inside baseball.” There is plenty on Geithner and Summers. Here is Warsh on Scheiber on Summers.
3. Matthew D. Adler, Well-Being and Fair Distribution: Beyond Cost-Benefit Analysis. A detailed examination and defense of social welfare functions, which I have not read.
4. Tyler Cowen, Crie sua Própria Economia, in Brazilian, reviews and the like are here.
5. Alan Beattie, illustrious FT correspondent, Who’s in Charge Here?: How Governments are Failing the World Economy, eBook only, due out in March.
Why doesn’t the right-wing favor looser monetary policy?
Reading Scott’s post induced me to write down these few points. I have noticed that right-wing public intellectuals are skeptical of more expansionary monetary policy for a few reasons:
1. There is a widespread belief that inflation helped cause the initial mess (not to mention centuries of other macroeconomic problems, plus the problems from the 1970s, plus the collapse of Zimbabwe), and that therefore inflation cannot be part of a preferred solution. It feels like a move in the wrong direction, and like an affiliation with ideas that are dangerous. I recall being fourteen years of age, being lectured about Andrew Dickson White’s work on assignats in Revolutionary France, and being bored because I already had heard the story.
2. There is a widespread belief that we have beat a lot of problems by “getting tough” with them. Reagan got tough with the Soviet Union, soon enough we need to get tough with government spending, and perhaps therefore we also need to be “tough on inflation.” The “turning on the spigot” metaphor feels like a move in the wrong direction. Tough guys turn off spigots.
3. There is a widespread belief that central bank discretion always will be abused (by no means is this view totally implausible). “Expansionary” monetary policy feels “more discretionary” than does “tight” monetary policy. Run those two words through your mind: “expansionary,” and “tight.” Which one sounds and feels more like “discretion”? To ask such a question is to answer it.
Within these frameworks of beliefs, expansionary monetary policy just doesn’t feel right. Yet I still agree with the arguments of Scott (and others) that it would have been the right thing to do.
Assorted links
2. Markets in everything, honey trap edition, or should they call it something else?
3. Do hedge fund returns have lower volatility?
4. The still-underrated Dylan Matthews covers MMT, graphic here.
5. Remarkable Swedish rescue, but of what?
What good are hedge funds?
How can they beat the market consistently, especially if we take EMH seriously at all? And if they don’t beat the market, how is 2-20 to be justified? Here is a snippet from an interesting Amazon review:
…this kind of comparison misses the entire point of most hedge funds. A market-neutral fund is not designed as a stand-alone investment, but as a diversifier for an equity portfolio. It can have half the return of equities with the same volatility, and still be valuable. The question isn’t whether putting 100% of your money in hedge funds did better than putting 100% in stocks, it’s what portion of assets an investor should allocate to hedge funds. Using the author’s own numbers, an investor would have done best to have 30% of assets in hedge funds, rebalancing annually, from 1998 to 2010. That produced 4.2% annual alpha (return in excess of what you could have gotten investing in stock index funds and t-bills with the same volatility). That number is certainly overstated, hedge fund investors typically do worse than the index suggests, but it demonstrates that you can’t consider only stand-alone returns. This point is borne out by the finding that endowments and pension funds that make use of hedge funds have consistently better risk-adjusted performance than those that do not.
The review, by Aaron C. Brown, offers other points of interest. I’ve ordered the underlying asset itself (the book) and I will report back on it. It was reviewed in today’s FT, still no permalink.