Godfather.gov

Posted on June 8, 2013 by P O Neill

Niall Ferguson in the Wall Street Journal ahead of his new book The Great Degeneration –

In only one category out of 22 (in World Economic Forum Global Competitiveness Report) is the U.S. ranked in the global top 20 (the strength of investor protection). In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by “organized crime (mafia-oriented racketeering, extortion).” In every single category, Hong Kong does better.

The chart above is the actual responses from the WEF survey of US executives asked to rank the top 5 constraints on business (page 360). The weighted response is 1.1 percent for any kind of crime. That’s lower than the responses for “foreign currency regulations.” Apparently moving dollars around is somewhat difficult too. Somehow WEF is able to translate these country-specific responses into a global ranking that conveys American businessmen cowering in the executive suite as mobsters rampage on the factory floor. It’s a miracle the country has any growth at all!

Use your illusion

Posted on June 7, 2013 by P O Neill

Q&A portion with Mario Draghi during the ECB news conference yesterday –

Q: [...] Are you telling the Spanish, Portuguese, Irish or even Italian people that the ECB can’t do anything else with inflation actually lower than 2%?

Draghi: Well, I am not sure I get the point, but I think I get it. First, the fact that inflation is low is not, by itself, bad; with low inflation, you can buy more stuff.

Advice to students of economics: don’t begin your essay on inflation with the claim “with low inflation, you can buy more stuff,” even if cited to Draghi, M, 2013.

UPDATE: More from Paul Krugman.

Growth is truth

Posted on June 6, 2013 by P O Neill

From the IMF assessment of its 2010 program for Greece, the section dealing with relations within the Troika i.e. European Commission (EC) and ECB (p31) –

And from the Fund’s perspective, the EC, with the focus of its reforms more on compliance with EU norms than on growth impact, was not able to contribute much to identifying growth enhancing structural reforms.

Two issues here. First, aren’t EU norms supposed to be growth enhancing? But second, does the Fund really think there is a definitive account somewhere of specific structural reforms that will surely result in growth within a couple of years? The back to reality reading list might want to start with Adam Smith.

Housing bubbles and capital controls

Posted on June 3, 2013 by Alex Harrowell

I picked up this OECD chart from Sigrun Davidsdottir on twitter:

Although many in #Iceland worry/feel that a bubble is forming inside capital controls, property prices seem balanced: oecd.org/eco/outlook/fo…

— Sigrun Davidsdottir (@sigrunda) June 3, 2013

This is something interesting, and possibly worth watching for the future. Obviously, wondering about the problems of Cyprus’s economic recovery is very much long-term thinking, but what is the betting that we won’t see more capital controls in the future?

In the event of recovery, and even more so, boom inside an economy under capital controls, there would be a substantial potential for a housing bubble, or a bubble in some asset. Depending on your preferences, as nominal incomes rose, or the money supply rose, or bank credit expanded, you could easily get a bubble as there would be a much restricted tendency for capital to get exported. That is after all the point.

On the other hand, the experiences of the European periphery, very much including the UK, suggest that inflows into an open capital account are also dangerous in this sense. My intuition is that they are more so because they can reverse quickly, and also that after all, if people whose wages go up can’t buy a house, who can? Thoughts are appreciated.

Start Making Sense

Posted on May 26, 2013 by P O Neill

“You may find yourself living in a shotgun shack
You may find yourself in another part of the world
You may find yourself behind the wheel of a large automobile
You may find yourself in a beautiful house with a beautiful wife
You may ask yourself, well, how did I get here?” — From Once in a Lifetime by Talking Heads

Kenneth Rogoff and Carmen Reinhart (RR) in the latest exchange of fire with Paul Krugman — Continue reading →

The Real Experiment That Is Being Carried Out In Japan

Posted on May 14, 2013 by Edward Hugh

The future never resembles the past – as we well know. But, generally speaking, our imagination and our knowledge are too weak to tell us what particular changes to expect. We do not know what the future holds. Nevertheless, as living and moving beings, we are forced to act. – John Maynard Keynes

Discussions of the population problem have always had the capacity to stir up public sentiment much more than most other problems.
- Gunnar Myrdal

Last Thursday the yen broke through the psychological threshold of 100 to the US dollar. On Friday the slide continued (see chart), even dropping very close to 102 to the USD at one point before strengthening slightly on the run in to the G7 finance ministers meeting. Continue reading →

Does Portugal Have Its Own “Shortage Of Japanese” Problem?

Posted on May 12, 2013 by Edward Hugh

In a number of posts recently I have highlighted the impact of declining workforces on economic growth (here, for example, or here, or here) and the way the policies persued to address the Euro debt crisis are having the impact of accelerating the movement of young people away from the periphery and towards the core (here, or here) thus accelerating the decline in their working populations and exacerbating their growth problem. This issue has been already highlighted strongly in Japan’s ongoing crisis, and has to some extent come to be known as the “shortage of Japanese” problem following Paul Krugman’s memorable use of this expression to explain why Japan’s economic performance seemed so poor to so many. Continue reading →

The Suitcase Mood

Posted on May 7, 2013 by Edward Hugh

Suitcase mood is a Russian website with travel and tourism content. The term is also a popular expression widely used within Russian culture to describe the state of mind which grips a voyager on the brink of a journey. The mood is often associated with a ritual which involves the departing person sitting, sometimes accompanied by family or friends, in the vicinity (when not actually on top of) the packed suitcase, ostensibly to try to remember if there is anything they have forgotten to take and bid loved ones farewell. Sometimes, however, the phrase can take on a different, and rather darker, meaning. It can be used to describe someone who is fed up with the status quo, has become footloose and decided they simply want out. “This will never change,” might be the thought, “I’m leaving”. In my mind’s eye I even see the person having the thought seated on their suitcase adopting the posture of Rodin’s thinker, turning over and over again whether they are doing the right thing, even while those around them vent their sadness in a bath of tears and alcohol. Or maybe I have just been watching too many Russian movies. Continue reading →

Crisis and non-reform

Posted on May 7, 2013 by P O Neill

It’s useful to look at three related but distinct perspectives on why peripheral Europe is in economic crisis. The three perspectives come from the three members of the Troika, so you’d think they’d capture a consensus about why the Troika has to do what it does. And yet. Continue reading →

The A-b-e Of Economics

Posted on May 1, 2013 by Edward Hugh

And the world said “Let Shinzo Abe be”, and all was light.

“The point is not that I have an uncanny ability to be right; it’s that the other guys have an intense desire to be wrong. And they’ve achieved their goal.” Paul Krugman

A new craze is sweeping the planet. The image I have in mind isn’t exactly that of the community of central bankers all dancing the Harlem Shake in unison, but for all the economic sense it has it might as well be. In fact the craze is called “Abenomics” and it is gathering adepts in financial markets across the globe. A precursor in Japanese history has already been found for the movement, Korekiyo Takahashi, who was the country’s finance minister during the key years of the 1930s depression. Even a book has been written to extol his virtues entitled “From Foot Soldier to FinanceMinister: Takahashi Korekiyo, Japan’s Keynes.” Unsurprisingly it was an immediate hit with Japanese academics when it came out in 2010.

While the creation of the Takahashi lineage may be important for home consumption in order to make the Japanese themselves more comfortable with the adoption of a set of radical and even unprecedented measures – Japan isn’t exactly the country you would expect to be in the vanguard of a major economic experiment with extensive global implications – the resonance of Abenomics outside the country among those with little knowledge of economics and even less of the specificities of the Japan problem is perhaps rather more surprising. Mariano Rajoy, for example, told journalists recently that the recent BoJ decision represented a “very important change in its monetary policies.” The Spanish PM argued in a clear reference to what is going on in Japan that Europe needed to decide which kind of powers its central bank should have, those it has now or “the ones other central banks across the globe have”. “We are in a decisive moment,” he said. Continue reading →

A Fistful Of Euros

European Opinion

Category Archives: Economics