The above still comes from a recent Financial Times video entitled “Portugal’s Brain Drain”, which can be found here, and which I encourage everyone to watch. The issue being raised revolves around the current acceleration of emigration from countries on the EU periphery, largely towards the EU core. Typically the emigrants are young educated people who can’t find work. There is nothing especially surprising in this, since the tendency has long existed for people to move from more depressed areas to economically more dynamic ones. The exodus from Detroit in the United States immediately comes to mind. Or Scottish people getting on the bus to make the fateful journey from Edinburgh or Glasgow to London. The Schengen accord simply extends this process which used to take place within nation states to single market zones, or currency unions. But does this extension have consequences for the participating states which were not anticipated at the outset, and are these consequences all benign?
In addition, this time round in an important sense something is different since these movements are occurring in the context of a long and difficult economic adjustment, indeed one could almost argue that the people leaving form part of that adjustment. What’s more it is hard to accept that this is the kind of adjustment that countries like Spain and Portugal really need. Renovation in these countries implies these people and their talent are injected into the local economy to dynamise it, and not shot out the side like water from a high pressure hose with holes in it. So the big question I want to ask here is whether the economic programs which are being implemented in these countries take sufficient account of the demographic impacts they are inducing, and of the fact that the population loss involved – which most likely will become permanent – is going to cast a long shadow over the history of the countries concerned. Continue reading
For Maurice Pialat, champion of the marginal centre.
“This raises a final question, which, while not central to the issues of this paper, is nevertheless intriguing: How can a country with a low minimum wage, weak unions, limited unemployment insurance and employment protection, have such a high natural rate [of unemployment]?”
“To summarize, the actual unemployment rate is still probably higher than, but close to the natural rate of unemployment. Latvia may well want to take measures to reduce its natural rate, but the recovery from the slump is largely complete.”
Boom, Bust, Recovery Forensics of the Latvia Crisis, Olivier Blanchard, Mark Griffiths and Bertrand Gruss
With these words three IMF economists (hereafter BGG) effectively signed off on their study of “what just happened on Latvia” and, they hoped, drew to a close a debate which has been going on now for some 6 years. In fact, far from closing the debate, what they may have done is effectively extend it into new terrain, since these apparently harmlesss words – “the recovery from the slump is largely complete” – have far reaching implications, as does the methodology they use for reaching it. These implications reach well beyond Latvia, and even far beyond the Baltics and the CEE in general, despite the conclusion that everyone seems to be reaching that Latvia was just a “one off”. Possibly without intending to do so, they have drawn onto the clinical investigation table issues which have been mounting up in the theoretical lumber rooms of neoclassical growth theory for some time now, issues which begin to assume a paramount practical importance in the context of our rapidly ageing societies. What, for example, do we understand by the term “convergence” these days? And if “steady state” growth can no longer be understood as implying a constant growth rate (trend growth in developed economies is now systematically falling) should we be considering the possibility that headline GDP growth will at some point turn negative, even if GDP per capita may continue to rise, due to the fact that populations are steadily starting to shrink. And if the answer to the former question is “yes”, then what are the implications of this for the financial system, for the system of saving and borrowing, and for the sustainability of legacy debt? Not little questions these, but ones which will need to find answers and responses in countries like Latvia over the next couple of decades. Continue reading
The recent IMF proposals to help stimulate growth and job creation in Spain at least deserve serious consideration.
In a blog post which sought to defend the recent IMF proposal to for a social compact involving a 10% reduction in Spanish wages and salaries, the EU Economy and Finance Commissioner Olli Rehn cited a line from Bob Dylan – “Something is happening here, but you don’t know what it is”. Continue reading
What follows is an interview I did over the summer with the Madrid based publication The Local.
Let’s start with the basics: what are Spain’s current economic problems?
Spain’s economic problems are a knock-on effect of the end of Spain’s property boom. The collapse of the property market led to a drop in incomes, depressed demand for goods and — slightly — lower wages.
Above a suggested choice for the single take-away chart from the presentations at the Kansas City Fed’s economic policy symposium in Jackson Hole, Wyoming. It’s from Helene Rey’s paper (London Business School). It shows all types of capital inflows expressed a percentage of world GDP on a quarterly basis since 1990, plotted against the VIX, which is a measure of perceived volatility embedded in options markets (in green, higher level=lower risk).
The argument (which has been confirmed by deeper research of herself and others) is that there is a remarkably simple (conceptually) component in capital inflows worldwide which seems to correspond to a single driver across many markets, countries, asset types, and exchange rate regimes.
As she notes, the implication is that these capital flows might need to be regulated, including by various instruments that wouldn’t have been mentioned in polite economic society a few years ago.
The open question may be that if this capital flow beast is so virulent and global, are normal means of country policy and international coordination strong enough to do anything about it? We might actually need one of these global super-regulators that people seem to think we already have.
So I was arguing with Jamie Kenny about Obama’s economic record.
It was Friday night, so I had no inclination whatsoever to do economics. Anyway, I got around to it.
The top, blue line is the civilian unemployment rate in %, on the left scale. The next, red line is average weekly wages, on the right scale. The next, orange line is the average hourly wages for nonsupervisory, production employees, seasonally adjusted, multiplied by 40 to be comparable to the economy-wide, weekly series. Of course, this may be misleading if there is a big difference in average hours between them, but I wanted a measure that wouldn’t be skewed by Wall Street or Silicon Valley executive salaries. And the green line, on the left scale, is real-terms GDP growth per quarter.
Growth could certainly be higher and unemployment could be going down faster, but both are going clearly in the right direction, and at least in cash-terms, wages are up. This is, in a word, recovery. It’s far from obvious from these data that it constitutes “economic royalism”, even if the economy-wide wages measure is growing faster than nonsupervisory production.
The Czech republic has been making the news recently. On the one hand the country has been on the receiving end of massive, devastating floods, while on the other the country’s government was brought to the brink of collapse (and beyond) by the resignation of Prime Minister Petr Necas following the arrest of one of his most trusted aides on corruption charges. After the deluge I suppose.
From the Bank for International Settlements Annual Report, the topic is the difficulty that central banks might face in exiting from the current stance of ultra-low interest rates and massive balance sheet expansion –
Central banks also face various political economy challenges as they consider
exiting. History has shown that monetary policy decisions are best when insulated
from short-term political expediency considerations; hence the importance of
operational autonomy. This applies with particular force in extreme conditions such
as those prevailing today. On balance, political economy pressures could make exit
harder and work towards delaying it [...] Second, central banks’ finances could easily come under strain, raising questions about their use of public money, reducing government revenues and possibly even undermining the institutions’ financial independence. The public’s tolerance for central bank losses may be quite low. (p73)
Thus, the so-called “central bank for central banks” believes that central banks are essentially just regular banks that have been given a specific mandate by the government. That may reflect a loose extrapolation from the history of central banking in the USA and UK, but it’s not correct. Karl Whelan explains here. It’s no wonder that central banking attracts so much conspiracy-theorizing when central banks themselves are so obtuse about what they do.
According to legend and some historians, by making a stand in the Thermopylae pass 300 brave Spartans valiantly saved the day for the entire Greek army in the face of a Persian force of overwhelming strength and manpower. More than 2,000 years later some 11 million Greeks might be considered to have carried out a rather similar operation by single handedly facing-off a massed horde of frantic global speculators on behalf of the entire Euro Area population – at no mean cost to themselves in terms of wealth, employment and general well-being. Or at least that is the conclusion which could be drawn from reading through the latest self-critical review issued by the IMF dedicated to the lessons which can be learned from the to-date handling of the country’s deep economic and social crisis. Continue reading
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!