Archive for the ‘economics’ Category

Piketty and immigration

July 15, 2014

Just finished Piketty’s Capital in the 21st Century. His central claim is that the ratio of capital/labor increases as economic growth decreases because the rate of return for capital remains constant, and, he claims further, the growth rate will decline through the rest of the century as the population rate (the rate, not the absolute population) declines.

He recommends a tax on wealth/capital. But if he’s right that the rate of growth will decline ceteris paribus, seems to me his wealth tax is not the only option: opening the borders should slow wealth inequality. Open borders w/naturalization would also counterbalance the political influence of wealth, Piketty’s underlying complaint against wealth accumulation.

His tax could happen in Europe, but not likely here in the US. How would a push for immigration fare as a means to grow the economy? With an alliance of business with immigrants? After all, Piketty’s prediction is a ratio, not an absolute quantity of wealth or its buying power. r>g holds when g increases, even though the ratio of wealth-income decreases. It would be a win-win for business and immigrants. It should not hurt unions in the long run either, although in the short run it might hurt a lot. 

China’s economy

December 28, 2013

I’m reading Beardson’s new book on China’s economy. He observes that when the RMB rose against the dollar (2005-8), exports increased faster than imports, counterintuitively (and contrary to US wishes). Beardson attributes it to squeezing more productivity out of labor. He also reports that the Chinese banks, government controlled, lend mostly to government enterprises, devoting itself to infrastructure in the recession, far more than to the private sector, yet the private sector throve. It’s a picture of a resilient private sector independent of the political superstructure.

A young economy grows despite parental constraints. Reminds me of a passage in Smith comparing England’s aging economy with the American colonies’ youthful growth, except that colonial growth included high wages and full employment. That would change dramatically in industrialization and the immigration it depended on. China has the rough equivalent in the migration from the land to the manufacturing centers.

Trust a business man, who depends for his success on reality, to get the facts comprehensively and in depth. I find it difficult to trust critics, promoting their reputations on personal theories and selecting facts to dress them up; or utopian reformers and revolutionaries, viewing only blood and hope through their rose lens; and economists, most of whom undermine their credibility by their entrenched partisan polarization (I exempt Eichengreen and Cooper); and the journalists who, as outsiders, look at the economy almost as anthropologists studying exotic behavior. Reading Beardson is like getting advice on pianos from a tuner. Not the whole story, but a lot better than anyone esle that’s mongering them or themselves.

Fear of the Fed

July 7, 2013
At a recent Occupy Alt Bank (Occupy’s Alternative Banking think tank) there was this exchange.
‘Banks find ways to skirt any regulation whatsoever,” said one member.
“Jailing the CEOs will curtail their risk behavior,” replied another.
I wondered: “They can’t be jailed for skirting the law unless they break it. But there is a way to curtail risk outside regulation and law entirely — the Fed.”
Both Barry Eichengreen and George Cooper, independently and from different political perspectives, came to the same conclusion, and even Greenspan in effect admited this: the Fed encourages risk through stabilizing the economy, broadcasting its intentions to keep the money flowing. If the Fed (I know, I know, it’s counterintuitive and sounds just awful) were less transparent, played its cards closer to its chest, and threatened to tighten money suddenly and by surprise, letting a few excessively risky institutions fall off the cliff, the banks would learn a piece of Old Testament Fear of the Fed. (more…)

At what price?

June 7, 2013

It’s supposed to be well-established that commodity prices are the inverse of interest rates. Interest rates are as low as they can be and luxury housing prices in NYC are high, for example, and the stock market is flying too. But the rest of the economy is not wildly inflated. Why?

Easy money (low interest rates) flows into commodity inventories (we saw that leading up to the Arab Spring), on the one hand, and on the other, it curbs extraction of new resources and commodities because the low interest rates reduce their monetization, or so the theory goes. Yves Smith posted on it back in 2008:

http://www.nakedcapitalism.com/2008/03/falling-interest-rates-explain-rising.html
Here are the originals:
http://www.hks.harvard.edu/fs/jfrankel/CP.htm
http://www.hks.harvard.edu/fs/jfrankel/CampbellM&CPnberNov.pdf
http://www.federalreserve.gov/pubs/ifdp/2012/1065/ifdp1065r.pdf

That easy money/low interest rates leads to inflation has been orthodoxy since Friedman at least. It was Volcker’s successful program to curb inflation by increasing interest rates, causing a recession, and Bernanke’s opposite strategy to take us out of recession, allowing inflation. But it also has a specific reflex in commodity prices. QE2 caused a global price hike in food prices as investors left the dollar for commodities, that caused the Arab Spring. Not exactly what Bernanke anticipated. His response was washing his hands: other nations have to deal with their own inflation, he quipped, cynically, I thought.

Hayek

May 22, 2012

Hayek became something of a hero to Libertarians for presenting the strongest possible arguments against government intervention in the free market and in particular against government redistribution of wealth. But even in The Road to Serfdom he advocates for a social safety net. Recently a few bloggers have tried to make sense of this apparent contradiction, including the estimable Matt Yglesias.

Kevin Vallier thinks that there’s a difference between welfare conducted by an administration or by law, but since laws are created by administrations, it’s hard to see the line between the two, and I haven’t noticed that Hayek himself drew it. On the other hand, Vallier does object to Hayek’s frequent slippery slope arguments as running together the conceptual with the empirical. “Slippery slope” understates the character of Hayek’s approach. He doesn’t object to a mere conceptual possibility opening a possible pathway, he argues that the slopes are necessarily slippery. At several points in the Road to Serfdom he provides compelling arguments that any least gesture towards government intervention in redistribution, for example, leads inevitably to totalitarianism. There is in his responses an element of defensive alarmism evident not only in his general concern but commensurately in the extremity of his argument.

A defensive call  serves a useful purpose, even if it isn’t always a coherent program. That’s also consonant with his views on uncertainty, which undermine program. So I’m with Yglesias on this. Besides, it’s easy to accuse Hayek of inconsistency when he himself rejected consistency as a program.

dismal complaint

March 2, 2012

Naked Capitalism posts an interview The New Priesthoodwith Yanis Varoufakis, a Greek economist who currently heads the Department of Economic Policy at the University of Athens, in which he criticises economics as self-reflexive and unfalsifiable because economists won’t commit to factual prediction of the economic weather.

Whatever troubles the field, his criticism can’t be it.

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