The Economics Thread

[ManUtd1999]

Britain 'would be booming' if it wasn't for Brexit, Mark Carney says

http://www.telegraph.co.uk/news/2017/11/05/britain-would-booming-wasnt-brexit-mark-carney-says/

 

[Sweet Square]

Britain 'would be booming' if it wasn't for Brexit, Mark Carney says

http://www.telegraph.co.uk/news/2017/11/05/britain-would-booming-wasnt-brexit-mark-carney-says/

Er yeah not sure about that one Mark.

 

[PedroMendez]

https://economics21.org/html/fed’s-new-chair-needs-policy-rule-2672.html

 

[berbatrick]

...Their [Goldman’s equity team]2018 equity outlook just dropped.

The bull market will continue in 2018
Our “rational exuberance” rests on a combination of above-trend US and global economic growth, low albeit slowly rising interest rates, and profit growth aided by corporate tax reform likely to be adopted by early next year. Assuming tax reform passes, we forecast 2018 S&P 500 EPS will jump by 14% to $150 and the index will advance by 11% to 2850 at year-end 2018. If tax reform fails, S&P 500 will fall near-term by 5% to 2450.

The current equity market valuation is certainly stretched in historical terms but it does not appear unreasonable based on the high level of corporate profitability. The return on equity (ROE) of the S&P 500 equals 15.4%, which typically corresponds with a price/book multiple of roughly 3x. The index currently trades at a modest premium of 3.3x.

https://dealbreaker.com/2017/11/app...shiller-aneurysm-goldman-rational-exuberance/

 

[ManUtd1999]

UK faces two decades of no earnings growth and more austerity, says IFS

https://www.theguardian.com/busines...arnings-growth-budget-brexit-productivity-ifs

 

[berbatrick]

HOW DOLLAR GENERAL BECAME RURAL AMERICA’S STORE OF CHOICE

https://www.wsj.com/articles/how-dollar-general-became-rural-americas-store-of-choice-1512401992

While many large retailers are closing locations, Dollar General executives said they planned to build thousands more stores, mostly in small communities that have otherwise shown few signs of the U.S. economic recovery.

The more the rural U.S. struggles, company officials said, the more places Dollar General has found to prosper. “The economy is continuing to create more of our core customer,” Chief Executive Todd Vasos said in an interview at the company’s Goodlettsville, Tenn., headquarters.

“We are putting stores today [in areas] that perhaps five years ago were just on the cusp of probably not being our demographic,” he said, “and it has now turned to being our demographic.”

Dollar General’s target shoppers come from households earning $40,000 or less. Its primary competitor, Dollar Tree Inc., has more suburban locations and sells all items for $1, including unbranded knickknacks that attract shoppers browsing for fun. In 2015, Dollar Tree bought another competing low-price chain, Family Dollar Stores Inc. which has more urban locations.

I read this article from inside one of them

 

[MTF]

U.S. trade gap soars as imports from China hit record high

https://www.politico.com/story/2017/12/05/us-trade-deficit-china-280949

Yet another brilliant contradiction of the Trump/Republican current mess of an economic "thesis": to the extent that the tax cuts are debt-funded, unless consumers savings rate increase (lowering spending), the US being an open economy at full-employment means that the overall (government + private) deficit spending will lead to greater trade deficits.

 

[ManUtd1999]

U.S. trade gap soars as imports from China hit record high

https://www.politico.com/story/2017/12/05/us-trade-deficit-china-280949

Yet another brilliant contradiction of the Trump/Republican current mess of an economic "thesis": to the extent that the tax cuts are debt-funded, unless consumers savings rate increase (lowering spending), the US being an open economy at full-employment means that the overall (government + private) deficit spending will lead to greater trade deficits.

And it will continue to rise. Consumers won't suddenly stop buying Chinese products.

The twin deficits says hello:
http://www.frbsf.org/economic-resea...the-twin-deficits-new-approaches-new-results/

 

[Jippy]

Can't believe they use the full stops in 'US'. Also, how do we accurately measure the UK's productivity gap and more importantly, how do we fix it?

 

[ManUtd1999]

On wage growth in the US:

https://www.bloomberg.com/news/arti...t-looking-very-tight-based-on-low-skill-wages

 

[Raoul]

The Mooch has spoken....

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[ManUtd1999]

The Average 55-Plus Worker Doesn't Have Enough Retirement Savings to Live On

By the time you reach age 55, you likely have 15 years or less to go before you retire. That's why it's so troubling that the Federal Reserve's 2016 Survey of Consumer Finances found that workers between the ages of 55 and 64 had an average retirement savings balance of just $135,000, which is not nearly enough to provide the income retirees need to live in comfort and financial security.

https://finance.yahoo.com/news/average-55-plus-worker-doesn-121900603.html

The Mooch has spoken....

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Is he saying that the stock markets are rising too fast relative to GDP? I reckon that he would've a different opinion had he been still in the WH...

 

[Sweet Square]

Brilliant talk from Mark Blyth

 

[ManUtd1999]

The real price of Brexit begins to emerge

https://www.ft.com/content/e3b29230-db5f-11e7-a039-c64b1c09b482

 

[ManUtd1999]

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[donkeyfish]

https://academic.oup.com/oxrep/article/34/1-2/70/4781816

Stiglitz on modern macroeconomics.

 

[Javi]

What should we make of the growing pressure on the Fed to unload some of the 1.8 trillion mbs they bought during QE post 2008? @PedroMendez @MTF

Is the housing market overinflated?

 

[MTF]

What should we make of the growing pressure on the Fed to unload some of the 1.8 trillion mbs they bought during QE post 2008? @PedroMendez @MTF

Is the housing market overinflated?

Can you link me something on the matter? Haven't caught any of it in the headlines, and a quick google search didn't net anything. I'm probably looking in the wrong places... I'm not savvy when in comes to credit market news.

 

[Javi]

Can you link me something on the matter? Haven't caught any of it in the headlines, and a quick google search didn't net anything. I'm probably looking in the wrong places... I'm not savvy when in comes to credit market news.

I hope this source is legit: https://www.investopedia.com/insights/how-will-fed-reduce-balance-sheet/

On October 29, 2014, when Fed Chair Janet Yellen announced the end of the bond-buying program, the Fed's balance sheet had reached $4.48 trillion. By reinvesting principal payments and maturing securities, the balance sheet has remained at or about $4.5 trillion since. According to weekly data published by the Fed, its balance sheet consists of $2.5 trillion in treasuries and $1.8 trillion in mortgage-backed securities.

As economic conditions continue to improve, evident in the labor market and rising inflation, albeit gradual, the Fed faces growing pressure to address its balance sheet. In December, the Fed stated it would not begin the process of shrinking its balance sheet until "normalization of the level of the federal funds rate is well under way." When that will be, or more importantly, at what level Fed officials believe normalization is underway remains unknown. Putting this subjective notion aside, when the Fed does begin to reduce its balance sheet, it will do so in one of two ways. It can sell securities on its balance sheet, or it can choose not to reinvest maturing securities.

 

[Edgar Allan Pillow]

I hope this source is legit: https://www.investopedia.com/insights/how-will-fed-reduce-balance-sheet/

I think this talks about US Treasury Bonds, not MBS, right?

She's talking about foreign investors who hold US T-Bills and buying the liability back since economy is doing better.

 

[baskinginthesun]

The Average 55-Plus Worker Doesn't Have Enough Retirement Savings to Live On

By the time you reach age 55, you likely have 15 years or less to go before you retire. That's why it's so troubling that the Federal Reserve's 2016 Survey of Consumer Finances found that workers between the ages of 55 and 64 had an average retirement savings balance of just $135,000, which is not nearly enough to provide the income retirees need to live in comfort and financial security.

https://finance.yahoo.com/news/average-55-plus-worker-doesn-121900603.html.

I would be more curious to see how much worse this will be in 30 years when the so called "millenials" start retiring. I keep reading horror stories of us unable to save due to overwhelming costs of debt. Added to the fact there is an overall wage stagnation which doesn't help the situation.

 

[Javi]

I think this talks about US Treasury Bonds, not MBS, right?

She's talking about foreign investors who hold US T-Bills and buying the liability back since economy is doing better.

its balance sheet consists of $2.5 trillion in treasuries and $1.8 trillion in mortgage-backed securities.

 

[PedroMendez]

What should we make of the growing pressure on the Fed to unload some of the 1.8 trillion mbs they bought during QE post 2008? @PedroMendez @MTF

Is the housing market overinflated?

The Fed is currently following through with their plan to reduce their balance sheet. Both treasuries and MBS are not getting (fully) rolled over. Naturally this is a very slow process and it just started quite recently (end of last year). There is also some lag when it comes to seeing the impact on their MBS holdings due to the nature of MBS. All of that was communicated in advance to reduce volatility. Its way too early to assess the impact of this development. Additionally the leadership of the FED is changing at the moment. While that's nothing revolutionary, we'll have to wait and see who ends up on the board of governors of the FED. Regulations are also in flux and they have big impact on the matter.

Overall the economy of the US is in quite good shape at the moment. As long as growth is robust, slowly unwinding the balance sheet should be fine. I have no idea if the housing market is overinflated or not.

 

[Raoul]

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[oneniltothearsenal]

That curve on hospital services is ridiculous. Thats unsustainable. Dangerously unsustainable

 

[Raoul]

That curve on hospital services is ridiculous. Thats unsustainable. Dangerously unsustainable

Probably a good data point to argue for single payer.

Edit. As well as free college tuition!

 

[oneniltothearsenal]

Probably a good data point to argue for single payer.

Edit. As well as free college tuition!

Absolutely.

 

[MTF]

Probably a good data point to argue for single payer.

Edit. As well as free college tuition!

The demand for these goods is inelastic, so we'll make it more inelastic...?

 

[Raoul]

The demand for these goods is inelastic, so we'll make it more inelastic...?

I suppose the supply & demand issue would be somewhat taken off the table if they are partially or completely subsidized by the government ?

 

[MTF]

I suppose the supply & demand issue would be somewhat taken off the table if they are partially or completely subsidized by the government ?

The subsidy is exactly what makes the demand more inelastic. You're hoping to introduce some kind of "reverse monopoly" dynamics to the demand curve, that the government's size will mean that it can buy at better prices. Sure, sometimes... and other times when the supply curve is extremely elastic then no. You're (the government) still going to pay out the nose or not be able to offer the service to the patient/student.

I'm just always here to reject the notion that any of this is easy or obvious, or that manipulating the market in ways to achieve favorable outcomes today won't mean that its configuration is entirely ill-suited tomorrow.

On a related topic, I read today that it was "obvious" that minimum wages should be tied to inflation to protect the real purchasing power. It sounds good at first, but then you remember that because wages are the most important price in the economy, if it becomes fixed to inflation it can serve as the largest accelerator of inflation possible. And that in recovering from a potential recession, a lowering in real wages is necessary for the economy to readjust and recover.

 

[Raoul]

The subsidy is exactly what makes the demand more inelastic. You're hoping to introduce some kind of "reverse monopoly" dynamics to the demand curve, that the government's size will mean that it can buy at better prices. Sure, sometimes... and other times when the supply curve is extremely elastic then no. You're (the government) still going to pay out the nose or not be able to offer the service to the patient/student.

I'm just always here to reject the notion that any of this is easy or obvious, or that manipulating the market in ways to achieve favorable outcomes today won't mean that its configuration is entirely ill-suited tomorrow.

On a related topic, I read today that it was "obvious" that minimum wages should be tied to inflation to protect the real purchasing power. It sounds good at first, but then you remember that because wages are the most important price in the economy, if it becomes fixed to inflation it can serve as the largest accelerator of inflation possible. And that in recovering from a potential recession, a lowering in real wages is necessary for the economy to readjust and recover.

Wasn't that the entire point behind (for example) Obamacare ? Create a government managed pool of subscribers that helps to drive down costs by way of more participants = more diluted costs to the end user ? If it works in that regard then when couldn't it work in education and elsewhere ?

(Note: I realize that Obamacare costs are higher than what they were originally supposed to be, which is a result of not making the penalties for the individual mandate not high enough so that more people are encouraged to participate, but that's another topic).

 

[oneniltothearsenal]

The subsidy is exactly what makes the demand more inelastic. You're hoping to introduce some kind of "reverse monopoly" dynamics to the demand curve, that the government's size will mean that it can buy at better prices. Sure, sometimes... and other times when the supply curve is extremely elastic then no. You're (the government) still going to pay out the nose or not be able to offer the service to the patient/student.

I'm just always here to reject the notion that any of this is easy or obvious, or that manipulating the market in ways to achieve favorable outcomes today won't mean that its configuration is entirely ill-suited tomorrow.

The education and health care markets are already being highly manipulated by for-profit organizations to protect their high profit margins.
For education for instance the entire text book industry is a hustle and a scam.

 

[MTF]

The education and health care markets are already being highly manipulated by for-profit organizations to protect their high profit margins.
For education for instance the entire text book industry is a hustle and a scam.

And when the government becomes the hypothetical sole purchaser, they won't be highly manipulated because...?

 

[oneniltothearsenal]

And when the government becomes the hypothetical sole purchaser, they won't be highly manipulated because...?

Far less manipulation I see in universal healthcare in Japan, Australia, etc than I see in the completely nonsensical HMO system the States have now.

Every universal healthcare system has at least 10% less administrative costs (waste) than the US system.

Here you can look at why. Hard to imagine any health care system that is more inefficient tbh
https://www.theatlantic.com/magazin...american-health-care-killed-my-father/307617/

 

[berbatrick]

And when the government becomes the hypothetical sole purchaser, they won't be highly manipulated because...?

You stop treating them as commodities, but as services or rights.
The "manipulation" to the supply-demand curve in healthcare is caused by people wanting to not die, which means demand for most services should be price-inelastic.

 

[Abizzz]

The subsidy is exactly what makes the demand more inelastic. You're hoping to introduce some kind of "reverse monopoly" dynamics to the demand curve, that the government's size will mean that it can buy at better prices. Sure, sometimes... and other times when the supply curve is extremely elastic then no. You're (the government) still going to pay out the nose or not be able to offer the service to the patient/student.

I'm just always here to reject the notion that any of this is easy or obvious, or that manipulating the market in ways to achieve favorable outcomes today won't mean that its configuration is entirely ill-suited tomorrow.

On a related topic, I read today that it was "obvious" that minimum wages should be tied to inflation to protect the real purchasing power. It sounds good at first, but then you remember that because wages are the most important price in the economy, if it becomes fixed to inflation it can serve as the largest accelerator of inflation possible. And that in recovering from a potential recession, a lowering in real wages is necessary for the economy to readjust and recover.

While this is true for the overall earnings those wages earned at minimum wage are a (tiny) fraction of the overall earnings in a developed economy, hence it can't be the "largest accelerator". A lowering in real wages is not necessary for a recovery if productivity or demand is increased (depending on the reasons for the recession).

 

[berbatrick]

[...]under capitalism firms can increase their profits by efficiently producing things people want. But they can also increase them by immiserating their workers, despoiling the environment, defrauding consumers, or indebting the populace. How do you obtain one without getting the other?


The standard answer to this dilemma is what you might call the social democratic solution: let firms pursue their private profits, but have the state intervene case by case to forbid them from doing so in socially harmful ways. Ban pollution, give rights to workers, forbid consumer fraud, repress speculation. This agenda is nothing to sneeze at. The social theorist Karl Polanyi saw it as part of what he called the long “double movement” that had been underway ever since the industrial revolution. Polanyi argued that liberal capitalism had always been pushed forward by a drive to turn everything into a commodity. Because it required that production be “organized through a self-regulating mechanism of barter and exchange,” it demanded that “man and nature must be brought into its orbit; they must be subject to supply and demand, that is, be dealt with as commodities, as goods produced for sale.”

But that commodifying drive had always produced its dialectical opposite, a countermovement from society below, seeking decommodification. Thus, Polanyi’s double movement was “the action of two organizing principles in society, each of them setting itself specific institutional aims, having the support of definite social forces and using its own distinctive methods”:

The one was the principle of economic liberalism, aiming at the establishment of a self-regulating market, relying on the support of the trading classes, and using largely laissez-faire and free trade as its methods; the other was the principle of social protection aiming at the conservation of man and nature as well as productive organization, relying on the varying support of those most immediately affected by the deleterious action of the market — primarily, but not exclusively, the working and the landed classes — and using protective legislation, restrictive associations, and other instruments of intervention as its methods.

After the Second World War, the pressure of the countermovement made decommodification the unacknowledged motor of domestic politics throughout the industrialized world. Parties of the working class, acutely vulnerable to pressure from below, were in government more than 40% of the time in the postwar decades — compared to about 10% in the interwar years, and almost never before that — and “contagion from the Left” forced parties of the right into defensive acquiescence. Schooling, medical treatment, housing, retirement, leisure, child care, subsistence itself, but most importantly, wage-labor: these were to be gradually removed from the sphere of market pressure, transformed from goods requiring money, or articles bought and sold on the basis of supply and demand, into social rights and objects of democratic decision.

This, at least, was the maximal social-democratic program — and in certain times and places in the postwar era its achievements were dramatic.

https://www.jacobinmag.com/2012/12/the-red-and-the-black

 

[MTF]

While this is true for the overall earnings those wages earned at minimum wage is a (tiny) fraction of the overall earnings in a developed economy, hence it can't be "largest accelerator". A lowering in real wages is not necessary for a recovery if productivity or demand is increased (depending on the reasons for the recession).

The minimum wage is a benchmark for many other wage negotiations / adjustments, so its effect is usually much wider than just the labor that is employed at the minimum rate.

A lowering in real wages is the most common adjustment in recessionary economies, and usually a healthy one:

https://www.imf.org/external/pubs/ft/wp/2015/wp15229.pdf

This paper argues that the sharp increase in unemployment in a number of advanced countries during the Great Recession was not just cyclical (the result of a lack of aggregate demand); the degree of adjustment of real wages and the impact this had on labor productivity also played a role. In many countries, post-2007 employment losses were modest, as real wages adjusted when the economy slowed down. But in some countries real wage growth stayed too high for too long. The result was large-scale labor shedding, which boosted labor productivity but also contributed to a sharp rise in unemployment. In this context, the paper discusses the different experiences of the UK (where employment increased) and Spain (where it fell sharply), and finds that almost two thirds of the employment losses in Spain resulted from the failure of real wages to adjust adequately.

 

[Abizzz]

https://www.jacobinmag.com/2012/12/the-red-and-the-black

Thanks for posting that, a very interesting read so far (managed the first 12 paragraphs or so but will need to return to it). I didn't know about Jacobin (that's how one refers to it I guess?), but I will read more!

 

[berbatrick]

Thanks for posting that, a very interesting read so far (managed the first 12 paragraphs or so but will need to return to it). I didn't know about Jacobin (that's how one refers to it I guess?), but I will read more!

TBH this is probably my favourite article from them...so I don't expect other random ones to be as good