On policy, we find US labour taxes are amongst the highest in the world if you include medical costs, US roads are falling apart, but the robots are rising and IMF needs to be reformed. On growth, avoiding the Japan trap, why trade tariffs are bad and the issue with minimum wages. On markets, credit ratings and structure finance, and how the end of fossil fuels will hurt markets. Finally check out the new 50 cent coin in Australia at the bottom.
Fiscal and Taxes
US Workers Are Highly Taxed If You Count PremiumsIf you include medical insurance payments that Americans effectively have to pay (so it is really a tax), Americans end up with the highest labour tax rates in the developed world. [I’ve always suspected this]
The IRS Tried to Take on the Ultrawealthy. It Didn’t Go Well. Ten years ago, the tax agency formed a special team to unravel the complex tax-lowering strategies of the nation’s wealthiest people. But with big money — and Congress — arrayed against the team, it never had a chance.
All in the Family DebtHow Neoliberals and Conservatives Came Together to Undo the Welfare State
Fiscal Multipliers in Advanced and Developing Countries: Evidence from Military SpendingClever Boston Fed paper that uses military spending data for 129 countries. Finds an average fiscal multiplier of 0.75-0.85. It’s much larger during recessions (1.7) and smaller in expansions (0.3)
Investment and Productivity
US Robot Density Now More Than Double That of ChinaRobot sales in the United States hit a new peak of almost 38,000 units, setting a record for the eighth year in a row (2010-2018)
47,000 U.S Bridges in Poor Condition & Pace of Repair Slows to Crawl Official annual report on US reports [I’m not surprised]
The Price of Capital Goods: A Driver of Investment Under Threat?“the decline in the relative price of tradable investment goods has provided sizable impetus to the rise in real investment rates in capital goods over the past 30 years. The decline in the relative has been driven by faster productivity growth in the capital-goods-producing sector and rising trade integration.”
The Keynesian Growth Approach to Macroeconomic Policy and ProductivityMacroeconomics views trend productivity growth is the outcome of technological and institutional factors, unresponsive to business cycles or monetary policy actions. This NY Fed piece argues that demand also matters.
Business Cycle and Labour Market
Global Growth Forecasts Shift Downward—What’s Behind the Numbers and Why It MattersA good analysis of the current slowdown with some good charts.
How Western Economies Can Avoid the Japan TrapGood summary of the Japanification theme by Mohamed El-Erian
Hidden Costs of the Minimum Wage“a recent college graduate with a barista job may get a few more dollars an hour, but the high school dropout finds it harder to get and keep a job. Those who have the least to offer employers, might need more training, or are the biggest risks to hire will face the toughest challenges.”
Moving Macroeconomic Analysis beyond Business CyclesRichmond Fed breaks down economic fluctuations into four types: a short-term component (cycles of less than two years), a business cycle component (cycles between two and eight years), a medium-term component (cycles up to thirty-two years), and a long-term component (the trend).
Why rent matters Land and money are two of the most neglected concepts in economic theory. The piece looks into the effects of high rent on the economy.
Drivers of Bilateral Trade and Spillovers from TariffsIMF work finds that fundamental factors, such as demographics, macroeconomic policies, in particular fiscal policy and credit cycles; and—in some cases— exchange rate policies drive bilateral trade balances. Tariffs have little influence on them in recent decades.
Markets and Investing
Credit ratings and structured financecolumn looks at the incidence of credit rating inflation when a credit rating agency both designs and rates securities.
Hedging Climate Change NewsAuthors use textual analysis of news that relates to climate change and then finds portfolios that hedges against climate change news.
A Future Without Fossil Fuels? “In the 2020s, the demand for fossil fuels will stop growing. The turning point in such transitions ‘is typically the moment when the impact is felt in financial markets’—when stock prices tumble and never recover.”
Downside Risks to House PricesIMF comes up with house-prices-at-risk measure. It deteriorates in response to changes in fundamental factors, which include tightening of financial conditions a decline in real GDP growth, and higher credit growth. It also worsens with greater house price overvaluation—a measure of deviation from fundamentals. [they don’t show the measure for individual currencies, except for a few, which is a shame]
Institutions and Industrial Policy
The IMF at 75: Reforming the global reserve systemColombian central banker reviews the IMF system and argues that the funds “currency” SDRs should be deployed more actively to manage the global cycle.
The Return of the Policy That Shall Not Be Named: Principles of Industrial PolicyIMF pivots and supports industrial policy. They find “three key principles behind success: (i) support of domestic producers in sophisticated industries, beyond the initial comparative advantage; (ii) export orientation; and (iii) the pursuit of fierce competition with strict accountability.”
A Late Maoist Industrial Revolution? Economic Growth in Jiangsu Province (1966–1978) “we should dwell neither on China’s slow overall growth nor its widespread poverty before 1978 but look instead for evidence of an emerging regional growth pole Jiangsu was such a growth pole in the late Maoist era, and …compares with that of Lancashire and Yorkshire during the early years of Britain’s industrial revolution”
Curbing CorruptionIMF does deep dive on corruption and suggests ways in which policymakers can reduce vulnerabilities to corruption.
The Major Contributions of the Scholastics to EconomicsAlternative view that much economic theory didn’t start with Adam Smith but with medieval scholars.
How does the strength of monetary policy transmission depend on real economic activity?Finds the bank credit channel is especially important in low growth environments.
Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock Tapering announcement negatively affected growth prospects regardless of the level of anchoring, but EM countries with weakly anchored inflation expectations experienced larger exchange rate pass-through to consumer prices
Hints of Eurozone Reintegration There are now tentative signs of a pickup in cross-border financial asset holdings, led by an increase in lending.
BigTech and the changing structure of financial intermediationBigTech firms often start with payments. Thereafter, some expand into the provision of credit, insurance, and savings and investment products, either directly or in cooperation with financial institution partners.
What Would It Take to Implement Cain’s Gold Standard, Interest-Rate-Wise?Fed funds would have to be much higher than today’s rate
Unveiling the effects of macroprudential policies: The IMF’s new iMaPP databaseThe IMF’s new iMaPP database integrates five major existing databases to build a comprehensive picture of macroprudential policies in use globally.
The eclipse of the European Union’s global influenceNot sure the EU ever had much global influence, but argues that current Euro-sceptic populism within the EU and a challenged US relationship is reducing the influence of the EU.
The New-Old GlobalizationThe European Union is increasingly divided over how best to manage economic relations with an increasingly outward-looking China.
Asia Power TrendsLooks at 10 trends, including “Trump Factor”, “Rising Geostrategic Risk” and “Techlash”
Austerity caused BrexitThe blog uses regional-level data on spending and voting behaviour, as well as individual-level survey data, to argue that the austerity policies in place in the UK since 2010 were an important contributing factor to the vote to Leave.
The Revolt Against VirtueThe assumption of virtue among those who count themselves as progressive may help to explain the popularity of right-wing agitators.
International Relations Theory Doesn’t Understand CultureThe main schools of thought still cling to an outdated understanding of how civilizations work.
Liberalism: the other God that failed “ Liberalism may be the other God that failed, but for liberals themselves their vision of the future is a deus absconditus, mocking and tormenting them as the old freedoms disappear from the world.”
Justin Trudeau Falls From GraceMany like to compare Trump to Trudeau, but this article shows that all is not well in Canada.
The 14 Indigenous words for money on Australia’s new 50 cent coin Includes wumara, wangarri, gudaru and boya. [I didn’t realise Australia had so many indigenous languages]
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