Some excellent articles on politics this week including one on how populism has actually been on the rise since the 1980s and another on how governments could suppress dissent on social media. There’s a bunch of good outlooks and risk scenarios for 2019. A good article on the evolution of Warren Buffet investment style. Some useful pieces on yield curves and growth across G7. And some fascinating pieces on China. Enjoy.
Just blow it all up? “In addition to the split between the left and the right, there’s also a split between people who favor incremental change and those who want to “blow it all up.”
How the IRS Was Gutted An eight-year campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government. That’s good news for corporations and the wealthy.
Machine Politics “We especially need to grapple with the fact that today’s right wing has taken advantage of a decades-long liberal effort to decentralize our media” Great read and looks at historic examples of the government trying to regain control of the media narrative. Very good read
Brexit Could Drastically Change English Soccer End of free movement of labour could mean much less foreign players (see charts)
The Global Economics of European Populism: Growth Regimes and Party System Change in Europe Excellent read. Argues that populist movements actually started in the 1980s as the macro regime of the post-war period moved from pro-labour to pro-capital. The GFC accelerated the rise of populism and showed that mainstream parties offered similar policies that catered to the holders of capital (the 1%). Worth reading with: The Political Roots of Falling Wage Growth New findings from the International Labor Organization show that workers across many advanced and emerging economies continued to miss out on the gains from growth in 2017. Rather than usual suspects – trade and technology – the author argues that policies undermining labour rights are the cause.
Liberalism and Conservatism, for a Change! Rethinking the Association Between Political Orientation and Relation to Societal Change The stereotype is that liberal support social change and conservatives support the status quo. This study in Germany shows that both groups accept change depending on whether they agree with the status quo or not.
The Soviet economic collapse: New evidence on the potentially harmful effects of state breakup Using data from the breakup of the Soviet Union, this column studies the short-run economic costs of its collapse. It demonstrates how political disintegration can lead to the dissolution of trade links, and to a correspondingly large fall in output. In the Soviet case, this mechanism helps to explain the disappointing performance of its successor states in the 1990s. The uncertainty surrounding secessions is an important driver of the fall in present output.
2018 Reviews and 2019 Outlooks
Fire, Floods and Famine: The Pessimist’s Guide to 2019 A description of everything that could go wrong on the weather and food side in 2019
Finance Twitter: The 50 most important people for investors to follow Good list, especially Wu-Tang Financial J
Fine Wine Outperformed Global Equities in 2018 At least something has gone up.
Prediction vs. Preparation Useful and more practical way of thinking
Does Anyone Care About Year-Ahead Outlooks? Seems like no-one believes, but everyone expects them
8 Questions As We Head Into Year End Includes “Is it becoming a contrarian position to be optimistic about the future?”
MARKETS and INVESTING
What You Can Learn From How Warren Buffett’s Investment Process Evolved He has moved from an excellent securities analyst to a an excellent business analyst
How the Press Covered the Panic of 2008 It didn’t. Surprising read.
Fun with Forecasting, 2018 edition! Roll call of bad calls including bitcoin to the moon ones.
Can virtual currencies challenge the dominant position of sovereign currencies? Analyses why private money has historically failed in competition against sovereign currencies and what it means for modern virtual currencies, such as Bitcoin. In the end, people trust governments more than private entities that issue currency.
A Surprising Push By The Invisible Hand: Why More Companies Are Doing Better By Being GoodLooks like such companies are outperforming those that don’t “do good”
Oil Prices and Inflation Contrarian take on oil and inflation “we are told, increasing crude oil prices push inflation up and decreasing crude prices push inflation down (or prevent it from increasing). This just one instance of the widespread intuition that the change of a particular price adds to, or subtract from, inflation.”
Expectations’ Anchoring and Inflation Persistence IMF paper provides an empirical assessment of the influence of inflation expectations’ anchoring on the persistence of inflation. They look at survey-based inflation forecasts for 45 economies starting in 1989. They look at the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. They find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.
Monetary Policy under Data Uncertainty Counterintuitively finds that central banks adjust interest rates LESS gradually in the face of more data uncertainty”
Economics: The Discipline That Refuses to Change “Behavioral economics upended the idea that humans act solely in their rational self-interest. So why do most undergrads barely learn anything about the field?”
Do People Donate Money to Signal Their Intelligence? Research suggests such a connection when donations are publicized
Beyond WEIRD Psychology: Measuring and Mapping Scales of Cultural and Psychological Distance Most psychology studies use western, educated, industrialized, rich, and democratic (WEIRD) subjects. This study looks at how culturally close other countries are to the US (and China). Chart bellows shows Canada, Singapore and Australia are very close, while Egypt, Yemen and Azerbaijan are far apart:
Imminent Yield Curve Inversions? Around the world, some 10 year-3 month government bond yield spreads are shrinking.
News does explain yield curve changes News affects the yield curve, but OLS regressions based on observed news have been able to explain only 40% of the movement, at best. This column proposes a method for estimating unobserved news as well. The results suggest that news explains more or less all of the yield curve changes in event windows, and that more should be done to understand the economics behind this relationship.
The Ups and Downs of the Gig Economy, 2015–2017 Using the Survey of Informal Work Participation that is conducted each December as part of the Survey of Consumer Expectations, this paper assesses changes in informal work activity across 2015, 2016, and 2017 to investigate whether participation in the gig economy increased or decreased as the unemployment rate fell and other labor market indicators also improved.
Credit booms and information depletion Credit booms are perceived to fuel resource allocation and often end in crises that are followed by protracted periods of low growth. This column investigates the macroeconomic effects of credit booms using a new theory of information production. The theory predicts that when the economy enters a collateral boom, the price of collateral rises and lenders rely more on collateralisation and less on information-producing screening of entrepreneurs. Empirical evidence based on US data confirms the model’s predictions.
Value chain activity in the age of changing trade alliances In a world where trade policies and trade alliances are changing, global value chains are likely to be affected, with implications for policymakers seeking economic development through value chain integration.This column combines information on the value-added decomposition of gross exports with information from the World Bank’s Content of Preferential Trade Agreements Database to examine which policy mixes are more conducive for value chain activity. Value-chain players are found to prefer more integrated regions.
Control without responsibility: The legal creation of franchising 1960-1980 Good summary of franchising history
Mapping the Subprime Car Loan Crisis A new tool by the Urban Institute maps the geography of car loan debt and delinquency. Nice maps
Universal Basic Income: Debate and Impact Assessment IMF paper discusses the definition and modelling of a universal basic income (UBI). After clarifying the debate about what a UBI is and presenting the arguments in favor and against, an analytical approach for its assessment is proposed. The adoption of a UBI as a policy tool is discussed with regard to the policy objectives (shaped by social preferences) it is designed to achieve. Key design dimensions to be considered include: coverage, generosity of the program, overall progressivity of the policy, and its financing.
China has never had a real chip industry. Making AI chips could change that. The country has struggled for decades to build a competitive semiconductor industry. In making specialized AI chips, though, it’s got a head start. Worth reading with: China’s Efforts to Build the Semiconductors at AI’s Core As U.S.–China tensions escalate, China’s project to develop independent tech takes shape
The world can rest easy, as there is nothing to fear from the Chinese government’s ‘Made in China 2025’ industrial plan China will spend US$100 billion less than budgeted for R&D in the five years ending 2020, missing the government’s target
China introduces ‘social’ punishments for scientific misconduct Offending researchers could face restrictions on jobs, loans and business opportunities under a system tied to the controversial social credit policy. Uh oh.
Prospects for US-China Relations in 2019 Former Australia PM Kevin Rudd: “China’s leaders will attempt to re-stabilize bilateral ties and ease tensions in its non-US relationships. At the same time, they are likely to use the next year to form a deeper judgment about the future of US politics and foreign policy.”
My Experience of the Chinese Legal System – An Innocent Almost Felon Abroad Almost humorous account of a Westerner getting embroiled in the Chinese legal system.
China’s High Savings: Drivers, Prospects, and Policies From IMF: “Today, high savings mostly emanate from the household sector, resulting from demographic changes induced by the one-child policy and the transformation of the social safety net and job security that occurred during the transition from planned to market economy. Housing reform and rising income inequality also contribute to higher savings. Moving forward, demographic changes will put downward pressure on savings. Policy efforts in strengthening the social safety net and reducing income inequality are also needed to reduce savings further and boost consumption.” Good overview of state of the union in China with good charts/
Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China IMF paper looks at the impact of highway expansion on aggregate productivity growth and sectoral reallocation between cities in China. Working with unique data, finds that highways promoted aggregate productivity growth by facilitating firm entry, exit and reallocation. Also found evidence that the national highway system led to a sectoral reallocation between cities in China.
Testing the resilience of Europe’s inclusive growth model McKinsey report: “The combination of six global megatrends is increasing the stress on Europe’s inclusive growth and the EU social contract.”
Does the Eurogroup’s reform of the ESM toolkit represent real progress? “The deal reached on euro-zone reform at the December 4th Eurogroup is not ground-breaking. However, it contains a number of incremental but potentially key technical reforms – in particular regarding the ESM toolkit. Some constitute an improvement, but there are also clear flaws that should be corrected at the Euro Summit.”
Europe in Disarray Pessimistic take from US foreign policy expert. “In what by historical standards constitutes an instant, the future of democracy, prosperity, and peace in Europe has become uncertain. And with the US under President Donald Trump treating its allies like enemies, the continent must confront the growing threats it faces largely on its own.”
Trade Uncertainty and Investment in the Euro Area IMF paper find that countries that are relatively more dependent on global trade networks exhibit a higher sensitivity of investment with respect to trade uncertainty. The analysis suggests “that the detrimental effect of trade tensions goes beyond lower trade growth, as uncertainty can reduce investment and the economy’s long-term growth potential.”