In case you managed to miss it, there’s been a fair bit of hand-wringing over the fact that Japan has fallen back into a recession despite the supposedly heroic intervention called Abenomics, whose central feature was QE on steroids.
But Japan of all places should know that relying on the wealth effect to spur growth has always bombed in the long term.
Read more...Yves here. Italy provides an intriguing example of how austerity inflicts damage on businesses. Here, one of the ways that the government is making its fiscal deficit look better is by paying companies that provide services to it slowly, or not at all.
Read more...Yves here. Understandably, US reporting on the just-finished APEC summit focused on Obama’s objectives and supposed achievements. Russia has historically not been a major force in the region and thus received less coverage here. It was therefore surprising to see our man in Japan Clive tell us that Japanese media coverage of Putin at APEC was on a par with the column-inches given to Obama.
On Real News Network, Michael Hudson describes how Putin is shifting Russia’s export focus and economic alliances towards Asia, particularly China. Putin did better at the APEC summit than most Western sources acknowledge, and that could have longer-term ramifications for the US.
Read more...Yves here. This brief post by Doug Short is even more important than it appears to be. We had an outburst of neoliberal orthodoxy in comments yesterday on a post that discussed how wealth of most households had fallen since 1987. Some readers assigned blame for stagnant average worker wages (which was a big contributor to the lack of growth in household wealth) to immigrants, particularly Mexicans and H1-B visa workers.
The Doug Short chart below looks at corporate profit share versus labor share. This pinpoints the degree to which wage stagnation is the result of corporate managers and executives succeeding in cutting the pie to favor themselves (executive pay has become increasingly linked to stock prices, and relentless focus on short-term earnings, as well as stock buybacks, do wonders for earnings per share).
Read more...Yves here. In case you harbored any doubts, the International Energy Agency (IEA), feels compelled to remind the consuming public that our current bout of cheap oil prices won’t be with us for all that long.
Read more...Yves here. This Real News Network interview on the results of the latest Survey of Consumer Finances paint a picture familiar to most readers: the rich are becoming richer while those with less wealth are falling further and further behind.
David Rosnick of CEPR makes an important observation in passing. The decline in the position of typical households is even worse the the Consumer Finances survey indicates. In 1989, many workers had pensions. Far fewer do now. The value of pensions isn’t included in these surveys due to the difficulty of determining what they are worth on a current basis. But they clearly are significant assets that relatively few working age people have now.
Read more...Yves here. As Elizabeth Warren inches to the left on overall economic policy, one wonders if she’s actually shifting her views or responding to Hillary Clinton trying to rebrand herself as a populist. In fairness to Warren, it’s difficult not to be deeply inculcated in flawed economic thinking and thus hostage to false ideas like “We depend on China and Japan to finance our federal spending.” I look at my pre-crisis coverage and am embarrassed to see that sort of idea treated as obviously true. But if nothing else, the shift in Warren’s stance may be a sign that the Overton window is moving a smidge away from the right. After all, a big reason the Republicans so badly trounced the Dems in the midterms wasn’t just Democratic party fecklessness, but also that the Republicans kept their Tea Party extremists well out of the limelight and toned down the anti-women, anti-gay (and outside the border states) the anti-immigrant rhetoric. That actually amounts to a shift to the center, even if more for show than for real.
Read more...Yves here. Established Naked Capitalism readers may recall that Ed Harrison was a regular and much appreciated contributor to the site, particularly in 2009 when I was on partial book leave writing ECONNED. Ed now focuses more on writing premium content, as well as producing RT’s Boom and Bust. But he is now posting occasional pieces on his non-subscription site, and has graciously allowed us to post them from time to time.
This article is a more systematic work-up of something that we’ve discussed short form and Wolf Richter has also written up: that of the dependence of the shale oil boom on reasonably high oil prices as well as cheap financing. And as predicted, shale oil producers have shut marginal wells, and even majors are cutting back on oil production.
Read more...Yves here. I must confess to not being anywhere near as on top of Australian politics as I’d like to be, and I have a great deal of difficulty understanding the ascendancy of Liberal leader and now Prime Minister Tony Abbott, save that in a parliamentary system, who winds up on top often has more to do with infighting skills than real leadership. This post shows that the latest Abbot scheme for addressing youth un and under employment is a serious contender for Worst Neoliberal Post-Crisis Policy Evah. And recall it has QE as a competitor. So this post serves to launch a watch for Really Horrid Neoliberal Policies so we can start creating a taxonomy, which helps in making fun of them.
For starters, how smart is it to throw young people under the bus in an economy that has become almost entirely a real estate one trick pony? Where is household formation going to come from, exactly? Chinese investors and Chinese-driven extraction boom have both provided a big lift to Oz over most of the last decade. Deflation across non-agricultural commodities is a strong tell that that game is past its sell-by date.
One of the things I noticed briefly about Australian policies when I lived there is that they were weirdly bimodal, as in either really well thought out or terrible. This was confirmed by some Canadian policy wonks I met who said when they were looking for policy ideas from other countries, they’d look at Australia first because they were most likely to have gotten it right. The new Abbott policy suggests that capability is being destroyed.
Read more...Yves here. There is a solution of sorts to the problem of the “competitiveness” of Eurozone periphery countries, which is for them to lower wage rates to improve their terms of trade. Unfortunately, that still does not resolve the issue of needed to import other inputs, like energy and sometimes raw materials, at Eurozone-wide price levels. And the response to crushing wages (or the super high unemployment that results from not being able to “adjust”) is that the people most able to leave, which is usually the young and best educated, depart.
Read more...straining the economic foundations of the Eurozone, are increasingly spilling over into the political realm. While it isn’t at all clear how this plays out, it is important to remember that the citizens of most European countries are far more willing to engage in collective action, particularly protests, than Americans are. And this propensity has the potential to be more effective than here since political and economic activity is concentrated in comparatively few major cities, while both the population as a whole and power centers are more dispersed in America. Don Quijones gives an update on how centrifugal forces are playing out in Spain.
Read more...Yves here. With an active US effort to isolate Russia, which Russia is seeking to undermine (with only limited success so far) in strengthening ties with China and other emerging economies, most analysts have seen the geopolitical struggle in terms of short-term effects, such as on Russia’s and Europe’s growth rates over the next year. At the same time, the Chinese initiative to create a development bank, meant to rival the World Bank, is seen by many as an important step in breaking the dollar hegemony, along with moves by China and Japan to enter into oil contracts denominated in currencies other than the greenback.
As we’ve discussed in previous posts, we believe the frisson over the demise of the dollar as the world’s reserve currency is greatly overdone. As much as the US is abusing its role, particularly in its aggressive use of its influence over the dollar payments system as a weapon, there are simply no viable candidates for replacement on the horizon.
However, this post examines a consequence of US economic aggression against Russia that has not rceived the attention that it merits: that of reducing the amount of international trade, something economists see as a driver of growth. Note that per the Lipsey Lancaster theorem, there is ample reason to doubt the near-religious belief that more open trade is always a good thing. However, sudden restrictions in trade, which is what is taking place with US/European sanctions on Russia and Russia implementing counter-sanctions, is certain to cause short-term dislocations. And as we noted in a recent post, the cordon sanitaire being placed around Russia will led it to operate more as an autarky, which may not necessarily be a negative in the medium to long term.
This post seeks to identify the impact of reduced trade between Russia and Europe. This sort of analysis could become more germane going forward. While a currency rival to the dollar any time soon looks to be far-fetched, ever-more obvious US economic imperialism may lead other countries to strengthen trade ties among themselves to the detriment of the US, or like Russia, to move to greater self-sufficiency as a defensive measure. While economists assume that our current open trade system could never be rolled back, that was the tacit assumption during the last great era of open trade, the period right before World War I. The Great War put that all in rapid reverse gear. While no one expects a violent rupture, we may be in the early stages of seeing fractures developing in the trade system.
Read more...Yves here. Even though this post hews to the convention of a describing the labor market conditions in Europe in clinical terms, the data reveals deeply troubling conditions, such as a high and in some countries rising level of families with no wage earner, which sets the stage for the continuation of poverty, as well as putting them in danger of becoming homeless. “Lost generation” is too kind a term to depict the conditions facing the young. Instead of being able to make choices and at least to a degree, shape their future, they are desperately trying to find a foothold of any kind.
Read more...ves here. There’s one thing to add to Richter’s useful recap of what the supposedly sparkling 3Q GDP results mean for those of us who live in the real economy. The GDP deflator fell from 2.1% in the second quarter to 1.3% this quarter, so some of the rosiness of the results was due to the swing in the deflator.
Read more...Yves here. This discussion with Michael Hudson on RT focuses on the real meaning of the Ukraine-Russia gas deal. One point that Hudson makes that readers might doubt is that Russia loves the US sanctions. I’m not sure “love” is the right word, but there is reason to think they aren’t working out as the US had hoped. First, they’ve greatly increased Putin’s popularity. Even the intelligentsia in Moscow, who were hostile to him, have largely rallied to his side in the face of foreign bullying. Second, the Western press may be overstating the amount of damage done to the economy by the sanctions. Arguably the biggest negative is the fall in the price of oil, which came about growth in Europe and China slowing, and the Saudis announcing that they’d allow the price to reset at a much lower level than most analysts anticipated. But the ruble has been falling, which blunts that effect, but increases the drain on FX reserves as Russia tries to keep it falling too far and will increase inflation. Third, the sanctions have allowed Russia to engage in protection of domestic industries as a retaliatory measure, for instance, blocking many food imports from Europe.
Now all good well-indoctrinated neoliberals will say, “Trade protectionism merely allows domestic producers to become inefficient and uncompetitive.” It’s not so simple. Development economists are increasingly of the view that trade restrictions can help smaller economies develop domestic businesses to the point where they can compete in international markets, while if they foreign firms in, they’ll find it nearly impossible to build any local champions.
A colleague who does business in Russia but has no deep loyalties there, says he sees no signs of negative impact of the sanctions in Moscow (he describes it as now looking like any post World War II European capital). This is confirmed by recent surveys in Russia, so the lack of meaningful impact on Russian citizens isn’t an artifact of his seeing only the better parts of Moscow. Note that the latest EU forecasts anticipate very weak growth this year and next, as opposed to outright recession.
This visitor describes how the sanctions are helping Russian businesses. One of his friends has the Papa Johns franchise. They used to get their cheese from the Netherlands, but those supplies were cut off by the Russian sanctions against Europe. So they had to buy cheese domestically. It was cheaper but not as good. So he is working with the local farmers and cheese-makers to bring the cheese up to the standard of the cheese he used to import. So he expects to eventually have cheese that is lower cost than what he brought in and of comparable quality. And if he succeeded, the cheesemakers will be more competitive in Europe when the sanctions are relaxed.
The shorter version of this story is that Russia has a large enough domestic market and enough resources that unlike Iran, it may be closer to being able to function as an autarky when its imports and exports are restricted. The open question is whether it can go through the pain of a reset, with some serious and painful short-term dislocations, and escape the slow strangulation that the US claims it has imposed.
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