Saturday , November 18 2017
Home / Merijn T. Knibbe
Merijn T. Knibbe

Merijn T. Knibbe

Economisch historicus en statisticus, wadloopgids, docent, vader en blogger

Articles by Merijn T. Knibbe

Keynes was right about Quantitative Easing (QE)

5 days ago

Did the growth of money caused by QE in the Eurozone (graph) stimulate economic activity? Not enough. According to John Maynard Keynes, in ‘The general theory’ (1936),
“The relation of changes in M (money) to Y (income) and r (the interest rate) depends, in the first instance, on the way in which changes in M come about.”
Put differently: credit and not money makes the world go round. Money creating lending to enable household purchases of existing homes has a quite different effect on the economy than money creating lending to exiting new companies which hire lots of labor to produce live saving medical equipment (or the latest craze, L.O.L. balls, works too). Quantitative easing by central banks is a nice albeit dismal empirical example which shows that the amount of money did grow

Read More »

Demonetisation in India: the marketing view

11 days ago

One of the advantages of marketeers, compared with neoclassical economists, is that they do not assume things about consumers but observe them or ask them questions. So did Nielsen India, a large marketing company, less then a month after the infamous Indian demonetisation. The report is ungated and, for one thing, contains valuable information about the female experience. An excerpt
PART B: DECODING CONSUMER SENTIMENT (Source: Nielsen India)To pick up the consumer sentiment at this point in time, where they would have startedadjusting to this new reality, we ran a consumer measurement of sentiment and reaction. We reached out to nearly 800 people* in an online survey carried out between 25th November and 1st December 2016. Findings were quite revealing (Cities covered: Mumbai, Delhi,

Read More »

On Spain, Catalunya and former Yugoslavia

22 days ago

What I did not expect: In my lifetime I’ve seem countries in and around Europe disintegrate. The Soviet Union. Yugoslavia. Czechoslovakia. Iraq. Syria. And, work in progress, the UK. Spain seems to be next in line. In many fo these countries this process was accompanied by war.
Vaclav Havel was the last president of Czechoslovakia and strongly opposed splitting up. Being a wise man, he resigned instead of using violence when he saw that it had become inevitable. Thanks to him we know that splitting up a country can be a relatively orderly and, especially, peaceful process.
Spain and Catalunya are heading the other way.
At this moment, provoking the opponent is a winning strategy for radicals at both sides which means that the radicals have all reasons to ‘cooperate’ with the other side

Read More »

The ECB’s “well past”, but by how much?

23 days ago

From: Erwan Mahé
26 October 2017
I had no intention of writing before the ECB meeting today or, for that matter, afterward, given the already abundance of published opinion on the event. However, in light of the varied quality of the studies undertaken so far, I could not resist the temptation to return to my favourite topic, which is the study of the reaction function of central banks, especially, given the particular context faced by the European Central Bank. The only question we need ask today is:
What does the ECB’s Governing Council want to do?
In reality, that breaks down to two goals.
Recalibration is not “tapering”
The former involves recalibrating the degree of accommodation (to paraphrase the central bank) in order to take into account the improvement in economic conditions,

Read More »

The real costs of making (and using) money – the bitcoin waste

26 days ago

Bitcoins are a total waste. On this blog, I’ve written some posts on ‘the real costs of making money’ (a summary here). Producing money takes resources: labor, capital, land. One of the ’land’ aspects used to be silver and gold. Digging for gold and silver a social setting: the slaves in the silver mines of Larium (Athens), the native workers which perished in the high altitude silver mines of Cerro Ricco, Peru (the Spanish empire). Or ‘apartheid’, which guaranteed a steady flow of cheap ‘free’ labor to the gold mines, in South-Africa (British empire). Fortunately, we have fiat money now – the value money does not have to be backed anymore by forced labor.
Bitcoins are a recent new kind of money (though it really seems to be more a store of wealth than a means of exchange).

Read More »

Whatever happened to ₹-money (and credit) in India?

27 days ago

Aside: I didn’t know, but the ₹-sign is the official sign for the rupee
Why did the Indian economy not succumb under the weight of the sudden demonetization of 8 November 2016? The answer: to an extent because the government and the commercial sector kept borrowing from banks and spent this money.

There is overwhelming evidence that at the grassroots level the dearth of cash caused by the financial folly disproportionately hurt the poor and unbanked as rebuilding took time and converting old notes to new ones did led to a short but crippling decline in the amount of available cash. This despite the fact that a much larger proportion of outstanding ‘old’ cash was converted to new money than expected. In spite of this, the official economy grew. How come? Credit growth rapidly

Read More »

More about the de-digitisation of money in India

29 days ago

On this blog Jayati Gosh published an excellent post about the monetary folly in India where without any notice overnight large denominations of cash were abolished to force people to use digital bank money. I totally agree with this analysis but I am able to add a little. The author takes cash withdrawals from ATM machines as an indicator of the re-monetization of the economy. The Bank of India however publishes data on the composition of the stock of money in India. See also here. This information enabled me to make the graph above which shows that, as early as January 2017, the failure of this policy was clear. The Bank of India clearly facilitated a rapid re-monetization (defined as an increase of M3 money, i.e. cash plus deposit money). Economic growth has according to official

Read More »

Modern macro-economics and the sad truth about decoupling

October 9, 2017

Decoupling is the idea that when societies get richer, additional units of GDP will require less physical resources and will produce less carbon dioxide. This seems true when we look at national rich country production data. But it is not true when we look at rich country consumption data – as we outsourced energy and material intensive parts of producing our consumption goods to developing countries. We really have to blame our consumption pattern… Look here for an article of Mir and Storm (2016) about this; importantly they used a new comprehensive international database to derive these results. Schandle et al (2017) derive a somewhat comparable result from another new database (and look here for the present shortage of sand):

The international industrial ecology (IE) research

Read More »

Sapir in May 2008 on the Great Financial Crisis

October 2, 2017

Two days ago this blog published a blogpost by Jaques Sapir, a French economist, who stated that access to his RussEurope blog had been suspended because his posts had become to political… Interestingly, in the May 2008 issue of theReal World Economics Review, at a time when Jean-Claude Trichet, a French economists and former head of the ECB, still denied the crisis and even increased interest rates (22 July 2008: +0,25%), Sapir already had a keen insight into the nature and severity of the crisis. Silence him – at your peril!
The current financial crisis has become a major international event and can be compared to the 1997-1999 world financial crisis3. The current crisis has spread from the US mortgage market, where it exploded in the spring of 2007, to the global banking and

Read More »

Cash and hurricanes

September 29, 2017

A whole score of Caribbean Islands seem to have been wiped out by a whole series of unusually strong hurricanes. These islands (Dominica, Puerto Rico, St-Maarten, Anguilla, …) need loads of outside help. But these societies have to  be resilient, too. Which means that they need money suited to this task: cash. See below. There is however a powerful lobby which tries to get rid of cash (i.e. government money) and to replace this with electronic bank moneys. Sad. Aside – once government cash is successfully abolished this market niche will, no doubt, be rapidly filled with bank cash which will enable banks to reap even larger seigniorage profits… (Update. To avoid misunderstandings: this is not meant to criticize the banks. Filling such a niche will be a good thing. But governments

Read More »

Why, to the detriment of the economics profession, MiltonFriedman ignored Hyman Minsky’s advice

September 22, 2017

Weird: fifty years after Schumpeter and one hundred years after John Stuart Mill they did not mention ‘credit’. Let alone ‘private credit’. Mill’s idea that private credit creation often decisively contributes to bubbles, and bursts, is absent from the whole thing. The Schumpeterian idea that credit financed investments lead to economic growth (and monetary changes) is alien to their concept. Even the Irving Fisher idea that there are different kinds of money with different kinds of velocity is not really incorporated while the sectoral approach which is part and parcel of the main system of monetary statistics, the Flow of Funds, is not even mentioned. And Minsky’s clear warning that stocks of private debts are pivotal in engendering the deep depressions central to their analysis was

Read More »

Water, health and wealth

September 20, 2017

Nava Ashraf, Edward Glaeser, Abraham Holland, Bryce Millett Steinberg  NBER Working Paper No. 23807
Providing clean water requires maintenance, as well as the initial connections that are typically measured. Frequently, the water supply fails in the developing world, especially when users don’t pay the marginal cost of water. This paper uses the timing of frequent, unexpected water service outages in Lusaka, Zambia to identify the short-term impacts of piped water access on contagious disease, economic activity and time use. We use microdata from the primary water utility in the city on the timing and location of supply complaints to identify outages, matched to extensive administrative data across the city. Conditional on fixed effects for time and water service district within

Read More »

Acid rain, health and government policy

September 20, 2017

A recent meme of the fact free right in my country (the Netherlands) is the idea that the Acid Rain problem spontaneously disappeared. It didn’t. It was the government, stupids! And it is a really serious problem which did and does require attention. Source

Read More »

Everyone can create money

September 8, 2017

From  Merijn Knibbe
“Everyone can create money; the problem is to get it accepted.“ Hyman Minsky
Summary. Central banks the world over publish sophisticated Flow of Funds data which shows who and how and, to an extent, why all kinds of money are created and used and if stocks and flows of debt and money are becoming a threat to stability. Institutional analysis of these data, which looks at different kinds of credit as well as at different kinds of money and using a grid which enables the economist to distinguish between different kinds of economic sectors shows that they can be used to gauge the (in)stability of an economy. Macro-economists have too often however only looked at crude aggregates of total money or even purged money from their models while analysis of credit is, in 2017,

Read More »

‘Adults in the Room’ by Varoufakis. Good, necessary and very frightening.

August 16, 2017

Yanis Varoufakis has written a book which shows that the European Union is, at present, disfunctional and does not live up to the treaties.
The EU treaties are clear:
“The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance. It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote economic, social

Read More »

We need doughnut economics. But we also need GDP growth. Lots of it.

August 3, 2017

Some ‘alternative economics’ have reently been published: we are moving from criticism to alternatives. Which is a good thing: Kate Raworth broke ground with Doughnut economics. Jamie Morgan et all recently published ‘Quest for a new paradigm in economics. A synthesis of views of the New Economics working group’. We can also mention the people publishing in the Journal of Industrial Ecology, who do not look at the circular monetary economy but at the circularity (or not) of flows of materials and energy. And we can look at the seventeen sustainable development goals of the UN.
Will it make a difference? I do not know. Things like this have been around for at least forty years, though especially measurements have become much better. And I do think that the reaction against monetary

Read More »

(Modified) Irish national income Q1, 2017.

July 17, 2017

To circumvent the internationally approved rules of national accounting, irish economists developed new national income indicators: Modified Gross National Income and Modified Total Domestic Demand. They were right to do this. And these are not minor changes. Modified Income is almost a third (a third!) lower than ‘normal’ income. AlsoIn today’s quarterly results, the modified Total Domestic Demand indicator decreased by 2.7% in Quarter 1 2017, while the traditional indicator decreased by 17.3%’. Wow.
What are the differences between the indicators and why did the Irish statisticians do this? First, a quote from the press release of Irish National Income in Q1, 2017:
Modified GNI (or GNI*) is defined as GNI less the effects of the profits of re-domiciled companies and the depreciation

Read More »

‘Money as electricity’ – redux

July 17, 2017

The heterodox heritage of economic statistics is underestimated. Too often I encounter the idea that heterodox economics does not provide an alternative to mainstream economics, let alone economic measurement. Ahem. Instead of ignoring (data on) unemployment (Robert Lucas!) or ignoring (data on) money and the monetary system (more on this below), it were heterodox economists who set out to measure it. To quite an extent, economic statistics are the heterodox alternative people want to see, surely when it comes to macro-economics . If alone because unlike mainstream macro it does carefully define variables – modern science! The mainstream equivalent of the tedious statistical manuals which economic statistics use to do this is entirely absent! One example of such data are the Flow of

Read More »

The deadweight economy

July 16, 2017

Is there a decoupling of economic growth and use of materials? On the national scale: sometimes. On the global scale: absolutely not. From The Journal of Industrial Ecology:

The international industrial ecology (IE) research community and United Nations (UN) Environment have, for the first time, agreed on an authoritative and comprehensive data set for global material extraction and trade covering 40 years of global economic activity and natural resource use. This new data set is becoming the standard information source for decision making at the UN in the context of the post-2015 development agenda, which acknowledges the strong links between sustainable natural resource management, economic prosperity, and human well-being. Only if economic growth and human development can become

Read More »

Is there a housing bubble in the EU? Not everywhere.

July 13, 2017

House price developments in the EU show large differences in development – which makes the task for monetary and fiscal policy even more difficult.
One of the beneficial consequences of the Great Financial Crisis is that economic statisticians at for instance Eurostat or the Bank for International Settlements spend more effort on assembling house prices , though The Economist deserves praise as it led the way about 15 years ago. What do these data tell us? Low interest rates are criticized by some economists as these should encourage asset price bubbles. Houses are our most important asset. Are house prices in the EU at this moment increasing too fast?
Not yet in Southern Europe. Spanish prices show a considerable increase but the level in Spain is still low. And prices in France and

Read More »

The nature of growth: three visions

July 12, 2017

Do we need growth? Do we need technology? Is technology ‘neutral’ in the sense that its appearance and use can be understood without historical context? The Journal of Industrial Ecology has a special issue about such ideas. I love the kind of calculations they do about flows of stuff. But Vincent Moreau, Marlyne Sahakian, Pascal van Griethuysen and Francois Vuille have an apt observation.

In light of the environmental consequences of linear production and consumption processes, the circular economy (CE) is gaining momentum … promoting closed material cycles by focusing on multiple strategies from material recycling to product reuse, as well as rethinking production and consumption chains toward increased resource efficiency. Yet, by considering mainly cost-effective opportunities

Read More »

What Macron should know about the win-win-win-win-win consequences of the new German minimum wage

July 12, 2017

Recently, Germany introduced an economy wide minimum wage. This led to better jobs, better incomes, an increase in productivity, no upsurge in inflation and no decline of employment growth:
“Higher wages, shorter hours The comparison of both worker groups shows that the minimum wage has worked. As intended, the hourly wage of the interviewed minimum wage workers rose from €6.70 to €8.20, an impressive 22 percent. This is a multiple of the wage increase in the control group, which amounted to 4 percent. However, this also shows that the average hourly wage had not yet reached the minimum wage of €8.50, which is not due to exemptions from the minimum wage (we excluded these from the data). At the same time, weekly working hours of minimum wage workers fell by 90 minutes, whereas working

Read More »

Involuntary unemployment in the Eurozone, the rest of the EU and the USA: elevated and high

July 11, 2017

In the USA and the EU, employment is up and unemployment is down. But unemployment is not yet low. Unemployment rates have to decline more (a bit in the USA, a lot in the EU) and participation rates have to recover (a lot in the USA, a bit in the EU). In the EU, there are large differences between countries (compare Spain with Germany). But on the macro level, there is still a large reservoir of involuntary unemployment and, looking at the participation rates, people who have given up altogether.
For practical reasons (it always takes time and effort to find a job), unemployment will never be zero. But we can account for this and look at “involuntary unemployment” only. In a statistical sense, we might define involuntary unemployment as the number of unemployed which, after a

Read More »

Links. High powered money in Greece, ECB transparancy reveales raw power, 50 years ago the Bundesbank combatted trade surpluses

June 19, 2017

High powered money in Greece. The EU is re-financing 8,5 billion of Greek debt. About 7 billion of this is just trading in one kind of government bonds for another kind of government bonds. Much ado about less than nothing. There is some welcome softening of the terms – but not enough. However: About 1,6 billion has to be used to pay overdue bills which have to be paid by the government. This exchanging private debt for government bonds and will lead to an injection of highly powered money into the Greek economy which will prevent bankruptcies, which will enable these suppliers to pay their bills to their suppliers. Spain has however already threatened to block the agreement as it wants to protect a corrupt Spanish citizen in charge of privatization in Greece.
The ECB doubles down on

Read More »

The productivity stagnation – not a global phenomenon.

June 12, 2017

Long story short: labor productivity, as economists define it, is best understood as the amount of ‘stuff’ the income (wages, profits, rents, interest) related to one hour of work can buy (this is a somewhat idiosyncratic take on productivity. Look however here). Productivity is, as economists define it, not any kind of physical entity. It is supposed to be ‘value added’, or total income cq. the nominal value of net production, per hour of work. For about two centuries, give or take some decades, productivity has increased. Not anymore. At least: in a whole bunch of seemingly quite distinct countries (graph 1). This is, in a historical sense, really surprising. And economists spend a lot of ink about it: why did this happen? Which disease, nay, evil!, did beset the western economies!

Read More »

The monetary and fiscal design of the Eurozone. New ideas and old mistakes from the EC.

June 3, 2017

Recently the European Commission (EC) has published a “A possible roadmap towards the completion of the Economic and Monetary Union by 2025”. It is an important report. According to the report once Britain will have left the EU 85% of EU inhabitants will use the Euro. The future of these people is at stake. The report proposes:

to introduce at least a bit of Eurozone level fiscal policy
to introduce a kind of Eurobonds
to introduce a system of unemployment insurance which, during national downturns, will lead to more transfer incomes and ‘automatic’ stabilization
to introduce a banking union (which means that bankrupt banks won’t have to be re-financed by their host country anymore)
and it wants a more transparent political process (not the same thing as a more democratic political

Read More »

Econometrics? Keep it very simple.

May 23, 2017

Readers of this blog might have noticed that I prefer to detrend time series using a moving average – and not the advanced and routinely and widely used Hodrick-Prescott filter. Part of this was lazyness. But I also do not like the HP filter: what is it? Why does it wag its tails so much? What is the ‘right’ smoothing parameter? James D. Hamilton has answered my questions (while implicating that loads of research is at least suspect if not worthless):
Why You should never use the Hodrick-Prescott filter: “Here’s why. (1) The HP filter produces series with spurious dynamic relations that have no basis in the underlying data-generating process. (2) Filtered values at the end of the sample are very different from those in the middle, and are also characterized by spurious dynamics. (3) A

Read More »

Models and measurement in economics: Wesley Mitchell in 1946

May 15, 2017

Noah Smith is not the first one to be puzzled by the rift between theory and measurement in economics. He states:
“econ seems too focused on “theory vs. evidence” instead of using the two in conjunction. And when they do get used in conjunction, it’s often in a tacked-on, pro-forma sort of way, without a real meaningful interplay between the two. Of course, this is just my own limited experience, and there are whole fields – industrial organization, environmental economics, trade – that I have relatively limited contact with. So I could be over-generalizing. Nevertheless, I see very few economists explicitly calling for the kind of “combined approach” to modeling that exists in other sciences – i.e., using evidence to continuously restrict the set of usable models”..
But in 1946, in

Read More »

Is there a mismatch between theory and measurement in economics?

May 12, 2017

The ‘The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’ has much more often than the prizes for physics, Chemistry and physiology and medicine been awarded for: theory. It was on a regular basis awarded for analysis of data or the discovery of new events but in these cases ‘discovery’ was contrary to the other sciences much less important than analysis. It was only rarely awarded for the development of measurement techniques.
I’m preparing what might become a book about the relation between measurement and theory in economics. In Science, there should, ideally, be a joint development of theory and measurements. To me it seems that in economics this joint development is, though not entirely absent, wanting. A referee suggested that I had to should make a

Read More »

A non-white recovery in the USA

May 7, 2017

Anic rate
First: the elephant in the room: the post 2008 development of the USA white employment rate relative to the black and hispanic rate is, in a historical perspective but also when compared with post 2008 developments in Europe, spectacular. though something seems to have been the matter since 1995. No explanation here but the correlation between the white and the other rates slowly fades away (a hypothesis might be that ‘Blacks’ and ‘Hispanics’ are groups which are characterized by a relatively large subgroup of people belonging to the ‘precariat’, workers depending on low paid unstable jobs, who do relatively better in an increasingly precarious economy).
Second: it’s not inconceivable that the black rate will, within years, also be at par with or higher than the white rate. Note that the decline of white employment in the 2008 crisis was much larger than during other downturns. This pattern is less outspoken for the hispanic and black employment rates. Next to the employment rate we can also look at the participation rate (unemployment plus employment).   

As black unemployment is higher than white unemployment, the black participation rate is, relatively, higher than the black employment rate. It might be at par with the white rate within months, reversing relative declines in the seventies and eighties of the twentieth centuries.

Read More »