The EU-commission issued a tweet (below). Another step towards EU statehood. A large one. Since around 1500, access to credit was key for European (later: all) states waging war. The early development of central banks was intertwined with the history of national wars. Look here for the Wikipedia page on the history of the Bank of England -it literally starts with a ‘crushing defeat’ of England by France. Credit was needed to win. Government borrowing had to be enabled by central banks, the monetary system had to be able to function as a ‘weapon of war’. The ECB, however, is not allowed to provide credit to governments (even when it can keep interest rates low and make government debt ‘risk free’). And the EU is, or was, not allowed to issue its own bonds. A peaceful union. Which

Summary: to understand inflation we should not use the neoclassical ‘one good, one worker, one sector, one piece of physical capital’ or Y = f(K,L) concept of production. We should use a concept looking at nominal production (Y(n)) with multiple interrelated sectors (‘S’), multiple products and capital conceptualized not as a physical entity but as ownership rights of land (including natural resources), depreciable capital and ‘non produced’ capital like patents and marketing rights: K’. These ownership rights enable as well as restrict access to and use of land, natural resources, depreciable capital, patents, markets and financial capital while the relations between sector show how shocks are propagated: Y(n) = f(S K’, L). Estimated models using such a concept exist and lead to

What’s money? Wrong question. The right question: ‘which kinds of monies do we use for which purposes?’ as there are different kinds of money which are used for different purposes. Here, I want to stress that ‘receivables’ are: money. And are, at the moment, mainly used for inter-company purchases. The quarterly balance sheets (below) of Alphabet (formerly Google) show that, as of September 2020, Accounts Receivable had a value of almost 35 billion dollar. Accounts receivable are privately issued money. They are backed by the law but not created by banks or governments. They are created when a buyer promises to pay and a seller accepts this promise, a promise which can be legally enforced. But it’s not the payment by the debtor which defines the moment of the sale. The actual sale is

Unemployment in the EU is still going down a little. But youth unemployment, a slightly more sensitive cyclical indicator, is rising. The most distinct geographical pattern behind the average: the combination of high levels of youth unemployment (>20%) with clear increases in Greece, Italy and Spain, even when total unemployment in these countries is still going down or stable. France shows a remarkable decline in youth unemployment but is still in double digit territory. Average youth unemployment is lower than in 2008 but the >20% rates in several countries are unacceptable. The EU labour market is not tight, at this moment.

One of the successes of the right is their identification of the left with a sorry pastiche of ‘woke’. But the left is more than outspoken, individual awareness of the role of identities, however constructed and defined, whoever constructs and defines them and whatever role they plays in group dynamics of power and in- and exclusion. Which leads us to the question: What’s Left? I’ll state some points. Some points (many of which are related to social , economic and political in- and exclusion):

One person, one vote and universal unrestricted suffrage (incarcerated people should have the right to vote too, for instance). Voting rights should not be tied to income, wealth, property, race, gender or education (all of these variables have been used to restrict voting rights). Universal

Consumer price inflation in Greece is, at the moment, 12% (graph 1). This is high and surely bankrupting quite some families. The high level of inflation is surprising, as Greek inflation was quite low and often even negative in the 2012-2022 period. The questions are: (A) what caused this sudden increase? An overheated labour market and runaway wages increases? And: (B) how can we get inflation down again? Does the ECB have to tank the economy to crush wages? Below we will investigate these questions.

Graph 1. Consumer price inflation in Greece. Source: Elstat.

Question A. Is the labor market overheated? Looking at graph 2 the answer is clearly: no. Unemployment is falling but still high, the number of people inside the labour market increases and there is no sign at all that

Financial wizardry recently caused massive problems for UK pension funds and the Bank of England. The Bank of England forces pension funds to take part in ‘LDI’ contracts which aim to insure possible future liquidity problems. These contracts however lead to real liquidity problems, which forced the Bank of England to intervene to prevent a market melt down. The solution became the problem.

Deputy Governor John Cunliff of the Bank of England stated:

“The Bank was informed by a number of LDI fund managers that, at the prevailing yields, multiple LDI funds were likely to fall into negative net asset value. As a result, it was likely that these funds would have to begin the process of winding up the following morning… In that eventuality, a large quantity of gilts, held as

The Dutch September HICP inflation rate was 17,1%. One year ago it was 3,0%. Below, I will argue that this is a sign of kind of war economy, not of a cyclically overheated economy. Ways to mitigate inflation were pioneered by the English economist John Maynard Keynes in his ‘How to pay for the war‘. it’s useful to go back to his ideas.

The first version was published in three parts in The Times of november 1939. It was partly based on his experiences in World War I and partly on the new system of national accounting (extended and improved by Keynes). The ideas weere based upon the idea of a monetary economy where consumer spending and consumer prices, production and producer prices and the use of factors of production and factor prices (wages, profits, interests, rents) are

After reading her contemporary Alfred Marshall, reading Rosa Luxemburg (born in Poland, 1871-1919) is a joy. The clarity of the prose, the consistence of the arguments, the sheer knowledge of events and facts. She backed an anti-imperialist socialist agenda coupled with – no, based upon – differences of view and discussion in combination with cultural and linguistic diversity. In my view, she would have backed the growth of international food supply chains binding Ukraine, Russia, Turkey and Morocco, among other countries together. But she would have despized the cartelization of the inernational grain trade (five companies rule the roost) and the preponderance of financial and shareholder interests. One of the points where Putin had to back off is the agreement that he will not

(Part of) the Dutch pension system will, if everything goes according to plan, soon be replaced with a new neoliberal system based upon, among other things, measured neoclassical ‘risk aversion’. However – economists are not yet able to measure this – which will lead to big problems. let me explain.

The present system consists of:

a social democratic element (the ‘first pillar’), a kind of not means tested basic income for everybody above 67 financed by taxes.
Next to this is the corporatist ‘second pillar’, largely based on Christian social thought, which consists of non-government non-profit sectoral or, sometimes, company based pension funds which pay funded pensions. These are financed by mandatory pension savings by workers and their employers.
The ‘third pillar’

I do not have ‘physics envy‘. I do not want economics to look too much like physics. But I do have chemistry envy. I want economics to have something like the magnificent periodic table of elements, for prices. Input prices, output prices, mark up prices, shadow prices, market prices, administered prices, government prices, expenditure prices, asset prices, monopoly prices, monopsony prices – all of these and many more neatly ordered in a relatively simple table. Somebody still has to write the book about it but there sure are elements available. One can think of the work on prices by Frederic Lee. Or about the work of Gyun Cheol Gu, who provides us with this extremely useful overview of ideas about pricing (PK means: Post Keynesian):

Interestingly, the ‘Post Keynesian’

The graph below has been constructed by economists of the European Central Bank. It’s based on national accounts data. It shows that present day inflation is profit driven, not wage driven. Money flows to profits, not wages. What does this mean for monetary, fiscal and income policy, taking some other aspects of inflation into consideration? Quite a lot.

High central bank interest rates have a dual purpose. First, they are intended to show that central banks are serious. Let’s call this Peacock rates: showing your feathers. This should somehow give people the idea that increasing prices is a bad, costly, unnecessary habit which, people being rational, leads people to stop raising prices. Second, they are meant to increase borrowing costs which should lead to lower investments

Ukraine applied for EU membership. The application has been accepted, the long journey towards membership has started. Good? Bad? Let’s first be honest about the EU. And the Russian empire – which of course is the main motivator behind the Ukrainian application.

We can be short about the Russian empire. It is large, resource rich, not exactly a failed state but governed by a closed self- enriching criminal gang of with fantasies about a Russian greatness which never existed. It’s also an economic dwarf, undemocratic, technological regressing, it has dismal demographics and a low life expectancy (especially for males). For the last twenty years of so, been extremely aggressive towards, especially, small neighbors. And its a stated aim of Putin to expand all this beyond the borders

Life expectancies in Europe went down in 2019 and 2020 in all countries bar Norway (figure 1). They tended to go down more in countries with a relatively low life expectancy (figure 2) – strong and outspoken tendency. Correlation is not causation. But it can be argued that health and morbidity and life expectancy are influenced by health outcomes during, especially, childhood, including in the in-utero environment (look here, especially 3.1 b and 3.1 c. Look also here). If that’s right the data suggest that an important way to mitigate the (long term) consequences of Covid-19 is to have a strong long term public health system and policy (including policies aimed at diminishing poverty).

Aside of this short term health policies should, aside of Covid-vaccination, be broadened to

In 2019, the Irish rate of ‘gross fixed capital formation’ (which I hitherto will call fixed investment), was 54,6%. More than half of total national expenditure… This was over twice the rate in most other European countries. And three times the Irish rate in 2011 or the Italian rate in 2014. What happened? Was this real? Were they building three times as many houses and roads, buying three times as many planes and trucks and doing three times as much Research and Development (which is considered to be ‘gross fixed capital formation’) as only a few years before? Nope. But if that wasn’t the case, what was the case? Below, I’ll show the results of an update of my data on long term rates of fixed investments in a number of countries, adding 4 years to the series already published. This

Beveridge curves are graphical representations of the historical relationship between unemployment and the job openings/job vacancy rate. They should be called ‘Beveridge Ellipsoids‘ as they are banana shaped (an ellipsoid with one bent axis, aside of banana-shaped there does not seem to be an official name for such an ellipsoid). Just calling it a ‘curve’ is somewhat misleading as the banana-shape is no coincidence but caused by labor market dynamics: high unemployment leads to an outward shift (away from the origin) of the relation between vacancies and unemployment. Calling it the ‘Beveridge ellipsoid’ (or, when explaining it to students, ‘The Beveridge Banana‘) catches these dynamics much better than calling it a curve. Anyway: How does that work and how is it related to the

At this moment, retail energy prices (prices paid by consumers and companies for final use of energy) are, compared with other consumer prices, rising fast. Has this happened before? Yesterdays post shows that in the EU and since 2006 the rise is exceptional. But what shows when we look further back in time? For reasons of convenience and because the USA data stretch back to 1960 while the EU data only stretch back to 1997 I’ve tinkered a little with USA consumer price data. The answer to the question is clear: it has happened before – but the present spell of high energy price inflation (30+% a year) is starting to last exceptionally long. This answer leads to other questions: does, in a historical perspective, the present spell of energy price inflation also lead to a relatively

Inflation is up. A remarkable aspect of todays inflation is the relatively high increase of energy prices (graph), an international phenomenon. Rising prices are a bitch when nominal incomes stay behind, which at the moment is the case in Europe. This leads especially to problems for people with lower incomes who have less money to spare and who spent a relatively larger amount of their income on energy. So, what to do? Should we raise interest rates? Hmmm….

The relation between interest rates and inflation is week at best and even more so when inflation is not caused by domestic but by international events (see this blog by J.W. Mason). Also, the idea behind the policy of raising interest rate is that higher rates lead to lower investment and consumer spending, curbing demand

Does the switch to Green Energy mean that energy will be cheaper? To answer this question we’ll have to answer several sub-questionsfirst: is there a switch to Green Energy? Is capacity used efficiently? And is Green Energy cheap? As I will argue below, looking at the sub questions the answer to the lead question is: yes. But this answer leads to a related question: above, we’re talking about cost prices, which are down. You might have noticed that consumer prices of energy are up. Who’s getting rich?!

The answer to sub question 1 is clear. There is a serious shift to Green Energy. Total installed capacity of solar alone is 160.000 Megawatt in the EU, which is close to the around 230.000 megawatt capacity of coal power plants in the United States or India (graph 1). Not bad.

Will the war in Europe affect availability of wheat, one of the staple foods of the world? One of the economic successes of the last two decades is an increase in the production of wheat which enabled stable average global consumption per capita (at around 68 kg. per year) and a slightly increased used as feed (close to 20% of total production). This was possible because of a surprisingly fast increase of yields per hectare (graph).

Source: FAO-AMIS

And, of course, because total area stayed ore or less the same. Both of these developments are to quite an extent caused by increases in yields and area in Ukraine and Russia. How will the war affect this? Today, I attended a webinar about this. Main points: it’s clear that the 2022 harvest in Ukraine will be severely compromised,

Headline as well as ‘core’ consumer price inflation in the EU has increased (graph 1). How to rate these increases? Do we have to jack up interest rates and to restrict spending? Below, I’ll argue that when we try to understand present inflation using a non-neoclassical frame of analyses we do have to take into consideration that:

Not all increases are created equalWe should not just look at expenditure prices (consumption, investments) but also at factor prices and cost prices (wages, wage costs)We have to look at the short term (purchasing power of household income) but at the medium term, too (prices go up but, for some articles, down too)But Europe is in a full scale war and Wars are InflationaryWhat to do? At this moment the EU economy is not ‘overheated’ and inflation as

In January 1980 Jimmy Carter enacted a grain export embargo against the Soviet Union because of the 1979 Soviet invasion of Afghanistan. The embargo was ineffective as the resulting gap in Soviet imports, at the time and for quite some years to come a net grain importer, was filled by countries like Argentina. In 2022 things have changed. After 2000, Russia as well as Ukraine became major grain exporters, playing an important role in global food supply chains. In both countries production as well as exports have increased by leaps and bounds, which was enabled by increases in acreage and yields (graph 1 for wheat, graph 2 for maize). All data from this source. The invasion of Ukraine and the ensuing war will disrupt these chains not by halting imports but by disrupting production and

Egypt is alarmed. And rightly so. A war in one of the grain baskets of the world, Ukraine, will affect us all but Egypt, and Turkey, will be hit even harder than many other countries. And they know it. According to Reuters,

“Egypt, often the world’s top wheat importer, is working on a plan to buy wheat from other regions rather than Russia and Ukraine … “There are 14 approved countries Egypt could import wheat from, some of which are outside Europe” … Russia and Ukraine are frequently the top exporters of wheat to Egypt, making up around 50% and 30% of its wheat imports in 2021“. But this will not be enough as in the short run, i.e. two years, supply is more or less set.

Al Jazeera provides us with an infographic:

As we can see, Egypt relies on Russian and

Are we living in an epoch of high inflation? it’s a difficult question to answer as we’re lacking the tools to do this. Economics – heterodox and mainstream alike – is lacking a profound ‘periodic table’ of prices. This hampers them when they write and talk about inflation. There are a lot of pieces to this puzzle. The framework of the national accounts provides us with the distinction between expenditure prices (investments, government purchases, household consumption, exports), factor prices (wages, rents) and producer prices, including and excluding taxes. Gardiner Means developed the idea of ‘administered’, in-company prices. Joan Robinson made practical distinctions between prices and systems of price-setting: monopsony, imperfect competition and the like. And there is,

About one month ago I wroute about Euro Area inflation: “troubling but transitory“. One month more of data are in. It is even more troublesome but also more transitory. The increase of the consumer price index is dominated even more by energy prices than one month ago. As the Euro Area is a net importer of energy (among other items: natural gas from Russia.). This particular kind of inflation is, to use confusing terminology, highly deflationary… (for the non-energy sectors).

Purchasing Power is transferred to Russia (and other energy exporters) and siphoned off from other sectors. The rational response: investing in energy saving (let’s commute less…) and green energy. The problem: production costs of natural gas are very low, especially labor costs. Production costs of

It still has to feed into the management of pension funds or global wealth funds. Or, does it? It seems that Black Rock is already investing more in real estate… Look here and here. It might well be that this happens because because the smarties at Black Rock read the work of Jorda, Knoll, Kuvshinov, Schularick and Taylor, who gathered data on ‘‘The Rate of Return on Everything, 1870–2015”, including the rate of return on ‘houses’ (better: the rate of return on ‘land underlying houses’), for quite a period and a whole number of countries. We now know more, much more, about rates of return on, well, ‘everything’ than ever before. Macro can finally be Macro. But: what is a “rate of return”? And why is this important?

Source: Jordà, Òscar, Katharina Knoll, Dmitry Kuvshinov,

The Bank of England has a 28 MB Excel dataset containing: “A millenium of macro economic data”. A treasure trove. A good thing about it: as it are long term series and as these are roughly based on national accounts data and not just on economics 101 it’s not only focused on GDP but also on sectoral developments and flows between and within sectors. I can’t show it all, and…

will leave, to name only one (!) major part of it, the Flow of Funds data, which, among other things, show which sector provides loans and credits to other sectors, out of the discussion. Another major part which won’t be covered: international trade. The dataset is incredibly rich as you can see for yourself on the second Excel worksheet. I won’t discuss conceptual issues (the meaning and nature and

Inflation in the Euro Area is high and erodes the purchasing power of many (but not all) incomes. Bad. But it will be transitory. And there is no indication of endogenous macro-economic instability. Why do I think this?

I’ll first discuss the (largely) transitory nature of the present price increases, macro (in)stability comes next.

Graph 1 shows two metrics of inflation. The first is based on the ‘normal’ consumer price index, but this time without energy and without increases of indirect taxes (read: Value Added Tax, VAT). As we can see this inflation metric was quite low during a large part of 2021 and still is way below the 2,0% ECB inflation target. Crisis? What crisis! The data show that the recent (and large) increase in inflation is largely caused by energy