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

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

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

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,

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

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

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

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

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

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

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

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

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

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

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!

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

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

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

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

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.

From: Larry Hamilton and Merijn Knibbe
Following a twitter discussion between him and me about the question if the 2013-2015 warming of the first 700 meters of ocean was above trend or if 2016 was below trend, Larry Hamilton (@ichiloe) produced the next graph (which shows consistent and relentless warming not just of the surface of the earth but also of the first 700 meters of the oceans). These series are as far as I know measured in a totally independent way. ‘2017’ are partial data. We do not rest our case.

On 6 April, Mario Draghi made a speech titled ‘Monetary policy and the economic recovery in the Euro Area’. I would have emphasized the existing disequilibria a little more: unemployment in Germany is not far away from ‘low’ but this comes at the cost of an 8% of GDP surplus of the current account. German domestic demand (investments, public and private consumption) is i.e. about 10% too low to guarantee low unemployment. See also this recent Eurostat press release, which shows that, though some areas are by now characterized by low unemployment (

The ECB buys lots of bonds from large oil companies, not from small and medium enterprises.
Rapid money supply growth does not cause inflation (measurements!)
New UK guidelines on how to estimate natural capital. Surely worth the effort! But some things do not have a price for a good reason. And when you look really, really hard at statistics of the stock of capital it turns out that statisticians measure the value of rights to the monetary yield of ownership of certain items. And not any kind of intrinsic welfare or utility produced by machines or houses (or an Easter Monday trip to the woods). Do not commodify Nottingham Forest!
Economists like me measure productivity. Can we trust these statistics? Only if they are very carefully crafted. From a OECD manual standard methods used to calculate ‘real’ production can even result in estimates of negative production.
“Another issue is the occasional occurrence of negative value added figures when double deflation operates with Laspeyres quantity indices. Nothing ensures that the subtraction of constant-price intermediate inputs from constant-price gross output yields a positive number. The SNA 93 notes that negative real value added can occur when relative prices change: “a process of production which is efficient at one set of prices, may not be very efficient at another set of relative prices.

What do you get when you apply a 13 year smoothing function to the yearly data on global temperature? The graph above. According to ‘climate optimists’ the graph above is misleading, as, for one thing, these surface data are supposed to show a different pattern of development than the ‘satellite data’. The point: they don’t. The graph above shows about 0,7 to 0,8 degrees warming after 1979 and a pattern of relentless increase. The ‘satellite  data’ (graph below) show 0,5 degrees warming after 1979 and a pattern of relentless increase (visualize a 12*13 = 156 months running average, couldn’t track the original data). Yes, that’s a difference. But even the 0,5 degrees is, considering the warming which took place  before 1979, quite a problem. And more so when we consider the 2,0 degrees of ‘acceptable’ warming. Even based upon this rather short period and these conservative data, while not taking 1880-1980 developments into account we’ve already spent *at least* 25% of our wiggle room. The graph below is used by climate optimists to defend their position… Delusional. It’s maybe less alarming than the graph above. But it is alarming, too.

From: Merijn Knibbe
The graph shows the  ‘Ausländerarbeitslosenquote’ (unemployed foreigners ratio) which is calculated by the ‘Bundesagentur fur Arbeit’ (a kind of German ‘Bureau of Labor Statistics’). Unemployment of Germans in East Germany is, after about a quarter of a century, finally below 10% (but still high). But unemployment among ‘foreigners’ is way higher (foreigners are not necessarily immigrants: refugees and people from the Not Very United Kingdom count but so does the large share of the sizeable second or third generation Turkish minority which does not have German nationality). Fun fact: unemployment of foreigners in Bayern is lower than unemployment of German nationals in Berlin Brandenburg (September 2016).
but it is still way above the German level. Which indicates that dual employment policies are needed: macro and micro (but micro policies are really hard). Political incorrectness of the day: Erdogan calls upon German Turks to do better, economically. As German Turks do relatively bad, even for ‘Ausländer’, this is not just understandable but even positive.
What I didn’t know: according to Wikipedia a considerable number of the about four million Turks in Germany descend from the post 1918 Turkish diaspora in countries like Bulgaria, Greece, Cyprus and Lebanon.

From: Merijn Knibbe

Brexit should not have happened. But, understandably, it did. Brussels bears a large part of the blame: they could and should have known. The title of this blog is an allusion to the 1992 Wayne Godley article ‘Maastricht and all that’ in which he predicted the present day troubles of the Eurozone. People (in Brussels) should have listened. People (in Brussels) should still listen. If a country does not have its own money it is not really sovereign – unless it has democratic power on a higher level. If that’s not the case it might be treated as a kind of colony. Think Ireland. Think Greece. The EU should not be like that. But it was. And is. And people voted for Brexit.
But that’s not all to there is to Brexit. it’s not just about Brussels and power and politics. It is about policies, too. It is enlightening to compare unemployment in Greece with unemployment in East Germany (graph 1). In graph 1 East German unemployment data from the ‘Bundesagentür für Arbeit’ have (based upon a comparison for total Germany) been cut with 10% to make them compatible with the Eurostat unemployment data. The graph clearly shows that even within a democratic country which, at that time, had monetary sovereignty,  ‘Greek’ levels of region unemployment were accepted for decades.

Anne Case and her husband Angus Deaton have published a new paper about the deteriorating health of non-hispanic Whites in the USA. The use of more refined and more granular data as well as another year of data again shows a grim picture of ever rising ‘Deaths of Despair’. For those familiar with ‘Decline of the USA’, a book written by the editor of this blog Edward Fullbrook,  their findings won’t come as a total surprise. But the situation stays abhorrent.

Death rates of those white people are going up. And they keep going up. Life expectancy is falling – especially life expectancy of the less educated. Which is totally anomalous in a historical sense as well as compared to other countries, according to the authors (I do not entirely agree, see below). And not because health care is imploding. But because people seem to give up. Some remarks:
It is not about health care perse. The table below shows that curable and preventable diseases are declining – even for non-hispanic whites – are declining
‘Deaths of Despair’ are also increasing in other Anglo-Saxon countries. But not in non-Anglo Saxon countries (table). Even in Ireland.
While I was writing this Noah Smith linked, on Twitter, to this excellent 2014 new York Review of Books article by Masha Gessen about Russia and the incredible level of Deaths of Despair overthere.

Via Eurostat (look here and here) information about the labour market: vacancy rates and wages. Vacancies are up, wages are rising at a very moderate rate (and in many countries, like Spain, not at all). These are wage costs and not wages, but at this moment the difference is small, notice that wages increase less than the 2$ inflation target of the ECB.
Vacancies have developed favorably. About this: during the last year there have been tailwinds: (much) lower prices for energy, translating into lower consumer price inflation, less austerity, ever lower interest rates for households and companies (especially in southern Europe), QE and a lowish exchange rate. If there had not been an upswing – we might have had to apply real solutions to the European economy, like writing down debts. At this moment, headwinds are increasing in strength and consumper price inflation is, due to higher energy costs, increasing. As energy is largely imported, higher inflation does not warrant higher interest rates but it does warrant higher wages.

I made this graph (in fact: map) because of remarks by Erdogan, the Turkish president, that Turkish women in Europe should get more children: 5 instead of 3: wasn’t the birth rate (total fertility rate) in Turkey already way below 3? Thanks to a recent press release of Turkstat I discovered that, surprisingly (at least to me), the birthrate in many western areas of Turkey , about 1,6 or even lower, is as low as in countries like Italy, Spain, Portugal, Greece etcetera. The entire northern part of the Mediterrenean world now knows birthrates which are well below the 2,1 repleacement rate! Remarkably, the Kurdish are in Turkey knows birthrates which are about twice as high as in western Turkey (the Zaza are another minority which more or less identify as Kurds).

Today: 2 graphs. And do I really have to write this blog? Yes, I have. At this moment the USA government seems to target bilateral trade balances: these should be more or less balanced. To quote a Trumptweet (January 27, 2017): “The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers…”.  But it does not work that way. Bilateral trade deficits are not the right measure to estimate if trade is one-sided deal. Switzerland is an example.
This landlocked country has a massive current account deficit with the EU (graph above) but a massive current account surplus with the rest of the world. As it imports oil (in fact: oil products) via EU countries which is counted as an import and an export of these EU countries but only as an import of Switzerland. In a ‘real goods’ sense, this is a deficit with oil-producing countries. But we’re not living in a ‘real goods’ world but in a monetary world.  but in a monetary world. As for the US of A: as long as the USA currency is as important as it is now there will be a large demand for US of A money. which means that the USA of A is in fact not lending money to other countries but actually selling money to people abroad who want to store dollars. Which shows up as a deficit on the current account.