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Merijn T. Knibbe

Merijn T. Knibbe

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

Articles by Merijn T. Knibbe

Broad unemployment in Europe: the last two years. Two graphs.

2 days ago

Eurostat made new data on broad unemployment available. For some countries (Ireland, Greece, Switzerland), these show a less rosy picture than the ‘normal’ unemployment data. Only the Czech Republic has low normal as well as low broad unemployment though Poland, Hungary, Bulgaria (!) and Germany seem to be heading that way. Altogether, labor slack is still immense. At this moment, wage increases are still low in non-Eastern European countries. Considering the slack this might stay so for a while, though there are more opportunities to obtain a better paying job.
In my country, the Netherlands, the labor market shows signs of normalizing. “Help wanted’ signs are becoming are becoming normal (a sign of a normal labor market, NOT of an overheated one) and ‘normal’ unemployment is down

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What Martin Sandbu gets wrong about neoclassical macro-economics

4 days ago

Martin Sandbu is, in the Financial Times, wrong about neoclassical macroeconomic models. Let me explain by responding to his text, paragraph by paragraph. No links, I might add these later.
What do macroeconomists actually do? Without an answer to that question, it is difficult to articulate what they might be doing wrong. The rebuilding macroeconomic theory project is useful also to non-economists — perhaps especially to them — because it takes the time to dwell on how macroeconomists do what they do, in order to argue what they must do better.
Two points.
Sandbu answers this question by discussing what some macroeconomists do. To be precise: what neoclassical macroeconomists do. Stock and flow consistent modelling is left out of the discussion. NBER business cycle analysis is left

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Some 1921 remarks about National Income

12 days ago

In 1921 King, Macaulay and Mitchell published their milestone ‘Income in the United States: Its Amount and Distribution, 1909-1919’ which estimated time series of nominal and real income in the USA. Why did they measure this? The last sentence of their introduction reads: “Last but most interesting of all, we shall consider the way in which the National Income is distributed among individuals”. Distribution was paramount. The authors were also well aware of the limited nature of their estimates of monetary income: it was not a measure of welfare or prosperity. To quote them again: “Following common practice once more, we do not count as part of the National Income anything for which a price is commonly not paid. On this score we omit several of the most important factors in social

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Is economics becoming an evolutionary science? Veblen at the 2018 ASSA conference

13 days ago

In 1898 Thorstein Veblen asked ‘Why isn’t economics an evolutionary science?’. At the ASSA 2018 conference Avsar, Duroy and Scorsone mused about this. Below, the abstracts of their papers. Here, Mark Thomas about this.
Avsar’s article is, with its link to neurology, truly Veblenian in spirit. An interesting question is: it seems that the behavior of hunter-gatherers, who have little property as they can’t carry it with them, have behavior that is more economic rational than the behavior of people with a lot of property. Does the institution of property itself destroy economic rationality? And if so, how does this relate to market behavior?
Duroy’s article is about the question if selfish behavior, which sometimes is good for individuals, destroys groups on which these people depend for

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The ASSA conference: some institutional papers

14 days ago

Some (institutional) stuff from the ASSA conference, the first one with nice definitions of trust and control (but there might be more empirical stuff). The second one on the role of the ideology of judges in economic cases when there are no clear legal rules. More tomorrow.
Claudius Gräbner, Johannes Kepler University-Linz Wolfram Elsner. To trust or to control: Informal value transfer systems and computational analysis in institutional economics
Here, the PPT
This paper illustrates the usefulness of computational methods for the investigation of institutions. As an example, we use a computational agent-based model to study the role of general trust and social control in informal value transfer systems (ITVS). We find that, how and in which timeline general trust and social control

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In praise of the Institutional Nature of the National Accounts

15 days ago

A variable like GDP (Gross domestic Product) receives a lot of flack from economists. Much of this is misguided. The economists should not look at GDP but at the national accounts (of which GDP is one, but only one, variable). And they should not criticize the accounts but praise them. A 2016 ECB working paper about the flagship ECB ‘EAGLE-FLI’ neoclassical macro-model (Bokan e.a. (2016)) shows why: neoclassical have no idea about how and what to measure. National account statisticians do.
According to the abstract of the ECB paper new features of the EAGLE-FLI model were the inclusion of ‘deposits’ and banks. Bokan e.a. go on to state: ‘banks collect deposits from domestic households’.
Banks don’t collect  deposits. As they can’t collect what they already have. At least, the

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Thoughts about the sharing economy

21 days ago

Recently, Eurostat published data on the sharing economy. Its huge (graph, source: Eurostat). And this digital enhanced sharing economy should be (and is) included in GDP. But the private, non-monetary use of digital GPS apps which enhance your life as they enable you to find your way when, after attending a wedding, you get lost in rural Kent, 2:00 AM (happens…): not. There is a discussion going on if GDP tracks the changes in our life caused by the use of all kind of digital gadgets. It doesn’t. And it shouldn’t. But it should track the rise of the sharing economy – as this is a monetary economy. Aside: if wisely regulated, airBnB is of course important for the sustainability of our societies, as it means that much less hotels have to be built. While it possibly exerts a benign

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Christmas eve, 1717

29 days ago

On 24 December 1717, three hundred years ago today, a northwesterly storm hit the coasts of North Europe. About 14.000 died, over 2.000 of these in the Dutch province of Groningen but only 150 in neighboring Friesland. Why this difference? We do know the answer: Friesland had better coastal defences. Frisian ‘dijken’ were better designed, higher and, especially, better maintained than in Groningen. As Frisian public governance of these public goods was better. In 1716, the Groningen government had been warned, see the extensive report by Thomas van Seeratt, the newly appointed ‘master of coastal defences’, available and transcribed here. After 1717, money became available and the very able and dynamic van Seeratt did a good job to improve the Groningen ‘dijken’. The history of

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The European Commission on how (not) to change the Eurozone

29 days ago

Previous posts in this series on central banking: ideas of Willem Buiter, Richard Werner, Thomas Mayer, excerpts from a recent paper by Mike Konczal and Josh Mason, Edward Harris and ideas from the German Handelsblatt shadow council. Today: the European Commission.
Why? A lot of people want to change (European) monetary policy and central banking. This includes the members of the European Commission. They want 2 things:
A larger Eurozone
Some kind of ‘transfer’ union which somehow transfers either investments or income or financial funds to members in need (but also restricts discretionary powers of members to increase or decrease government spending).
The first point is delusional. The idea behind the second point: the Eurozone is a ‘free flow of funds’ zone. As freely flowing funds

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William White: wrong about the future of central banking

December 18, 2017

“We too must bring into our science a strict order and discipline, which we are still far from having…by a disorderly and ambiguous terminology we are led into the most palpable mistakes and misunderstandings – all these failings are of so frequent occurrence in our science that they almost seem to be characteristic of its style.”
– Eugen von Böhm-Bawerk (1891: 382-83)
What William White writes about inflation is wrong, sloppy and seems a conscious effort to derail the discussion. Today again a bit about central banking but this time more critical. On the prestigious Project Syndicate site, William White (former deputy governor of the Bank of Canada, and a former head of the Monetary and Economic Department of the Bank for International Settlements, Chairman of the Economic and

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Central banking: Edward Harris on why raising interest rates in an overleveraged economy is very risky

December 17, 2017

Even more about central banking. Why so much? Partly because people are writing very good stuff about it (like the AAA piece from Edward Harris below (excerpt)). Partly because we seem to see the end of the era of ‘pure’ inflation targeting. And (part of this last trend?) partly because soon Merkel and Macron will sit together to redesign the Eurosystem. Previous posts: ideas of Willem Buiter, Richard Werner, Thomas Mayer excerpts from a recent paper by Mike Konczal and Josh Mason and ideas from the German Handelsblatt shadow council.
As the Federal Reserve meets today [last week: M.K.] to decide how to communicate its messaging on future rate hikes and balance sheet reduction, financial stability will play a key role. Yesterday, I wrote about the Bank of International Settlements new

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The ECB shadow council on the ideal ECB. Inflation targeting: out. Financial cycle: in.

December 13, 2017

Some years ago, Cladio Borio from the BIS introduced the ‘financial cycle’. Here, a Borio/Lowe paper from 2002. What’s the financial cycle? From the twenties of the twentieth century onwards Wesley Mitchell and the NBER (National Bureau of Economic Research) perfected the (monthly) measurement of the classical business cycle (a still ongoing project). The concept of this business cycle of the ‘flow’ economy was and is the cornerstone of much macro-economic theorizing. ‘Chicago style economists’ rationalized the idea that low and stable inflation (1) could be engineered by the central bank and (2) was enough to control this business cycle. The idea of Borio (and others) is that, next to this cycle, there also is a financial cycle related to credit and assets, mainly houses which can not

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Mike Konczal and Josh Mason on the Ideal Central Bank

December 10, 2017

We’re publishing some expert ideas about the future of the ECB and monetary policy. Three days ago some ideas of Willem Buiter were published, two days ago some ideas from Richard Werner and yesterday ideas from Thomas Mayer. Today some excerpts from a recent paper by Mike Konczal and Josh Mason. They are not part of the Handelsblatt Shadowcouncil but their ideas often tally with those already published:
Pure ‘inflation targeting’ is (mortally?) compromised
Hence, central banks are overburdened and need to share responsibility for stable economic and financial development with (other parts of) the government
But there are serious coordination issues (this looms larger in the Eurozone than in the USA) with regard to management of monetary/fiscal policy as well as with regard to macro

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Thomas Mayer on the ideal European Central Bank

December 9, 2017

We’re publishing some expert ideas about the future of the ECB (and hence Euro money). Two days ago some ideas of Willem Buiter were published, yesterday we published some ideas from Richard Werner. Today some ideas by Thomas Mayer. Beware the last sentence.
EMU is incomplete and dysfunctional The European Monetary Union (EMU) is incomplete and dysfunctional. First, it is incomplete, because the quality of book money created by banks through credit extension differs from country to country (depending on the quality of the banks’ credit portfolios and the financial capacity of the governments to support weak banks in their jurisdiction). We have a paper currency union (as euro notes are the same in all member countries), but no monetary union (as deposits differ). Second, EMU is

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Richard Werner on the Ideal ‘European’ Central Bank

December 8, 2017

As I stated yesterday we will publish some ideas about the future of the ECB. Yesterday some ideas of Willem Buiter were published. He wanted to abolish national central banks, to change the mandate, more transparency and an end to the prohibition of monetary financing. Today: Richard Werner. He warns us that it’s not just about the central bank but also about the ‘normal’ banks. More localism is needed. And the ‘tool’ credit guidance plus more localized banking may be more important than a mandate: let decentralized decisions rule money creation (as long as it is not for purchasing existing assets)!
The ideal central bank does not have the legal status of ECB or Reichsbank [the pre-1946 central bank of Germany, M.K.], but that of the Bundesbank
In my analysis of the ECB, published

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Willem Buiter on the ideal European Central Bank

December 7, 2017

The future of Europe is at stake. Yesterday, the European commission published a Roadmap for deepening Europe’s Economic and Monetary Union. coincidentally, the German Handelsblatt ‘EZB Schattenrat’ (‘ECB shadow council’, of which I’m a member) today discussed the ideal European Central Bank. The coming days I will post some (written) remarks made by members of the shadow council as well as some stuff relating to the Roadmap. No mention will be made of individual verbal remarks. Recurring themes were however the tension between centralization and decentralization, the inadequacy of pure inflation targeting (but what has to come next?), the importance of financial stability, the wish that some kind of ECB prosperity mandate has to become more explicit and the need for accountability.

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The Euro Area double dip was caused by austerity (and yes: there was a double dip)

November 25, 2017

What was the cause of the infamous Euro Area 2011-2013 double dip? Answer: a grave policy mistake. Already high ECB interest rates were increased (13 April 2011 13 July 2011) at the same time when fiscal policy was tightened (‘austerity’), unemployment was at record levels (graph 1) and use of capacity was still lowish (less important, core inflation was low, too). As a consequence, Euro Area unemployment started to increase at a time when Japanese and USA unemployment continued to decrease while UK unemployment started to decrease, despite the Eurozone dip. Brad Seltser has written a very good post about the demand side of this (second graph).

Readers of this blog won’t be surprised by his data but he gives a more detailed and systematic overview than I’ve seen up to now. Aside – his

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Keynes was right about Quantitative Easing (QE)

November 13, 2017

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

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Demonetisation in India: the marketing view

November 7, 2017

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,

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On Spain, Catalunya and former Yugoslavia

October 28, 2017

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

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

October 26, 2017

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,

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

October 24, 2017

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).

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

October 22, 2017

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

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More about the de-digitisation of money in India

October 20, 2017

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

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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

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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

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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

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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

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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

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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

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