In a post on DeFacto, Michael Hermann argues that in Switzerland the conflict between voters and “political elites” actually has receded. According to Hermann, popular votes helped clarify where voters disagreed with parliamentarians, and this led policy makers to adjust. The figures illustrate how over time, votes in the two chambers of parliament converged towards outcomes in popular votes. Campaigns supported by the right-wing SVP party may have contributed to these developments.
In the NZZ, Thomas Fuster comments on the Catholic church’s critical perspective on capitalism.
Der Theologe Martin Rhonheimer hat schon recht: Die Kirche stellt die falsche Frage. Zu ergründen gälte es nicht, wie Armut entsteht, zumal Armut dem ursprünglichen Zustand des Menschen entspricht. Fragen sollte sie sich, wie Wohlstand entsteht. Täte sie dies, hätte der gewinnorientierte Unternehmer, der mit seinen Investitionen zahllosen Menschen ein Auskommen ermöglicht, wohl einen besseren Ruf beim Klerus.
On his blog, Roger Farmer advertizes his new book, “Prosperity for All,” and argues that governments should stabilize asset prices:
Following the Great Stagflation of the 1970s, economists backtracked and revived the classical economic theory that had dominated academic economics for a hundred and fifty years, beginning with Adam Smith in 1776 and culminating in the business cycle theory described by Keynes’s contemporary Arthur Pigou in his 1927 book, Industrial Fluctuations. That backtrack was a big mistake. It is time to realize that much, but not all, of Keynesian economics is correct. …
In my book Prosperity for All: How to Prevent Financial Crises, … I do not conclude that more government spending is the right way to cure a depression. Instead, I argue for a new policy in which central banks and national treasuries systematically intervene in financial markets to prevent the swings in asset prices that have such debilitating effects on all of our lives.
The control of asset prices will seem like a bold step to some, but so too did the control of the interest rates by the Open Market Committee of the Federal Reserve System when it was first introduced in 1913. We do not have to accept hyperinflations of the kind that occurred in 1920s Germany. Nor should we be content with the 50% unemployment rates that plague young people in Greece today. By designing a new institution, based on the modern central bank, we can and must ensure Prosperity for All.
And in another post:
The New Keynesian agenda is the child of the neoclassical synthesis and, like the IS-LM model before it, New Keynesian economics inherits the mistakes of the bastard Keynesians. It misses two key Keynesian concepts: (1) there are multiple equilibrium unemployment rates and (2) beliefs are fundamental. My work brings these concepts back to center stage and integrates the Keynes of the General Theory with the microeconomics of general equilibrium theory in a new way.
Link to slides of a presentation at the Peterson Institute.
According to Baldwin, the new globalization (since 1990) reflects the fact that
ICT enabled G7 firms to precisely control what goes on inside developing-nation factories.
The Word Economic Forum (apparently) has published my VoxEU article.
In the FT, Richard Milne reports about the Riksbank pondering to issue a digital currency.
There are considerable questions for Sweden’s central bank to answer about how a digital currency would work. Would individuals have an account at the Riksbank? Would transactions be traceable, unlike with cash? Would emoney earn interest?
Ms Skingsley said: “Personally I would like to design it in a way that is most like notes and coins.” That would mean no interest would be paid on it. But she added that the state had no interest in helping illegal activity, suggesting some form of traceability.
The Riksbank would also need to consider financial stability issues such as whether they would or should compete with commercial banks’ deposit base. Ms Skingsley said she was concerned that in times of financial instability citizens could transfer money to a state-backed electronic system, potentially increasing instability.
The Federal Council informs that the Federal Department of Finance and the Swiss National Bank have agreed on rules that govern how profits of the Swiss National Bank (SNB) will be paid out during the period 2016 to 2020:
Subject to a positive distribution reserve, the SNB will in future pay CHF 1 billion p.a. to the Confederation and cantons, as was previously the case. In future, however, omitted distributions will be compensated for in subsequent years if the distribution reserve allows this.
The Swiss Federal Council requests that
Parliament recommend to the people and the cantons rejection of the popular initiative “For crisis-resistant money: end fractional-reserve banking (Vollgeld initiative)”, without a counterproposal.
The Federal Council doubts that ending fractional-reserve banking would strengthen financial stability. It sees major risks for the Swiss National Bank’s credibility and for financial intermediation.
In the NZZ, Thomas Fuster and Jürg Müller interview David Autor. Autor on polarization:
Der Arbeitsmarkt wird immer polarisierter. Auf der einen Seite haben wir viele gutbezahlte, hochqualifizierte und interessante Stellen. Auf der anderen Seite stehen schlechter entlöhnte und niedrigqualifizierte Stellen, bei denen es quasi darum geht, dem Wohl und Komfort der Wohlhabenden zu dienen. Das ist keine gesunde Entwicklung. Sie schlägt Stufen aus der Leiter des wirtschaftlichen Aufstiegs. Das hemmt die Mobilität.
Between November 8 and 9, medium and long-term US Treasury Yield Curve rates increased substantially:
| Date | 1 Mo | 3 Mo | 6 Mo | 1 Yr | 2 Yr | 3 Yr | 5 Yr | 7 Yr | 10 Yr | 20 Yr | 30 Yr |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 11/01/16 | 0.24 | 0.35 | 0.50 | 0.65 | 0.83 | 0.99 | 1.30 | 1.61 | 1.83 | 2.24 | 2.58 |
| 11/02/16 | 0.24 | 0.37 | 0.51 | 0.64 | 0.81 | 0.98 | 1.26 | 1.57 | 1.81 | 2.22 | 2.56 |
| 11/03/16 | 0.24 | 0.38 | 0.52 | 0.64 | 0.81 | 0.98 | 1.26 | 1.58 | 1.82 | 2.25 | 2.60 |
| 11/04/16 | 0.25 | 0.38 | 0.52 | 0.62 | 0.80 | 0.95 | 1.24 | 1.55 | 1.79 | 2.22 | 2.56 |
| 11/07/16 | 0.28 | 0.41 | 0.54 | 0.63 | 0.82 | 0.99 | 1.29 | 1.60 | 1.83 | 2.26 | 2.60 |
| 11/08/16 | 0.28 | 0.43 | 0.56 | 0.71 | 0.87 | 1.04 | 1.34 | 1.65 | 1.88 | 2.29 | 2.63 |
| 11/09/16 | 0.30 | 0.45 | 0.56 | 0.72 | 0.90 | 1.12 | 1.49 | 1.84 | 2.07 | 2.52 | 2.88 |
Source: US Treasury.
From the New York Times:
More and more researchers adopt the programming language Julia.
India follows suggestions to fight tax evasion by taking high denomination notes out of circulation … and introducing new ones. Until the end of the year, Indians may exchange the old banknotes against new ones, at banks or post offices, by identifying themselves. On his blog, J P Koning discusses earlier demonetization episodes in Iraq and Sweden.
India’s move does not exactly follow the well publicized suggestions currently debated. But it might work.
US voters have abandoned political correctness. Have they also abandoned decency?
They have clearly voted for “change.” Eight years ago, they did the same.
They have voted against competence according to common standards. Maybe because they perceived competence to be correlated with “no change.” Maybe because they viewed competence as a weakness. Picking non-competent leaders can pay off in specific bargaining situations. In general, it is unlikely to pay off in the longer term.
Race was key. Whites strongly favored Trump over Clinton, and non-whites strongly favored Clinton over Trump. Non-whites will continue to grow as a share of the voting population.
Voters were unhappier than ever with the two candidates. Are they sufficiently unhappy to trigger the beginning of the end of the system of presidential primaries?
Some members of the old elite have lost. Who are the new members to follow them? How will the elites respond to this experience? By becoming more inclusive? Or by protecting themselves from the mob?
The new vision of American foreign policy is less clear than ever. Will the traditional US-allies rise to the challenge? European aerospace and defense stocks. US aerospace and defense stocks.
We have seen in the past how major political shocks can affect a country’s attractiveness for foreigners, its role as a cultural and scientific center, and in the longer run, its international influence. Will we see the same in the US?
How will the American election affect how other countries view the case for or against democracy (see earlier post)?
In the New York Times, Paul Krugman fears that America is a failed state and society. He writes
There turn out to be a huge number of people — white people, living mainly in rural areas — who don’t share at all our idea of what America is about. For them, it is about blood and soil, about traditional patriarchy and racial hierarchy. And there were many other people who might not share those anti-democratic values, but who nonetheless were willing to vote for anyone bearing the Republican label.
Food for All matches restaurants that miscalculated demand with hungry consumers.
On his blog, J P Koning discusses Kenneth Rogoff’s proposal to abolish high denomination notes (discussed earlier). Koning concludes:
I agree with Rogoff’s general point that it makes sense to burden cash users with ever more work since this burden disproportionately falls on heavy users like criminals. But Rogoff hasn’t yet convinced me that the status quo policy of gradually increasing the workload involved in cash usage (via inflation) needs to be sped up by a sudden removal of every bill above the $10. After all, the Swedes are setting an example of how a policy of gradualism can be twinned with tax policy in order to get some of the very effects that Rogoff advocates, namely pulling people out of the underground economy into the legal economy.
Koning refers to Martin Enlund’s post on the Nordea blog; Enlund suggests that decreased cash demand in Sweden may partly be due to policy reforms that rendered tax evasion less attractive.
Figure from Enlund blog:
The NZZ compares salaries of central bank governors. Switzerland comes first.
In a CEPR discussion paper, Jan van Ours and Yuxin Yao conclude that in the Netherlands,
for male workers there is a significant wage penalty of dialect-speaking while for female workers there is no significant difference.
Andy Borowitz in the New Yorker.
The Economist reports about a new digital currency platform, Zcash. The platform could handle more transactions than for example, Bitcoin. The open-source project backed by outside investors offers confidentiality:
Bitcoin obscures the identity of currency owners, but the “blockchain”, the ledger that keeps track of all the coins, is open and can be analysed to see the flows of funds. This is a serious barrier for banks: blockchains could reveal their trading strategies and information about their customers. Zcash, by contrast, shields transactions from prying eyes with a scheme based on “zero-knowledge proofs” (hence the “Z” in its name). These are cryptographic protocols proving that a statement (who owns coins, for instance) is true without revealing any other information (how many and where the money came from). And it is by selling this technology—called “zk-SNARK” (don’t ask)—to banks that Zcash, the company, wants to earn its keep.
In the New Yorker, Caleb Crain reviews the case. It’s a difficult case to make if most voters are uninformed.
Jamming the stub of the Greek word for “knowledge” into the Greek word for “rule,” Estlund coined the word “epistocracy,” meaning “government by the knowledgeable.” It’s an idea that “advocates of democracy, and other enemies of despotism, will want to resist,” he wrote, and he counted himself among the resisters. As a purely philosophical matter, however, he saw only three valid objections.
First, one could deny that truth was a suitable standard for measuring political judgment. This sounds extreme, but it’s a fairly common move in political philosophy. After all, in debates over contentious issues, such as when human life begins or whether human activity is warming the planet, appeals to the truth tend to be incendiary. Truth “peremptorily claims to be acknowledged and precludes debate,” Hannah Arendt pointed out in this magazine, in 1967, “and debate constitutes the very essence of political life.” Estlund wasn’t a relativist, however; he agreed that politicians should refrain from appealing to absolute truth, but he didn’t think a political theorist could avoid doing so.
The second argument against epistocracy would be to deny that some citizens know more about good government than others. Estlund simply didn’t find this plausible (maybe a political philosopher is professionally disinclined to). The third and final option: deny that knowing more imparts political authority. As Estlund put it, “You might be right, but who made you boss?”
On VoxEU, Kevin Bryan nicely summarizes progress and the lack of it in developing theories of the firm.
On Marginal Revolution, Alex Tabarrok reports based on a NY Times feature that genetically modified crops do not deliver what they were expected to.
Jointly with the Journal of Monetary Economics and the Swiss National Bank, the Study Center Gerzensee organized a conference in honor of Bob King, long-term supporter of the Study Center.
Program: PDF.
Jaume Ventura’s discussion of a paper on trade and growth by Alvarez and Lucas: PDF.
My discussion of a paper on debt and debt constraints by Bhandari, Evans, Golosov, and Sargent: PDF.