A selection of links and thoughts that I stumble upon throughout the week – everything from economics to politics to philosophy to the occasional music video.
I. Cadet Bone Spurs’ Thirst for War
To the day seventy-three years after the US came out victorious of the Second World War in Europe, they have now all but abandoned the allies they once celebrated this victory with. In line with the billionaires that back him, the Comb-Over Caudillo has announced on Tuesday that the US will reimpose sanctions on Iran. Good luck receiving trust in future international treaties… Together with the apparently war-thirsty Israeli government, Agent Orange and his hawks (Pompeo, Bolton, etc.) are trying to fan fear of weapons of mass destruction in Iran – without a shred of evidence, of course – and are preparing for war. This reminds me so much of the 2003 war crimes, it makes me sick. Continue reading “Sunday Thoughts III (May 7-13)”
The unemployment rate in the United States is currently 4.4 percent and is at a ten-year low. Naturally, the Trump administration has been trying to interpret low unemployment numbers as a sign of their successful job-creating policy. This stands in strong contrast to comments that Trump made during his election campaign, alleging that the “real unemployment rate” was as high as 42 percent. But pre-inauguration Trump is not the only one who is concerned that the official unemployment rate does not fully capture the gap between the US economy’s current state and its full potential, often refered to as “slack”. Despite low unemployment numbers and a still very low interest rate, inflation has been timid, giving rise to theories that the slack in the US economy is higher than the unemployment rate might suggest. I take a brief look at falling labour force participation rates and underemployment to investigate the amount of truth in these theories and discuss implications and some potential remedies. Continue reading “Unemployment and Labour Force Participation in the US – Reliable Statistics?”
Ever since the Great Recession, central bank rates in all major developed economies have been on historic lows. The European Central Bank (ECB), whose official sole mandate is to maintain price stability, has lowered its rate even further to 0.00 percent in March in response to consistently low inflation rates across the Euro area, and the Bank of England (BoE), whose mandate combines maintaining price stability and supporting economic growth, has lowered its rate down to 0.25 percent in August, in response to the Brexit decision. Meanwhile, the Federal Reserve of the United States (Fed), whose objectives are maximum employment and stable prices, has increased its target rate to 0.375 percent in December for the first time in several years. However, at its most recent meeting in mid-September , the Fed has been reluctant to further increase its target rate due to an ongoing slow economic recovery and inflation rates below its 2-percent target (Inflation measures the yearly increase in consumption good prices). Consistently low inflation rates despite lengthy phases of expansionary monetary policy, even in countries that appear to be back on economic growth paths, are a concern for central bankers around the globe and puzzle many observers. In this article, I take a look at the case of the United States (simply because it provides by far the best data), derive the main two possible causes and argue in favour of a rate hike in combination with additional monetary and fiscal measures. Continue reading “Inflation, Growth and Monetary Policy – A Case Study of the United States”
On Friday, Eurostat, the statistical office of the European Union, announced that the unemployment rate in the euro area continued to fall in May, from 10.2 to 10.1 percent. While this constitutes a considerable recovery from its high of 12.1 percent in the second quarter of 2013, there is still a long way to go back to the pre-crisis level of 7.3 percent. Moreover, this number shrouds the highly diverse situation within the euro area, with Germany and Greece sitting at the two ends of the spectrum. Both countries entered the crisis with an unemployment rate of 7.5 percent in the second quarter of 2008. After a minor bump in 2009, the German labour market consistently strengthened and now stands at an unemployment rate of 4.3 percent in the first quarter of 2016. This development is mainly attributed to increased wage flexibility due to the so-called Agenda 2010 and the extended use of short-time labour subsidies during the crisis (e.g. Rinne & Zimmermann, 2012 and Krause & Uhlig, 2012). Once been labeled Europe’s “sick man”, Germany now has had the lowest unemployment rate in the euro area for more than two years. Greece, on the other hand, has fallen into a deep depression, intensified by the Greek government-debt crisis and, as argued by many, darkened by austerity policies (just whether budget cuts or tax hikes have been more devastating depends on whom you ask, for example Paul Krugman or John Cochrane). The unemployment rate mirrors this crisis, rising to a shocking peak of 27.9 percent in the third quarter of 2013 and recovering at a slower pace than the Eurozone average, considering pre-crisis levels, decreasing to 24.3 percent in the first quarter of this year. The youth unemployment rates (capturing the unemployment share of the active population younger than 25) present a similar picture.Continue reading “Unemployment in the Eurozone: A Tale of Two Countries”