Category Archives: Economic fundamentals

‘National Competitiveness: A Crowbar for Corporate and Financial Interests

We’ve regularly derided the notion of “national competitiveness” as a an inevitable accompaniment to the oversold notion of “free trade”. Economists are aware of, yet choose to ignore, the Lipsey-Lancaster theorem, which says when an idealized state cannot be attained, moving closer to it may not be an improvement; it can often produce worse outcomes. You need to evaluate the “second best” options specifically and not go on faith.

But economists and policy makers treat “free trade” as an article of faith, and with that comes the idea that countries must compete to find customers overseas. There is too little consideration of the fallacy of expecting countries to be competitive and by implication, seek to be exporters. It is impossible for all countries to be net exporters. Moreover, countries are often better served to design their policies primarily for the benefit of domestic workers and markets, and to promote export-oriented programs only to the extent that they do not undermine conditions at home, or will clearly produce a net benefit.

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Why Putin Doesn’t Need To Pander To The West

When sanctions were imposed and tightened against Russia, and oil prices plunged, conventional wisdom in the US press was that the Russian people would not tolerate a decline in living standards and therefore Putin’s days were numbered. In fact, Putin’s approval ratings rose and even most of his opponents in the Moscow intelligensia fell in behind him. Some analysts pointed out that sanctions seldom succeed and were unlikely to work on Russia. That view has become more prevalent as Russia has proven to be less dependent on oil revenues than widely assumed and Russia’s foreign currency reserves have stabilized.

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Why Did Commodity Prices Move Together?

As strange as it may seem, most economists loudly disputed the notion that the rise in commodity prices, particularly in the first half of 2008, was in large measure due to financial speculation. More and more analytical work (such as comparisons of price action in commodities trades on futures exchanges with ones that have large markets but are not exchange-traded, like eggplant, a staple in India, and cooking oil) have dented the orthodox view.

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Central Banks Warn: Investors May Get Crushed When They All Run for the Exits

This post illustrates how remarkably short investors’ memories are. Or they may be betting that if they have a big enough hissy fit when monetary authorities raise rates, as they did during the taper tantrum of 2013, that central banks will lose their nerve.

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What Happened to the “Feel Good” Economy?

Even though this video is from December (hat tip Philip Pilkington), it gives an informative and nuanced explanation of the rise in income inequality and consumer debt levels, and how they play into our unimpressive “recovery”. The interview of Steve Fazzari and Barry Cynamon by Marshall Auerback discusses how the rise of inequality has many drivers, but the biggest appears to be financialization which is so pervasive and well-protected politically as to make it hard to roll back. It also put focus on key metrics that often get lost in conventional coverage. For instance, inflation and productivity adjusted wages would now need to be over $20 to match the levels of the 1960s.

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