Unemployment rates across the OECD member countries
30 Jul 2015 Leave a comment
in business cycles, currency unions, economic growth, Euro crisis, job search and matching, labour economics, labour supply, macroeconomics, unemployment Tags: employment law, employment regulation, EU, Euro sclerosis, Euroland, Eurosclerosis, Japan, labour market regulation
Is the socialist solution to the Greek economic crisis working?
25 Jul 2015 Leave a comment
in budget deficits, business cycles, currency unions, economic growth, Euro crisis, fiscal policy, global financial crisis (GFC), international economics, law and economics, macroeconomics, monetary economics, property rights Tags: capital controls, capital flight, Greece, labour exodus, sovereign defaults
For down and out Greeks, the U.K. is the promised land with jobs aplenty bloom.bg/1Lwcc55 http://t.co/XHHXxdTUiN—
Bloomberg Business (@business) July 24, 2015
@Income_Equality there’s an Internet you know – was there next to no unemployment prior to the mid-1980s in New Zealand?
24 Jul 2015 Leave a comment
in business cycles, econometerics, economic growth, economic history, job search and matching, labour economics, labour supply, macroeconomics, politics - New Zealand, Public Choice, unemployment, unions, welfare reform Tags: antimarket bias, Don Brash, economic reform, expressive voting, Homer Simpson, Leftover Left, lost decades, makework bias, neoliberalism, rational ignorance, rational irrationality, Sir Roger Douglas, Twitter left
Today, Closing The Gap – The Income Inequality Project boldly claimed today that there was next to no unemployment in New Zealand prior to the onset of the curse of neoliberalism.
There is an Internet on computers now where it is easy to find data showing that the unemployment rate was rising rapidly in New Zealand in the 1970s and in double digits by the end of the 1980s – see figure 1.
Figure 1: harmonised unemployment rates, Australia and New Zealand, 1956-2014
Source: OECD StatExtract.
Figure 1 shows unemployment was rising rapidly in the 1970s and wasn’t much different by the end of the 1970s to the unemployment rates recorded after about 2000 in New Zealand.
One of the reasons that Sir Roger Douglas wrote There’s Got To Be A Better Way was the rapidly rising unemployment in New Zealand and the stagnant economic growth in the late 1970s and early 1980s.
New Zealand was one of the most regulated economies, so much so that Prime Minister David Lange said:
We ended up being run very similarly to a Polish shipyard.
As for those jobs on the railways, the then Reserve Bank Governor Don Brash said in 1996:
Railways cut its freight rates by 50 percent in real terms between 1983 and 1990, reduced its staff by 60 percent, and made an operating profit in 1989/90, the first for six years.
More on unemployment: In 1955 the New Zealand’s prime minister knew all unemployed personally.
– Atkinson’s new book http://t.co/x37Vxya97C—
Max Roser (@MaxCRoser) July 24, 2015
Finland is the poster child for why the euro doesn’t work
24 Jul 2015 Leave a comment
in business cycles, currency unions, economic growth, Euro crisis, global financial crisis (GFC), macroeconomics Tags: Euro land, Finland, recessions and recoveries, Sweden
Herbert Hoover and the onset of the Great Depression
23 Jul 2015 Leave a comment
in business cycles, economic history, economics of regulation, great depression, industrial organisation, labour economics, macroeconomics, unions Tags: Herbert Hoover, Lee Ohanian
Unemployment rates by education in the USA
21 Jul 2015 Leave a comment
in business cycles, economics of education, global financial crisis (GFC), great recession, human capital, job search and matching, labour economics, labour supply, macroeconomics, unemployment Tags: education premium, labour market demographics
June jobless rate for people 25+ with
B.A. or more 2.5%
High school diploma 5.4%
No H.S. 8.2%
on.wsj.com/1LG1B6z http://t.co/luUUuw9h1V—
Sudeep Reddy (@Reddy) July 02, 2015
French, German, Italian, Irish and Spanish equilibrium unemployment rates, 1968 – 2016
19 Jul 2015 Leave a comment
in business cycles, economic growth, economic history, fiscal policy, job search and matching, labour economics, macroeconomics, unemployment Tags: Celtic Tiger, equilibrium unemployment rate, Eurosclerosis, Germany, Ireland, Italy, natural unemployment rate, Rance, Spain
Figure 1 shows large contrasts in time path of equilibrium unemployment rates. For example, French and Italian equilibrium unemployment rates haven’t changed much since about 1986.
Figure 1: equilibrium unemployment rates, France, Germany, Italy, Ireland and Spain, 1968 – 2016
Source: OECD Economic Outlook June 2015 via OECD StatExtract..
Figure 1 also shows some fortuitous ups and downs in the German equilibrium unemployment rate. This estimate was available only from after German unification.
The equilibrium German unemployment rate rose from 6% to above 8% on the eve of the global financial crisis. Fortunately for Germany, major labour market reforms brought the equilibrium unemployment rate down as Germany moved into the global financial crisis.
The Spanish equilibrium unemployment rate had been terrible since about 1980, started to fall in the 1990s, then skyrocketed even before the onset of the global financial crisis – see figure 1.
There have been ups and downs in the Irish equilibrium unemployment rate – see figure 1. It was as high as 14% at the end of the Irish great depression of the 1970s and 1980s. The equilibrium Irish unemployment rate was 8% at the heyday of the Celtic tiger then slowly rose in the lead up to the global financial crisis.
Equilibrium unemployment rates in Canada, USA and UK, 1962 – 2016
18 Jul 2015 Leave a comment
in business cycles, job search and matching, labour economics, labour supply, macroeconomics, unemployment Tags: British economy, Canada, equilibrium unemployment rate, natural unemployment rate
Figure 1 suggests a lot more structural change in the Canadian and British labour market in the 1970s and 1980s.
Figure 1: equilibrium unemployment rates, Canada, USA and UK, 1962 – 2016
Source: OECD Economic Outlook June 2015 via OECD StatExtract.
Nothing much at all seems to have happened to the equilibrium unemployment rate in the USA since the OECD first started calculating it. I doubt that so that will be subject of a future blog. Namely, the large changes in natural unemployment rates in the post-war period, largely to demographic changes such as the baby boom.
Was the Chinese share market crash rational asset-price movements without news?
14 Jul 2015 1 Comment
in business cycles, entrepreneurship, financial economics, macroeconomics Tags: competition as a discovery procedure, dot.com bubble, entrepreneurial alertness, event studies, learning by doing, sharemarket bubbles, sharemarket crashes
Large share market crashes such as over the recent months in China and the 1987 Wall Street crash do not necessarily imply an economic slowdown.
As the stock market gets rocked, let's remember this one thing about the crash of 1987 businessinsider.com/lets-remember-… http://t.co/BDgy5h5UN0—
Elena Holodny (@elenaholodny) August 21, 2015
The majority of major share market movements occur without any particular news hitting the market. Studies of the 50 largest share market movements in the US stock market between 1946 and 1987 found that the majority of them could not be explained by news. That includes the 1987 share market crash. In October 1987, shares fell by 20% in one day for no obvious reason.
China's stock market selloff explained in 6 charts bloom.bg/1HStJSe http://t.co/0CpoU21RpY—
Bloomberg Business (@business) July 13, 2015
David Romer explained these booms and busts, including the 1987 share market crash in two ways: investor uncertainty about the quality of other investors’ information; and dispersion of information and small costs to trading:
Asset prices can change because initially the market does an imperfect job of revealing the relevant information possessed by different investors and because developments within the market can then somehow cause more of that information to be revealed…
The possibility of imperfect aggregation implies an alternative to external news and irrationality as a potential source of asset-price movements: some price changes may be caused by “internal” news.
That is, asset prices can change because initially the market does an imperfect job of revealing the relevant information possessed by different investors and because developments within the market can then somehow cause more of that information to be revealed.
Either of these models are perfectly plausible. Investors learn from each other through trading and improve their estimations of the value of various shares.
#China Reality Check: #Stocks Are Still Too Expensive for @MarkMobius bloom.bg/1Monzct via @business @frostyhk http://t.co/e3Lv3KwgTZ—
Fion Li (@fion_li) July 13, 2015
As such, through internal learning and discovery within the share market there can be booms and crashes despite no new information, no communication, and no coordination among the participants in trading. Underneath the surface, there is a gradual updating of information by the participants and at a certain point in time, this causes a sudden change of behaviour.
Dow and Gorton made similar points to David Romer about how share market learning is a process of learning, judgement and error correction rather than an instant adjustment:
Strategic interaction and the complexity of the information result in a protracted price response.
Indeed, equilibrium price paths of the model may display reversals in which the two traders rationally revise their beliefs, first in one direction, and then in the opposite direction, even though no new information has entered the system.
A piece of information which is initially thought to be bad news may be revealed, through trading, to be good news.
Bubbles and crashes are consistent with private information held by a few slowly dispersing among market participants until this knowledge was reflected in stock prices as in Hayek’s (1945) analysis of the price mechanism as a means of communicating information.
HT: The one thing you should remember about the stock market crash of 1987 | Business Insider.
Greek and US great depressions compared
14 Jul 2015 Leave a comment
in business cycles, currency unions, economic growth, economic history, Euro crisis, global financial crisis (GFC), great depression, great recession, job search and matching, labour economics, macroeconomics, unemployment Tags: Greece
https://twitter.com/ianbremmer/status/620570062538309632/photo/1
Greek Depression vs US Depression:
Unemployment http://t.co/81efYi5Ajy—
ian bremmer (@ianbremmer) July 13, 2015
Financial crises surprisingly common, but few countries close their banks
10 Jul 2015 Leave a comment
in business cycles, currency unions, economic history, economics of regulation, Euro crisis, financial economics, global financial crisis (GFC), law and economics, macroeconomics, monetary economics, property rights Tags: bank runs, banking crises, banking panic, financial crises, Greece, sovereign default
Financial crises surprisingly common, but few countries close their banks pewrsr.ch/1NQyz2P #Greece http://t.co/pK0sfB49Ka—
PewResearch FactTank (@FactTank) July 09, 2015
Why Greece joined the Euro
06 Jul 2015 Leave a comment
in applied price theory, applied welfare economics, budget deficits, business cycles, comparative institutional analysis, constitutional political economy, currency unions, economic growth, economic history, Euro crisis, fiscal policy, fisheries economics, global financial crisis (GFC), international economics, macroeconomics, Public Choice, rentseeking Tags: Euro sclerosis, Greece, insurance attacks, sovereign defaults, speculative attacks
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk.
After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.
Michael Dooley put forward a theory of speculative attacks on currencies as insurance attacks on currencies for emerging markets after the East Asian financial crisis:
First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behaviour.
Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations.
In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets.
Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks.
We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time.
His model was not within the context of a currency union but his basic theory is correct.
There are speculative attacks on a currency or a bank run after foreign markets revises their estimates of the available central bank reserves and international lines of credit to bail out the banking systems and/or foreign debt.
Michael Dooley was dealing with the emerging economies of Southeast Asia and their official lines of credit that insure their foreign exchange liabilities and domestic banking system. Greece is about lines of credit for similar purposes to other European union member states.
via 12 charts and maps that explain the Greek crisis – Vox and The Most Important Graphs of 2011 – The Atlantic.
The reason why New Zealand should rule out helping Greece!
06 Jul 2015 Leave a comment
in budget deficits, business cycles, currency unions, economic growth, Euro crisis, financial economics, fiscal policy, global financial crisis (GFC), macroeconomics Tags: bank runs, banking panics, Eurosclerosis, Germany, Greece, sovereign defaults
Greece is a tiny part of the European economies so it doesn’t matter that much to the rest of the European Union what happens to Greece. The only people will notice the sovereign default of Greece once the breathless journalism has died down are Greeks themselves as they rebuild their banking and monetary system against a background of a government run by coffee shop Marxists.
Utopia, you are standing in it! 
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