One of my business ideas has recently been implemented. My former colleagues at KBC launched a platform where small business owners can find entrepreneurs who want to take over an existing company.
I had this idea when a well-run shop for fishing gear and pet products in my hometown closed down. The owners retired and none of their children was interested in continuing their work.
This was a shame, because a lot of know-how and service to customers was lost. The owners missed out on the sale of a profitable business. A sale of the going concern could have yielded much more than selling separate assets. For the bank, a sale would have brought the opportunity to manage extra retirement funds. In addition, it could offer a loan to the new owner, sell insurance, payment solutions etc.
As I regularly have ideas for startups or other business opportunities that I cannot pursue myself, let me share an idea that I had today. Feel free to implement it! You can thank me later when you’re a millionaire.
Engineers at the US Navy are developing a robot shark. They intend to use this robot to patrol around ships and in harbors. It is normal that the Navy explores military applications first.
A clever startup could market such robots as lifeguards.
But such devices could find widespread civilian use. A clever startup could market such robots as lifeguards. Imagine a robotic lifeguard loaded with sensors that can detect when a swimmer is in trouble. And that can grab them and bring them to the surface or to shore. This would give extra support to human lifeguards. And because it is seaborne already, a robot shark would cut down valuable intervention time.
The market for such a device would be huge. Think of all the swimming pools and beaches that would want to improve the safety of their bathers. Or robot sharks could assist in saving drowning migrants in the Mediterranean.
Central banks (CentBs) have drastically expanded their balance sheets in the wake of the global financial crisis. The Federal Reserve (Fed) and the European Central Bank (ECB) followed the example of the Bank of Japan (BOJ) by buying trillions of dollars and euros worth of long-term bonds, a policy known as quantitative easing (QE).
The CentBs make these purchases by “base money”, i.e. cash and reserves. Neglecting legal restrictions, CentBs can create base money at will.
There is a lot of controversy among economists about QE and its consequences for the balance sheets of central banks.
This post discusses the question of whether or not base money should be considered a liability of the central bank. After that issue is understood, we can clarify when the CentB can book a profit and how this affects government finances.
One of the stated goals of QE is to raise inflation. Some worry that once this happens, rising interest rates will cause massive losses to the central bank, resulting in unspecified “bad things”. I argue that these fears are unjustified. Continue reading “Central bank liabilities and profits”
A conflict with Turkey and Russia on opposing sides. The violence causes a stream of refugees towards Europe. Are we talking about Syria in 2016?
Although history never repeats exactly, there are a remarkable number of similarities between events of today and what happened in 1864. Over 150 years ago, there also was a caliphate and terror motivated by religion.
The Ottoman Empire has fought a series of wars against czarist Russia. These great powers had conflicting interests in the territories bordering the Black Sea.
When Russia conquered the Caucasus in 1864, it ethnically cleansed the indigenous peoples. Hundreds of thousands of Islamic Circassians fled to the Ottoman Empire. Many of them went to the Ottoman provinces in the southern Balkans, what is now Romania and Bulgaria. Continue reading “The sultan, the czar and the refugees”
What is helicopter money (HM) supposed to accomplish? Advocates of HM believe that HM acts as a stimulus which increases the level of economic activity. In this post, I construct a simple model and show in detail how it works. The steady state economy – an economy with a constant aggregate nominal income and expenditure per time – is described first. Next, the effect of reduced spending and income of the agents is illustrated. And then it is discussed how the economy can be returned to its previous steady state of spending.
What are the assumptions behind the model? And what is the scope of this post?
- The economy is closed, there are no inflows from or outflows to the “rest of the world”
- There is one single currency
- Only nominal amounts and flows of money are considered in this post.
The effects of stimulus on prices and exchange rates will be discussed in later posts.
Easy numerical examples are used throughout this blog post. As I wrote before, this avoids the hidden inconsistencies that many words-only economic commentaries suffer from. The reader can check the logic of the model and expand it further for his own use. This should make it a powerful analytic tool for economists. I am planning to frequently use this model for further research, to answer questions regarding balance of payments and transfers between economic classes.
Continue reading “Helicopter money part III: economic stimulus”
The rise of Donald Trump and the Brexit referendum have led to a lot of commentary on democracy itself. Understandably these comments usually come from people who dislike the outcome. But that does not mean they do not have a point.
This article looks at the democratic process up to the casting of the ballot. How the votes are counted, what is done with the result, how votes are translated into representatives and policy, the influence of non-elected lobbyists on legislation… is outside the scope of this post.
If this post comes across as cynical, it’s probably because it describes reality.
A lot of pundits have a cartoonish view of democracy, which can be summarized as follows:
- People get informed on issues, programs and candidates
- Voters weigh the arguments
- A rational evaluation leads to a decision in the form of a vote
Even if commentators do not actually believe this is how it works, their opinions betray that they think it is how democracy should be in the best of worlds.
Let us now scrutinize how elections work in reality. As always on this website, we take a step by step approach to make all assumptions explicit. As a thought experiment, a number of possible changes to the existing election process are suggested. I pose some fundamental questions that should be answered by those who are not satisfied with the status quo.
Continue reading “How to win votes”
The rise of Trump should interest everybody in “the West” for two reasons. First of all, many problems faced by the United States are similar to those in Europe. Secondly because of the immense economic, political and above all cultural influence America has on the world.
The media portray Donald Trump as a sexist, a racist and an ignorant warmonger.
Is this picture correct? Why are so many voters attracted to him? This post lists the items put on the political agenda by the Trump campaign.
Slogan: Make America Great Again
Summary: America First
Enforcing immigration law. This means that illegal immigrants – who by definition broke the law – should be deported from the USA. A wall at the border with Mexico should prevent future illegal immigration. Trump links illegal Mexicans to crime. His adversaries reinforce this point by burning the American flag and waving Mexican flags while harassing his supporters at one of his rallies.
Continue reading “What voters like about Donald Trump”
As I know a thing or two about helicopter money, I like to help out when people have misconceptions about it. American economics professor Brad DeLong recently accused Claudio Borio, Piti Disyatat, Anna Zabai of manufacturing objections against helicopter money on his blog and on Twitter. I reacted to the tweet of DeLong, pointing out that Borio et al. had raised a valid point.
When I checked back to see if DeLong had replied, it turned out that he had blocked me. As I am new to Twitter, I thought that maybe I was blocked because DeLong received too many messages from me.
Continue reading “Manipulating Brad DeLong suffers from status anxiety. Sad!”
Helicopter money (HM) is money printed by the central bank that is given to the people. Figuratively speaking, Mario Draghi would fly over the Eurozone and drop new €50 bills out of a helicopter to the population below. In the first part of this series, I explored the possible sources of HM. The current post looks at the political constraints that prevent the ECB from firing up the engines of its helicopters. Continue reading “Helicopter money part II: politics”
Scientists build models that capture the essence of some observed phenomenon. The models that I like best are strongly simplified. This in contrast to very complex and non-transparent models that try to replicate every aspect of reality. Good models allow us to gain insight into something we observe by using a limited number of key concepts. I use simple models to be explicit about the underlying assumptions and to be consistent. Continue reading “My favorite type of model”
I was doing some research for a post about how the Trump presidential candidacy exposes the political biases of economists. But then I came across the blog of Scott Sumner. Professor Sumner has been teaching economics for over 25 years. Mr. Sumner is an advocate for a monetary policy called NGDP targeting. He also hates Donald Trump.
What I found stunning while reading Dr. Sumner’s articles are not his political views, but rather how poor his understanding of financial economics really is. As an exercise, I recommend that you take a look at these three articles. Can you identify his implicit assumptions and outright false claims? Continue reading “Quiz: Can you spot the economic errors of Scott Sumner?”