What I like about America, finance edition

Or to be more precise, debate about the financial institutional framework edition.

How should banks be regulated? Ten years ago, this question would have only interested a few specialists. Discussions about bank supervision and the role of the central bank were way too boring for the general public1. Besides, bankers surely knew what they were doing?

The global financial crisis and its aftermath changed this complacent attitude. The existing rules did not prevent the worse financial crisis since the 1930s. Governments had to bail out banks at a moment’s notice. Politicians took drastic decisions during the panic of September 2008. While those actions were taken with little democratic oversight, national leaders2 were the only agents willing and able to stop the collapse.

The crisis spurred a thorough update of bank regulation. Both in the United States and in Europe, legislation was passed to make banks safer. Avoiding a repetition of ad-hoc bailouts became a priority. The U.S. got its Dodd-Frank Act. The European Union (EU) set up the European Banking Authority (EBA) and worked towards a banking union3. America and Europe implemented capital and liquidity standards based on the Basel III recommendations. Continue reading “What I like about America, finance edition”

Disagreement and critique

The internet offers an endless stream of analyses and opinions. On this blog, I sometimes comment on articles written by people who have a large audience. My disagreement with better known commentators is regularly confused for arrogance. “What do you know, dude? You are a blogger, the other guy is a professor.” Such statements show how easily people refer to authority1 instead of critically evaluating the arguments.

Source: XKCD

When I point out dubious logic, that does not mean the authors have nothing interesting to say. Quite the contrary, I often agree with them on many points. But pinpointing disagreements and calling assumptions into question can be very insightful. So when I critique for example Paul Krugman or Geert Noels, I’m not saying “neglect these fools”. I hope that readers will take into account my point of view, and confront it with that of others. I am no contrarian for the sake of being a contrarian.

This ideal dynamic is illustrated by historians David Wootton and Joel Mokyr. Mokyr’s book A Culture of Growth: The Origins of the Modern Economy explains why Western Europe was the first region in the world to make sustained technological and economic progress. In his review, Wootton summarizes the thesis put forth in the book. Then, he argues that the story is incomplete. In the comments below the review, both gentlemen defend their points of view.

That is one of the advantages of the internet. Well-informed contributors can quickly challenge opinions. I have learned a lot over the years from (often anonymous) online commentators. It is a shame many media have closed down the comment sections. Blocking feedback does not add to their credibility.

I would advise scientific journals to enable comments as well. Papers go through peer-review before they are published, but the reader cannot see these discussions. Commenting on a scientific article via a new publication takes a lot of time. Getting out new results and contradictory information faster would accelerate learning in all disciplines. Blogs can also expose disinformation.

If you don’t agree with me, you can always let me know in the comments!

Update 17/05/2017: Chris Said has a nice blog post on different levels of understanding. He calls the dialectic process of reaching the next level ‘Learning by flip-flopping‘. Open discussions as I advocate above are the means to transcend your previous, more basic knowledge.

Why do Germans remember the Weimar hyperinflation?

David Beckworth recently interviewed1 (podcast) professor Jesús Fernández-Villaverde. Among other things, they discussed the hyperinflation in the Weimar Republic, i.e. Germany after World War I. The economists ponder why a hyperinflation that occurred in 1923 has had such a large impact on German economists and central bankers, even to this day. After all, the NSDAP rose to power in the 1933, at a time of mass unemployment and austerity. This was almost a decade after the hyperinflation ended.

The professors get to the hyperinflation at 8:20 into the conversation. Fernández-Villaverde tells the story of how inflation got out of hand when French and Belgian troops occupied the Ruhr2. The Weimar government encouraged workers to resist the military occupation. Strikers were paid with money freshly printed by the Reichsbank, the German central bank. The combination of no real economic production with an increasing amount of Papiermarks tanked the purchasing power of the currency. The hyperinflation began. Continue reading “Why do Germans remember the Weimar hyperinflation?”

ECB should give money directly to citizens

The European Conservatives and Reformists (ECR) group in the European Parliament recently launched “Leer Geld”, an initiative led by MEP Sander Loones, to raise awareness about the effects of the monetary policy conducted by the European Central Bank (ECB).

The initiative is to be welcomed: monetary policy is too often overlooked by civil society, yet its impact on our lives has never been greater. Under its “quantitative easing” programme (QE), the ECB has been buying large quantities of government bonds since 2015. Surely injecting the equivalent of 20 percent of GDP into the eurozone finance sector cannot be without consequences. (continue)

You can read the full article written by me and Eric Lonergan at EUobserver.

So little time (reading list)

I have wanted to write a series on power in democracies ever since my How to win votes post from June 2016. Being elected is not enough (or necessary) to have real power. Policy need to be implemented. There can be opposition from civil servants and judges appointed by previous regimes1. The press can selectively report on what politicians are (not) doing.

Unfortunately, I haven’t found the time yet to write down my general ideas on power, as I have been too busy with my book on banking. But right now, the Trump administration is exposing the hidden assumptions many commentators have about democracy. This makes the Trump regime a great case study for anyone interested in real world politics, rather than the fantasy version2 many people desperately want to believe in.

If you’re bored with the (very annoying and unoriginal) “Waaah, Trump is a meanie” fluff you can read everywhere, here are some interesting articles:

On leadership and politics:

This is why authoritarian leaders use the Big Lie (by Xavier Marquez)

Why do rulers follow the rule of law? Thoughts on Trump, Erdogan, and history (by Jared Rubin)

On institutions and the “deep state”:

Egypt’s failed revolution (by Peter Hessler)

Former Obama Officials, Loyalists Waged Secret Campaign to Oust Flynn (by Adam Kredo)

Hail to the Pencil Pusher (by Mike Konczal)

On life in non-democratic countries:

Everyday authoritarianism is boring and tolerable (by Tom Pepinsky)

On censorship and ideas:

Raining Frogs (by Isaac Simpson)3

On trade:

What exactly does Mexico export to the US? (by J. W. Mason)

On culture:

Origins of political correctness, Lugenpresse found in panics (by Brett Stevens)

On Political Correctness (by William Deresiewicz)

James Burnham’s Managerial Elite (by Julius Krein)4

What is global history now? (by Jeremy Adelman)

A Hard Future for a Soft Science (by Bradford Tuckfield)

Liturgy of liberalism (by Adrian Vermeule)

On big data and statistics:

Do You Trust Big Data? Try Googling the Holocaust (by Cathy O’Neil)

On psychology/convictions:

Why Facts Don’t Change Our Minds (by Elizabeth Kolbert)

Dopamine Puppets (by Scott Adams)

On sociology:

A Miscellany of Foundations and First Principles for the Study of Sociology (by “Dissenting Sociologist”)

On ethnic conflict:

The Lost World of West Philadelphia (by Devin Helton)

On monetary policy and central bank independence:

Why conservatives should fear a Trump Federal Reserve (by Peter Conti-Brown)

I’ll expand the list if I come across other good articles. Hat tip to pseudoerasmus and HappyAcres, who always share quality stuff.

Last update: July 14, 2017

Blog highlights of 2016

When I started my blog, I worried that there wouldn’t be enough interesting topics to write about on a regular basis. I was wrong…

Politically, 2016 was the year of Brexit and Donald “Mr. Brexit” Trump.

If you read one single article by me, let it be How to win votes.

Written shortly after the Brexit referendum, it anticipated what the mainstream media ‘discovered’ following the election of Trump. Including fake news, the role of hackers, online bubbles, demographic voting blocks, elite rejection of election results…

Rereading my piece What voters like about Trump, I can say that I covered all relevant aspects months before Trump’s victory forced the Belgian press to take him seriously. And I pointed out the backlash against social justice warriors which is also happening in Europe, e.g. due to their crusade against Zwarte Piet (note that my post was written in June!).

By clicking on the Trump tag, you can find more posts on Trump’s presidential campaign and the reaction of the press.

On finance and economics, I have written long posts on central banking, such as

How central banks influence interest rates by quantitative easing

Helicopter money part I, part II and part III

Central bank liabilities and profits

Furthermore, some economic posts exposed the errors of tenured professors. They should read my upcoming book!

The book I’m writing is a kind of Finance for dummies1. I need about one more month of editing before I can send it to a publisher. Check my blog in 2017 for updates on when it will be released. You can also follow me on Twitter.

There is nothing about Trump in my book, so his haters will also like it!

Annual reviews and other Soviet business practices

As the end of 2016 is quickly approaching, it is time to reflect on the past year. For people working in large bureaucratic organizations like banks and government, this means filling out performance evaluations. Organizations collect these records of their employees’ professional histories. Managers can use old reviews to motivate (non) promotions of their subordinates.

One intriguing aspect is the fact that employees are expected to write negative things about themselves. In management speak this is called “opportunities for growth” or some other bullshit term. But basically the writers have to incriminate themselves. The self-evaluation provides the proverbial rope for somebody to hang them with.

This reminded me about something I read in a book1 by historian Orlando Figes on the Soviet Union. Members of the Communist Party had to write an autobiography which was regularly updated. The higher-ups in the hierarchy could use these documents to control their underlings and their rivals.

The more you think about it, the more parallels there are between modern business life and Soviet society.

It is well known that corporations are not democracies nor markets. But this post focusses on the cultural similarities that caught my attention. Continue reading “Annual reviews and other Soviet business practices”

Social media warriors for Trump


Decades from now, historians will be discussing how the political outsider Donald J. Trump could win the American presidency from a career politician like Hillary Clinton.

While the memory is still fresh, I – as a foreign observer – want to highlight a part of the presidential race that has not been covered well by the press. Especially as censorship is rapidly destroying evidence of what has really happened.

This article documents an aspect of the online battle for the hearts and minds of the public that was not organized by the official Trump campaing team.

This is my report on the Meme War of 2015-2016. Continue reading “Social media warriors for Trump”

Trump predictions. Let me get some popcorn.

There is a Dutch proverb that says “een ezel stoot zich geen twee keer aan dezelfde steen”. Its literal translation is “a donkey doesn’t bump against the same stone twice”, but is usually translated as “once bitten, twice shy” or “a fox is not caught twice in the same snare”.

The proverb means that people don’t (or shouldn’t) make the same mistake twice. Even a dumb animal like the donkey is smarter than that.

Apparently, the political pundits are dumber than donkeys when it comes to Trump. For over a year, they have underestimated his chances. Here is a list of Trump predictions, in which the ‘You are now here’ marker has continuously moved down:


Not having learned from their embarrassing experience, the pundits cannot help but continue their failed predictions. Continue reading “Trump predictions. Let me get some popcorn.”

Don’t be an idiot like Paul Krugman

The electoral victory of Donald Trump has dumbfounded the pundits. Nobel Prize winner and political commentator Paul Krugman was very confident prior to the election that Hillary Clinton would win.

When the election results came in, he was shocked. Krugman admitted that he didn’t know the United States as well as he thought he did.

This was not surprising. Krugman is the prototype of a sheltered elite living in a bubble. How many Trump voters do you think he personally knows? Probably none. Rather, he inhabits an echo chamber full of likeminded people. Just to give some examples, I’m talking about people like Noah Smith, Brad DeLong, Paul De Grauwe and Simon Wren-Lewis.

All have academic backgrounds, cushy jobs, and liberal technocratic preferences. They all read papers like the New York Times. They all are given a forum in the quality press. The all “know” Trump is an incompetent idiot. They all “know” that “facts have a well-known liberal bias”.

In spite of their titles and influence, they were dead wrong about Trump. Continue reading “Don’t be an idiot like Paul Krugman”