Coronavirus economics: dangerous hacks versus credible voices

The coronavirus pandemic once again demonstrates that a lot of prominent economic commentors are dangerous. Their recommendations will amplify the economic shock caused by the virus.

People who claim that

  • the coronavirus is not the job of central banks
  • this is mainly a supply chain issue
  • we have to beware of the long term consequences of doing fiscal/monetary stimulus now
  • we should continue business as usual

are spreading falsehoods.

Don’t listen to that guy!

Here is a selection of people who do grasp the importance of acting now in order to prevent an economic meltdown later.

Scott Sumner and David Beckworth: How central banks should respond to the coronavirus threat (podcast)

John Cochrane: Corona virus monetary policy

Skanda Amarnath:

Larry Summers is a VSCO girl. On central banks, fiscal stimulus, and why you should read Eric Lonergan

In case you’re not familiar with teen culture, VSCO girl is a fashion trend.

Surely, the Very Serious People who think about central banks are not susceptible to such fads, right?

I regret to inform you that the Very Serious economists and central bankers are just as prone to trends as teens on TikTok.

Continue reading “Larry Summers is a VSCO girl. On central banks, fiscal stimulus, and why you should read Eric Lonergan”

OK doomer

Beleggen houdt risico’s in.

Maar niet beleggen ook.

Journalisten zijn dol op “experts” die voorspellen dat er een beurscrash komt. Doemberichten zorgen voor clicks.

Analisten van de Amerikaanse bank JP Morgan hebben een overzicht gemaakt van hoeveel geld je liet liggen door hun voorspellingen op te volgen. De resultaten zijn ontnuchterend: tot 60%…

Niemand heeft een glazen bol. Trap dus niet in de val van de media en negeer het nieuws. Je portefeuille zal je dankbaar zijn.

Why the pension fund report of the OECD is bunk

Click on the blue bird (top right in the tweet below) to read the whole thread on Twitter. It also works if you don’t have a Twitter account.

I know that life insurance is important in France thanks to my research for Bankers are people, too.

From page 92:

“In France, the reserves in such insurance savings vehicles make up the largest component of household financial assets.” – Jan Musschoot in ‘Bankers are people, too’

Central banking analogies

Economists are fond of analogies to describe technical ideas.

Most of those analogies are confusing and/or useless. As I wrote in the introduction of Bankers are people, too:

Economists and journalists writing for lay audiences tend to use metaphors when explaining financial concepts. For example: ‘Cheap credit is like heroin. It’s addictive, and the economy can overdose from it.’ That may sound nice, but what does it even mean?

Continue reading “Central banking analogies”

Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)

This post explores the consequences of deeply negative interest rates set by the ECB, as proposed by professor Miles Kimball. It’s a shorter version of my previous post, plus an estimation of the economic stimulus of the proposal. Continue reading “Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)”

Should central banks have an Independent Evaluation Office?

Should the European Central Bank (ECB) have an independent evaluation office (IEO)? Benjamin Braun recently asked this question on Twitter.

My first reaction was: probably not, because the ECB already evaluates its past performance. However, after more thought, I have changed my mind. This post examines some recent failures of central banks; how an IEO could improve monetary policy going forward1; and what it would take for the IEO to be an effective department rather than a paper tiger. Continue reading “Should central banks have an Independent Evaluation Office?”

Problems with Christopher Balding’s analysis of Chinese banks and currency

Professor Christopher Balding has published a blog post with his views on the link between the China’s banking system and its currency: Can China Address Bank Problems without Having Currency Problems?

He believes that “it is much more likely that if there are systemic banking issues that currency problems will also arise.”

It is laudable that Prof. Balding summarizes his arguments. By being explicit about the assumptions, readers don’t just have to trust his opinion. Instead they can follow the logic and evaluate the strong and weaker points themselves.

The goal of this post is to counter some of the points listed by Balding to support his conclusion. Continue reading “Problems with Christopher Balding’s analysis of Chinese banks and currency”

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.