Remember Actually, lobbyists are good?
I wrote
it seems that the ECB is way ahead of the Federal Reserve when it comes to green central banking
Indeed, new ECB President Christine Lagarde acknowledged her institution’s climate responsibility at the European Parliament…
…and the European Investment Bank (EIB) will stop financing fossil fuel energy projects.
The hard work of the “climate and finance lobbyists” pays off!
Banks do not create money out of thin air. That’s the title and argument of an article by Pontus Rendahl and Lukas Freund in VOX.
Unsurprisingly, people on Twitter took issue with the authors’ claim:
I find this polemic boring and unproductive.
Boring, because I explained the misconceptions surrounding “money from thin air” in Bankers are people, too. (If you have a copy of the book, see page 38).
It’s also unproductive, because a slogan is not an insight. VOX claims to provide ‘Research-based policy analysis and commentary from leading economists’. It’s a sad state of affairs if leading economists produce more heat than light by using slogans.
Scientists don’t argue about slogans. Insight follows from identifing the relevant mechanisms or from looking at empirical findings, not from these endless ‘debates’.
That’s why Bankers are people, too contains so many drawings of simple balance sheets and discussions of behavior and incentives. I wanted to be crystal clear, not become yet another vague economics guru.
Do better, economics community…
How big is the economy? It’s a crucial question in economics. It’s also the title of a chapter in Bankers are people, too (pages 119-122).
Gross domestic product (GDP) is a measure for economic output based on market prices. This means that unpaid (e.g. domestic) work is not included in GDP, although we find it valuable.
As consumers, we also benefit from free digital services (email, messaging apps, maps, search engines…) that didn’t exist 40 years ago.
But how much do people value these digital services?
In How should we measure the digital economy, Erik Brynjolfsson and Avinash Collis try to measure just that. They introduce ‘GDP-B’, a metric which ‘augments’ GDP with the consumer wellbeing from free stuff. The whole article is worth a read.
For example, they argue that “Facebook alone has created more than $225 billion worth of uncounted value for consumers since 2004” and that “including the consumer surplus value of just one digital good—Facebook—in GDP would have added an average of 0.11 percentage points a year to U.S. GDP growth from 2004 through 2017.”
For more on the difficulties of GDP, read Economics is hard.
Productivity isn’t everything, but in the long run it is almost everything.
Paul Krugman
International datasets on productivity:
EU KLEMS (‘measures of economic growth, productivity, employment, capital formation, and technological change at the industry level for all European Union member states, Japan, and the US’)
CompNet (‘micro-based competitiveness dataset for European countries, unprecedented in terms of coverage and cross-country comparability’)
I currently have a backlog of 28 (!) posts and 3 book reviews.
Writing is hard 🙁
Useful post on FT Alphaville about GMO’s value investing thesis. The reason why value investing has underperformed might be due to the lack of inflation.
The Belgian Financial Forum and SUERF held a colloqium about cross border financial services in Europe.
An impressive line-up of speakers from the public and private sector discussed why European banks don’t sell more services outside their home countries.
Some pointed out that regulation is still fragmented along national borders – despite the banking union.
But the recurring theme of the day was the lack of profitability. There is no business case for mergers and acquisitions. Countries like Germany and Italy have way too many banks.
The industry would be better off with fewer players, but nobody wants to take over small banks with wafer-thin margins.
You can read my Twitter thread about the event here.
The slides of the presentations are available here.
In a 2017 blog post, I wondered why Germans remember the hyperinflation of the Weimar Republic era.
Nils Redeker, Lukas Haffert and Tobias Rommel have recently published a paper about this very question. In Misremembering Weimar: unpacking the historic roots of Germany’s monetary policy discourse, they show that
most Germans do not know that Germany’s interwar period was shaped by two separate crises, but rather see them as being one and the same.
Furthermore,
Looking back into a skewed version of their own history, many Germans conclude that mass unemployment and high inflation are just two sides of the same coin. What makes this worse is that this misconception is especially prevalent among well-educated and politically interested Germans. Hence, the group of people following the ECB’s monetary policy most closely is also the group most likely to draw the wrong lessons from German history. But public thinking about Weimar economic history is not just substantially flawed. We can also show that the skewed memory of the Weimar Republic still affects the way in which at least some Germans think about monetary policy today.
Update 15/02/2020: The following comment on a FT Alphaville article about German financial assets corroborates Redeker et al‘s thesis:
The commenter is probably well-educated, or he wouldn’t read Alphaville. But he makes two mistakes. First of all, the hyperinflation did not occur in the 1930s. Secondly, there is a logical inconsistency. If Germans fear hyperinflation, why do they hold 40% of their assets in currency and deposits? That doesn’t make any sense, as a new hyperinflation would make these assets worthless.
AI will disrupt finance, but not in the way some tech bros think.
In a viral thread, David Heinemeier Hansson describes how Apple Card discriminates against his wife. Nobody at the company can explain how the algorithm makes its decision. Just “computer says no”.
That’s the kind of bureaucratic horror you expect from an old-fashioned state-run company. Ironically, Apple markets its credit card as “built on the principles of simplicity, transparency, and privacy” and “Created by Apple, not a bank”.
Yeah, I’ll stick to my bank, thanks.
If you can’t explain your AI, lawsuits are coming.
Long lawyers, short black box AI.
Pseudonymous banking expert Johannes Borgen recently discussed the impact of low interest rates on European life insurers. Because insurers discount the value of their liabilities, low rates are a huge problem.
But as Johannes Borgen points out, the regulator lets insurers use a hypothetical long term rate that “is a f**** joke. IT IS NOT EVEN REMOTELY LOOKING LIKE REAL WORLD INTEREST RATES ; which mean that all insurer liabilities are grossly undervalued.”
Yikes.
You can read his thread here: https://threadreaderapp.com/thread/1184391852046409729.html
By the way, yieldbug is a term used by Bloomberg journalist Joe Weisenthal to troll people who believe they deserve to receive interest on their risk free investment.