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”
Quiz: Can you spot the economic errors of Scott Sumner?
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?”
The annual general meeting of KBC
I had a new KBC experience today, after being a lifelong customer and having worked for 5 years at the bank-insurance group. This time not as a client or as an employee, but as a (co-)owner of the company. The annual general meeting of shareholders was organized in the company’s Molenbeek1 headquarters this morning. Continue reading “The annual general meeting of KBC”
Does the Islamic State employ classicists?
The recent terror attacks by Islamic State (IS) in Brussels and Paris have shown once more that the terrorists are willing to sacrifice themselves for their cause. After the suicide bombings in Brussels, IS has threatened that more attacks will follow.
By doing this, they are following a strategy that is as old as the hills. Continue reading “Does the Islamic State employ classicists?”
The reason historical analogies are useful, is because hardly any political, social or economic problem is really new. The problem is that it is easy to cherry-pick some event from thousands of years of recorded history. That is why you always need to keep in mind that no situation will match the past 100%. However, what is interesting is that similar relations and feelings occur time and again between individual humans and groups of people. This leads people to use the same strategies1, no matter what time and place they live in, or what languages they speak or what clothes they wear. Continue reading “Historical analogies”
Trump and the media
Donald Trump is a genius. Don’t be fooled into thinking he is a brainless blowhard. The man is following a very rational strategy.
The entire business empire of Trump is built around his name. For years, he has cultivated the image of a successful rich self-made man who gets things done. His name is on his skyscrapers, and he was the star of the reality TV show The Apprentice.
When Donald Trump announced that he would be running for president of the USA in the summer of 2015, he had a wealth of experience in self-promotion and in using the media to his advantage. Continue reading “Trump and the media”
Helicopter bonds – A reply to Nick Rowe
It is not my ambition to police the blogosphere, but since helicopter money is such a hot topic, this post will point out some inconsistencies in yesterday’s post of Nick Rowe. Keep in mind that I do not criticize him as a person! I have a lot of respect for people who are open about their thinking process, free for the whole world1 to see. Especially when they have a professional stake in this (Dr. Rowe is a professor of economics).
I have copied Nick’s post below in its entirety and put it in italics. The pictures and normal text are mine. For ease of discussion in the comments or on Twitter, I have labeled the pictures as Cases. Continue reading “Helicopter bonds – A reply to Nick Rowe”
Helicopter money part I: where does it come from?
There is a lot of talk about helicopter money on economics blogs and in newspapers lately. As usual, accounting and drawing pictures to explain their ideas are not economists’ strong suit. The predictable result are heated discussions, but not much enlightenment1. This post gives an introduction into what helicopter money is and how it affects the balance sheets and income of economic agents. In a future post, I will explain what helicopter money is supposed to achieve and under which conditions it can be an appropriate macroeconomic policy.
The idea of helicopter money is exactly as the name suggests: money is thrown from helicopters, free for all to take. Formulated a bit less poetically, somebody gives all citizens of a country a certain sum of money. This immediately raises two questions: who throws the money, and where does the money come from? Continue reading “Helicopter money part I: where does it come from?”
How central banks influence interest rates by quantitative easing
On March 10, 2016, Mario Draghi announced that the European Central Bank (ECB) will purchase 80 billion EUR worth of bonds per month. That sounds pretty impressive. But how does the purchase of bonds by the ECB actually work? How does it affect debtors and savers? And what are the risks of this policy?
In this (long) post, I explain the mechanics of what the ECB is doing. Continue reading “How central banks influence interest rates by quantitative easing”
US government debt: 19.2 trillion USD
Belgium government debt: 440 billion EUR
US GDP: 18.3 trillion USD
Belgium GDP: 411 billion EUR