Krugman & Verhagen on Economic Bubbles

TaxCredit/Flickr

The well-known Noble prize winning economist, Paul Krugman, seems to be gaining more and more attention as a New York Times columnist than he ever had as a regular economist. Maybe in these times of admiration for fame and celebrities, Krugman should consider joining a reality show, if he really wants to influence the world outside the U.S. and possibly in other galaxies. Anyway, his latest column, This Age of Bubbles, questions why we've experienced so many economic bubbles since the late 70s. After the housing bubble in the U.S. and Western-Europe from a few years ago, before that the dot-com bubble, then the Asian bubble of the 1990s, and the real estate bubble (in the U.S.) of the 1980s, it seems now the BRICs with Brazil, India, and other emerging markets are hitting the proverbial economic walls. Krugman says:

"What’s going on? It’s a variant on the same old story: investors loved these economies not wisely but too well, and have now turned on the objects of their former affection. A couple years back, Western investors — discouraged by low returns both in the United States and in the noncrisis nations of Europe — began pouring large sums into emerging markets. Now they’ve reversed course. As a result, India’s rupee and Brazil’s real are plunging, along with Indonesia’s rupiah, the South African rand, the Turkish lira, and more."

After referring to the Federal Reserves policy of lowering interest rates and financial deregulation in the U.S. and around the world, Krugman concludes:

The Economic & Political Tale of Two Countries (part 2): Holland & Belgium

A few days ago, I mentioned in my post The Economic & Political Tale of Two Countries: Holland & the UK , how Holland and the U.K were being linked  together with statistics about declining incomes and increasing popularity of far right parties in their respective countries.
Now Holland is again being compared, this time unfavorably to Belgium by no one less than economics Nobel prize winner and New York Times columnist, Paul Krugman, in a blog post titled, A Tale of Two Flat Countries.

He responds to an earlier blog post by Oxford economics professor Simon Wren-Lewis about the similarities between the UK and Holland, and says:

"The Netherlands, in particular, has the kind of Grand Bargain the Washington Post editorial page dreams of — a government of national unity committed to fiscal austerity. It’s as if Harry Reid, John Boehner, and President Obama had all agreed to implement Simpson-Bowles, with some extra front-loaded cuts thrown into the bargain too. And here’s the thing: it’s not working. So what you have is a frustrated populace, finding no “respectable” politicians willing to challenge a failing orthodoxy (i.e. my comment: austerity measures during recession)"

Krugman agrees with Wren-Lewis that it's a dangerous state of affairs if only extremist political parties (far right and far left) agree that there is a failing orthodoxy, while the established governments follow the wrong course and their citizens become frustrated and angry.

The Dilemma of Ecuador's Oil Drilling in Unique Rainforest

(Rainforest River Toucans/FlickrRedfish1223)

"Six years ago, President Rafael Correa of Ecuador offered the world what he considered an enticing deal: donate $3.6 billion to a trust fund intended to protect nearly 4,000 square miles of the Amazon jungle and his country would refrain from oil drilling in the rain forest.", The New York Times reports today.

“...The world has failed us,” President Correa said as he withdrew the offer in a nationally televised news conference on Thursday night. “With deep sadness but also with absolute responsibility to our people and history, I have had to take one of the hardest decisions of my government.” 

What happened here? First, potential reserves of 800 million barrels of oil were found  in the Yasuni national park in Ecuador, one of the most bio diverse places in the world. The oil reserves were valued at $7.2 billion, and Ecuador came up with a plan in 2007 to raise half of the expected proceeds, $3.6 billion in 12 years, from other governments, institutions, and rich and famous individuals, and then it would refrain from opening up this unique rainforest to oil drilling.

Some governments paid something. So did Al Gore, Leo DiCaprio and Bo Derek among others. Coca Cola, airlines and banks also contributed. But no leading conservation groups participated, and "the German development minister, Dirk Niebel, said that the principle of paying for the oil not to be exploited "would be setting a precedent with unforeseeable referrals"." There was also criticism that even if the money would have been raised, Ecuador's government would not have been able to manage those sums and the protection of the park, its native inhabitants and wildlife.

See the following video clip:

Detroit Sufferes from Globalization & Executive Arrogance

Ian Ransley Design/Flickr

Since the city of Detroit filed for bankruptcy, many voices have expressed their opinions about this situation, who is to blame, can Detroit be rescued, is this a sign of times to come, what about other cities and towns etc.

Now a thoughtful op-ed article in The New York Times by Stephan Richter, publisher of The Globalist, an online magazine, puts the causes of Detroit's downfall in perspective, a combination of globalization and arrogance by the executives of U.S. manufacturing companies are at cause. Not only the future of Detroit is at stake, but the future of U.S. workers and manufacturing. Richter states:

 "The traditional narrative holds that globalization, outsourcing and, after 2007, the recession have been responsible for devastating American manufacturing by moving jobs out of the country in enormous numbers. But at best, that is a convenient half-truth.

The Economic & Political Tale of Two Countries: Holland & the UK

The Netherlands and the UK are both  mentioned in recent reports with bad economic news.  After reports listed in my previous blog Europe & Euro Still in Hot Waters , I'm now referring to reports by the OECD and by the UK House of Commons Library, that real wages in the U.K. and the Netherlands declined the most in the Euro area over the last three years , after Greece and Portugal. Real wages declined by 5% in the U.K. and by 4.5% in the  Netherlands, while the decline in the Euro area as a whole has been less than 2%. This news was obviously not well received in the UK and the Netherlands:

On the British BBC, shadow Treasury minister Cathy Jamieson said:

"These figures show the full scale of David Cameron's cost of living crisis.......Working people are not only worse off under the Tories, we're also doing much worse than almost all other EU countries."

In the Dutch newspaper De Telegraaf, one of their financial columnists Harry Geels writes about the ongoing "impoverishment" of Holland, which according to Geels actually started in the 1990s and was partially caused by accepting too low of an exchange rate for the Dutch guilder, when it joined the new Euro in 2000 (to understand the background of this too low exchange rate, Dutch readers can read his report "De Wisselverlieszaak" (or "The Case of the Exchange rate Loss".)

As so often is the case, economics influences politics, and Oxford University economics professor Simon Wren Lewis, describes the similarities in political trends in both countries,

U.S. Companies Up - Workers Down

(Serge Melki/Wikimedia Commons)

In case we didn't know the exact numbers of declining wages and rising profits , here they are in Floyd Norris' article "U.S. Companies Thrive as Workers Fall Behind" in The New York Times:

"American companies are more profitable than ever — and more profitable than we thought they were before the government revised the national income accounts last week. Wage earners are making less than we thought, in part because the government now thinks it was overestimating the amount of income not reported by taxpayers.......

.... Revising those figures down meant that workers as a group appeared to be doing even worse than they had appeared to be doing. And that was none too well. Before the figures were revised, it appeared that wages and salary income in 2012 amounted to 44 percent of G.D.P., the lowest at any time since 1929, which is as far back as the data goes. But the revisions cut that to 42.6 percent, which matched the revised 2010 figure as the lowest ever.

The flip side of that is that corporate profits after taxes amounted to a record 9.7 percent of G.D.P. Each of the last three years has been higher than the earlier record high, of 9.1 percent, which was set in 1929."

The question is how much longer can this trend continue. I guess people are either resilient or complacent, like the proverbial frog in a kettle of hot water. Read the rest of the article and have a look at the clarifying charts.

The World's Wealthiest Man Bids for Dutch Phone Company KPN

The New York Times reports that America Movil, a Mexican telecommunications company owned by Carlos Slim, the wealthiest man in the world with a net worth of $73 billion,  offers to buy the remaining 70% stake in the Dutch phone company KPN that it did not already own for $9.6 billion. The stage seems to be set for an economic battle with globalization showing its power: Mexican entrepreneurship, international shareholders, the possibility of a competing bid by a Spanish telecom company and all of this complicated by Dutch political and strategic interests.

The New York Times states:

"The prospective deal is the culmination of more than a year of planning by Mr. Slim, and may set off a flurry of deal activity as rivals position themselves ahead of a major revamping of Europe’s telecommunications sector.

“Valuations for a lot of companies are very cheap, and that creates an opening for people to take advantage,” said Emeka Obiodu, principal analyst in the telecommunications strategy team at the consultant Ovum in London. “It represents an appetizing target.”

The offer to buy KPN represents América Móvil’s largest takeover effort ever outside Latin America, and comes after a deal last year to increase its stake in Telekom Austria, another European operator, to 23 percent."

One reason why América Móvil might be making this offer, is to block the takeover of KPN owned E-plus, a German mobile phone operator by Spanish telecom company Telefonica. América Móvil and Telefonica are each other's biggest competitors in the Latin American telecom market. 

Besides the economic arguments of this deal for América Móvil and the KPN shareholders, other issues may play a key role as well for Dutch interests.

$325,000 Artificial Hamburger Developed by Dutch Scientist

Hamburgers by uberculture/Flickr

Last Monday, a hamburger made of synthetic meat, using stem cells of a cow, was presented and tasted by a panel of experts in London. It has taken several years and $325,000 to develop by Dutch Professor Mark Post of Maastricht University, which announced "this event due to the need to find a sustainable solution to food production." The idea behind it is that with increased prosperity around the world demand for meat will increase in the coming decades, while current meat production is not sustainable nor sufficient to meet this growing demand.

See what the taste experts say about the taste of this "meat' in this clip.

Clearly not yet as tasty as "real" meat. See also the following interview by Allan Little of BBC's Hardtalk with Professor Mark Post:

After Newsweek, the Boston Globe, and the Washington Post, What's the Future for Newspapers?

(Flickr by NS Newsflash)

"Just $250 million.That’s all Jeffrey P. Bezos paid on Monday for The Washington Post, which was once worth several billion dollars.
$70 million. That’s all John Henry paid on Friday for The Boston Globe, a paper The New York Times had acquired for $1.1 billion in 1993. Next to nothing. That’s what IBT Media paid to buy Newsweek over the weekend from IAC, which itself had paid only $1 plus $40 million in pension obligations to buy it two years ago. 

How do you explain the prices that these storied media institutions have been sold for over the last 72 hours?" That's the question posed by Andrew Ross Sorkin, merger & acquisitions reporter in The New York Times article: "Billionaires' Latest Trophies Are Newspapers"

One answer comes from......

The Deteriorating Dutch Economy and the Euro

After I just mentioned in a previous post, Europe and Euro Still in Hot Waters , that more and more European pundits are becoming pessimistic about the Euro-zone, now several media report about the deteriorating situation in the Netherlands.

First, Floyd Norris reports in the New York Times, Jobs Recovery in Europe Is Also Painfully Slow, that:

"The number of unemployed workers in the euro zone fell in June, the European Union’s statistical agency estimated this week. The decline was not large — 24,000 jobs, or 0.1 percent of the 19.3 million people out of work in May. But it was the first month in more than two years that there had been a decline."

 But then the article continues:

Detroit: an Austrian, Marxist & Trendwatcher's View

(Ian Ransley Design/Flickr)

Since Detroit has filed for bankruptcy many pundits have given their different views. Now the financial blog Zero Hedge offers a nice synopsis of three different opinons, that of Lew Rockwell, libertarian and founder of the Ludwig von Mises Institute; that of Richard D. Wolff, Professor of Marxist Economics (whom I featured in a previous post on Detroit, Detroit Bankruptcy: Spectacular Failure or good for Tax Payers? ; and last but not least, Gerald Celente, trend forecaster and publisher of The Trends Journal 

With thanks to Zero Hedge, please read here Detroit, An Austrian, Marxist and Trendwatcher's View.

Europe & Euro Still in Hot Waters

(European Politicians, Robin Hood Tax/Flickr)

Although it's summer, and  many Europeans are away on vacation, the European economic situation seems to be getting again in hot waters, according to more and more experts. The influential financial blog, Naked Capitalism, just posted the following: European Pundits Starting to Give Up on the Eurozone.

First, quoting an interview by Roger Strassburg of the German blog NachDenkSeiten with U.S. (neo-Keynesian) economist James Galbraith while on his visit to Europe,  who was asked about his views on the situation in Europe:

"Roger Strassburg:  You weren’t against stimulus, though, were you?
James Galbraith:  I am against the use of that word as a description of any viable economic strategy.  Absolutely, I’m against the use of the word “stimulus”.  I think it should be purged from the vocabulary of anybody advocating an effective alternative to austerity, because it is not an effective alternative to austerity.


RS:  And the alternative would be?
JG:  The first necessity is to stabilize the patient, who is on the verge of collapse.  This is not about stimulus, it’s not about returning to growth, or returning to full employment, this is about preventing a disaster which will lead to the breakup of the Euro Zone and the European Union, and will lead in that direction in my view quite soon if nothing is done.  So that’s what I’ve been talking about over the last month...........

JG: The test of it (i.e. European deposit insurance) is that you want to avoid a situation in which there is a panic, a capricious run on the banking system, and I don’t think the Europeans are there.  And, of course, the problem that they have is that if it’s the national authority that’s paying out, then the bankruptcy of the state basically means that the deposit insurance fund isn’t credible, this is why it has to be done on a collective basis.

RS:  There’s a lot of resistance to that here.
JG:  Well, that may be, but, you know, nobody is safe in this situation.

NSA, Google, Online Snooping Goes Beyond Big Brother

Senator Frank Church – in the late seventies chairman of the Senate Foreign Relations Committee, and chairman of the famous “Church Committee” which investigated abuses in the U.S. intelligence agencies–said in 1975 (!):

"The National Security Agency's  capability at any time could be turned around on the American people, and no American would have any privacy left, such is the capability to monitor everything: telephone conversations, telegrams, it doesn’t matter. There would be no place to hide...... I know the capacity that is there to make tyranny total in America, and we must see to it that the NSA and all agencies that possess this technology operate within the law and under proper supervision, so that we never cross over that abyss. That is the abyss from which there is no return."


This was almost 40 years ago, and we are again in the same or actually deeper trouble. Government(s) now can collect all data about its citizens and non-citizens they want, because they have the technology and we, citizens, are willingly using any kind of device that enables this spying. But government is not the only party that does this, Google (you know, those guys whose motto is "Don't be evil") is another entity that follows our every step online. And they are probably not alone.


Let me refer here to two interesting blogs that show how being online offers no privacy or personal security whatsoever. Mish's Global Economic Trend Analysis summarizes a few news stories about this online snooping, NSA tool collects "Nearly Everything You Do On the Internet"; Targeting Journalists; What Google Knows About You; Warrantless Cellphone Tracking Upheld"

and  specifically have a look at the blog......

80% of US Adults Near Poverty vs. Increased Corporate Profits

Serge Melki/Wikimedia Commons

While the stock market is reaching new highs and corporate profits are doing better and better, as stated before these numbers don't tell the full story. According  to a recent AP survey "80% of U.S. Adults Are Near Poverty, Rely on Welfare, or Are Unmployed," and "Pessimism among whites about their families' economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63 percent of whites called the economy "poor."
 
Among the other findings:


- More than 19 million whites fall below the poverty line of $23,021 for a family of four, accounting for more than 41 percent of the nation's destitute, nearly double the number of poor blacks.

- For the first time since 1975, the number of white single-mother households who were living in poverty with children surpassed or equaled black ones in the past decade, spurred by job losses and faster rates of out-of-wedlock births among whites.
 -  By 2030, based on the current trend of widening income inequality, close to 85 percent of all working-age adults in the U.S. will experience bouts of economic insecurity.

The seriousness of these findings is only enhanced by the knowledge that just 400 persons in the U.S. have as much in assets and income as the bottom 50% of the Americans (and for that matter, the richest 300 persons globally have more than the poorest 3 billion.)


See also comments by the blog.....: