It’s not often you hear investment strategists write so cheerfully about redistribution, but then again it’s 2016, so anything goes:
Happily, the fiscal flip this summer has thus far been more biased toward redistribution & Keynesianism rather than protectionism. For example: Read more
The European Union’s economy is a “sinking ship” and Britain would be better off “detaching itself” from the bloc, Michael Gove, the U.K.’s Justice Secretary and prominent leave campaigner told CNBC on Tuesday.
“By voting to leave we can not only take back control of hundreds of millions of pounds that we send to the European Union, we will also be detaching ourselves from the sinking ship that is the European Union economy,” Gove, who is hoping for a Brexit vote on Thursday’s referendum, said.
– Britain needs to jump from EU’s ‘sinking ship’: UK lawmaker (June 21, 2016).
We would never defend the economic management of the euro area, which is often conflated with the policies recommended by the European Union as a whole. But it’s worth noting most of the UK is actually quite poor compared to large areas of Western Europe, and particularly deprived relative to greater London. Read more
This is from the LSE’s Tirthankar Roy and can serve as an appetiser of sorts to our talk at Camp Alphaville with Nandan Nilekani, Mihir Sharma, Facebook’s Richard Allen and author and critic Brett Scott about so-called tech colonialism and the fun that was Free Basics (a proposal by Facebook to give limited access to a number of websites for free) being shut down in India.
It’s broad stuff but you’ll see why we’re highlighting it:
Let me start with a statistical parallel. If we divide Indian GDP into three segments – agriculture, government, and private enterprise outside agriculture (industry, trade, transport, and financial services, mainly) – we observe that between 1900 and 1947 there was impressive growth in private enterprise, and inertia in agricultural income and the government. After the economic liberalisation of the 1990s, that is, between 1990 and 2016, there was again much faster growth in non-agricultural private enterprise than in agriculture and the government. In the middle decades of 1950-1990, when India followed a deeply protectionist and insular policy, private enterprise moved relatively slowly.
What was similar between the colonial times and the post-reform years? The answer is openness.
Last week Donald Trump, in his usual provocative manner, called out Amazon.com for having “a huge antitrust problem”.
Leaving aside Trump’s tendency for headline-grabbing theatrics, the real question is: does he have a point?
We think yes. In fact, we think he probably didn’t go far enough. After all, it’s not just an Amazon issue. It’s a FANG complex and beyond issue.
And we’re not the only ones. In the last week Joseph Stiglitz has knocked it out of the park in terms of articles lamenting the scale of monopolism today. On Friday in the Guardian, Stiglitz noted for example: Read more
This might get zeitgeist-y, but stay with us.
It’s basically the idea that extreme events and outcomes are getting more common, in part because systems are getting more complex — it’s played out through inequality stats and in the polarisation of politics, geography, the economy and markets.
It’s also charted by Citi’s Matt King in his latest note: Read more
This guest post from credit strategist William Porter was provoked by the Goon Watch series on FTAV. Have a glance at that, if you haven’t already, then come back to read this considered smackdown…
——————– Read more
The social instability that comes alongside creative destruction — or ‘disruption’ — is often justified by the notion that unemployment effects are only temporary since in the long run a multitude of new jobs (many of which we can’t even imagine yet) will inevitably be created.
Well, a new Oxford Martin School study by Carl Benedikt Frey and Thor Berger has found…
- Only 0.5% of the US labour force is employed in industries that did not exist in 2000.
- Even in Silicon Valley, only 1.8% of workers are employed in new industries
- The majority of the 71 new ‘tech’ jobs relate to the emergence of digital technologies, (such as online auctions, video and audio streaming and web design) but also include renewable energy and biotech.
- New jobs cluster in skilled cities, making economic activity increasingly concentrated and contributing to growing regional inequalities.
Morgan Stanley are revisiting the idea that the world has seen its peak working-age population growth come and go.
They’re also, we think, revisiting a favourite slogan of ours even if they can’t say it explicitly:
The two key cohorts of the labour force – the prime working age population and the aged – are likely to find themselves in a political battle. As the ranks of the aged swell, their political clout will increase significantly. The prime working age population will not have quite the same ability to grow its influence through numbers. However, what they will have on their side is a declining supply of a commodity – labour – whose price is likely to be on an upward trend. The compensation for the loss of political power to the aged may thus be something that workers counter-balance by seeking higher wages, given that they will not be able to withhold their own supply of labour, i.e., they will not be able to quit their jobs.
Peter Orszag has a new column arguing that insufficient attention is being paid to “profits at some companies well in excess of what’s necessary to keep them in the market” as a source of inequality. This is far from being an original idea, although we appreciate Orszag’s citation of data on factory-level productivity.
However, we were struck by an odd omission. While Orszag is quick to note the importance of patents and land values, he leaves out any mention of the large subsidies enjoyed by the financial sector. (Orszag is paid several million dollars a year as a vice chairman at Citi.) That obscures a lot. Read more
Another data point for those keeping track of the impact of “Abenomics”, via a recent speech by Bank of Japan governor Haruhiko Kuroda:
Split in half the six years from the start of the US recession at the end of 2007 through the end of last year, and consider them as a pair of three-year periods.
In the first period — from 2007 through 2010, and which we’ll refer to as the crisis years — wealth inequality in the US spiked while income inequality actually contracted quite aggressively, the latter a reversal of the pre-recession trend. “Crisis years” isn’t a perfect label, as the recession actually ended in mid-2009, but it’s good enough for our purposes here. Read more
The Federal Reserve has just released its Survey of Consumer Finances for the year 2013.
These surveys occur every three years, so this is the first comprehensive update we have gotten about the distribution of income and wealth in the US since the economy hit bottom four years ago.
The most striking finding is that the median American family earned 5 per cent less in 2013 than in 2010 after inflation even though the average American family took home 4 per cent more.
Gary Jenkins of LNG Capital confesses in a note on Friday that reading Piketty’s Capital in the 21st century was not an easy affair. Here’s the strategy he resorted to in order to get through the 577 pages of the book:
We commented yesterday on a column by Martin Wolf that considers how the economy will change as robots become ever more intelligent. The rise of the machines will indeed present society with multifaceted challenges; super-rich robot owners, however, are unlikely to represent one of them.
The fear of exploding inequality from robots is widespread. Wolf writes: Read more
Ryan Avent takes issue with my take on Piketty. He makes two points, which I’ll address in turn.
First, the French data [Smith] considers is a bit of an outlier. You can download Mr Piketty’s data tables (in French) here and see the figures for Britain and America. In Britain the recent rise in the capital-income ratio is about two-thirds attributable to housing and one-third attributable to other domestic capital. In America growth in other domestic capital is actually more important than growth in housing.
A hat tip to reader @zapatique for sending us to Thomas Picketty’s recent lecture, which previews the forthcoming English-language edition of his new book (click here to open pdf):