Thomas Piketty: Capital in the twenty-first century


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Piketty presents himself as politically engagé, so it would be natural to cut to the chase and announce my view of whether he is a good guy or a bad guy, a comrade or an enemy.  That impulse is all the stronger because his title is a deliberate allusion to Marx’s great work, Das Kapital.  The title, after all, is CAPITAL in the Twenty-First Century, not Capital in the Twenty-First Century.  But I shall resist the temptation, because it would be a mistake.  There is a great deal to learn from this book whether or not one situates oneself where Piketty does on the ideological spectrum [as I do not], and that must be the focus of my attention in the first part of this discussion.

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Robert Paul Wolff — 3:AM Magazine

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How Iceland Dealt with a Volcanic Financial Meltdown


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Iceland was unique in that they handed over jail terms to bankers.

Gylfason believes that when a country goes through a major economic shock, in addition to getting its financial house in order – which Iceland successfully accomplished at the behest of the IMF — it also needs to clean up its act in the judicial and political realms. “We have a mixed picture here,” he says. “Thirty-nine bankers were awarded prison sentences by the Supreme Court of Iceland, to the tune of 2.5 years on average. This means the amount of prison time in man-years that the Supreme Court handed out is close to 100.” He admits some critics have alleged that “the small fry were sentenced, while the big fish got away. This raises sensitive questions about equality before the law. But we will know more once the Supreme Court hands out its last sentences in 2019.”

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Knowledge@Wharton

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The Bear Stearns Bailout, Ten Years Later


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Most of us remember the pains and uncertainty around that time. But, have we learnt the lessons?

During former Federal Reserve Chairman Paul Volcker’s famous remarks to members of the Economic Club of New York after details about Bear Stearns’ rescue by JP Morgan Chase and the Fed came out ten years ago, he pointedly observed that such actions carried an “implied promise of similar action in times of future turmoil.” The Fed’s intervention is commonly remembered as the start of a cycle of institutional collapse and government bailouts that defined the 2008 financial crisis. Volcker went on to observe that such crises have in fact been a “recurrent feature of free and open capital markets” and that “any return to heavily regulated, bank-dominated, nationally insulated markets is pure nostalgia.”

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Luzi Hail, Ahmed Tahoun, Clare WangInstitute for New Economic Thinking

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After Recessions, Why Do Some Jobs Disappear Forever?


Knowledge@Wharton: There are two things that I found quite interesting in your paper that I want to highlight for a minute. One is the finding that 88% of job losses in the so-called “routine” occupations — such as bank tellers, manufacturing plant jobs, and office clerks — happened during economic downturns, and this is a trend that has been going on since the mid-1980s. Interestingly, this was also around the same time when innovation and automation started to pick up. These two seem to be correlated. Are they?

Roussanov: This is exactly the main empirical fact that our model aims to explain or at least understand. We were not the ones who documented this fact, but this has become an important piece of information for macroeconomists to wrap our heads around — the fact that this job polarization process seems to be primarily happening during relatively short periods of time, which are recessions.

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Knowledge@Wharton

Student Loans Are Too Expensive To Forgive


The cost of the loan forgiveness programs exploded, in part, because policymakers did not correctly estimate the number of students who would take advantage of such programs, according to higher education scholar Jason Delisle. Now there’s an emerging consensus that some programs should be reined in, but ideas on how much and in what ways vary by party affiliation. Senate Democrats just introduced a college affordability bill that focuses on creating “debt-free” college plans by giving federal matching funds to states that, in turn, would figure out ways to help students pay for school. In the past, President Barack Obama acknowledged the need to require borrowers to repay more of their debts and made some proposals for modifying the programs’ rules. The GOP goes much further in its suggestions: A new proposal from House Republicans would eliminate some loan-forgiveness programs entirely.

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Amanda Palleschi — FiveThirtyEight

The Value of Measuring Financial Inclusion


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On the importance of measuring financial inclusion.

The latest Global Findex report informs us that 515 million individuals opened a “bank account” at a traditional financial institution or through a mobile money provider between 2014 and 2017. As a result, 69% of adults worldwide now have bank accounts, up from 62% in 2014 and 51% in 2011. This rise in financial inclusion is welcome news, not least because, in the event of a downward income shock, a household’s consumption will fall much less if it is linked to the formal financial sector.

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Kaushik Basu — Project Syndicate

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Equity markets are thriving but are they relevant?


The largest companies of 1956 were large by all measures — sales, market capitalisation, employment, and operating assets. No longer. Walmart and Hon Hai (better known as Foxconn) are today’s largest private sector employers, along with businesses like Compass, which might be regarded as global gangmasters.

Apple’s market capitalisation today exceeds $800bn, and Alphabet is not far behind. For both these companies, operating assets account for about $30bn of that value. Modern businesses like these employ very little capital, and such assets as they do use mostly need not be owned by the company that operates from them.

As a source of capital for business, equity markets no longer register on the radar screen.

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John Kay