The Political Economist

In the previous blog I analyzed the stunning divergence between the markets and the real economy. I emphasized three particular reasons for why this is happening: (1) huge monetary and fiscal stimuli that started the V-shaped rebound on the markets in March; (2) exuberant (and by all means irrational) expectations driven primarily by the so-called retail investors (the subject of one of my next blogs), and (3) the asymmetry between firms driving the market (the top 5 big tech firms) vs the unlisted SMEs laying people off and declaring bankruptcies.  In this blog I will touch upon the potential instabilities of the first effect: the monetary and fiscal stimuli.  While the stimuli were designed to calm the market panic back in March, its continuation - particularly from the Fed - is creating massive instabilities elsewhere. Specifically, there is ample evidence of a growing monetary bubble , unavoidable fiscal instabilities due to rising debts and deficits, and even a potentia...

The US National Bureau of Economic Research (NBER), the official tracker of the US business cycle, declared that the recession in the country started in February 2020 . According to NBER February was the peak of the business cycle as jobs already started disappearing (even though the huge COVID-driven unemployment claim spikes didn’t happen until mid-March ). Over the next month and a half over 42 million Americans found themselves out of work. The official unemployment rate shot up to 14.7% in April (it was 3.5% in February), and has declined back to 10.2% in July, as a more encouraging sign of a recovery driven by business re-openings. Due to the effects of COVID-19 the uncertainty in the economy is still huge, and is still the biggest it has ever been according to the Economic Policy Uncertainty Index . Almost every graph we see during the pandemic has a label “unprecedented” attached to it; we are usually looking at a very steep exponential curve facing up (for unemployment, unce...

Ever since the financial crisis of 2007-2009 and its subsequent (slow and modest) recovery  many have claimed the world has entered into a state of prolonged stagnation. In addition to economic growth being relatively low (and therefore not enough to close the potential GDP gap caused by the crisis), real wages are also stagnating, unemployment is still high (although in relative decline), inflation is close to zero, while productivity growth is sending troublesome signals for some time now. This is particularly true of Europe, as it bears the strongest resemblance to Japan , and is on a good course to repeat Japan's (still ongoing) two decades of stagnation (more on emulating Japan in my next text).  We all know the story. I, for one, have told it many times on the blog (see here ,  here , here , here , here , here or here ). After the financial crisis, which usually tends to cause prolonged and slow recoveries, many governments adopted stimulus and bailout program...

I haven't made any comments on the results of the 2015 UK elections  (and by now it's a bit late), even though I'm pleased to say I was correct in predicting its final outcome back in January . I say this with particular pride since none of pollsters got it right . Some 'pundits' even said there was going to be a grand coalition between Conservatives and Labour (see their texts published in the Guardian , Sky , BBC , HuffPost ). What a bunch of baloney.  Anyway, what caught my attention in the economic debates regarding the electoral results was this FT column by economic historian and Harvard professor Niall Ferguson. He makes a compelling case that the main reason why the Conservatives won a landslide election, amid the polls saying it was going to be the closest election in decades, was the economy. Economic voting From an economic voting perspective it makes sense. There's a huge literature out there linking electoral results to economic per...

This week I had an opportunity to attend an international conference "Challenges of Europe: Growth, competitiveness and inequality" , where the keynote speakers were none other than 2001 Nobel prize winner Joseph Stiglitz , and Columbia University professor Jan Svejnar .  I went there to present a paper I co-authored with two Croatian economists, Dejan Kovac and Nikola Kleut. The paper is called " How do firms respond to anticipated shocks? Duration analysis of Croatian companies throughout the crisis ". The paper is pretty good, but let's be honest, that was clearly not the main reason I went there - the main reason was to get to know people like Stiglitz and Svejnar. Which I can happily say I did.  From left to right: myself, Prof Joseph Stiglitz, and my friend and co-author Dejan Kovac The keynote speeches from the two notable economists were both very interesting, but also quite different. Svejnar went first and presented his paper called "D...

Japan has been such a perplexing country in terms of its economy for the past two decades. A country riven by a slow, government-driven recovery has tried everything: from massive monetary stimuli which has kept interest rates really low for the entire period, to massive fiscal stimuli which resulted in a >230% of Japanese debt to GDP (which is ok apparently since the majority of this debt is held by domestic entities - or is it? ). It's hard to think of any country going through the same painful experience. Up until today that is. It seems that a similar scenario awaits the UK and Europe - stagnant economies at least for a decade if not longer, with rising debt levels and low productivity.  However 20 years of no growth (the two lost decades) have finally taken its tolls and the idea was to replace them with something new and yet untried, so to speak. Abenomics , the set of economic policy measures applied by Japanese PM Shinzo Abe , appears to be just what the country n...