Tag: Free exchange
Is Mark Carney indispensable?
OVER the weekend, rumours flew that Mark Carney, the dashing Canadian at the helm of the Bank of England, might leave his job in 2018. (He initially promised to serve for five years, but a full term is eight, and many Britons hoped he would stay on.) An early exit for Mr Carney, who has been on the job since 2013, would be understandable. While Canada is the world’s great liberal icon, Britain is a mess. Not only must Mr Carney steer the British economy through the rough, post-referendum economic seas, but he has also faced criticism from Tory leaders, who are angry with Mr Carney for trying to warn Britons that Brexit would in fact be economically damaging.
This morning, the Financial Times reports that the rumours are wrong, and Mr Carney stands ready to serve a full term. One could practically hear the sighs of relief around the City. Yet is it right that so much should seem to ride on the presence or absence of one man?
Back in 2012,…Continue reading
The only thing we have to fear is fear of inflation
DON’T look now, but after years of lingering on the brink of (or in) deflation, rich economies are heading in a different direction. Inflation is rising, and a handful of economy watchers are worrying that accelerating price increases could «rattle global markets», as Mike Bird of the Wall Street Journal writes:
Rich-country government-bond prices tumbled Thursday, sending yields up on both sides of the Atlantic to levels not seen since the U.K.’s vote to exit from the European Union in June. In the U.S., the yield on the 10-year U.S. Treasury note surged as high as 1.847%, according to Tradeweb, its highest level in four months. Yields rise as bond prices fall. The German bund’s yield rose about 0.07 percentage point to 0.161% and the 10-year U.K. gilt yield was up about 0.10 percentage point to 1.259%, according to Tradeweb.
The rising yields are the latest sign that investors are bracing for what could be an epic shift across markets. In recent years, falling commodities, meager wage rises and insipid economic growth kept prices low and pushed investors into…Continue reading
Global imbalances, a pre-crisis scourge, are back
BRAD SETSER, an economist at the Council on Foreign Relations, is the author of a new discussion paper looking at «the return of the East Asian savings glut». A summary of his paper begins in arresting fashion:
The combined savings of China, Japan, Korea, Taiwan, and the two city-states of Hong Kong and Singapore is about 40 percent of their collective GDP, a thirty-five-year high.
Prior to the financial crisis, many economists fretted about the problem of global imbalances. Measurement error aside, global trade balances; surpluses in some countries offset deficits in others. Yet the magnitudes of those surpluses and deficits can be small or large. In the early 1990s, surpluses and deficits were each around 0.5% of global GDP. They expanded rapidly therefore, to about 2% of global GDP on the eve of the crisis. After shrinking dramatically during the crisis and global recession, imbalances have begun to rebound and are now back to about 1.5% of GDP.
Why do such imbalances matter? They can create problems in a few ways. Large surpluses can be a side…Continue reading
Wall Street v Main Street
In the first of our Economist Radio specials from Washington, Money Talks examines the Wall Street versus Main Street argument playing out in the election. Our Buttonwood columnist dissects how markets might respond to a Trump win. And award-winning MIT economist, David Autor, dissects the negative consequences of free trade
How much do China, Japan and America trade with the EU?
A POPULAR idea is floating around certain circles: that you do not need a deep trade deal with the EU in order to trade with them in a significant way. For instance, Guido Fawkes, a blog, points out that each year China trades with the EU to the value of half a trillion dollars. But China is not in the single market and so does not have to accept annoying rules and regulations. Japan trades a lot with the EU, but is not in the single market and does not have to accept free movement of labour (it has net migration close to zero, in fact).
This has implications for post-Brexit Britain, of course. The implication seems to be that Britain need not be in the single market in order to trade lots with the EU.
But take a closer look at the figures, and that rosy conclusion is thrown into doubt. It is true that America, China and Japan trade lots with the EU (our chart looks just at goods trade, which is easier to measure). But these countries are much, much bigger than Britain is. So, proportional to the size of their economies, they…Continue reading
Making sense of the Wallonian veto
IF CLEVELAND were given the right to veto any potential trade agreement between American and another country, how many trade agreements would ever be enacted? One reasonable guess is: none. If the federal government then deprived Cleveland of the right to veto trade agreements, would that be anti-democratic?
For those who missed the news: last week the parliament of Wallonia (one of the three regions which make up the state of Belgium) voted to block the Comprehensive Economic and Trade Agreement (CETA), which is an ambitious trade deal negotiated between Canada and the European Union. Wallonia’s population is less than 1% of that of the EU has a whole: comparable to the share of America’s population residing in the Cleveland metropolitan area. It seems slightly perverse that so small an area could block so important a deal which had been so long in the making. Especially when the other party in the deal in question is Canada, seemingly as innocuous a trade partner as one could wish for.
Dani Rodrik, an economist at Harvard University, says the vote is in large…Continue reading
Money has fled Ukraine for decades
IT IS an accepted fact that Ukraine suffers from a high level of «capital flight». The term refers to a process by which people pull money out of a country and buy foreign assets instead. Ukraine is highly corrupt. If you make money in Ukraine, you often want to get it out of there, lest someone else steal it from you. Ukrainian oligarchs are big fans of London property, where their capital is safe.
So we suspect there is capital flight from Ukraine, but how much? The problem is that the term «capital flight» has a variety of definitions. This means that there are no easy-to-find statistics on capital flight for most countries.
Therefore, we have tried to estimate capital flight for Ukraine. The details should not concern the casual reader, but we have used the methodology shown in
A simple, surprisingly good election forecasting method
PUNDITS, journalists, campaign hands and others spend an awesome amount of time during election season trying to work out what factors will swing the vote one way or another. Could it be a candidate’s likeability? Differences in policy? Her ad strategy? His habit of insulting large swathes of the electorate?
Campaign choices matter, but political science research suggests that the lay of the electoral land is largely shaped by factors beyond candidates’ control. People vote retrospectively, based on their perception of how things are going for them and those around them. But their perceptions are shaped by all sorts of things. As Christopher Achen, of Princeton University, and Larry Bartels, of Vanderbilt University, describe in Democracy for Realists, a book published earlier this year, voters sometimes punish politicians for bad weather, random misfortunes—an outbreak of shark attacks appears to have cost Woodrow Wilson votes in the 1916 election—and the performance of the local American football team.
Perhaps more importantly, voters are extremely myopic. They care about their economic welfare, and especially about whether or not their…Continue reading
The man who knew better
I HAVE not yet had an opportunity to read Sebastian Mallaby’s new biography of Alan Greenspan (pictured), The Man Who Knew. I have heard great things about it; you can read Martin Wolf’s review of the book in The Economist here. (Full disclosure: Mr Mallaby is a former Economist journalist and is married to our editor-in-chief, Zanny Minton Beddoes.) In reading coverage of the book, I have been intrigued by one of Mr Mallaby’s judgments of Mr Greenspan: that he was insufficiently committed to keeping control of asset prices. Mr Wolf quotes the book as follows:
The tragedy of Greenspan’s tenure is that he did not pursue his fear of finance far enough: he decided that targeting inflation was seductively easy, whereas targeting asset prices was hard; he did not like to confront the climate of opinion, which was willing to grant that central banks had a duty to fight inflation, but not that they should vaporise citizens’ savings by forcing down asset prices. It was a tragedy that grew out of the mix of…Continue reading
China’s uncannily stable growth versus the price of reform
IN THE pantheon of economic clichés, the concept of “short-term pain for long-term gain” is surely a contender for top spot. It is trotted out again and again when discussing why Country X must undertake such and such difficult reforms to reap untold benefits down the road. For those analysing or reporting on the Chinese economy, it has become a familiar refrain. This does not mean it is wrong; China’s old growth model of credit-fuelled investment has led to a vast accumulation of debt and a big drop in productivity. Change is needed, even though there will be costs. But being a cliché, it can obscure details. What exactly is this short-term pain?
To start, one thing that should be clear: China has so far felt little in the way of pain. Although some regions, especially the north-east, have endured a tough few years, China has kept defaults to a minimum and held its credit spigot wide open. Thanks in large part to that, the economy grew 6.7% in the third quarter from a…Continue reading