The Unassuming Economist

While it has been postulated for long that wealth and aggregate income in the economy go hand in hand, developments in the last several decades point to a different phenomenon as the wealth to GDP ratio has been rising rapidly, reaching 6.1 times the GDP currently.

In a recent column for the Conversable Economist, Timothy Taylor writes on the issue, drawing insights from a 2021 McKinsey Global Institute report.

“…At the level of the global economy, the historical link between the growth of wealth, or net worth, and the value of economic flows such as GDP no longer holds. Economic growth has been sluggish over the past two decades in advanced economies, but net worth, which long tracked GDP growth, has soared in relation to it. This divergence has emerged as asset prices rose sharply—and are now almost 50 percent higher than the long-run average relative to income. The increase was not a result of 21st-century trends such as the increasing digitization of the economy. Rather, in an economy increasingly propelled by intangible assets, a glut of savings has struggled to find investments offering sufficient economic returns and lasting value to investors. These (ex-ante) savings have instead found their way into a traditional asset class, real estate, or into corporate share buybacks, driving up asset prices.”

Source: McKinsey Global Institute. (2021). The rise and rise of the global balance sheet: How productively are we using our wealth?

Real estate, rather than an ongoing investment boom in the 10 countries under study, is attributed to this rapid rise in global wealth. Furthermore, the study offers possible explanations for the consequences that such a trend might bring with it in the future- some happy and some not so happy ones.

Read on to know more. Click here.

Through cross-country evidence, the Organisation for Economic Co-operation and Development (OECD) has shown that economic inequality has risen in most OECD countries in the last thirty years or so while social mobility has stagnated or worsened. In its most recent report, the OECD turns its gaze to the question of how people perceive inequality and social mobility.

When it comes to questions on the perception of inequality, it has been shown in the report that there is overwhelming concern regarding income distribution and the lack of equal opportunities in the average world citizen. However, far from being an umbrella statement, there are instead a multitude of layers shaping people’s understanding of the phenomenon and factors affecting it.

In this report, emphasis is laid on providing an explanation to several such factors such as whether people care about inequality, how connected is their perception of inequality to the actually prevailing reality, how supportive is the general public for increased governmental action to bridge income gaps and how far are the people ready to go to hold governments accountable for failing to do so. It then moves on to providing interesting policy insights about the reform process and some hitherto ignored policies that have worked well.

Click here to read the full report.

From a joint IMF, World Bank, and 1818 Society event:

Forging new paths to action for the Sustainable Development Goals

The Centre for Sustainable Development at The Brookings Institution and The Rockefeller Foundation convened the fourth annual 17 Rooms global flagship process to augment action, insight and community initiatives across the realm of the 17 sustainable development goals (SDGs). 17 working groups or “rooms” were developed, one per SDG, and leaders came together to advance action on each goal while also expanding opportunities to cooperate across goals.

Several themes were discussed and deliberated upon, some of which are as follows.

• Digital Public Goods: Discussions involved themes like the use of digital cash transfer systems to respond to emergencies, preempt disasters, broaden inclusion and reduce poverty, use of DPGs for gathering public health data, the need to educate communities, etc.
• Climate Change: This room discussed the role of leveraging societies’ dependency on the nature to catalyze large scale investments into preserving natural ecosystems, the need for new financing methods, etc.
• Support to Local Communities and Women’s Empowerment: This room discussed the dire need for international actors need to embrace existing local models and update legacy funding structures, focus on financial transparency, etc.
• Justice and Equity: The focus here was on promoting intergenerational learning teams, network for women leaders, community best practices in education, leadership and innovation, etc.
• Private Capital and Businesses: This room concentrated its attention at new tools, metrics, data systems, and reporting requirements that can help drive better alignment between private sector incentives and SDG outcomes.

Besides, several rooms also called for reframing the SDG ambitions, reflecting a desire for ongoing improvement in how the SDGs can promote human dignity, opportunity, and co-benefits across Goals.

Click here to read the full report.

On cross-country:

• ECB warns of ‘exuberance’ in housing, junk bonds and crypto assets. Investors taking risks in search for yield has left markets ‘susceptible to correction’ – FT
• ECB sees rising risk that housing bubble will burst – Reuters
• The euro area housing market during the COVID-19 pandemic – European Central Bank
• As housing costs rocket, governments take aim at large investors. The approach is politically expedient, but it may not make housing cheaper – The Economist
• The oldest asset class of all still dominates modern wealth. Low interest rates in advanced countries have pushed money into real estate instead of business investment – FT
• Making Homes More Affordable in IDA Countries Through Expanded Mortgage Financing – World Bank

On the US:   

• Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1 Million as Prices Soar. Scheduled increase in loan limits is a boon for borrowers but also stokes debate over government’s role in housing market – Wall Street Journal
• A Housing Gift for Beverly Hills. Just what the economy doesn’t need: subsidies for $1 million mortgages. – Wall Street Journal
• Homes Now Typically Sell in a Week, Forcing Buyers to Take Risks. Buyers are often waiving traditional safeguards in fast-moving market where median price has climbed – Wall Street Journal and Quartz
• Democrats have no plan to fight housing inflation. Home prices have skyrocketed, and the White House’s plan will do basically nothing to stop it. – Vox
• Why building more affordable housing won’t solve the crisis – Yahoo
• Housing inflation is getting worse. Will Biden’s ‘Build Back Better’ program help renters and buyers? – MarketWatch
• States can improve housing well-being through thoughtfully designed policies – Brookings
• How the Pandemic Worsened a Housing Crisis in the Bronx. In a New York City borough where residents have long struggled to afford their homes, thousands are now threatened with eviction as state pandemic aid dwindles. – New York Times
• Mortgage Refinance Costs and a Better Adjustable-Rate Mortgage Contract – Richmond Fed
• Biased appraisals and the devaluation of housing in Black neighborhoods – Brookings
• Grown Kids Still Stuck at Home? Change Is on the Horizon. Someday, surely, all the young adults still living with their parents will form their own households, creating steady housing demand. But only if prices stop going up so fast. – Bloomberg
• Want More Affordable Housing and Health Care? Here’s a Fix. – New York Times
• Despite Supply Chain Issues, U.S. Builder Confidence Upticks in November – World Property Journal
• What Went Wrong With Zillow? A Real-Estate Algorithm Derailed Its Big Bet. The company had staked its future growth on its digital home-flipping business, but getting the algorithm right proved difficult – Wall Street Journal  
• Research: Restricting Airbnb Rentals Reduces Development – Harvard Business Review

On China

• China home prices fall as property slowdown threatens economic outlook. Beijing introduced measures aimed at constraining borrowing at developers over asset bubble fears – FT
• Worst yet to come for China’s housing market as new home prices fall by most in 6 years. The average price across 70 cities dropped 0.25 per cent in October from the previous month, data shows, as analysts warn that doesn’t give the full picture. Developers are seeing a big slump in sales amid a credit crunch sparked by the debt crisis at China Evergrande – South China Morning Post
• How Wealth Products Helped Inflate China Real Estate – Quartz
• China’s real estate woes sap property investment products – Reuters
• China walks a tightrope on property clampdown – Reuters

On other countries:  

• [Canada] Housing Market Heats Back Up in Canada With 8.6% Jump in Sales – Bloomberg
• [Israel] Bank of Israel Plans to Increase Competition in Mortgage Market – Bloomberg
• [Spain] If health and education are essential services in Spain, why not housing? A renters’ movement in Catalonia is saving families from eviction and trying to fill the gap left by the state – The Guardian
• [Spain] Spain takes on private equity landlords as cost of housing soars. Blackstone and others could face rent caps in bill championed by leftwing government – FT
• [Switzerland] The Local Effects of Relaxing Land Use Regulation on Housing Supply and Rents – SSRN