The Unassuming Economist

From Economic Policy Institute:

“Twelve charts that show how policy could reduce inequality—but is making it worse instead

With the unemployment rate at 4 percent or below for eight consecutive months, 2018 appears to be the year when the economy finally became healthy again. But while low unemployment is good news, it doesn’t tell the whole story of how typical families are faring in the current economy.

As the economy normalizes following a long, slow recovery from the Great Recession, we are quickly resuming our prerecession course of rising inequality. The fruits of economic growth are bypassing typical families and going straight into the hands of the already-rich.

Our current policy trajectory is doing nothing to reverse the trend of inequality. But it’s doing plenty to widen it. This year’s edition of Top Charts highlights how policy choices continue to exacerbate inequality and how we can achieve more broadly shared prosperity through better policy choices.

 

Continue reading here.

From a new working paper by Myunghyun Kim:

“This paper studies international transmission of U.S. monetary policy shocks to commodity exporters and importers. After first showing empirically that the shocks have stronger effects on commodity exporters than on importers, I then augment a standard three-country model to include commodities. Consistent with the empirical evidence, the model
indicates that an expansionary monetary policy shock to the U.S. increases the aggregate output of commodity exporters by more than that of importers. This is because the increased U.S. aggregate demand triggered by the shock leads to greater U.S. demand for commodities and higher real commodity prices, and thus the exports of commodity exporters increase relative to those of commodity importers. Furthermore, I show that if commodity exporters’ currencies are pegged to the U.S. dollar, then the U.S. monetary policy shocks have stronger spillovers to commodity exporters and importers. In the event that the U.S. becomes a net energy exporter, the shocks will have weaker effects on commodity exporters and stronger impacts on importers.”

From a new post by Adam M. Grossman:

“Economist Prakash Loungani has spent the better part of two decades researching the issue. In a 2001 study, Loungani evaluated experts’ ability to forecast recessions. His conclusion was blunt: “The record of failure to predict recessions is virtually unblemished.” In a follow-up study, looking at the 2008 financial crisis, Loungani’s findings were nearly identical. Economists uniformly failed to predict that global recession.

Perhaps Loungani’s study wasn’t comprehensive enough. What about all-star forecasters? Here the evidence is inevitably more anecdotal, but no more encouraging. Consider Abby Joseph Cohen, the recently-retired Goldman Sachs strategist. Her forecasts during the 1990s earned her the nickname “the Prophet of Wall Street.” But she later missed the two biggest meltdowns of her career: In 2000, when the dot-com bubble burst, Cohen predicted the market would rise. And she, along with virtually everybody else, missed the 2008 collapse.

A more recent example: Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, proclaimed in January of this year: “If you’re holding cash, you’re going to feel pretty stupid.” The year’s not over yet. But so far, cash has done materially better than the stock market, which is in negative territory.

The reality is that forecasting has always been difficult—and not just in the world of economics. Decca Records told the Beatles they have “no future in show business.” Walt Disney was once fired for “lacking imagination.” The list of incorrect predictions is long.

If forecasts are so error-prone, why do sensible organizations like Vanguard continue issuing them? In part, I believe it’s in response to investor demand: People want to know what’s going to happen and they believe experts can tell them. It’s just human nature. But now that you’ve seen the data, here’s my recommendation: Tune out anyone who approaches you with a crystal ball. Instead, situate yourself so the market’s short-term ups and downs don’t impact your ability to meet your financial goals—or to sleep at night.”

From a new paper on the service exports in Europe:

“In this paper, we consider the changes that occurred in the service exports of thirty-eight European countries in the period of 2005–2016. We have found that the existing world trend related to the growth of service exports is also present in Europe. However, the trend of the service exports’ share growth in the general volume of export is not common for all European countries. We found that higher growth rates are observed in European countries with lower levels of GDP per capita. We also discovered the presence of a strong positive correlation between growth in service exports and GDP growth, as well as between growth in service exports and GDP per capita. We also found that there is a linear correlation between the growth of service exports and the growth of GDP per capita, as well as between the growth in service exports and GDP growth. The data obtained allowed us to conclude that European countries, categorized as “Innovation Leaders” in accordance with the European Innovation Scoreboard, are not the leading countries in Europe with regard to the rates of service export growth. We also discovered that service exports in Europe are less sensitive to adverse macroeconomic effects than goods exports.”

From a new paper by Sabina Dewan

“As technological advancements proceed at an unprecedented scale and speed upending traditional employment models, researchers across the globe are working frenetically to understand how the world of work is changing and what the future holds. This paper explores the most important questions that scholars, policymakers and practitioners are grappling with in understanding the nexus of technology and jobs. It outlines what we know and where gaps remain. Understanding the potential reach of technological change along with emerging preferences and modes of organization can help us balance priorities across a broad range of actors. There is a need for urgent action to direct the impact that technology has on jobs. This means deliberate choices about work design on the part of employers, exploring new and innovative ways of organizing workers and creating a new set of government policies and regulations to manage the proliferation and effect of technology on jobs.”