The Crowding‑Out Myth

Date: 25‑08‑2020

Source: Project Syndicate by Robert Skidelsky

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University. The author of a three‑volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999. 

The argument that public investment invariably „crowds out“ private capital is wrong both theoretically and empirically. States have always played a leading role in allocating capital, either through direct investments, or by deliberately encouraging certain types of private investment.

LONDON – Three economic effects of COVID‑19 seem to be generally agreed upon. First, the developed world is on the brink of a severe recession. Second, there will be no automatic V‑shaped recovery. And third, governments will therefore need to “support” national economies for an indefinite period. But, despite this consensus, little thought has been given to what private firms’ prolonged dependence on government support will mean for the relationship between the state and the capitalist economy.

The main obstacle to such thinking is the deeply entrenched notion that the state should not interfere with long‑term capital allocation. Orthodox economic theory holds that public investment is bound to be less efficient than private capital. Applying an oversimplified logic then leads to the conclusion that practically all investment decisions should be left to the private sector.

UK to plunge into deepest slump on record with worst GDP drop of G7

Date: 10‑08‑2020

Source: The Guardian Richard Partington

Official measure to be declared this week as coronavirus lockdown shrinks GDP by 21% in second quarter

Britain’s economy will be officially declared in recession this week for the first time since the 2008 financial crisis, as the coronavirus outbreak plunges the country into the deepest slump on record.

Figures from the Office for National Statistics on Wednesday are expected to show that gross domestic product (GDP), the broadest measure of economic prosperity, fell in the three months to June by 21%.

After a decline of 2.2% in the first quarter, the latest snapshot will confirm the UK economy’s descent into recession after the outbreak spread in March and the government imposed a nationwide lockdown to contain it. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.

onfirmation of the Covid‑19 recession this week will come as the government tries to strike a balance between relaxing lockdown restrictions to kickstart growth, while needing to prevent a severe second wave in infections. After four month of harsh controls, growing numbers of companies are coming under severe financial stress, with job losses steadily beginning to mount. Some localised restrictions are also being launched as infections rise.

The US and the eurozone have already been confirmed in recession as the global economy grapples with the sharpest downturn since the Great Depression of the 1930s. However, China, at the heart of the original outbreak, avoided recession after it returned to growth in the second quarter.

The slump in Britain is expected to be the biggest quarterly drop of any G7 economy due to the later launch of lockdown controls and the slower removal of harsh restrictions.

The Bank of England said last week that the economic fallout from the pandemic could be less severe than initially feared, despite sounding the alarm that the bounce‑back would take longer. It also warned that lasting damage will be caused, including a sharp rise in unemployment.

Deutsche Wirtschaft bricht ein – Größtes Minus seit Finanzkrise

25.05.2020 um 10:26, presse.com

BIP schrumpfte im ersten Quartal gegenüber Vorquartal um 2,2 Prozent. Das zweite Quartal dürfte noch schlechter werden.

Export, Privatkonsum und Unternehmensinvestitionen brechen in der Coronakrise ein: Die deutsche Wirtschaft rutscht in eine Rezession. Das Bruttoinlandsprodukt (BIP) schrumpfte im ersten Vierteljahr gegenüber dem Vorquartal um 2,2 Prozent, wie das Statistische Bundesamt mitteilte. Die Behörde bestätigte damit erste Daten. Noch schlechter dürfte Ökonomen zufolge das zweite Quartal ausfallen.

Der Einbruch zum Jahresanfang war der stärkste Rückgang im Quartalsvergleich seit der globalen Finanz- und Wirtschaftskrise 2008/09 und der zweitstärkste seit der deutschen Wiedervereinigung. Obwohl die Ausbreitung des neuartigen Virus die Wirtschaftsleistung im Jänner und Februar nicht wesentlich beeinträchtigte, „seien die Auswirkungen der Pandemie damit bereits für das erste Quartal 2020 gravierend“, erklärten die Statistiker.

Die Schließung zahlreicher Geschäfte ab Mitte März zur Eindämmung der Pandemie bremste den Privatkonsum. Die Konsumausgaben der Verbraucher brachen im ersten Vierteljahr um 3,2 Prozent gegenüber dem Vorquartal ein. Der Privatkonsum ist eine wichtige Stütze der deutschen Konjunktur und macht gut die Hälfte der gesamten Wirtschaftsleistung aus. Der Export von Waren und Dienstleistungen verringerte sich im ersten Quartal um 3,1 Prozent.

Life after lockdowns

Date: 30‑04‑2020

Source: The Economist

It will be hard in ways that are difficult to imagine today

In many things 90% is just fine; in an economy it is miserable, and China shows why. The country started to end its lockdown in February. Factories are busy and the streets are no longer empty. The result is the 90% economy. It is better than a severe lockdown, but it is far from normal. The missing bits include large chunks of everyday life. Rides on the metro and on domestic flights are down by a third. Discretionary consumer spending, on such things as restaurants, has fallen by 40% and hotel stays are a third of normal. People are weighed down by financial hardship and the fear of a second wave of covid‑19. Bankruptcies are rising and unemployment, one broker has said, is three times the official level, at around 20%.

If the post‑lockdown rich world suffers its own brand of the 90% economy, life will be hard—at least until a vaccine or a treatment is found. A plunge in gdp in America of anything like 10% would be the largest since the second world war. The more suffering covid‑19 causes, the more profound and enduring its economic, social and political effects are likely to be.

The Coming Greater Depression of the 2020s

Date: 28‑04‑2020

Source: Project Syndicate by Nouriel Roubini

Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com. 

While there is never a good time for a pandemic, the COVID‑19 crisis has arrived at a particularly bad moment for the global economy. The world has long been drifting into a perfect storm of financial, political, socioeconomic, and environmental risks, all of which are now growing even more acute.

NEW YORK – After the 2007‑09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute. Unfortunately, even if the Greater Recession leads to a lackluster U‑shaped recovery this year, an L‑shaped “Greater Depression” will follow later in this decade, owing to ten ominous and risky trends.

The first trend concerns deficits and their corollary risks: debts and defaults. The policy response to the COVID‑19 crisis entails a massive increase in fiscal deficits – on the order of 10% of GDP or more – at a time when public debt levels in many countries were already high, if not unsustainable.

The Dawn of a New Era

Date: 23‑04‑2020

Source: DER SPIEGEL By Ullrich Fichtner

A Paradigm Shift Accelerated by the Coronavirus

Even before the arrival of COVID‑19, humanity found itself stuck in several crises at once. The current shock delivered by the coronavirus could accelerate a paradigm shift that was already underway. It may result in a better and more sustainable world.

1. The Crash

The world that we still considered to be „normal“ back in February has collapsed in an historically unprecedented crash. Half of humanity is currently adhering to some form of lockdown protocols and every single continent has been affected ‑ poor regions and wealthy regions, urban areas and rural ones. Huge portions of the global economy have come to a grinding halt and 180 countries around the world that just a few weeks ago were experiencing economic growth and rising prosperity have now plunged into a deep recession.

The collapse of tourism, the massive disruptions to the global transportation sector and the suppression of urban life has, in many places, affected the entire spectrum of human activity, crippling the retail, production and service industries in addition to bringing sports, the arts and cultural life to a standstill. The entire leisure industry has been paralyzed.

„This Crisis Will Spill Over and Result in a Disaster“

Date: 28‑02‑2020

Source: DER SPIEGEL Interview Conducted by Tim Bartz

Economist Nouriel Roubini correctly predicted the 2008 financial crisis. Now, he believes that stock markets will plunge by 30 to 40 percent because of the coronavirus. And that Trump will lose his re‑election bid.

Economist Roubini: „The markets are completely delusional.“ 

Nouriel Roubini is one of the most prominent and enigmatic economists in the world. He correctly predicted the bursting of the U.S. housing bubble in addition to the 2008 financial crisis along with the ramifications of austerity measures for debt‑laden Greece. Roubini is famous for his daring prognostications and now, he has another one: He believes that coronavirus will lead to a global economic disaster and that U.S. President Donald Trump will not be re‑elected as a result.

DER SPIEGEL: How severe is the coronavirus outbreak for China and for the global economy?

Roubini: This crisis is much more severe for China and the rest of the world than investors have expected for four reasons: First, it is not an epidemic limited to China, but a global pandemic. Second, it is far from being over. This has massive consequences, but politicians don’t realize it.

DER SPIEGEL: What do you mean?

Roubini: Just look at your continent. Europe is afraid of closing its borders, which is a huge mistake. In 2016, in response to the refugee crisis, Schengen was effectively suspended, but this is even worse. The Italian borders should be closed as soon as possible. The situation is much worse than 1 million refugees coming to Europe.

DER SPIEGEL: What are your other two reasons?

Roubini: Everyone believes it’s going to be a V‑shaped recession, but people don’t know what they are talking about. They prefer to believe in miracles. It’s simple math: If the Chinese economy were to shrink by 2 percent in the first quarter, it would require growth of 8 percent in the final three quarters to reach the 6 percent annual growth rate that everyone had expected before the virus broke out. If growth is only 6 percent from the second quarter onwards, which is a more realistic scenario, we would see the Chinese economy only growing by 2.5 to 4 percent for the entire year. This rate would essentially mean a recession for China and a shock to the world.

Will Recession Strike in 2020?

Date: 31‑12‑2019

Source: The Wall Street Journal By Burton G. Malkiel and Atanu Saha

Even the best indicators of downturns are unreliable, but investors can take steps to prepare either way.

Year‑end is the traditional time to forecast the economy and ensure that your investment portfolio can handle future shocks. Habitual worrywarts—including some practitioners of the dismal science—see ominous signs that America’s record‑breaking expansion will soon end. Meanwhile, most stock‑market pundits see recent strong consumer spending as a good omen, signifying that stocks and the economy will continue to rise. Let’s review the best indicators to make sense of the picture.

The Conference Board, a nonprofit for economic research, tracks 11 predictive measures of future economic activity in its Index of Leading Economic Indicators. The LEI purports to forecast the economy over the coming three to six months. The individual components include data on unemployment, the direction of the stock market, consumer and business sentiment, and manufacturing activity. Unfortunately, the LEI is somewhat unreliable as a forecaster and often misleading.

We examined the record of the LEI (and its components) over the eight recessions and nine sudden market declines of 15% or more since 1960. The good news is that the LEI and many of its components have had a near‑perfect record in anticipating recessions. The most reliable indicators have been the shape of the yield curve, business and consumer confidence, durable‑good purchases and housing starts, and the health of the labor market. These measures have also correctly signaled stock‑market downturns. (The biggest exception is consumer spending, which has risen before nearly every past recessions, falling only after the recession starts.)

Why Financial Markets’ New Exuberance Is Irrational

Nov 20, 2019 Nouriel Roubini, Project Syndicate

Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com.

Owing to a recent easing of both Sino-American tensions and monetary policies, many investors seem to be betting on another era of expansion for the global economy. But they would do well to remember that the fundamental risks to growth remain, and are actually getting worse.

NEW YORK – This past May and August, escalations in the trade and technology conflict between the United States and China rattled stock markets and pushed bond yields to historic lows. But that was then: since then, financial markets have once again become giddy. US and other equities are trending toward new highs, and there is even talk of a potential “melt-up” in equity values. The financial-market buzz has seized on the possibility of a “reflation trade,” in the hope that the recent global slowdown will be followed in 2020 by accelerating growth and firmer inflation (which helps profits and risky assets).

The Allure and Limits of Monetized Fiscal Deficits

Oct 28, 2019 Nouriel Roubini, Project Syndicate

Nouriel Roubini, Professor of Economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. When that happens, policymakers will almost certainly pursue some form of central-bank-financed stimulus, regardless of whether the situation calls for it.

NEW YORK – A cloud of gloom hovered over the International Monetary Fund’s annual meeting this month. With the global economy experiencing a synchronized slowdown, any number of tail risks could bring on an outright recession. Among other things, investors and economic policymakers must worry about a renewed escalation in the Sino-American trade and technology war. A military conflict between the United States and Iran would be felt globally. The same could be true of “hard” Brexit by the United Kingdom or a collision between the IMF and Argentina’s incoming Peronist government.