Le Portugal l’a fait... (on peut aussi y arriver)

Vendredi 5 juillet, le taux souverain à 10 ans du Portugal était de 3.17%, soit un spread de 0.64% par rapport à l’Allemagne. La France était à 3.21% pour un spread de 0.68%. C’était tout simplement impensable il y a 10 ans. L’économie française est plus grande, plus productive et plus diversifiée que celle du Portugal, et historiquement la France a toujours emprunté moins cher que le Portugal. Que s’est-il passé ?

Le pouvoir d’achat est un thème central de la campagne, très bien. Mais les grilles d’analyse sont mauvaises.

Il y a une chose à retenir par dessus tout: pouvoir d’achat = productivité.

Le reste compte nettement moins. Donc si un candidat vous dit … Je veux agir pour le pouvoir d’achat, demandez lui: que proposez vous pour augmenter la productivité? Ça sera déjà un bon début.

On peut dire: pouvoir d’achat = salaires moins impôts. Oui mais les impôts finance les services publics qui participent au pouvoir d’achat.

SVB, part 4. Why I think the bailout was a mistake.

(1/n). The tradeoff is clear. On the one hand, the risk of a run on other banks, especially large regional banks. On the other, moral hazard, inefficiencies, and political costs.

This is never a good situation to be in and .. (2) reasonable people can disagree. On balance, however, I would have voted against the bailout.
Why?
The first point is that SVB and Signature were outliers. SVB combined aggressive use of HTM (top 10% unrecognized losses, bottom 10% capital) and top 1% uninsured leverage ..

1. SVB part 3: If only SVB had been forced to run stress tests on interest rates... right?

Well, it's a bit more complicated than that.

In 2010 Dodd-Frank introduced toug requirements for banks with more than 50b in assets.

Then Barney Frank became a de facto bank lobbyist.. 2. ..and he (and others) helped push the limit to 250b. Becker (exCEO of SVB) told the senate banking committee in 2015: “Because SVB’s business model does not pose systemic risk, imposing the numerous Dodd-Frank requirements that were designed for the largest banks..

1/.. SVB, part 2: lessons for regulators.

SVB failed because of unhedged interest risk exposure on MBS and a run by uninsured depositors.

The MBS exposure was very large; the deposit-base unusually risky. That's why SVB was the first to fail.

Now what? 2/ The bailout of uninsured depositors will reduce incentives for prudent risk management in the future.

But haircuts risk creating runs on other banks.

The best compromise would be limited haircuts coupled with generous liquidity provision by the Fed to other banks.

SVB (1/..)
First, sorry to be late. I received many questions about SVB but was too busy last week.

Let's try and make some sense of this mess. As usual, there is a large amount of self-interested non-sense, from Silicon Valley's investors this time but that is incidental. 2/N.
Start with fundamental banking. Banks have two franchises: deposit taking and loan making. That means they are successful because of one or the other.

Recent research suggests the deposit franchise is somewhat more important. So it's not a terrible assumption to think of ..

(1) New Working Paper: the fundamental driver of growth in modern economies, Total Factor Productivity (TFP), is linear, not exponential.

This is a paper I did not expect to write... (2) I was studying firms and industries, looking for exponential dynamics. I did not find much evidence. Weird, since we know it's exponential at country level, right?

Wrong.

This tweet seems to have struck a chord.

In light of the atrocities committed by Russia's armed forces in Ukraine, the need to act *now* is stronger than ever. We cannot wait.

Here are some ideas I took away from the Greek crisis.

https://twitter.com/ThomasPHI2/status/1510704596230057998

The first is that Europe had botched its initial response, turning what would have been a recession into a depression for the Greek economy.

The fact that we have not yet imposed a full embargo on Russian oil imports shows that Europe has botched its initial response again.

Germany’s Greek crisis.

11 years ago Greece faced a sovereign debt crisis because of:
- irresponsible fiscal policy
- bad luck

Today Germany faces a geopolitical crisis because of:
- irresponsible energy policy
- bad luck Greece’ s bad luck was a global financial crisis triggered in the US housing market.

Germany’s bad luck came in the form of erratic decisions from an entrenched tyrant.

But, as German officials liked to remind their Greek counterparts, bad luck is no excuse for bad policy.

SWIFT and Russia. A short thread.

There are two debates, one technical, one political. The technical one is a bit murky. The political one is clear.

cbc.ca/news/world/swi… There is a legitimate technical debate about whether cutting Russia out of SWIFT would be the most efficient sanction. Maybe, maybe not. It may be possible to do the same via bank-specific sanctions.

1/n. My take on this question of monopoly power and inflation: two things are true at the same time:
1/ The proximate cause for inflation is not a sudden increase in monopoly power.
2/ High demand and inflation suggest now is a good time to crack down on monopoly rents.

https://twitter.com/mslater_johnson/status/1478035257295351808

2/n On the first, key question is that of pass-through. In textbook models it does not depend of level of markup. In response to shocks then, no reason to expect higher inflation in concentrated sectors. Many plausible extensions deliver *lower* pass throughs in oligopolies.

(1/N). There is much to learn from current inflation, less from short term data than from how people react to it.

Too many liberals are in denial regarding inflation and too many conservatives have no spine regarding climate change.

wsj.com/articles/us-in… (2/N) On inflation first. When we look at the 1970s we wonder how policy makers could have been so wrong. Wasn't it obvious that inflation was a fiscal/monetary issue?

Most things are obvious in hindsight. Today's discussions show why. There are hundreds of specific shortages..

(1/) A thread on the FTC lawsuit against Facebook, and the DOJ's lawsuit against Google.

First, it is long overdue. Second, it's a good thing that it starts under a Republican administration and continues under a democratic one.

wsj.com/articles/faceb… via @WSJ (2/) There used to be some bi-partisan consensus on antitrust, which made the process fairer and more efficient.

The political economy of partisan antitrust over the past 20 years has not been pretty, and lobbyists have had a field day.

Hopefully that is changing.

This is the most important piece of news you will read today regarding the economy.

So let's unpack it a bit.

The bank set aside just $611 million for potential future loan losses, compared with $10.47 billion in the previous quarter wsj.com/articles/jpmor… via @WSJ First, nice article, wrong title.

The title should be: "thanks to regulatory efforts over the past 10 years, major US banks can now withstand credit losses in a major recession without begging for taxpayer money"

My take on the EU submit.
(1/16)

It was a long time in the making, but it is a major step.

Time for a brief historical recap of the eurobonds debate.

Back in 2010-2012 we had a deep debate about the opportunity for EU governments to issue jointly. (2/16) There were many interesting proposals but eventually only 3 were seriously considered:
1- Blue/Red proposal of @JacquesDELPLA and @jakob_eu
2- Eurobills by C.Hellwig and me
voxeu.org/article/eurobi…
3 - ESBies by @MarkusEconomist et al. voxeu.org/article/esbies…

(Thread 1/8) What can the NBA teach us about Socialism and Redistribution?

A few ideas inspired by this good piece in the NYT. @BCAppelbaum

Short answer: it's more about Elinor Ostrom than about Karl Marx.

Is It Basketball … or Socialism? nytimes.com/2020/06/29/opi… (2/8) The first point to understand is that a sporting event is a zero sum game.

The NBA competition is a tournament. Thus, by definition, a zero sum game.

In a zero sum game the sum of all payoffs is a fixed amount. That amount does not increase if a team gets better.

Contrarian view:

the fact that we can dig out tweets and blog posts from 5 years ago to assess and criticize the credibility of academics, pundits, business people, policy makers and just about everyone is, on balance, a good thing.

(1/5) (2/5) The tradeoff is obvious: we all say stupid things sometimes, and quotes taken out of context can be misleading. Hence the fear that online mobs can "destroy" anyone.

While this fear is legitimate, it misses a crucial point: the existing system had too *little* memory.

(1/N) #ecoreset

Could we use this unprecedented global lockdown to reset some parts of the economy that have not been working properly?

I am going to talk about the parts I know something about: dominant firms, notably Google, Facebook and co. (2/N) The basic theory for their dominance is:
(i) Once upon a time they were good, efficient and innovative. They even respected our privacy.
(ii) Not anymore, but their dominance is entrenched by heavy lobbying and network effects.

(1/N): Some economic principles for bailouts.

The US is contemplating a bailout of unprecedented scale -- $1Trillion and up -- and lobbyists are busy grabbing as much of the pie as possible.

How can we prevent abuse? (2/N): First let's be clear about what we mean. The government/Fed should provide as much liquidity support as needed. That is not a bailout.

A bailout is an alternative to debt restructuring. Standard reorganization in bankruptcy is always an option.

(1/N): Economic Responses to the #coronavirus

First, some nowcasting: where are we? This will be the steepest recession in recorded history: a double digit (10%, 20%?) decline in output in a quarter or two. It may or may not last beyond 6 months. (2/N): Comparisons with "war economy" are a bit overblown. The equivalent of the army/defense sector is the health care system and it needs access to unlimited public funding. But that does entail the same reallocation of capital and labor as a war.

1/N. Short thread on T-Mlobile/Sprint merger. There were 2 theories:

(A) It's a 4-to-3 merger that will lower competition and increase markups.

(B) The new merged entity will be able to take on the industry leaders ATT and Verizon.

(A) and (B) make clear predictions. (A) predicts the merger is good news for ATT and Verizon's shareholders.

(B) predicts the merger is bad news for ATT and Verizon's shareholders.

The news leaked at 6pm that the judge would approve the merger. Sprint went up 60% as expected.

Let's test the theories.