Daily Archives: February 26, 2019

Debunking Deregulation: Bank Credit Guidance and Productive Investment

Deregulated banking in rich countries delivers more “investment” in speculative asset markets, not productive businesses.
By Josh Ryan-Collins – Mortgage and other asset-market lending typically does not generate income streams sufficient to finance the growth of debt. Instead, the empirical evidence suggests that after a certain point relative to GDP, increases in mortgage debt typically slows growth and increase financial instability as asset prices rise faster than incomes.

These new empirical findings support a much older body of theory that argues that credit markets, left to their own devices, will not optimize the allocation of resources.

Instead, following Joseph Schumpeter’s, Keynes’ and Hyman Minsky’s arguments, they will tend to shift financial resources away from real-sector investment and innovation and towards asset markets and speculation; away from equitable income growth and towards capital gains that polarizes wealth and income; and away from a robust, stable growth path and towards fragile boom-busts cycles with frequent crises.

This means, we argue, there is a strong case for regulation, including via instruments that guide credit. In fact, from the end of World War II up to the 1980s, most advanced economy central banks and finance ministries routinely used forms of credit guidance as the norm, rather than the exception. These include instruments that effected both the demand for credit for specific sectors (e.g. Loan-to-Value ratios or subsidies) and the supply of credit (e.g. credit ceilings or quotas and interest rate limits).

In Europe, favored sectors typically included exports, farming and manufacturing, while repressed sectors were imports, the service sector, and household mortgages and consumption. Indeed, commercial banks in many advanced economies were effectively restricted from entering the residential mortgage market up until the 1980s. Public institutions — state investment banks and related bodies — were also created to specifically steer credit towards desired sectors. more>

Updates from Chicago Booth

The tax that could save the world
By Michael Maiello & Natasha Gural – It was, perhaps, the closest that the economics profession has ever come to a consensus. In January, 43 of the world’s most eminent economists signed a statement published in the Wall Street Journal calling for a US carbon tax. The list included 27 Nobel laureates, four former chairs of the Federal Reserve, and nearly every former chair of the Council of Economic Advisers since the 1970s, both Republican and Democratic.

“By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future,” the economists noted. All revenue from the tax should be paid in equal lump-sum rebates directly to US citizens, they added.

Not all economists agree that the tax should be revenue neutral in this way, but the profession has been coalescing in recent years around the idea of a carbon tax. Most prefer such a tax to the most prominent alternative policy for tackling carbon emissions, cap and trade, according to a recent poll of expert economists.

But a carbon tax seems to be a political nonstarter in the United States. The bipartisan call for action from economists over the years has been echoed by a failure to act by presidents from both parties. President Donald Trump denies the need to confront man-made climate change.

But although Barack Obama, his predecessor, in 2015 called a carbon tax “the most elegant way” to fight global warming, he didn’t push strongly for one to be introduced.

“One of my very, very few disappointments in Obama when he was president is that he did not come out in favor of carbon tax,” Yale’s William D. Nordhaus told the New York Times last October, days after winning the 2018 Nobel Prize in Economic Sciences for his work on economic modeling and climate change. more>

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Updates from Siemens

High-tech sports equipment: what do consumers want?
By Suzanne Kopcha – The sporting goods market is undergoing a major technological disruption: smart products are changing the way consumers and elite athletes interact with once seemingly simple products.

Technology is ubiquitous and has dramatically changed consumer expectations for connected, or “smart,” sporting goods – so much so that this new high-tech sports equipment market is expected to reach $1.2 billion in sales by 2022.

Consumers and elite athletes are obsessed with data and how it can help them achieve better health and personal performance, whether it’s a young professional looking to get into shape, or an elite, high-paid athlete aiming for peak performance. Different consumers want different things from the industry.

Let’s explore some of the most important consumer expectations. more>

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Updates from Adobe

Connecting with the Extreme
By Serena Fox – Renan Ozturk captures stories at the edge of the human condition. “I want to show humanity on the fringes,” says the photographer and documentary filmmaker. “Whether that’s high in the mountains or isolated on the edge of the earth, these cultures need their voices amplified in some way.”

A world-class climber, Ozturk is best known for his work as the director of photography and high-altitude director on the award-winning documentary Sherpa—which explores the Sherpa people’s cultural connection to Mount Everest—and for the Sundance Audience Award–winning Meru, which recounts the near-death accidents and transcendent beauty of Ozturk’s attempts, with climbers Conrad Anker and Jimmy Chin, to climb the most-tried-and-failed peak in the Himalaya range.

In addition to being a prolific documentary filmmaker, Ozturk is a photojournalist for National Geographic and Sony, an expedition climber for The North Face, a co-owner of the production company Camp4 Collective, and a commercial director for clients including Apple, Nike, Yeti, ESPN, and NBC. On top of all that, he’s also a talented landscape painter.

Driven to show our connection to the natural world, the soft-spoken Ozturk faces extreme challenges: physical, cultural, and technological. He dangles thousands of feet in the air while shooting, hauls gear through the planet’s most extreme environments, flies ultra-light experimental aircraft to capture aerial shots, pilots drones during technical ascents of the earth’s most challenging peaks, and spends months slowly getting to know the people who live in the world’s most remote locations. more>

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