Tag Archives: Financial crisis

The end of globalisation as we know it?

By Durukal Gun , Christian Keller, Sree Kochugovindan, Tomasz Wieladek – Modern globalisation has gone well beyond the trade of goods, as technology allowed for transfer of know-how and skills.

Since glottalization began in the middle of the 1800s, it has been through several different cycles. Now it appears to have reached yet another turning point.

Only recently has globalization matched the heights it reached before World War I.

  • First wave of globalization (1850s to 1914)
  • Protectionism (1914 to 1945)
  • Second wave of glottalization (1945 to 1990)
  • Hyperglobalization (1990 to present)

Among the clear beneficiaries of hyperglobalization are the emerging economies, which have become increasingly integrated into more and more complex global value chains. Their role in processing raw materials, and in value-added manufacturing and services has grown rapidly.

The first signs of opposition to hyperglobalisation emerged amid major demonstrations at the 1999 meeting of the World Trade Organization in Seattle. Concerns mounted in the wake of the 2008-09 financial crisis and subsequent global recession, reflected more recently in public resistance to trade and investment agreements such as the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership.

Discriminatory protectionist tariffs and trade measures are on the rise. more> https://goo.gl/K54eeK

The world is sitting on a $400 trillion financial time bomb

By Allison Schrager – Financial disaster is looming, and not because of the stock market or subprime loans. The coming crisis is more insidious, structural, and almost certain to blow up eventually.

The World Economic Forum (WEF) predicts that by 2050 the world will face a $400 trillion shortfall (pdf) in retirement savings. (Yes, that’s trillion, with a “T”.)

The US will find itself in the biggest hole, falling $137 trillion short of what’s necessary to fund adequate retirements in 2050. It is followed by China’s $119 trillion shortfall.

Much of the massive shortfall is baked into retirement systems; setups in which nobody, neither individuals nor the government, saves enough.

About three-quarters of the projected comes from underfunded promises from governments, with the rest mostly accounted for by under-saving on the part of individuals. more> https://goo.gl/UUisEk

Resisting Authoritarian Populism: Lessons From/For Singapore

By Kenneth Paul Tan – Although a young, small, and multi-ethnic nation-state, Singapore is prosperous, peaceful, and surprisingly influential in the global imagination. But its international image has attracted contradictory reactions.

History presents numerous examples of fragility where liberal democracies are concerned. Political philosophy tells us that diversity—and nearly every society today is diverse—can weaken the  communitarian basis of a society, making it difficult for the state to function well and eroding the trust that binds people to one another and to their institutions.

Without a strong institutional basis, the nation-state can become vulnerable to authoritarian populism, particularly when hit by crisis. Out of a demoralized society, moral and political entrepreneurs, often skillful demagogues, emerge and compete for power by mobilizing a collective sense of victimhood directed against an allegedly corrupt establishment as well as scapegoats such as immigrants, ethnic minorities, and sexual minorities, upon whom the entire blame for all of society’s ills are placed. more> https://goo.gl/8GKyGP

Updates from Chicago Booth

By Robert Shiller – The human species, everywhere you go, is engaged in conversation. We are wired for it: the human brain is built around narratives.

We call ourselves Homo sapiens, but that may be something of a misnomer—sapiens means wise. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives, and especially narratives about other humans. That is why advertisers tend to focus not on a product itself, but rather on somebody doing some human action related to the product.

Narratives are contagious: they spread from one person to another. Some narratives disappear quickly; others can last a long time.

The stock market gives us opportunities to construct narratives. For instance, earlier this year there were narratives around the Dow-Jones Industrial Average eclipsing 20,000 points for the first time in its history.

In reality, that’s absolutely meaningless: the Dow started at 40 points in 1896, but it could have started at 50, or something else. Yet we constructed narratives around this moment.

Why do narratives affect economics? Because when we want to understand a depression or recession, for instance, we have to understand why some people will stop spending. Recessions happen when people stop buying things: they don’t buy a new car; they don’t buy a new house. So why not? They might say they stopped spending because recession struck, but that doesn’t tell me why the recession started. I think the catalysts for events such as that are related to narratives. more> https://goo.gl/hjpU4r

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Why Wall Street Went Astray: Eight Ways To Humanize Finance

BOOK REVIEW

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return, Author: Mihir Desai.

By Steve Denning – Why did Wall Street go astray?

For most of the last several centuries, bankers and financiers were the pillars of society, the bastions of morality, the people in society that everyone respected.

Yet over the last few decades, Wall Street has become almost a synonym of evil. What went wrong? What can be done to restore the financial sector to the level of respect that it once enjoyed?

For people outside finance: Finance is deeply misunderstood, and we need to make it understandable to people so that they don’t demonize it. The way to do that is not through equations or graphs, but through stories. Finance is central to our lives and ignorance of it is very costly on an individual and societal level.

For people in finance: The core ideas of finance are quite life affirming and very noble — we should make people in finance aspire to them rather than expect so little of them. If finance is going to rehabilitate itself, and I do think it’s broken in many ways, the way to rehabilitate is not through regulation, or outrage, but rather returning to its basic underlying ideas, which are actually quite wonderful. In the long run, that’s how we make finance better — by getting back to the core ideas. more> https://goo.gl/Kr4Mnj

Deficits In Trade And Deficits In Understanding

By Omar Al-Ubaydli – To see why the current trade deficit is benign, we need to understand the relationship between trade and the dollar’s value. Greenbacks are like any commodity in that the more people want to possess them, the higher their price. People acquire dollars primarily for two reasons: buying American goods and investing within the United States.

If the United States is importing more than it exports, then American consumers are exchanging dollars for foreign currencies to buy foreign goods more than foreigners are doing the reverse, meaning that foreigners are accumulating lots of dollars that they’re not using to buy American goods.

So why has America been recording a large, persistent trade deficit, and why isn’t the dollar devaluing? It’s due to the second major difference (from 1970s): The investment-based demand for foreign currencies—which we momentarily set aside—has ballooned. People no longer exchange currencies just to buy foreign goods.

Consequently, the dollar no longer corrects trade imbalances. more> https://goo.gl/L1VHHr

Why the Phrase ‘Late Capitalism’ Is Suddenly Everywhere

By Annie Lowrey – Now, it is everywhere, in thousands of social-media posts and listicles aimed at Millennials and news stories about modern malaise.

Over time, the semantics of the phrase shifted a bit. “Late capitalism” became a catchall for incidents that capture the tragicomic inanity and inequity of contemporary capitalism.

This usage captures the resurgent left’s anger over the recovery and the inequality that long preceded it—as well as the rage of millions of less politically engaged Americans who nevertheless feel left out and left behind.

“I think it’s popular again now because the financial crisis and subsequent decade has really stripped away a veneer on what’s going on in the economy,” Mike Konczal, a fellow at the Roosevelt Institute, told me. “Austerity, runaway top incomes, globalization, populations permanently out of the job market, competition pushed further into our everyday lives. These aren’t new, but they have an extra cruelty that is boiling over everywhere.”

The current usage also captures the perceived froth and foolishness of Silicon Valley. The gig economy in particular provides plenty of late-capitalist fodder, with investors showering cash on platforms to create cheap services for the rich and lazy and no-benefit jobs for the eager and poor. At the same time, traditional jobs seem to be providing less in the way of security, stability, and support, too. more> https://goo.gl/bwRjd5

The European Crisis

By Ross Douthat – Those problems bear a certain resemblance to those of our own politics. In Europe as in the United States, recent trends in culture and economics have elevated an educated upper class while separating it, geographically and ideologically and in every other way, from a declining and fragmenting working class. In Europe as in the United States, a growing immigrant population serves this upper class while seeming to compete with downscale natives for jobs, housing and social benefits.

In Europe as in the United States, the center-left coalition has become a kind of patronage arrangement between the multicultural meritocracy and minority groups both new and old, while the white working class drifts rightward and votes for Brexit, Trump and now Le Pen.

So far, so similar. But as counterintuitive as it may seem — after all, we elected Trump and they have not — in many ways these problems are worse in Europe, part of a systemic crisis that’s more serious than our own.

They’re worse because Europe is stuck with a horribly flawed experiment in political economy, a common currency without a common fiscal policy or a central political authority capable of claiming real legitimacy. The damage that this combination has done to the economies of Southern Europe, in particular, is striking and severe — years of elevated unemployment and stagnation, all of it imposed without democratic accountability by a mostly Northern European caste of bankers and politicians. more> https://goo.gl/VTMNjq

Our world outsmarts us

BOOK REVIEW

A Skeptic’s Guide to the Mind: What Neuroscience Can and Cannot Tell Us About Ourselves, Author: Robert Burton.

By Robert Burton – Whether contemplating the pros and cons of climate change; the role of evolution; the risks versus benefits of vaccines, cancer screening, proper nutrition, genetic engineering; trickle-down versus bottom-up economic policies; or how to improve local traffic, we must be comfortable with a variety of statistical and scientific methodologies, complex risk-reward and probability calculations – not to mention an intuitive grasp of the difference between fact, theory and opinion.

Even moral decisions, such as whether or not to sacrifice one life to save five (as in the classic trolley-car experiment), boil down to often opaque calculations of the relative value of the individual versus the group.

If we are not up to the cognitive task, how might we be expected to respond? Will we graciously acknowledge our individual limits and readily admit that others might have more knowledge and better ideas?

Will those uneasy with numbers and calculations appreciate and admire those who are?

Or is it more likely that a painful-to-acknowledge sense of inadequacy will promote an intellectual defensiveness and resistance to ideas not intuitively obvious? more> https://goo.gl/Bjkogb

Almost everything Republicans get wrong about the economy started with a cocktail napkin in 1974

BOOK REVIEW

Return to Prosperity, Author: Art Laffer.

By Gwynn Guilford – The sealing of America’s fiscal fate began in 1974, over cocktails.

As afternoon faded to evening on December 4, Dick Cheney and a young economist named Art Laffer shuffled into a booth at the Two Continents restaurant in the iconic Hotel Washington—two blocks from the US Treasury department.

Cheney was US president Gerald Ford’s deputy chief of staff. He and his boss, Donald Rumsfeld, were looking for alternatives to Ford’s plan to raise taxes 5%. Raising taxes was a bad idea, said Laffer.

Growth, argued Laffer, depends on how much people work and how much businesses invest. He believed both those things hinge on tax rates: the more income the government takes away in taxes, the less motivated people are to work and save (leaving businesses less money to invest).

The government that thinks that raising taxes is necessary to pay for social programs and other public services is short-changing itself, argued Laffer. more> https://goo.gl/3Tfhgj