OECD Meets Piketty: An Alternative Economic Narrative | Social Europe

A quick glance reveals high rates of return in OECD countries. Indeed, across the body as a whole, the rate of return on fixed assets is back at its pre-crisis level and as high as 10 percent.

While in the US and the UK the rate is higher (12 percent), Germany and the Netherlands have hit record highs of 13 to 14 percent profitability. Moreover, these rates only reflect returns before any financial leverage effect operates when companies take out loans and pay a lower interest rate cost than the return on assets. This indeed implies that returns on equity would be even higher and a multiple of the returns shown.

With returns on investment this high and the return on risk-free financial investment at historic lows, business investment should be booming as management can realize a much higher return on investment compared to the financial cost of such investment.

This, however, is not the case.

Source: OECD Meets Piketty: An Alternative Economic Narrative • Social Europe

Marx From Industrial To Present-Day Capitalism | Social Europe

Marx’ labor-based theory of value never worked.

Marx experimented with a theory of the falling rate of profit which led him to expect that the capitalist economy would stop growing soon; as a coeval of the first part of the 19th century he – like other economists of that time – could not imagine the tremendous multiplication of human needs and desires which would take place in the future, and create ever new incentives to invest, new profit opportunities and new employment.

Marx thought that the capitalist relations of production were quickly becoming obstacles preventing the further advancement of the means of production, including technological innovations. This way he underestimated the flexibility and changeability of capitalist relations, he missed the ability of capitalism to learn.

Source: Marx From Industrial To Present-Day Capitalism • Social Europe

The Italian Economy’s Moment of Truth

Italy and Europe are at an inflection point.

After an election in March in which the anti-establishment Five Star Movement (M5S) and the far-right League party captured a combined parliamentary majority, followed by months of uncertainty, Italy has become the first major EU member state to be governed by a populist coalition.

Unlike most Eurozone countries, Italy’s nominal (non-inflation-adjusted) growth is too weak to produce substantial deleveraging, even at today’s low interest rates.

Other things being equal, a rise in nominal interest rates would thus produce rising debt ratios and further constrain the government’s fiscal space, with adverse knock-on effects for growth and employment. And, unlike most of the rest of Europe, Italy’s real per capita GDP remains well below its 2007 pre-crisis peak, indicating that the restoration of growth remains a key challenge.

Source: The Italian Economy’s Moment of Truth

How do elites manage to hijack voters’ ideas of themselves? | Aeon Essays

Both in political science and economics, vested interests representing elites, lobbies, other pressure groups, or voters at large are the cornerstone of contemporary frameworks of political economy.

The emphasis on interests provides social scientists with a powerful tool with which to analyze the political determination of policies and institutions.

Interests help to explain why foreign trade is often restricted – so it benefits well-organized domestic producers. It helps to explain why regulation tends to favor incumbents at the expense of potential entrants – due to the influence of the regulated firms themselves (a phenomenon known as ‘regulatory capture’).

It helps to explain why elites fail to develop their economies – to preserve their own in power.

Source: How do elites manage to hijack voters’ ideas of themselves? | Aeon Essays

CEI to Award Hernando de Soto 2018 Julian L. Simon Memorial Award | Competitive Enterprise Institute

“Economist, author, humanitarian, advisor to world leaders, and a serial entrepreneur of ideas, Hernando de Soto has stamped his mark on history through pioneering work to put capital in the hands of the poor,” said CEI President Kent Lassman.

“Like Julian Simon, de Soto develops and promotes ideas premised on the belief that people are the ultimate resource and the means to eradicate impoverishment. A leader in business, a champion of property rights, and an innovator of technological solutions to age-old problems of title and ownership, de Soto is a force for good who builds on the legacy of Simon.”

Hernando de Soto is the founder and president of the Institute for Liberty and Democracy (ILD) in Lima, Peru, which The Economist called one of the most important think tanks in the world.

Source: CEI to Award Hernando de Soto 2018 Julian L. Simon Memorial Award | Competitive Enterprise Institute

City and metropolitan income inequality data reveal ups and downs through 2016

.. many cities’ aggressive bids for Amazon’s second headquarters are heightening anxieties that the company’s expansion could further accelerate inequality wherever it eventually lands (as many say it has in Seattle).

The debate about Amazon fits into a wider set of concerns about the tech sector’s role in contributing to income inequality, via the winner-take-all dynamics of the digital economy.

Source: City and metropolitan income inequality data reveal ups and downs through 2016

From Davos: Is paying for results with blended finance ready to take off?

One of the big questions was how to fill the estimated $2.5 to 3 trillion annual investment gap needed to fulfill the 17 ambitious Sustainable Development Goals (SDGs), their 169 targets, and 230 indicators of success. Mind you, beyond finding the needed trillions of dollars, achieving these goals is no small feat.

Enter innovative financing for development.

Innovative finance intends to both increase resources and improve the use of existing resources. One particular form of innovative finance, payment by results, or results-based financing, seeks to create incentives to achieve critical social outcomes by only paying when results are achieved.

Source: From Davos: Is paying for results with blended finance ready to take off?

The Next Financial Crisis | YouTube

Are the overheated markets headed towards another financial crisis?

Dimensions addressed:

  • Concerns over leverage and liquidity
  • Implications of passive investing
  • Transforming financial services business models

Source: The Next Financial Crisis | YouTube

How Inequality Is Killing Off Humanity

The Richest .01% Are Wealth-Obese

In the United States, where wealth inequality is extreme and getting worse (see analysis here):

— The richest 12,600 households (the .01%) have an average of over $800,000,000 in wealth (mostly financial)
— The poorest 63,000,000 households (the bottom 50%) have an average of about $16,000 in wealth (mostly housing)

Global inequality is similar in the degree of disparity:

— The richest 500,000 adults (the .01%) have an estimated average of $30,000,000 in wealth
— The poorest 2.5 billion adults (the bottom 50%) have an average of about $673 in wealth

Neoliberalism disdains government regulation, and one result has been trumpeted to the ends of the earth by the Panama Papers and Paradise Papers: Despite their immeasurable benefits from society — the financial system, tax law, security forces, computer technology — the world’s richest individuals and corporations are stashing away their gains rather than paying for all their benefits.

If researchers Saez and Zucman are correct (and they usually are), an incredible $14 trillion of global wealth is being hidden in offshore tax havens.

Source: How Inequality Is Killing Off Humanity

Today’s Rational Exuberance

A second reason for confidence is that the financial impact of zero interest rates and the vast expansion of central bank money known as “quantitative easing” (QE) are now much better understood than they were when introduced following the 2008 crisis.

In the first few years of these unprecedented monetary-policy experiments, investors reasonably feared that they would fail or cause even greater financial instability.

Monetary stimulus was often compared to an illegal performance drug, which would produce a brief rebound in economic activity and asset prices, inevitably followed by a slump once the artificial stimulus was withdrawn or even just reduced.

Many investors still believe the post-crisis recovery is doomed, because it was triggered by unsustainable monetary policies. But this is no longer a reasonable view.

The fact is that experimental monetary policy has produced positive results.

Source: Today’s Rational Exuberance