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European Juggernaut

Before we focus China and the US as threats to European growth, we should consider how firms’ capital, labour and technology are distributed in Europe. Capital has long been more mobile than labour and technology. Whereas a Banking Union is seen as primordial, the coordination of social security systems enabling cross-country mobility and wage adjustment still restrains mobility.  European…

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Cultural characteristics of innovation

Paul Romer argued in 2007 that the value of innovation is indifferent to its geographic origin: television would be equally useful to the economy regardless of where it was created. If the value of this claim for economics is undisputed it is only because macroeconomics often fails to argue the relevance of its arguments in a broader context. Consider the implications of fintech such as WeChat.…

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As both aggregate demand and aggregate supply are controlled for in SGP

Currency adjustments maintain stable labour costs on the basis of productivity (controlling for institutions)

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Tesla benefits to 200,000 firm sales (eco tax); 

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Scramble for Africa not new: society of Nations, previous Asian BNP Paribas lending …

Bound to import inflation, increase interest rates (lest liquidity draining) and pull funds back (case in hand : us emerging markets)

Contradicting the role of the Euro is insistence from ECB in having inshore clearing (compare with eurodollar)

Bound for inflation importing (check.leakage of derivatives to local…

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New blog post for the RSA My most recent blog post speaks of a better, more cohesive Union by tackling inequality with long-term policies.

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On public debt and the economy

In the aftermath of Rogoff and Reinhardt’s study on debt sustainability and growth, economists seldom enquire on the inevitability of public debt for growth. Marianna Mazzucato and Stephanie Kelton each advocate, in a particular way, that public spending and thus public debt contributes to economic growth and development. Other economists, including Nobel laureates Mundell and Krugman, also…

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Solidarity

I’ll write before others start doing so, and I’ll write it now although I’ve known it for years: solidarity should not be applied to macro-prudential or financial or economic failures of this European Union.

Solidarity is meant as helping in emergency, as explicit in the Treaty.

There has been a flurry of wrong references to solidarity as the legal basis underpinning EFSF, ESM perhaps even EFSI,…

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Germany

The third consecutive month of contraction hints at more than exogenous causes for Germany’s manufacturing.

At its crux, German policy and social preferences led the Member-State’s policy makers and firms to ignore the repeated urge for more investment, not least by the European Commission.

Feldstein and Horioka, who uncovered the correlation between savings and investment levels, reinterpreted…

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Modern Monetary Theory

A quick take on MMT – what would’ve been the policy followed by the Secretary of the Treasury in 2009?

According to this paper by Warren Mosler, the Secretary should lower taxes or create jobs to curb unemployment to impact budget somewhat similarly to that achieved by the 2009 Recovery and Reinvestment Act.

Plotting forward the 2003 growth trend employment would be 9% higher by 2011,…

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Keynes and the dearth of growth

It is not hard to recall John Maynard Keynes suggested contractions are the result of sluggish demand rather than price fluctuations back when both money was indexed to metal and productive capital could be destroyed.

Monetary financing of public deficits coupled with persistent capital depletion (some demand today that zombie firms be retired) during WWII surely proved Keynes right– would…

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Linking inflation and inequality

Services are the main driver of the European harmonised price index. Growth in the services sector has been partially motivated by gains in manufacturing productivity and thus has only strengthened with manufacturing relocation.

As manufacturing jobs were relocated to where costs are lower, both tamed inflation, capital concentration(although I don’t agree with Blanko Milanovic’s recommendation)…

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Lagging electrical vehicles

As if following up on the post about  Volkswagen and innovation, two brands of the group concluded their technological solution for electric vehicles is so relatively uncompetitive (to Tesla) that the brands’ electric vehicle rollout plans are significantly compromised.

These news follow an investment of more than €2 bn to build an electric vehicle platform for the VW Group with delivery…

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China and the Europeans

The most significant outcome of the emergence of China as a foreign investor in Europe (rather than a market or a competitor) is the certainty that Europe is the way forward rather than a collaboration of Member-States.

The increase in multilateral inter-governmental political bargaining of the past decade, and its significant setback after Donald Trump, reached an hiatus just yesterday as Commis…

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More pay or better pay?

Workers in the Audi Hungarian factory of Györ closed the plant in protest for the lowest wages in the region.

Economics is prolific in theories useful to assess the merits of Hungarian workers’ demands. 

Economists Balassa and Samuelson concluded fast-paced export sectors such as motor vehicles in Hungary lead inflation elsewhere in the economy.

In those terms, the Producer Price Index for the…

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The most European act

The most European act would be  recommending the break-up of the Volkswagen Group: it hampers innovation, it spread a cheating motor over what are supposed to be competitor brands harming the consumer in it’s choice and welfare, and it drags down the European Union’s main economy that integrates what so many other European Union economies produce. Renault and other brands would become more…