Straws in the wind

Over the past decade, the UK economy has presented a puzzling picture.  On the one hand, RGDP growth has been quite slow. On the other hand, the jobs market has been quite robust, as rapid jobs growth has pushed the employed share of the population to an all time high.  This puzzle can be resolved by looking at productivity numbers, which have been absolutely abysmal.

In modern economies, manufacturing tends to decline and services increase.  This trend is especially far advanced in Britain, which partly (not entirely) explains their poor productivity.  What little manufacturing is left is partly based on the UK being a springboard to the EU market.  Thus Nissan builds a factory in Sunderland, so they can export to the EU.  Interestingly, Sunderland voted overwhelmingly for Brexit.

The two leading candidates for the Prime Minister job are both somewhat anti-immigration.  They insist that they want to negotiate a single market agreement with the EU, and control immigration, but it’s not clear to me that this is possible.  For the moment, let’s assume Britain does indeed exit the EU, and the EU no longer gives the UK preferential trading rights.  And let’s assume the UK uses that freedom to crack down on immigration.  What then?

In that case, you’ve destroyed two of the UK’s primary growth engines in recent years, immigration and direct foreign investment using the UK as a platform to export to the EU.  I would predict slower trend economic growth.

And isn’t that exactly what the bond market is telling us?  British long-term bond yields are plunging lower at a startling pace.  I could not find indexed gilt yields (and someone help me?) but I’d guess they are also plunging rapidly.  The elderly voters of England just voted to make Britain more like another large island nation, just off the coast of another great economic power, which also led the industrial revolution in their part of the world.  And if the bond market is to be believed, they succeeded.

Here are some other straws in the wind:

1. A few days after I suggested the Fed should immediate cut IOR by 50 basis points.  Today that might seem rash, if you look at how stocks have recovered.  But if you look at the global bond markets, you might conclude I should have recommended a 75 basis point cut.  The fed funds futures now price in only a 50/50 change of one rate cut.  Not this year, but rather until February 2018.  That’s right; the US is also starting to look more and more like Japan.  How’s my “3% NGDP growth is the new normal” prediction starting to look?

2.  Today the ECB suggested it might expand its bond-buying program into more debt from the PIGS.  The euro depreciated.

3.  Yesterday the BOE suggested policy easing was on the way, and the pound immediately plunged.

4.  And for you Great Stagnation skeptics, chew on this story, from a country whose 20% unemployment rate is one of the most horrific in the entire world:

Spanish headhunter Samuel Pimentel just can’t find the candidates.

After a frustrating search for specialist consultants for a client, he’s given up and is casting his net elsewhere.

“We were looking for people for two months,” Pimentel, a partner at Ackermann Beaumont Group for Spain and Latin America, said in a telephone interview. “We managed to find one in Spain. We turned to Argentina for others.”

Pimentel’s experience reflects a bizarre feature of the Spanish labor market that is hampering the country’s efforts to repair the damage from the economic crisis. Even with close to 5 million people out of work, the next prime minister will face labor shortages with employers struggle to find the staff they need.

“It’s a paradox,” said Valentin Bote, head of research in Spain at Randstad, a recruitment agency. “The unemployment rate is too high. Yet we’re seeing some tension in the labor market because unemployed people don’t have the skills employers demand.”

From software developers and mathematical modelers to geriatric nurses and care workers, a mismatch in qualifications means companies are struggling to fill posts, even though the unemployment rate at 20.4 percent is the second-highest in Europe.

But hasn’t Spain recently experienced strong jobs growth?  Yes, they have, of the British kind:

Caretaker Prime Minister Mariano Rajoy, the front-runner to lead the next government after posting gains in Sunday’s election, has pledged to add half a million jobs a year, but his campaign focused on posts for the legions of unemployed, rather than producing skilled workers to power the economy. Rajoy’s opponents say his policy of driving down wages and stripping back job protection has mainly created poorly-paid low-skill posts.

The failure to equip sufficient numbers of workers with the skills sought by modern companies is holding back the Spanish economy. The skills shortage is a drag on productivity, delays investment and strains a pension system dependent on new workers with good salaries to pay for an aging population, according to Sandalio Gomez, emeritus professor at the IESE Business School in Madrid.

There’s no question that the eurozone faced major demand shortfalls in 2008-09, and again in 2011-13, and then a slow recovery.  But some Keynesians keep pretending that demand is the only problem facing the world.  It’s not; the supply side has been gradually deteriorating for more than a decade.  Brexit will make this problem even worse.

5.  Japan is now seeing its 20-year bond yields approach zero.  Kuroda did a great job during his first three years, but the BOJ seemed to stop trying this year.  I’m not sure why, but there are news reports that the Abe government would like the BOJ to lower its inflation target to 1%.  That’s a crazy idea, but it seems to be the world we live in.

I encourage my readers not to become to fixated on any single number.  I talk a lot about stocks, because stock indices are often a good indicator of the impact of a policy shock on expected future growth.  But not always.  A capital gains tax cut would boost stock prices even if it did not boost growth (and I think it would boost growth, BTW.)  Think about the recent reaction of international stocks to Brexit.  A sharp decline, and then a partial (but far from complete) recovery.  That tells one story.  But if we look at interest rates we see a very different story.  Bond yields declined initially, but then kept on falling.  What does all that mean?  I’m not sure, but here’s one possibility.  Suppose the world is shifting to lower long-term growth, and more risk associated with protracted problems like Brexit negotiations, and fear of renewed crisis in the PIGS.  Problems that aren’t going away soon. A sort of “low level fever”.  These factors could easily depress long-term bond yields, both real and nominal.  But let’s also assume that there is perceived to be relatively little risk of a near term global recession.  So corporate profits are expected to do OK, or at least to decline only modestly.  Now think about discounting those future corporate profits at a much lower real rate of interest.  It’s not hard to see how stock prices might seem to be doing OK, even as long-term growth prospects fell further.

And finally, my knee jerk reaction was that Brexit might end up being a global problem, and that it might be a global monetary problem.  Given the plunging long term bond yields (even as British stocks partially recovery), and given that eurozone stock markets have not yet recovered, and given the panicky central bank moves to cut rates further, how’s my knee jerk reaction looking a week later?

In Britain, the real problem is real, while for the rest of the world the real problem (from Brexit) is nominal.  But that monetary shock is being superimposed on a globe with steadily deteriorating real growth prospects.  Fifty years ago Brazil was booming, building new cities like Brasilia.

Screen Shot 2016-07-01 at 10.38.36 AM

Now all one reads about are unfinished subway lines and raw sewage flowing onto Rio’s beaches.  The world has forgotten how to grow.


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66 Responses to “Straws in the wind”

  1. Gravatar of Christian List Christian List
    1. July 2016 at 07:43

    The elites of the First world are very rich. Many of them have strong anti-consumerist, anti-capitalist and anti-growth sentiments. (Btw: Anti-immigration is the poor man version of those sentiments.)

    Their premise is simple: Why more growth, we already have everything we want.

    It’s the Marie Antoinette way of living: There’s not enough bread? Then let them eat cake.

  2. Gravatar of foosion foosion
    1. July 2016 at 07:48

    Spain employment – if there were a shortage of skilled workers, I’d expect to see their wages rising rapidly as business increase pay to attract and retain these employees. Is that happening?

    Ceteris paribus, stocks rise as interest rates decline. So much depends on what expectations are built in, and how much lower growth offsets lower rates.

    US 10 year TIPS (i.e., treasury real rate) at 0%.

  3. Gravatar of Carl Carl
    1. July 2016 at 07:59

    Regarding Growth and Brasilia: I think there’s been a little bit of growth in Asia in the last 50 years.

  4. Gravatar of acarraro acarraro
    1. July 2016 at 07:59

    UK real yields are now the lowest in the entire world I believe.
    Tenor Level 3m ch
    5yr -1.9 -.63
    10yr -1.5 -.50
    30yr -1.3 -.42

    Pretty pessimistic on growth prospects…

  5. Gravatar of Scott Freelander Scott Freelander
    1. July 2016 at 08:37

    Scott,

    I often take issue with such claims of skills deficits in the workforce, such as that supposedly going on in Spain. An anecdote is offered, and then conclusion. Yet, are we seeing rising pay for job vacancies that supposedly can’t be filled?

    It seems to me that employers and headhunters always claim there are skill deficits, no matter the economic circumstances. Yet, mysteriously, even though markets should solve such problems through increased wages, the problems never get solved, if you believe people like this.

    What’s really going on in most cases like this, I think, is that employers and headhunters want even more subsidized education/job training for employees, and more immigration.

    I’m all for more immigration, but I’m for eliminating direct subsidization of higher education and job training, in favor of a general wage subsidy.

  6. Gravatar of Major.Freedom Major.Freedom
    1. July 2016 at 08:37

    The world has forgotten how to grow.

    Thanks to increased central bank regulation and inflation.

    The world can grow, if you Monetarists and Keynesians stop believing they are smarter than free market results.

  7. Gravatar of Scott Freelander Scott Freelander
    1. July 2016 at 08:42

    foosion,

    You beat me to it.

  8. Gravatar of Scott Freelander Scott Freelander
    1. July 2016 at 08:44

    Christian,

    Sadly, you are very right, at least with respect to some cases. I remember sitting across the dinner table from a handful of county and city commissioners when I was still attending college in a small college town. One of them, sitting right across from me, said he didn’t want the local economy to grow anymore, because he liked the town and county the way it was. I could hardly believe what I was hearing. I thought that the 20% or so of the citizens living in poverty in the area might disagree.

  9. Gravatar of Randall H Fields Randall H Fields
    1. July 2016 at 08:57

    Hasn’t the real rate of economic growth since the industrial revolution been an historic aberration, as ultra-long term real growth has been 0% to 1%? If so, it would seem that the world economy is returning to the mean long term real rate of growth, and, absent breakthrough advances in productivity, this is new “old” norm.

  10. Gravatar of Art Deco Art Deco
    1. July 2016 at 09:18

    In that case, you’ve destroyed two of the UK’s primary growth engines in recent years, immigration and direct foreign investment using the UK as a platform to export to the EU.

    It seems the Remaindered only think in binaries. Either something has precisely the same contours or it is ‘destroyed’. Loss of some trade preferences will make a difference on the margins and regarding certain projects. It’s not going to ‘destroy’ foreign investment. Immigration is seldom an important much less indispensable source of welfare improvement for affluent economies (and comes with social challenges when it is – see the Persian Gulf). If Britain is tough and effective, they cut net immigration from 330,000 per annum to 80,000 per annum. IIRC, George Borjas published a paper in 1996 attempting to calculate the present-tense benefit to the extant population from immigration. It was on the order of 0.1% of domestic product per annum. Britain can do without that.

  11. Gravatar of Art Deco Art Deco
    1. July 2016 at 09:22

    Hasn’t the real rate of economic growth since the industrial revolution been an historic aberration,

    Rates of grown in per capita product in the U.S. went from 2.36% during the period running from 1947 to 1970, to 2.06% during the period running from 1970 to 1991, to 1.58% during the period running from 1991 to 2009, to 1.31% during the last seven years. Interestingly, we really haven’t lost ground against Europe in the last 35 years re standards of living.

  12. Gravatar of ssumner ssumner
    1. July 2016 at 09:26

    Foosion, The article says lots of jobs are being created for low skilled workers, which leaves two possibilities:

    1. Low skilled unemployed find jobs while high skilled unemployed remain unemployed, despite a shortage of high skilled workers.

    2. There are many unemployed workers in Spain with high skills.

    I’d gues s#2 is more likely, but I can’t be sure.

    Carl, Good point,

    Acarraro, Thanks for that data.

    Scott, You said:

    “I’m all for more immigration, but I’m for eliminating direct subsidization of higher education and job training, in favor of a general wage subsidy.”

    I agree.

  13. Gravatar of Art Deco Art Deco
    1. July 2016 at 09:26

    The failure to equip sufficient numbers of workers with the skills sought by modern companies is holding back the Spanish economy.

    The higher education census has been growing by leaps and bounds in Spain for decades. One does get the impression that the true purpose of higher education is to employ articulate people who want better salaries than charities pay but are averse to the culture of business enterprises.

  14. Gravatar of ssumner ssumner
    1. July 2016 at 09:30

    Art, You said:

    “It seems the Remaindered only think in binaries. Either something has precisely the same contours or it is ‘destroyed’. Loss of some trade preferences will make a difference on the margins and regarding certain projects. It’s not going to ‘destroy’ foreign investment.”

    You pretend to disagree with me, and then merely repeat what I said. It won’t destroy all foreign investment, just those investments aimed at using the UK as a platform for tariff free exports to the continent.

    If it makes you feel good to pretend you are one upping me, while actually just repeating what I said, go ahead and waste the rest of your life putting dozens of pointless pedantic comments in my blog every day. It’s your life.

  15. Gravatar of Benjamin Cole Benjamin Cole
    1. July 2016 at 09:36

    Labor shortages? In college I learned there are no shortages, only where the supply and demand lines cross.

    By the way, there has been a perennial “shortage” of 18-wheeler truck drivers in America, and evidently a multi-decade “shortage” of software programmers needed in Silicon Valley.

    You would think that long ago the Silicon Valley would have created excellent trade schools. Or even tried higher pay.

  16. Gravatar of Greg DeLassus Greg DeLassus
    1. July 2016 at 10:27

    Immigration is seldom an important much less indispensable source of welfare improvement for affluent economies (and comes with social challenges when it is – see the Persian Gulf).

    This seems a rather breezy assertion with little to back it up. I will not pretend to know anything about Britain. Here in the United States, it would be interesting to see how many hotel rooms would be left uncleaned, how many fewer roofs would be repaired, how many vegetables would be left in the fields to rot, (etc) if we actually did that for which the immigration restrictionists keep calling. Increased squalor in public accommodations and $10/lb lettuce constitute a noticeable decline in welfare.

    George Borjas published a paper in 1996 attempting to calculate the present-tense benefit to the extant population from immigration. It was on the order of 0.1% of domestic product per annum. Britain can do without that.

    Borjas tends to be an outlier in his calculations, and always to the effect that immigration is more costly or less beneficial than other estimates by other scholars. I do not mean this as a criticism of Dr. Borjas, who seems a fine and serious scholar, but it somehow seems ill advised to make public policy choices on the basis of the outlier.

  17. Gravatar of Scott Freelander Scott Freelander
    1. July 2016 at 10:31

    Benjamin,

    There certainly can be labor shortages, but those are either short-term and the result of labor demand shocks, or labor supply shocks. The latter would likely be the result of bad government policies.

    Shortages can exist in other markets too, and they also tend to be temporary in free markets, as substitutes are adopted, at the very least. Certainly quantity demanded can exceed quantity available at a given point in time, and higher prices will ration the limited supply. There are certainly demand and supply shocks in various markets.

  18. Gravatar of Art Deco Art Deco
    1. July 2016 at 10:44

    You pretend to disagree with me, and then merely repeat what I said.

    I quoted you directly, and disagreed with it.

    If it makes you fell good to pretend you are one upping me,

    Not everyone’s as competitive as you are. Quit projecting.

  19. Gravatar of Art Deco Art Deco
    1. July 2016 at 10:50

    This seems a rather breezy assertion with little to back it up. I will not pretend to know anything about Britain. Here in the United States, it would be interesting to see how many hotel rooms would be left uncleaned, how many fewer roofs would be repaired, how many vegetables would be left in the fields to rot, (etc) i

    The vegetables rotting in the field is a hardly perennial. Steven Sailer has a series of lampoons concerning it.

    And the answer to all your questions is ‘none’. Labor to do this work would be more expensive so there would be higher prices and substitutions (e.g. automation of some functions, crop switching).

    I don’t produce bibliographies for blog commentary. I happened to have read some of Borjas work, so referred to that.

  20. Gravatar of Major.Freedom Major.Freedom
    1. July 2016 at 11:55

    I encourage my readers not to become to fixated on any single number.

    So sayeth NGDP guy.

  21. Gravatar of Ray Lopez Ray Lopez
    1. July 2016 at 12:39

    Sigh. Sumner takes a sawed-off shotgun, stands 50 yards from the target, pulls the trigger, and if a single pellet strikes he declares a ‘bulls-eye’. Where to start critiquing him? He’s the Rush Limbaugh of economics, so no amount of criticism will affect him. Most his loyal readers are brainwashed. His theory is metaphysical, his anecdotes nonsense (Brasilia as an example of high-growth, instead of make-work, is comical).

  22. Gravatar of bill bill
    1. July 2016 at 12:48

    I like Benjamin Cole’s comment about shortages. The canard about truck driver shortages has been a constant in my industry (warehouses).
    Likewise, while I personally am a fan of freer immigration, I have no fear that if the US banned all immigrants that I won’t be able to get vegetables. Could the prices go up 25%? Sure. But the vegetables will get picked and the Truck Drivers will get them to market. All as if guided by an invisible hand.

  23. Gravatar of Anon256 Anon256
    1. July 2016 at 12:49

    The graphs in http://noahpinionblog.blogspot.com/2016/05/the-incredible-miracle-in-poor-country.html definitely don’t look like a world that has forgotten how to grow.

  24. Gravatar of Chuck Chuck
    1. July 2016 at 13:01

    It’s like weight loss. People know what to do. They just don’t want to.

  25. Gravatar of Jeff Jeff
    1. July 2016 at 13:08

    One explanation that is consistent with both lower nominal bond yields and higher stock prices is lower expected inflation. If nominal rather than real stock returns are subject to taxation, lower inflation ceteris paribus raises after-tax stock returns and thus increases stock prices. It does the same to bond prices.

    Of course, the fact that the great majority of stock is now held in tax-deferred or tax-free accounts makes this explanation a bit less plausible, but still, it could explain a lot.

  26. Gravatar of Art Deco Art Deco
    1. July 2016 at 13:31

    (Brasilia as an example of high-growth, instead of make-work, is comical).

    Aye. Lots of opportunities for graft with that sort of thing. The Kubitschek Administration had a reputation for corruption above and beyond the call of duty.

  27. Gravatar of Becky Hargrove Becky Hargrove
    1. July 2016 at 15:09

    “The world has forgotten how to grow.”

    Good quote. Alas,not so easy to address as it may sometimes seem.

  28. Gravatar of Steve F Steve F
    1. July 2016 at 15:30

    Major Freedom,

    I don’t understand why you’ve a hardon against NGDPLT. Don’t you believe money is neutral? So how would stable inflation have a negative effect on RGDP growth?

  29. Gravatar of Ray Lopez Ray Lopez
    1. July 2016 at 17:04

    @Steve F – MF doesn’t believe in money neutrality.

    “As anyone who has tried to banter with an advocate of some esoteric religion knows, there is no point trying to debate fundamental beliefs with a zealot. After many similar experiences with economists, I abandoned any delusion that I might be able to persuade committed economists to see reason (though there has been the odd exception to this rule).” – Steve Keen, “Debunking Economics” (2001)

  30. Gravatar of Benjamin Cole Benjamin Cole
    1. July 2016 at 17:28

    Scott F–(and bill)

    Well you agree with me.

    We have heard for 50 years—not short term—that there are not enough people to work farms in the US, so illegal labor is needed.

    That darn price signal just don’t work, not no how and no way.

  31. Gravatar of Benjamin Cole Benjamin Cole
    1. July 2016 at 17:31

    Chuck–turns out losing weight not so easy. Dieting cuts metabolism, even after dieting stops. People are chronically hungry even after diet is completed.
    Liposuction is probably a good choice.

  32. Gravatar of Steve F Steve F
    1. July 2016 at 17:33

    What’s the case for and against neutrality?

  33. Gravatar of Jxm Jxm
    1. July 2016 at 18:31

    I can tell you why Spain has problems finding tech talent: They still refuse to pay decent money. In Madrid, a programmer is happy if he makes 30K a year. The same job in Kansas City is 100K. In San Francisco, 200K plus stock. So people leave, and those that leave are those that are very marketable elsewhere.

    To be fair, having a degree from a Spanish university in tech doesn’t really mean you are even competent: The Spanish university system is a disgrace, teaches few, if any practical skills, and yet it’s extremely tough, so people take 6, 8 or 10 years to finish a a degree, mostly because they had trouble in classes that have nothing to do with the degree. Back when I was there, the hardest mandatory classes in my home town’s school for computer scientists? Quantum Physics.

    So yes, the country is in trouble, and finds itself deciding whether they should have a very corrupt old man or a formerly Venezuela-funded communist as prime minister. It’s not going to get better.

  34. Gravatar of ssumner ssumner
    1. July 2016 at 18:37

    Ben, Did you study monopsony in college? The supply and demand model does not apply in that case.

    Art, You said:

    “I quoted you directly, and disagreed with it.”

    You quoted me, acted like you were disagreeing with me, and then said the very same thing. But nice try.

    Ray, Have you figured out what an AS/AD diagram looks like yet? What two lines does it contain?

    Anon256, Yes, there was a bit of hyperbole there, but certainly growth is slowing.

    Jeff, Good point.

  35. Gravatar of Bill Reeves Bill Reeves
    1. July 2016 at 20:10

    It’s ironic: right next to your comment “the world has forgotten how to grow” you post pictures of Brazilian government buildings – the reason the world can’t grow. Except in TX where new freeways and rail lines opened this year in Houston. Along with 80000 new homes – as many ss in all of CA. And all if those toilets worked.

  36. Gravatar of Mike Sax Mike Sax
    1. July 2016 at 20:15

    Regarding the question of whether Brexit really happens, this is at least some good news for those who hope it doesn’t.

    “Support for Theresa May is surging among Conservative MPs, with almost 100 now backing her bid to become party leader as Michael Gove’s late entry into the race struggled to gain momentum.”

    “His allies admitted it had been a bumpy start, with only a handful of MPs turning up for his opening speech compared with dozens a day earlier in support of May. Gove is estimated to have the public support of 20 MPs.”

    http://www.theguardian.com/politics/2016/jul/01/support-for-theresa-may-as-tory-party-leader-surges-as-gove-campaign-struggles

    This is shaping up to be a time when the best man for the job on both sides of the Atlantic may turn out to be a woman.

  37. Gravatar of ChrisA ChrisA
    1. July 2016 at 22:14

    A couple of points –

    Is it possible the rise in services is linked to the productivity question. Services are both difficult to measure and difficult to apply manufacturing processes to.

    On the UK exports being affected by tariff’s after Brexit – couldn’t that be taken care of by a fall in the pound vs the Euro? I don’t actually think a tariff war between the UK and the EU is actually going to happen, since the trade deficit is so much in favour of the EU they have a strong incentive to be sensible. But even in the worst case we couldn’t be talking about tariffs of more than 10%, which is easily taken care of by the fall in the pound that has happened over the last week. And remember that applies to all of the exports of the UK to all of the world, not just to the EU.

    I agree the fall in guilts is a bad sign for expectations of future growth in the UK. But probably there is also a flight to safety aspect. Things changed suddenly with the Brexit vote and investors need to recalibrate to understand what their next move would be. So they removed money from places like the stock market and parked it in guilts while they figured out their next move and especially to see where the political direction would be. Once we have the Conservative party leadership election over and the new direction set for the UK we might be able to put some conclusions forward. (Who knows we might even see a rate cut by BOE).

    In terms of economic activity, actually London has more than 200 tower blocks currently being proposed, and many more would be proposed if the planning laws were more relaxed. But the new London Mayor has said he will clamp down on new building. I would submit that this sort of attitude will have much more effect on the future growth of the UK than Brexit. But it has been simply ignored by the VSP in favour of hysteria on Brexit.

  38. Gravatar of E. Harding E. Harding
    1. July 2016 at 22:16

    As usual, Mike Sax, your first choice for leader is an untrustworthy, incompetent, super-duper authoritarian post-menopausal woman. Google “snooper’s charter”.

  39. Gravatar of E. Harding E. Harding
    1. July 2016 at 22:19

    #NeverMay

  40. Gravatar of Tom Brown Tom Brown
    2. July 2016 at 00:00

    @E. Harding,

    Regardless of what Mike’s preferences are (and let’s face it, he at least has some skin in the game, being a dual citizen of the US and UK) it does sound like May is currently looking more likely.

    Mike, does snooper’s charter matter any to you, seeing as how you could conceivably be affected by it? Have you ever participated in a UK election? Is it possible to do so w/o living there?

    What happened to Gove’s support anyway? Too worm like? Too back-stabby? Sounds like Gove at least instrumented flushing the Boris turd down the crapper, so they can at least thank him for that.

  41. Gravatar of Tom Brown Tom Brown
    2. July 2016 at 00:40

    This makes it sound quite possible that the choice will be between two “post-menopausal” women, the other being Andrea Leadsom.

  42. Gravatar of W. Peden W. Peden
    2. July 2016 at 01:16

    And the best candidate for the job is also a woman, Ruth Davidson (Scottish lesbian kickboxer) but sadly she’s not an MP yet, and instead has been too busy reviving Scottish right-wing politics.

  43. Gravatar of Tom Brown Tom Brown
    2. July 2016 at 01:20

    And the best candidate for the job is also a woman, Ruth Davidson…

    Ah, but is she “post-menopausal?”

  44. Gravatar of W. Peden W. Peden
    2. July 2016 at 01:28

    Tom Brown,

    I would ask her, but I’m pretty sure that she would beat me (or anyone else on here) up.

  45. Gravatar of Tom Brown Tom Brown
    2. July 2016 at 01:40

    Looks like she’s pre-…. and a remainer too. Harding, is this the stuff of your nightmares?

  46. Gravatar of Mikio Mikio
    2. July 2016 at 01:52

    Hi Scott, I looked at UK Breakeven rates a couple of days ago. They have risen a bit for the short end and UK BE is still only country well above
    above 2% for above 10 year end of courve.

  47. Gravatar of Mikio Mikio
    2. July 2016 at 01:54

    Happy to send you the graphs of all tenors of UK break evens as well as inflation swaps if you email me.
    Best

  48. Gravatar of Ray Lopez Ray Lopez
    2. July 2016 at 02:01

    @Steve F – Google “Ben S. Bernanke FAVAR paper” and read it: Fed policy shocks, which go to money neutrality, only account for 3.2% to 13.2% (out of 100%) of the change in any variable. While statistically significant, this is largely trivial and shows money is neutral. Sumner will argue 3.2% is not trivial and will use a “Roman Scales” analogy, but that’s just wishful thinking.

    @Sumner – “Ray, Have you figured out what an AS/AD diagram looks like yet? What two lines does it contain?” – trying to make me look ignorant only makes you look stupid. Your readers, though largely brainwashed, can see through that. Try harder.

  49. Gravatar of Art Deco Art Deco
    2. July 2016 at 05:20

    “Support for Theresa May is surging among Conservative MPs, with almost 100 now backing her bid to become party leader as Michael Gove’s late entry into the race struggled to gain momentum.”

    North of 40% of the MPs supported Brexit. That should be sufficient to secure one of the nomination slots for a proponent. It then goes to the general membership, which is predominantly composed of Brexit supporters.

    And, yes, Teresa May has a history of flat-footed stupidity at a time when she and only she was responsible for results (re riot control). In a previous era, a letter of resignation might have been forthcoming or demanded, but not in Cameron’s cabinet. The one thing you could say on her behalf is that Gov. Jay Nixon and whatever lunkhead has been St. Louis County executive in recent years have been worse. Gov. Nixon isn’t running for Conservative Party leader.

  50. Gravatar of Art Deco Art Deco
    2. July 2016 at 05:22

    You quoted me, acted like you were disagreeing with me, and then said the very same thing. But nice try.

    [chuckles].

  51. Gravatar of Mike Sax Mike Sax
    2. July 2016 at 06:31

    Actually, I could take this whole year of the woman further.

    Angela Merkel is a very important player now on the world stage-Germany is now more important than the UK for American foreign policy-and Nicola Sturgeon in Scotland is doing a great job.

    She is already talking about Scottish Independence again.

    “Have you ever participated in a UK election? Is it possible to do so w/o living there?”

    Tom, it’s a good question. I never even thought about whether I could until this whole Brexit thing.

    As I’m a British citizen why not? But I never thought about it or checked. Maybe I should.

    Then I could vote in two country’s elections.

  52. Gravatar of ssumner ssumner
    2. July 2016 at 06:33

    Bill, Yup, I’ve done many posts touting the Texas model.

    ChrisA. I’ll do a post on exchange rates.

    Agree on building restrictions in London.

    I don’t think the election of a new leader will end the uncertainty. Her policy will be unacceptable to the EU, and painful negotiations will drag on for years.

    Mikio, Are there any links?

  53. Gravatar of Mike Sax Mike Sax
    2. July 2016 at 06:49

    Teresa May certainly sounds like Hillary:

    “Boring and competent Theresa May is what the nation needs after the shock of the Brexit vote”

    “With all the space in British politics opening up before her, a lesser politician might have stumbled – but she strode to the lectern and declared that everything as far as the eye could see was hers”

    She said who she was: “I know I’m not a showy politician. I don’t tour the television studios. I don’t gossip about people over lunch. I don’t go drinking in Parliament’s bars. I don’t often wear my heart on my sleeve. I just get on with the job in front of me.”

    http://www.independent.co.uk/voices/boring-and-competent-theresa-may-is-what-the-nation-needs-after-the-shock-of-the-brexit-vote-a7114531.html

  54. Gravatar of Art Deco Art Deco
    2. July 2016 at 07:00

    Teresa May certainly sounds like Hillary:

    Neither one is competent. I’m sure her security detail would prefer Hellary to be boring, but no such luck for them.

  55. Gravatar of Mike Sax Mike Sax
    2. July 2016 at 07:13

    Art, for me anything critical you say is an endorsement anyway.

    If you don’t like someone, it’s a good hint that they are worth something.

  56. Gravatar of Mikio Mikio
    2. July 2016 at 07:50

    Scott, the data is from Bloomberg. I have it on excel.

  57. Gravatar of ssumner ssumner
    2. July 2016 at 08:40

    Thanks Mikio.

  58. Gravatar of Gary Anderson Gary Anderson
    2. July 2016 at 08:41

    I am uncomfortable that Trump seems to be benefiting from Brexit. But Lars Christensen is clear about this, tying your currency to the Euro means certain no growth. If the UK has to rely on immigration to grow instead of adjusting its currency to create more business, that is pretty weak thinking. I can see a backlash against that, even if people are not blatantly racist. Youth unemployment in the Eurozone except for Germany is terribly high.

  59. Gravatar of Tom Brown Tom Brown
    2. July 2016 at 09:18

    North of 40% of the MPs supported Brexit. That should be sufficient to secure one of the nomination slots for a proponent

    They’re politicians, so it likely depends on which way the winds blow.

  60. Gravatar of Mike Sax Mike Sax
    2. July 2016 at 09:48

    “They’re politicians, so it likely depends on which way the winds blow.”

    Indeed. It will depend on:

    1. How voters feel about Brexit later. Which will depend on:

    2. How the economy and markets are acting later.

  61. Gravatar of AIG AIG
    2. July 2016 at 15:39

    Several problems with your analysis.

    1) Limiting to “last decade” is convenient for making your argument. Except that in the last decade UK’s productivity growth has been on par with the rest of Europe. Abysmal, yes. But not abnormal. Europe is entirely abysmal…everywhere.

    2) Over a longer period, say from 1992 to 2008, UK’s productivity growth FAR outstripped EU’s productivity growth, and even the US’s productivity growth.

    http://blogs.r.ftdata.co.uk/gavyndavies/files/2013/07/ftblog5102.png

    Did these manufacturers decide to set up in the UK in order to ONLY have access to EU markets, ONLY after 2008? Not in the 90s or the 2000s????

    A rather strange argument to make, and clearly a forced one.

    3) Now you can make all sorts of arguments that ALL this growth is the result of these manufacturers setting up place in the UK ONLY to reach EU markets, or ALL due to “immigration”…but alas…you can’t actually support this argument.

    4) Alas, your immigration claim is clearly bunk since in the UK immigrants have a far lower employment rate than natives, about 4% lower in fact: http://www.migrationinformation.org/images/sweden-jan14-fig2.jpg

    Recent immigrants are worst than more distant immigrants.

    So you’re trying too hard, but not actually providing any evidence for your claims.

    Your argument essentially boil down to: staying chained to a defunct and dying economic union is better than going at it alone. And that masses of welfare immigrants who put a massive fiscal strain on the country, are somehow “good” for economic growth. Rather strange, and rather…reverse causality.

  62. Gravatar of AIG AIG
    2. July 2016 at 15:49

    Nissan, for example, set up in the UK in 1984. Hmmm….

    …1984. Interestingly, that’s when they set up shop in Mexico too, and when the global expansion of Japanese manufacturers was happening all over the world.

    But somehow these manufacturers decided to set up shop in one of the most expensive countries to do manufacturing, instead of say, Italy or Portugal or Romania.

    Apparently, you don’t attribute the setting up of manufacturing by international firms in the UK to a myriad of local and international factors, most having nothing to do with the EU…but strangely decide to attribute it ALL to…EU.

    Again, a very convenient story, but one which requires some rather extraordinary evidence. Especially from an economist.

    What about all the other car manufacturer’s in the UK? Did BMW buy Rover to get access to EU markets? Did Ford? Did GM buy Vauxhall for that reason, in the 1970s?

  63. Gravatar of AIG AIG
    2. July 2016 at 15:51

    PS: What do you attribute UK’s high productivity grown from 1992 to 2008…to? I’d be interested in hearing that story.

  64. Gravatar of AIG AIG
    2. July 2016 at 16:05

    PPS: Interestingly, you (and most commentators) keep making the assumption that it is an all or nothing thing between “free trade” and “unrestricted immigration”, even though there currently are about 3-4 different immigration regimes within the EU.

    The UK, not actually being a member of Schengen area…

    …apparently the existence of multiple different arrangement on one dimension, seems to be forgotten when speaking of an other unrelated dimension, such as “free trade”.

    Instead, it is portrayed as an all or nothing deal…when it isn’t even that NOW, never-mind when the UK does leave the EU.

    Again, a convenient argument, but not a realistic one.

    Can the UK negotiate to keep “free trade”. but restrict immigration at its will?

    IT ALREADY DOES. As now do many other EU countries which have reinstated immigration restrictions at their borders, despite actually being in Schengen.

  65. Gravatar of Britmouse Britmouse
    3. July 2016 at 14:00

    Mikio, the breakevens from the UK gilt market are based off RPI inflation not CPI inflation; RPI inflation is expected to run about 1% above CPI inflation on average.

  66. Gravatar of ssumner ssumner
    4. July 2016 at 12:39

    AIG, You said:

    “1) Limiting to “last decade” is convenient for making your argument. Except that in the last decade UK’s productivity growth has been on par with the rest of Europe. Abysmal, yes. But not abnormal. Europe is entirely abysmal…everywhere.

    2) Over a longer period, say from 1992 to 2008, UK’s productivity growth FAR outstripped EU’s productivity growth, and even the US’s productivity growth.”

    That has no bearing on my post.

    You said:

    “Now you can make all sorts of arguments that ALL this growth is the result of these manufacturers setting up place in the UK ONLY to reach EU markets, or ALL due to “immigration”…but alas…you can’t actually support this argument.”

    I never made this argument.

    You said:

    “Alas, your immigration claim is clearly bunk since in the UK immigrants have a far lower employment rate than natives, about 4% lower in fact: http://www.migrationinformation.org/images/sweden-jan14-fig2.jpg

    Recent immigrants are worst than more distant immigrants.”

    First of all that has no bearing on my argument. Second, even if you are right that the employment rate is 4% lower, that is not “far lower”. Third, it’s no surprise that recent immigrants are employed at a lower level than those who have been in the UK for a long time.

    You said:

    “but strangely decide to attribute it ALL to…EU.”

    I never did anything of the sort.

    Here’s a suggestion AIG. Try to improve your reading comprehension if you want to be taken seriously. Otherwise be prepared to be ignored.

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