Sturm und Drang | EconVue Spotlight

posted by Lyric Hughes Hale on October 15, 2018 - 9:04am

It has been a turbulent week to say the least.  In response to an equity market sell-off, President Trump dared to say what many were thinking, that the Fed has “gone crazy” and raised interest rates prematurely.  On the 10th year anniversary of the Global Financial Crisis, there has been much debate about its causes, including Saul Eslake’s excellent essay below. What haunts me is that despite all the usual positive indicators such as unemployment and GDP growth, something is still not quite back to normal.  Except in coastal cities, real estate prices have still not recovered, and for most Americans, their home is their largest asset.  In fact, there are increasing signs that they are once again using their homes as ATM’s. We all know that financing consumption instead of investment usually ends in tears. Robert Shapiro explains how working Americans are still facing a difficult reality.

China represents 30% of global GDP growth, and if China lags behind the world will too. Last week, Vice President Pence laid out what is essentially the Trump Administration’s China policy.  The Chinese have underestimated Trump’s resolve, and thought that a resolution would be forthcoming by the mid-term elections. That will clearly not happen now, and the Xi-Trump Summit at the G20 meeting is still not a certainty.  By continuing to court the old guard of China policy, while making lives difficult for the new generation of China watchers, Beijing was unaware of the sea change that this represented from prior administrations.  Douglas Paal’s analysis of the impact of young China hands is a must-read, not something I say lightly since there is so much repetition in US-China discussions.

After years of providing an unlevel playing field for MNC’s operating and investing in China, China can no longer count on their unilateral support either. My take is that wisdom on both sides will prevail.  Despite blustering corporate nationalism, most businesspeople in China recognize the value that foreign companies and their technologies can bring.  Ultimately, there will be a trade agreement, but it will be a trade & technology agreement. It won’t happen however until China agrees to the demilitarization and economic reunification of North and South Korea, which would be the crowning achievement of Trump’s first term. That would imply an agreement not before this election, but before the 2020 Presidential elections.

Recommended articles range from David Johnson’s article on the business of treating autism to the newest Nobel laureates in economics, to Karen Petrou’s warning about fintech regulation.  We’ll all be waiting anxiously for market opens on Monday- equities last week were as volatile as cryptocurrencies!


The Global Financial Crisis – A Decade On
Saul Eslake 

Reflections on the global financial crisis (what was I doing – what was I thinking?) a decade after the collapse of Lehman Brothers.

Don’t be Fooled: Working Americans are Worse off under Trump
Robert Shapiro 

Despite robust economic numbers during the Trump presidency, the American public has seemed curiously unmoved by good news such as the lowest U.S. unemployment level in nearly half a century. Its enthusiasm might have been dampened by this underappreciated economic reality: The typical working American’s earnings, when properly measured, have declined during the Trump administration.

Autism Therapy Shines Bright: Innovative Therapies, More Reimbursement, Sector Poised for Growth
David Johnson

Autism Spectrum Disorder is the nation’s fastest-growing developmental disorder, one that touches each child and family in unique and complicated ways. In response, innovative companies now provide therapy services in a variety of settings, including freestanding centers, at home and in schools. The therapy services administered in these programs provide a growing population of individuals—particularly children—with the opportunity to live longer, healthier, and more socially integrated lives.


New ideas about new ideas: Paul Romer, Nobel laureate
Chad Jones 10/12/2018 Vox

Romer’s essential contribution is his clear understanding of the economics of ideas and how the discovery of new ideas lies at the heart of economic growth.

How we create and destroy growth: The 2018 Nobel laureates
Kevin Bryan 10/11/2018 Vox

Occasionally, the Nobel Committee gives a prize that is unexpected, surprising, yet deft in how it points out underappreciated research. This year, they did no such thing. Both William Nordhaus and Paul Romer have been running favourites for the award for many years. The surprise, if anything, is that the prize went to both men together: Nordhaus is best known for his environmental economics; and Romer for his theory of ‘endogenous’ growth. 

The tyranny of the top five journals
James Heckman and Sidharth Moktan 10/2/2018 Institute for New Economy Thinking

Unusual soul-searching about the economics profession and the origins of groupthink and publication funnels.


Trump and the End of Smugness
Devin Stewart 10/11/2018 War on the Rocks

Next level iconoclastic brilliance, must read. 

Which U.S. major metro areas now offer the best housing values?
William R. Emmons 10/10/2018 Federal Reserve Bank of St. Louis

Housing markets in some Upper Midwestern major metro areas—Detroit, Cleveland, Cincinnati, Indianapolis and Chicago—now offer the best relative values, on average, nationwide.

The return to great-power rivalry was inevitable
Thomas Wright 9/12 2018 the Atlantic

Despite their significant differences, Barack Obama and Donald Trump both understood that the American people wanted to pull back, do less, & have other nations share more of the burden.” Great read on the demise of the liberal world order & what’s next.

The tyranny of the U.S. dollar
Peter Coy 10/3/2018 Bloomberg

Dollar dominance is being debated now that the US economy is pulling ahead of the pack. This article ignores an obvious answer to the Triffin Dilemma- a global currency without sovereignty specifically, cryptocurrencies such as bitcoin.


How US-China disputes on trade, Taiwan and the South China Sea are driven by Washington’s new generation
Douglas H. Paal 10/10/2018 South China Morning Post

The new generation of China hands in Washington has different values and a totally different experience of China. They are now a driving force behind US-China rivalry. Intriguing analysis by the inestimable Doug Paal.

Vice President Mike Pence's remarks on the administration's policy towards China
Hudson Institute 10/2/2018

This is basically a comprehensive outline of the Trump Administration's China policy.

China 'spy chips' rattle global data center supply chain
Cheng Ting-Fang, Lauly Li and Toyoki Nakanishi, 10/6/2018 Nikkei Asian Review

Bloomberg’s China spy chip story sent shock waves through the tech world, but was vigorously denied by both Apple and Amazon. Nikkei gives a balanced account.

Stop obsessing about China
Michael Beckley 9/21/2018 Foreign Affairs

The most sensible analysis of the US-China relationship I have read in quite some time. The biggest risk, as with the Fed, is policy overreaction on both sides.

Which Chinese hold top jobs at key international bodies?
Laura Zhou 10/8/2018 South China Morning Post

Answers a question I’m sure many have been asking  after the arrest of Meng Hongwei, Interpol chief.  The answer includes the head of the International Civil Aviation Organization and the International Telecommunications Union.


Regulators see risk, run for cover
Karen Petrou 10/12/2018 Federal Financial Analytics

Whistling on the sunny side of the street even as the U.S. stock market crashed, the FSB’s new crypto-asset policy is yet one of a series of global pronouncements about emerging risk – some deemed as very worrisome – that regulators are nonetheless told to ponder very, very seriously without doing anything much about them

Some simple Bitcoin economics 
Linda Schilling & Harald Uhlig 10/11/2018 Vox

"The BIS traces the instability of crypto-prices back to the lack of a crypto central bank." Bitcoin under the control of a central bank is just digital fiat. Is it impossible for traditional economists to abandon the rather recent concept of a central bank?