Shockflation has uprooted Europe. After living standards plummeted, a far right surge is engulfing Germany & France is in turmoil.
In a new report for
@Europarl_EN
,
@jvtklooster
& I urge for a new economic policy playbook to prepare for future shocks.🧵
This week, I received angry text messages from Noah Smith demanding an apology for saying his blogs on
@IsabellaMWeber
were “silly polemics”. So I dug into his writings and, my friends, it’s worse than just silly.
Do join me for a tour of
@noahpinion
on Isabella Weber’s work.
Did policymaking really change after 2008? Not immediately, but a genuine paradigm shift is taking place… amongst central bankers and EU technocrats setting financial and fiscal rules.
Technocratic Keynesianism - A summary👇
Open access at
@NPEjournal
:
Saying the central bank has an "inflation brake" is a mistake on a par with the idea that the state is a household that must pay back its debt.
Just some comments on this particularly vapid unsigned
@TheEconomist
piece. 1/
Finally out! On the European Central Bank, technocracy, and one of the most painful chapters in European integration: the
#ECB
’s treatment of sovereign debt (going from 1988 till 2020)
A quick summary 👇 /1
#Openaccess
Sure a real Nobel prize, nothing ideological happening here at all just banks intermediating gold coins between normal people and productive investment
The work for which Ben Bernanke, Douglas Diamond and Philip Dybvig are being recognised has been crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed.
#NobelPrize
Out
#openaccess
! ‘Rethinking Monetary Sovereignty’ (with
@steffenmurau
)
On the state, global credit money, currency hierarchies and the inadequacy of our current conceptions of monetary sovereignty.
A 🧵
Ok friends time for a quick thread on the unfolding Sterling crisis. The (non-FT) media and the twitter economists seem to have forgotten some real world market plumbing issues again…
1/ Why are
@ecb
central bankers so keen to raise rates? I have seen a few theories - erroneous macro, reputation management, class warfare - but none make sense to me. Consider
@KlaasKnot
Finally out! In
@jhet_journal
: on Carl Menger, the marginal revolution and the prehistory of 20th century neoclassical economics, featuring a detailed debunking of Hayek’s historiography of Austrian economics. A short thread /1
.
Since then, of course, the data has shown beyond any doubt, that many firms did jack up prices and that the more powerful firms were much better placed to do so.
A wide range of measures targeting systemically important prices were used with success.
Out! In
@RIPEJournal
A defense of monetary financing against the dysfunctional monetarist taboo, showing its benign but crucial function. And documenting how the
@ECB
's brief reluctance to monetize debt in 2009 would have catastrophic effects
A 🧵 /1
The
@BIS_org
just published what looks to be a very important book, showing that in unequal societies (like ours) accommodative monetary policy is a bad way to deal with recessions
But rather than admitting he had been wrong (which is absolutely fine), and had taken part in a shit storm targeting an academic who put forward an interesting but controversial view (not so fine), he just continued the attacks
I think it's time for
@paulkrugman
to concede it. He was not only extremely rude, but also just wrong in December 2021 to reject
@IsabellaMWeber
's claim that it was time to start thinking about selective price controls
Coming Thursday I will defend my
#PhD
"The Political Economy of Central Bank Risk Management!
Do come to hear me defend the theses below on the
#ECB
collateral framework and the politics of financial market risk
Thursday 22 April 12:45 stream here:
Why is the ECB Governing Council currently in an emergency meeting? What are PEPP reinvestments? Why are they the main tool of the ECB to fight a new Eurozone crisis now on the horizon? And what more powerful tool is needed? A 🧵
Throughout his blogs, he sets Weber up as targeting inflation (an economy-wide phenomenon) through war economy-style price controls across the entire economy. This makes a complete caricature of what this year’s strategic price control debate has been about.
As that last tweet illustrates, and
@noahpinion
forgot to mention, he was one of those angry online men targeting Weber early 2022, writing after
@paulkrugman
already took down his silly post
His recent blog targets a nice
@newyorker
piece by
@zachdcarter
that sets out a journalistic, but factual and precise account of what went down last year
And then there’s gossip on the German gas commission.
If
@noahpinion
did indeed talk to members of the expert panel that Weber was on, he didn’t really listen because the Committee did propose and the German government actually did end up implementing price measures for firms!
Raising rates doesn't make energy cheaper or unblock Shanghai's harbour. It doesn't create second hand cars or lumber or arabica coffee. Why doesnt the piece talk about record corporate profits and rampant price gouging?
As Europe is burning, the ECB's monetary policy is set to stop those long-term investments most needed to decarbonize and prevent future inflationary shocks.
In this
@GRI_LSE
report I explain how a smart hike could avoid this disastrous outcome. A 🧵
“The legal history of price controls exemplifies neoliberalism’s most impressive achievement: to make the form of politics it opposes not illegal, but irrational”
Noah’s blog post does not really challenge the core of Zach Carter’s narrative. He concedes we’ve been doing a lot of Weberish policy. But then on Twitter he says Weber’s ideas were cultish and “catastrophically crazy”
Voorbeeld
@Unilever
@JumboSupermarkt
graaiflatie: 650gram Calvé Pindakaas (85% pinda's)
Maart 2019 €3,59
October 2021 €3,99
November 2022 €4,41
Maart 2023 €4,59
Prijs Argentijnse pinda's al jaren stabiel rond $1.40/kilo
@waybackmachine
🇪🇺 EC updated proposal for fiscal rules includes country-specific technical trajectory, but also "common safeguards to ensure debt sustainability". "The 3% and 60% of GDP reference values for deficit and debt will remain unchanged." 🙈
Finally out! In
@the_JOP
my normative theory disscussion of the question: Is it permissible to leave monetary policy to unelected officials? The answer: Maybe, but ignore the myth that central bankers are just implementing their mandate
Yesterday a central banker refered me back to
@IsabellaMWeber
's still incredibly accurate analysis of where the debate is, and where it should be going:
A new political economy of hiking monetary policy rates is slowly coming into focus, and it's not pretty: high profit margins for MNCs, abundant collateral for banks, unemployed workers and a middle class property crash. A 🧵
Silly polemics.
@zachdcarter
doesn't "incorrectly claim ... most of the inflation .... has been concentrated in energy prices", he (correctly) writes "most inflationary pressure came from large spikes in the prices of specific products and commodities, such as natural gas"
A New Yorker article masterfully told a story of how a lone economist, scorned by the mainstream, discovered price controls work and inflation is caused by profiteering, and eventually won the debate.
One problem: Very little of that story was true.
🔥🔥🔥
So many great insights in this blockbuster article by Will Bateman on the history of US monetary financing, from before Independence all the way up to post-2008 QE
A 🧵with some things I learned
Not often we get a good retraction scandal in philosophy, but Richard Wolin
@LAReviewofBooks
documents a quite incredible story about the past decades of Heidegger scholarship
@RetractionWatch
After two days of
@paulkrugman
and other Twitter trolls trotting out their econ 101 misconceptions James Galbraith closes 2021 with this splendid thread on
@IsabellaMWeber
’s must read op ed.
In 2022 we clearly need a more academic debate on price controls!
🎇New paper! 🎆
Combining legal, political and economic analysis, we put forward a detailed study of the ECB’s post-2021 monetary policy. As we show, the central bank’s accountability practices are woefully out of date. New democratic practices are needed.
A 🧵with goodies 👇
Inflation is being driven by supply constraints, not demand – and this makes life difficult for central banks. We think getting inflation down to 2% through rate hikes could come at a cost of almost 10% unemployment. Our new research explains why ⬇️
No cheating! How many people, do you think, work for the EU?
If you add up *all* Eurocrats working for the Commission, Parliament, Court of Justice + ALL bodies and agencies (EFSA, EEA, ECB, ECHA, Medicines Agency, Space agency etc)
Is central bank credit to banks neutral with regard to the climate transition?
Using confidential micro-level data, we explore the carbon bias of the ECB’s trillions of TLTRO credit to banks. And propose a green alternative.
A (simple) 🧵
Revised version out: The constitutional theory of central banks - the legal structure and normative justication of CBI, distributional effects, democratic legitimacy and updates on pandemic measures, climate/
@NGFS_
and recent literature
Preprint:
In February 2021,
@nikdeboer
and I placed a freedom of information request for documents pertaining to the
@ecb
's secondary objectives.
Now online, in
@JCSMJournal
, an article to sketch a future of monetary-fiscal coordination beyond price stability.
A 🧵with main findings
Why have central banks built their whole monetary policy strategy around a variabele that they are neither able to predict nor have an effective way to influence?
🇸🇪 *RIKSBANK NEEDS CAPITAL INJECTION OF ALMOST SEK80B: THEDEEN
The Riksbank is under pressure to recapitalise because it's one of the few central banks which marks to market its bond portfolio, reporting over SEK80bn in unrealised losses. CB losses don't matter, unless they do.
“overall prices … have risen at an annualized rate of 6.1% … over half of this increase (53.9%) can be attributed to profits, labor costs contributing less than 8% of this increase”
Once upon a time, a young female economist dared to make the connection between a profit explosion and inflation. She was greeted with outrage.
What if she was right!?
Two great reads.
Ok just received an update, the monetarist view is now: when the ECB launched the 2015 QE programme it should have anticipated the inflationary effects in 2022 of the 2020 pandemic response
Lot of his critics simply buy into Rutte's own frame saying Dutch are egoistic. No, his policies are myopic and stupid - just like EU debt crisis and austerity policies were. Everybody learned from that except the Dutch government!
So then who? Investors, who this year will need to be enticed to buy £194 billion debt by an island that sells finance, tax evasion as well as really amazing education and woolen sweaters.
Until the 1970s monetary policy was widely perceived to be an inadequate way of fighting inflation in sectors with administered prices, and it had a modest role in inflation governance (Means 1975)
2022 - the year that central bankers cited
@BJMbraun
's classic discussion of folk theories of money... to argue that central banks should be more concerned about their solvency
New chapter on central bank independence, mandates and democracy for The Cambridge Handbook of Constitutional Theory (3 vols.), eds
@jeff_a_king
@rpbellamy1
available online!
Out
#openaccess
!
With
@apsmolenska
we provide a birds-eye view of a bewildering world of EU climate finance policy. We argue for a radical overhaul, to make the prudential regulation of risk much more political. A 🧵 /1
@JFinReg
Paper available here:
This is a 😍step forward on the climate action plan, putting the
@ecb
miles ahead of the
@bankofengland
- let alone the climate skeptics at the
@federalreserve
.
Some thoughts on remaining inconsistencies & next steps from here. /1
"Danish multinational Ørsted A/S wrote down the value of its offshore wind portfolio by €2bn, one-third of the write-down was caused by higher interest rates driving up financing costs" and more from
@Westervangaal
Grateful to
@erasmusJPE
asking me to reflect on the 2022 Nobel Memorial Prize.
So, here is my account of the history of the prize, its defunct microprudential vision and lingering climate skepticism in the Economics discipline.
A summary thread with nuggets for
@cetier1
All I want for Christmas 🎅🎄✨ is that a journalist today finally asks
@Lagarde
: Why is the
#ECB
raising rates in a way that cuts off investment into renewable energy sources, to fight an inflation caused by lack of investment in renewable energy sources
Once again clouds are gathering in Frankfurt to continue the ECB's rate hikes and cut off the long-term investments most needed to decarbonize and prevent future inflationary shocks.
In a
@GRI_LSE
report from this summer I explained how a smart hike can avoid this outcome. A 🧵
Don't expect to hear back from its anonymous author once rate hikes make millions unemployed, but there is still not enough neon for making semi-conductors.
The accounting treatment of central bank money as a liability makes little sense - it is not a debt that needs to be repaid. What does? Fascinating
@RebuildMacro
working paper by Kumhof Allen Bateman Lastra Gleeson
@STOmarova
“Today, there is once more a choice between tolerating the ongoing explosion of profits that drives up prices or tailored controls on carefully selected prices.”
@IsabellaMWeber
on price controls 🔥🔥🔥
Today launching our mammoth treatment of The ECB, The Courts and the Issue of Democratic Legitimacy in light of, but looking beyond the May 2020 shock
@BVerfG
ruling
@nikdeboer
Summary 🧵/1
"We are no better off than kings and doges, nudging the mints with laws and incentives, trying imperfectly to make money work."
Thanks a lot
@bhgreeley
@FT
for this perfect summary of our monetary sovereignty paper
Now what’s spooky and frankly insane (even by Brexit standards) is that the Truss doesn’t seem to have a clear plan. Maybe her plan is: a crash of the bond market, forcing the BoE into an emergency change of course to buy all that debt, then a (mild) currency crash? TBC
Hugely important paper that can make sense of 2022.
Mainstream macro's focus on aggregate demand promotes using monetary policy to fight today's heterogeneous supply-side inflation.
This paper shows that we should develop new policy instruments for steering relative prices.
Inflation might be easing for now, but we are living in an age of overlapping emergencies. More shocks are likely to come. We need economic policy preparedness for micro stabilization. But which prices matter?
A new working paper 🧵
1/ Very happy that this week
@NPEjournal
published online “The Myth of Market Neutrality”, co-authored with
@Clemfon
. This is just in time for the 2019 Jackson Hole conference, where central bankers debate the future of unconventional monetary policy.
Many interesting insights in
@deyris_j
excellent blow-by-blow account of the forging of a climate consensus at the
@ecb
Some highlights relevant for the future of ECB politics👇
"Monetary policy influences what is produced, when, how, and by whom. It has major distributional consequences. It is much more like fiscal policy than our current approach to macroeconomic policy-making would suggest." 🔥🔥🔥, says
@leahroseelydown
/1
"As for the political optics, investors should push back against notions that income distribution is the simple result of a power struggle between capital and labor."
@jonsindreu
for the
@WSJ
A metaphor is nice for journalists because it simplifies complex issues, but it leads to sloppy thinking. That the Fed should have raised rates in the middle of last year's pandemic, as the
@TheEconomist
now suggests, is just silly.
Shell will pause increasing investment in its renewable power unit as the oil major's new CEO signals its record fossil fuel profits won’t significantly accelerate its low-carbon ambitions
Monetary Policy simulations from the OECD. When all countries raise interest rates simultaneously, the impact on GDP is LARGER but the impact on inflation is SMALLER (because the FX channel is muted)
There is a discussion to be had about what the Fed should do, but the whole brake metaphor is as unhelpful as saying austerity is needed to avoid sovereign bankruptcy.
How the
@ECB
implements its rate hike will profoundly shape the EU economy and its 2030 objectives -
My take
@ProSyn
on the 2021 strategy, long time horizons, and a proposal for an unconventional multi-interest rate hike
Out Now! For
#COP27
New report on the future of finance: "A supervisory playbook for prudential authorities'' - with
@NVJRobins1
@UliVolz
@apsmolenska
and Simon Dikau
Why do we think transition plans are the key supervisory technology of the 2020s?
The French model of postwar interinstitutional coordination was well-known to the drafters of the ECB statutes and 1990s efforts to prohibit coordination were simply unsuccessful.
In my comments on
@MonnetEric
's recent work I show there is ample scope for an ECB Credit Council
"There’s a strange denial — even in supposedly informed policy circles — about the scale of the wealth that’s been permanently destroyed. Only the output gap can properly illustrate the damage", according to
@FTAlphaville
A dreary vision of an EU that only has this to offer to member states: being an object of bond market investors and subjecting public policy to their desire for safe returns
So the question ("why doesn't the ECB just cap spreads?") is really the wrong one. The right question is: "what needs to be done to bring private investors back into buying Euro periphery government debt?" The answer is presumably a mix of higher yields and structural reforms...
Really interesting debates
@ecb
2023 Legal Conference, slides on effective monetary sovereignty and a more ambitious international strategy for the euro 🧵
#MMT
describes a fiat world, where people pay with digital promises of payments in the state's currency (bank deposits, credit cards, ApplePay, etc.).
Neoclassical economics describes a flat world, where people pay with gold coins.
Time to move on, people.
My review of Paul Tucker’s Unelected Power is online open access at Economics & Philosophy
Wrestled through its 600+ pages so that all you lovely people don’t have to. /1