New Left EViews

I've written a short note––with some nice charts––to accompany a fun conversation I recorded with @BrankoMilan. We discussed whether 'global neoliberalism' is a Greek tragedy: creating the conditions for its own demise while underwriting the success of China and others.

I have to be honest: I think the debate is truly awful and I've been quite depressed following it. Without wanting to repeat what I've previously said about Garicano, I have the suspicion that he's never heard about the Castle-Ryten-Henderson critique, and, now that he has, dismisses it as irrelevant because it doesn't suit his unshakable priors and political commitments. Neither Bergeaud or Garicano truly engage with the main point of the Ryten critique, namely the quality-adjustment heterogeneity in deflators, the actual transmission mechanism by which constant-anchor series drift and neither truly engage with the sharper version of the critique (mentioned by Wolf) which is that the base-year cross-section embeds a particular valuation of non-market and quasi-market services that flatters market-service economies and then locks that valuation in for two decades. But while Bergeaud is more careful (defending the productivity concept as separable from the living-standards), Garicano's 'response' is largely political. He just says, about constant-anchor method generally, "this is what the growth literature uses", evoked Draghi's authority, and says quite explicitly that this is "damaging to Europe's reform agenda" because it undermines Draghi-aligned reforms. These are obvious concessions to me. What he's saying is that the choice of PPP methodology matters only in terms of its political consequences for the redressing of 'eurosclerosis', but without saying that the comparative picture derived from more appropriate method completely demolished the 'eurosclerosis' hypothesis entirely. That's then sidestepped with something like "we lost ICT and now we'll use AI, so it's about the future" whatever the accurate accounting of living standards. Other have chimed in with the usual 'both sides make good points' platitudes like: "oh the US poor are poorer but the US middle class it so much better off", "if you drive around Alabama its depressing but they are materially better off", or, worse still, "the US is a better place to earn money, the EU is a better place to spend it". I don't it is worth even responding to these claims. I think the key problem here is that people are not being honest about their priors and that most of them are economists with negligible political economy chops. Because even the 'correct' data series (imo the one that internalises the Ryten critique), it still understates the point. The perceptive you want is from a political economist who is literate in this particular debate.

My colleague @MehranHaghirian has written this great overview of why Trump may need China to step in as a guarantor of any agreement to reopen the Strait of Hormuz. bourseandbazaar-substack.org/p/to-restore-p…

*clears throat* Japanese authorities sold USD35bn at a large profit (positive carry since GFC) and that goes towards Japan’s debt stock. There’s a way in which selling FX can be thought also as stabilization of sovereign fixed income. That is: I don’t see how this is a terrible way of oil imports without reducing imports.

To answer @JamesConran1' question: the BoE is the standout case of a major central bank using active sales as a meaningful part of its AFP unwind, where the Fed is pure passive run-off with caps while the ECB does it without caps (PEPP is bit different ofc). This obviously has an impact on yields. The timing of active sales is at the Bank's discretion rather than the sovereign's maturity ladder, so the flow into the market is front-loaded relative to passive runoff. Also they can sell bonds of any maturity they hold including long-dated ones, so the private sector is forced to absorb duration immediately rather than over the natural runoff schedule. In general you would expect the UK's yield curve, and especially its long end, to face more upward pressure via a larger term premium effect. (Also with passive run-off: the fiscal policy maker chooses the maturity composition ofrefinancing, which can (and often does) tilt shorter than the duration of the bonds rolling off.) So taking the standard preferred-habitat / imperfect-substitutes framework that most central banks operate with, the differential is real and runs in the direction you'd intuit. NB: the reason the active component has been reduced relative to what is was last year (from 100 to 70bn) is precisely due to internal debates about the gilt market dysfunction. So they're definitely aware of it.

@JamesConran1 They're holding them to maturity, not actively selling them into the open market.

@NewLeftEViews Has the BofE been doing QT faster than the ECB? x.com/JamesConran1/s…

Take this FT piece from today. “Oh UK's the gilt market may have become untethered from its peers” and the explanation amounts to “we’re addicted to debt”. It is mentioned in HALF A SENTENCE that the Bank is actively shedding gilts. THIS IS NOT SERIOUS FINANCIAL JOURNALISM.

It’s not about being so accommodating that you start ‘hoovering up’ any debt the government issues, it’s about not accommodating at all and in fact actively selling gilts at an unusual clip in order to virtue signal to markets, something no other major central bank is doing

The thing I appreciate about this Toozebook instalment is the politely condescending choice use of Harry Potter analogies under the assumption that this is realistically the only common cultural touchstone for the current crop of British media-politico elites.

“Let me be cute if you don’t mind” —@jerometenk open.spotify.com/episode/3wd36R…

British politics seems to me framed by three silences that render the whole thing unhinged: 1. the electoral system that is totally out of whack with modern British society 2. the unspeakable question of returning to the EU 3. and the unmentionable fetish of BofE independence.

I was looking into this the other day (have an upcoming piece on this) and it’s pretty grim: the UK is well above EU average. The OECD data is net of taxes and utilities. On gross income, private rental households spend on average 39% of on rent, with the poorest quintile paying 63% even after receiving housing support. I also did very rough back-of-envelope calculation (non-equivalised, averaged council tax and utility costs, excluding benefits) that suggests that the typical household in the same bottom quintile could be paying over 90% of their disposable income on rent before benefits.

The Bank of England’s aggressive active bond selling (QT) is costing the UK government billions a year, and is a big cause of rising gilt yields and falling values. This costly policy is not necessary, no other central bank is mirroring it, and it’s even crazier in the midst of the economic turbulence of the Iran crisis…

the irony is that the BoE is only selling bonds in an effort to look virtuous (after all the accusations of "debt monetization" during COVID). But the more it does that, the more delinquent it makes the govt look...

The UK is now an emerging market because a Welsh PPE grad thinks Otmar Issing is a hero.

Those who are confused about oil markets: you’ve never been in a chat group with traders. Not the most astute people on politics and macro but aggressively convinced that they are.

These aren’t technicalities. They are political choices. Reeves chose to uphold the orthodoxy – locking in monetary contraction while binding herself to fiscal rules that treat giveaways to the financial sector as sacrosanct, but deny cash to everyone else theguardian.com/commentisfree/…

It is remarkable how toxic and dysfunctional budgetary politics in Britain have become when the fiscal authority courts instability by formulating its polices around where yields and sterling will go in response while the Bank sits on its hand and nobody talks about it.

PS: I'm not saying they should ease rates (that would be unwise), or, by extension, that we can just ignore the bond market. I'm saying that there is one actor in this constellation whose job under the current architecture it is to maintain the conditions under which private leveraged finance is willing to hold sovereign debt at yields the fiscal authority can service, not the other way around. Similarly, the fiscal authority should formulate feasible budgets that lift the growth trajectory in the service of long-term debt sustainability, not in anticipation of how yields and sterling may react. Both have to do their job but neither is. x.com/AscendedYield/…