Anticipating a Recession: Economic and Political Indicators in the E.U.

Anticipation in August, 2019, at least among bond purchasers on Wall Street, of an impending recession in 2020 had at least in part to do with the E.U. In particular, a large state, Germany, had a disappointing second quarter in terms of contracting economic output, and the increasing prospect of Britain seceding from the Union was thought to result in the E.U. economy turning recessionary. I contend that both of these baleful indicators were over-emphasized. Additionally, adding the increasing political polarization in the E.U. as another contributor to an upcoming recession would be too much.

The full essay is at "Anticipating a Recession."

When 4.3% Is below Full Employment

CNN reported that the U.S. economy added “a strong 209,000 jobs” in July of 2017, with the unemployment rate falling to 4.3% to match a 16-year low. Unemployment had peaked at 10% in 2010, after the financial crisis of 2008. CNN cited many economists as saying that the 4.3% rate was “at or near” full employment, meaning that the rate would not go down to a significant degree.[1] Yet even within CNN’s own reporting, we can find reason to doubt this claim.

The full essay is at "When 4.3% Is below Full Employment."

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[1] Patrick Gillespie, “Milestone for Trump: 1 Million New Jobs in Six Months,” CNN, August 4, 2017.

Brazil’s Rousseff Impeached and Removed from Office: A Case of Partisan Politics?

Dilma Rousseff was impeached and removed from office at the end of August, 2016. The state’s senate voted 61-20 to convict her on charges that she used illegal bookkeeping maneuvers to hid a growing budget deficit.[1] Her defense that she did not enrich herself through public office—that she did not steal public money for her own account—can be regarded as an attempt to deflect the legislators from the existing charges.[2] Only 56 legislators were necessary for a two-thirds majority. Given the problems of hyperinflation and fiscal mismanagement, including a growing public debt, her offenses were “deemed an impeachable crime.”[3] Although Brazil was hardly the only country where the chief executive has sought under political pressure to make a budget deficit look smaller than it actually was, enforcing deterring consequences even just in this case is laudable—while other, partisan motives, detracted from the vote’s legitimacy.

The complete essay is at "Partisan Impeachment in Brazil?"

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1. Paulo Trevisani and Reed Johnson, “Brazilian President Rousseff Ousted,” The Wall Street Journal, September 1, 2016.

2. Ibid.

3. Ibid.

The German Government Refuses to Pay Down Its Debt: How Un-German!

How should a government spend a budget surplus? In California, the Californian government put some of its surplus in a “rainy-day fund” in 2014. The following year, the German government made plans to use any surplus in 2016 “to increase investment instead of repaying debt.”[1] This means the government “could spend more to support the German economy and that of its neighbors.”[2] Undoubtedly, the E.U. economy would benefit, especially if the U.S. dollar were to continue to appreciate against the euro. However, the decision not to use even a portion of the anticipated surplus to pay down some of the government debt is problematic.

The full essay is at “German Budget Surplus.”

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1. Andrea Thomas, “Berlin Moves to Spend Now, Save Later,” The Wall Street Journal, March 14-15, 2015.

2. Ibid.

GDP and Poverty: Is Economic Growth the Answer?

From 1959 to 1973, the American economy grew 82 percent, per person. It is easy to assume this is why the poverty rate decreased from 22% to 11 percent.[1] From roughly 1985 to 1990 and then again from 1995 to 2000, heady growth rates are also correlated positively with declining poverty rates. But correlation is not causation. Indeed, had the correlation in the 1959-1973 period continued, the subsequent per capita growth would have ended poverty in 1986. What then are we to make of the relationship between GDP and poverty?

From: “GDP and Poverty: Is Economic Growth the Answer?”

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[1] Neil Irwin, “Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?” The New York Times, June 4, 2014.

Does Austerity Work?

Does raising taxes and cutting government spending reduce a government’s deficits and thus debt? Confine consideration to more tax revenue and less spent and the theoretical answer is yes; it being a simple matter of mathematics. Include the impacts of raising taxes and cutting spending and the answer become far less straightforward. More paid in tax means less disposable income, which means less consumption and thus less produced (i.e., GNP). A government spending less also means less consumption in the economy, and therefore even less to be produced to meet demand. In short, austerity is recessionary. Whether the ratios of deficit and debt to GDP increase depends on how much the numerators drop relative to the decrease in GDP. We can look at the E.U. for some empirical evidence.

 If austerity kills dignity, then pressure on governments to relax spending cuts can be expected.   source: rt.com

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.