19/12/16: Why Investment-less Growth: Explaining Secular Stagnation in Investment

One key component of the supply side secular stagnation is the notion that in recent years, corporate investment in the U.S. and other advanced economies have declined on a secular trend (or structurally). With low investment, there is low productivity growth and weak wages growth. The end result is not only lower economic growth, but also declining long term potential growth.

Since the thesis of supply side secular stagnation started making rounds in the economic policy literature, quite a few economists jumped into the debate proposing various explanations to the phenomena. To-date, however, there have not been an empirical study that looked at all reasonably plausible explanations on offer to assess which can account for the decline in capital investment.

German Gutierrez Gallardo and Thomas Philippon, in there paper “Investment-Less Growth: An Empirical Investigation” published this month by NBER do exactly that. The authors “analyze private fixed investment in the U.S. over the past 30 years.”

First, the authors establish that indeed, “investment is weak relative to measures of [firm] profitability and valuation – particularly Tobin’s Q, and that this weakness starts in the early 2000’s.” In other words, whilst firms remain profitable, they simply do not reinvest their profits at the same rate today as in the 1990s.

Per authors, there are “two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q.”

As a reminder, Tobin’s Q is a ratio of total market value of the firm to total asset value of asset held by the firm. In simple terms, higher Q means that market value of the firm is higher relative to the cost of replacing the capital and other assets owned by the firm. Thus, a Q between 0 and 1 means that the cost to replace a firm's assets is greater than the value of its stock, so the stock is considered to be undervalued. A Q greater than 1 in contrast implies that a firm's stock is more expensive than the replacement cost of its assets, so the stock is overvalued.

So under the fist argument, if we observe low Q, firms are undervalued by the market and have no incentive to invest as they cannot raise capital for such investment from the markets that perceive the firm’s asset value to be already high (or above the firm value established in the market).

Under the second argument, something other than market valuations drives firm decision to invest or not. What that ‘something other’ is is a matter of various theories.

1. Some theories postulate that in the presence of financial market imperfections (high costs, low liquidity supply, high risk premiums etc), low investments prevail even when Q is high (market value of the firm >> total assets value). 
2. Other theories, including the one that is currently most favoured as an explanation for dramatic decline in productivity growth in recent years (over the alternative explanation of the ‘secular stagnation’ thesis), the problem is that even with high Q, there might be low investment because there is mis-measurement in the markets as to the value of total assets of the firm. This can happen when there are intangible (hard to value) assets held by the firm, or when assets are dispersed across different currencies, markets and geographic, making them hard to value. It is worth noting that the argument of intangibles is commonly used today to argue that there is no real secular stagnation or decline in productivity growth because “things are simply not measured properly anymore”.
3. Another view is that decreased competition (either due to technology - e.g. mega aggregators platforms such as google and apple, or due to regulation, or due to trade wars raging on, or broader trend of regionalisation of trade, etc) can reduce investment even in the times of higher Q (high market valuations).
4. Finally, there is always a view that firms might under-invest because of short-termism in management strategies or due to restrictive investment climate induced by tighter risk governance (the latter point may overlap with regulatory constraints).

The authors find no support for the first argument. In other words, they find that low Q is not causing low investment. No surprise here, as markets are hardly in the mood of attaching low value to firms. In fact, we have been going through a massive uplift in M&As and equity valuations.

Which means that low investment is happening despite high market valuations - we are in the second set of arguments.

The authors “do not find support for theories based on risk premia, financial constraints, or safe asset scarcity”. They also find “only weak support for regulatory constraints.”

“Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited,” and does not provide support for aggregate - across economy - explanation of low investment.

So here comes the kicker: “we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with less entry and more concentration invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with less entry/more concentration. These firms spend a disproportionate amount of free cash flows buying back their shares.”

Let’s sum this up: short-termism is a problem that holds firms from investing more, and it is more pronounced in industries with less competition. Firms which are owned by investors or funds that focus on indexing (pursue investment returns in line with broader indices, e.g. benchmarking to S&P500) invest less. The investment part of secular stagnation thesis, therefore, is linked at least indirectly to financialization of the economies: the greater is the weight of broad markets in investor decision-making, the lower the investment and the shorter is the time horizon, it appears.



Full paper: Gutierrez Gallardo, German and Philippon, Thomas, Investment-Less Growth: An Empirical Investigation (December 2016). NBER Working Paper No. w22897. https://ssrn.com/abstract=2880335

19/12/16: Income Polarization in the U.S.: Building Blocks of Trumplitics

Having just reviewed some fresh evidence on the trends and underlying drivers of declining wage growth rates in the U.S. post-Global Financial Crisis (GFC) in the previous post here: , now let’s take a look at some current state of research on income inequality dynamics. In general, relative income dynamics can be driven by increases in income at the top of the income distribution relative to the rest of the distribution - the so-called 1% effect or inequality factor; or by decreases in income distribution at the bottom of distribution - another inequality factor; or they can be driven by the decline in incomes in the middle of income distribution relative to both top earners and bottom earners (polarisation).

A new study from the IMF concerns with the latter type of dynamic. Titled “Income Polarization in the United States” and authored by Ali Alichi, Kory Kantenga, Kory and Juan Solé, study documents “the rise of income polarization - what some have referred to as the 'hollowing out' of the income distribution - in the United States, since the 1970s.”

The key findings are:

“While in the initial decades more middle-income households moved up, rather than down, the income ladder, since the turn of the current century, most of polarization has been towards lower incomes.” In other words, the middle class is increasingly joining the poor, rather than the upper classes.

And this holds for all demographic cohorts or the U.S. population:

CHARTS: Middle-Income Population 1970-2014 (percent of total population with the same characteristic)

 So the younger cohorts are now experiencing more hollowing out of the middle class than the older cohorts and this trend started manifesting itself around 2000.

 Education no longer protects the middle class, either.

And in racial terms, there is more marked decline in the fortunes of the middle class for the whites, whilst the recovery of the 1990s-2007 period in the fortune of the African-Americans  has been reduce by more than 50 percent since the onset of the GFC.

Similarly to race trends, gender trends offer nothing to be proud of.

“…after conditioning on income and household characteristics, the marginal propensity to consume from permanent changes in income has somewhat fallen in recent years.” Put differently, when today’s middle class workers receive a wage increase, they tend to save more and spend less out of that increase than before. This can only occur if today’s middle class workers are saving more from wages increases. Incidentally, the authors also show that the same has taken place for higher income households.

Secular decreases in MPC can reflect either increased investment (from savings) or increased precautionary savings (including savings used to buffer against liquidity risks). Unfortunately, the authors do not look into which effect is at play here, or (if both are) which effect dominates.

And here is another conclusion from the authors worth noting: “Income polarization has risen substantially in the past four decades—much the same, if not even faster than inequality.”

Which, of course, helps explain why we are witnessing activist voting by the disenchanted, angry middle class voters. You can blame political candidates, you can blame the media, you can blame outside forces and powers. But you can't avoid one simple conclusion: the U.S. middle class is pis*ed off with the status quo. For one very good reason that the status quo doesn't work for them.


Full study here: Alichi, Ali and Kantenga, Kory and Solé, Juan A., Income Polarization in the United States (June 2016). IMF Working Paper No. 16/121. https://ssrn.com/abstract=2882555

19/12/16: U.S. Wages (Lack of) Growth: a Structural Crisis

One of the persistent features of today’s economy is the decline in wage growth and lower returns to human capital, relative to financial capital. Starting with 2010 - the onset of the so-called ‘recovery’ from the Great Recession - annual hourly earnings rose only 2 percent (data through 2015), which is about 1.5 percentage points lower than prior to the Global Financial Crisis (GFC).

This phenomena is not exactly new, but it is becoming increasingly alarming from the point of view of contagion from economic displacement risks to political risks. You don’t need to travel far to spot the issue: just consider the recent U.S. Presidential elections, dominated (apart from dirt flinging between the candidates) by the plight of the disappearing middle class.

A recent paper by Stephan Danninger (IMF), linked below, titled  “What's Up with U.S. Wage Growth and Job Mobility?” tries to determine the key reasons for this change in the structure of the U.S. economy.

Danger documents the problem in chart 1 below:

The above chart shows that the decline in wages growth has been pronounced in the face of other labour market dynamics, including the unemployment rate. Which suggests that structural change or structural factors should be more pronounced as the drivers of this trend. This contrasts with previous recessions, when cyclical factors dominate during the early stages of recovery. Per Danninger, evidence points to the fact that following “the deep recession and slow recovery” the U.S. have witnessed “skill erosion and reduced employability of marginal workers. Once labor demand picked up and employment reached workers less attached to the labor market, low entry wages, suppressed average wage growth.”

However, in addition to the above factors, “Davis and Haltiwanger (2014) and Haltiwanger (2015) have pointed to a secular decline in labor market fluidity and business dynamism as possible factors. With productive firms growing less rapidly and the speed of labor reallocation across sectors flagging, technological advances permeate slower through the economy. Labor productivity has been strikingly low in recent years averaging only 0.5 percent during 2013–15 and moves up the wage ladder have become rarer.”

Institutional factors also contribute to anaemic wage growth: “…declines in workers’ bargaining power as a result of less unionization and the emergence of alternative employment arrangements of the “gig” economy (Card and Krueger 2016; Mach and Holmes 2008) have further weighed on average income gains.”

To better disentangle role of cyclical and structural factors, Danninger poses three questions:
1) “Is labor market repair still weighing on recent wage growth?”
2) “Has the relationship between labor market slack and wage growth permanently changed, i.e. has the Wage-Growth Phillips curve flattened?” Note: Wage-Phillips curve implies inverse relationship between money wage changes and unemployment
3) “Focusing on job-to-job mobility, what is driving the decline in labor market churning?”

So key findings are: 

1) “…post-GFC larger declines in local unemployment rates are associated with smaller increases in average wages. …after controlling for the tightness of the local labor market, decreases (increases) in local (county-level) unemployment rates tend to reduce (raise) the average hourly wage rate in the same locality. The preferred interpretation of this effect is a moderating offset of average wage growth through the entry (exit) of low wage earners. This interpretation is consistent with recent findings that the reintegration of workers at the margins of the labor market is holding down median wage rates (Daly and Hobijn 2016).” In other words, when unemployment rises, layoffs predominantly impact those with lower wages (earlier in their careers, part-timers, contract employees, and those with lower productivity), and when unemployment starts to fall, re-hires tend to be of lower average quality than those who managed to stay in employment through the period of higher unemployment.

2) “…structural changes in the labor market are also affecting wage growth”. Which is the main kicker of the paper. Structural changes are those that extend beyond cyclical - recession-linked - factors and as such are long-term trends. Per Danninger, “the wage-growth-Phillips curve has flattened. Declines of unemployment rates …provide a smaller boost to wage growth after the GFC than in the past. …after 2008 wages of full-time full-year employed do not commove with local unemployment rates, while they did prior to the
GFC. …Labor market data up to 2014 no longer show evidence of a similar kink in the post GFC period.”


3) “Job-to-job change rates—associated with higher wage growth—have declined well before the GFC. …post 2000 demographic changes, in particular labor force aging or changes in education, cannot account for the sustained decline in job-to-job transition rates. Rather job-to-job turnover rates have fallen in all education and age groups, irrespective of the tightness of the regional labor market. This common feature is not easily explained by more positive interpretations, such as better job matching or higher return to job tenure (Molly et al 2016).” Traditionally, those who change jobs - job-to-job movers - earn higher wage premia in terms of moving to higher wage growth jobs from lower wage growth jobs. This no longer holds.

As Danninger notes, “these findings have important implications for future wage growth. In the near term, as continued job growth reduces the remaining employment gap — and with it headwinds from the re-employment of low-wage workers—average wage growth is expected to accelerate.”

“However, a return to sustained high wage growth rates is uncertain. The
flattening of the wage-Phillips curve post-GFC points to broader structural changes in the labor market.”

So in summary, including my take on this:

• Job-turnover rates have fallen and continue to decline. 
• “Job-to-job transitions — associated with higher wage growth — have slowed across all skill and age groups”
• The above means that the new - post-GFC - labour markets are no longer consistent with ‘normal’ recoveries and that we might be in a structural period of decline in wages growth.
• This, in turn, suggests that both secular stagnations (demand and supply theses) are cross-linked through the labour markets (lower wages growth triggers lower demand growth, leading to slower investment, resulting in slower productivity growth).

Full paper is available here: Danninger, Stephan, What's Up with U.S. Wage Growth and Job Mobility? (June 2016). IMF Working Paper No. 16/122. https://ssrn.com/abstract=2882557

16/12/16: The Root of the 2007-2010 Crises is Back, with a Vengeance

There are several fundamental problem in the global economy, legacies of the past 20 years - from the mid 1990s on - that continue to drive the trend toward secular stagnations (see explainer here: http://trueeconomics.blogspot.com/2015/07/7615-secular-stagnation-double-threat.html).

One key structural problem is that of excessive reliance on credit (or debt) to drive growth. We have seen the devastating effects of the rapidly rising unsustainable levels of the real economic debt (debt that combines government obligations, non-financial corporate debt and household debt) in the case of 2008 crises.

And we were supposed to have learned the lesson. Supposed to have, because the entire conversation about structural reforms in banking and capital markets worldwide was framed in the context of deleveraging (reduction of debt levels). This has been the leitmotif of structural policies reforms in Europe, the U.S., in Australia and in China, and elsewhere, including at the level of the EU and the IMF. Supposed to have, because we did not that lesson. Instead of deleveraging, we got re-leveraging of economies - companies, households and governments.

Problem Case Study: U.S. Corporates

Take the U.S. corporate bonds market (that excludes direct loans through private lenders and intermediated loans through banks) - an USD8 trillion-sized elephant. Based on the latest research of the U.S. Treasury Department, non-banking institutions - plain vanilla investment funds, pension funds, mom-and-pop insurance companies, etc are now holding a full 1/4 of U.S. corporates bonds. According to the U.S. Treasury, these expanding holdings of / risk exposures to corporate debt are now "a top threat to stability" of the U.S. financial system. And the warning comes at the time when U.S. corporate debt is at an all-time high as a share of GDP, based on the figures from the Office of Financial Research.

And it gets worse. Since 2007, corporate debt pile in the U.S. rose some 75 percent to USD8.4 trillion, based on data from the Securities Industry and Financial Markets Association - which is more than USD8 trillion estimated by the Treasury. These are long-term debt instruments. Short term debt obligations - money market instruments - add another USD 2.9 trillion and factoring in the rise of the value of the dollar since the Fed meeting this week, closer to USD3 trillion. So the total U.S. corporate debt pile currently stands at around USD 11.3 trillion to USD 11.4 trillion.

Take two:

1. Debt, after the epic deleveraging of the 2008 crisis, is now at an all-time high; and
2. Debt held by systemic retail investment institutions (insurance companies, pensions funds, retail investment funds) is at all time high.

And the risks in this market are rising. Since the election of Donald Trump, global debt markets lost some USD2.3 trillion worth of value. This reaction was driven by the expectation that his economic policies, especially his promise of a large scale infrastructure investment stimulus, will trigger inflationary pressures in the U.S. economy that is already running at full growth capacity (see here: http://trueeconomics.blogspot.com/2016/12/151216-us-economic-policies-in-era-of.html). Further monetary policy tightening in the U.S. - as signalled by the Fed this week (see here: http://trueeconomics.blogspot.com/2016/12/151216-long-term-fed-path-may-force-ecb.html) will take these valuations down even further.

Some estimates (see https://www.bloomberg.com/news/articles/2016-12-16/republican-tax-reform-seen-shrinking-u-s-corporate-bond-market) suggest that the Republican party corporate tax reforms (that might remove interest rate tax deductibility for companies) can trigger a 30 percent drop in investment grade bonds valuations in the U.S. - bonds amounting to just under USD 4.9 trillion. The impact would be even more pronounced on other bonds values. Even making the estimate less dramatic and expecting a 25 percent drop across the entire debt market would wipe out some USD 2.85 trillion off the balancesheets of the bonds-holding investors.

As yields rise, and bond prices drop, the aforementioned systemic retail investment institutions will be nursing massive losses on their investment books. If the rush to sell their bond holdings, they will crash the entire market, triggering potentially a worse financial meltdown than the one witnessed in 2008. If they sit on their holdings, they will be pressed to raise capital and their redemptions will be stressed. It's either a rock or a hard place.


Problem Extrapolation: the World

The glut of U.S. corporate debt, however, is just the tip of an iceberg.

As noted in this IMF paper, published on December 15th, corporate leverage (debt) has been on a steady march upward in the emerging markets (http://www.imf.org/external/pubs/ft/wp/2016/wp16243.pdf).

And in its Fiscal Monitor for October 2016, the Fund notes that "At 225 percent of world GDP, the global debt of the nonfinancial sector—comprising the general government, households, and nonfinancial firms—is currently at an all-time high. Two-thirds, amounting to about $100 trillion, consists of liabilities of the private sector which, as documented in an extensive literature, can carry great risks when they reach excessive levels." (see http://www.imf.org/external/pubs/ft/fm/2016/02/pdf/fm1602.pdf)

Yes, global real economic debt now stands at around USD152 trillion or 225 percent of world GDP.

Excluding China and the U.S. global debt levels as percentage of GDP are close to 2009 all time peak. Much of the post-Crisis re-leveraging took place on Government's balancehseets, as illustrated below, but the most ominous side of the debt growth equation is that private sector world-wide did not sustain any deleveraging between 2008 and 2015. In fact, Advanced Economies Government debt take up fully replaced private sector debt growth rates contraction. Worse happened in the Emerging Markets:

So all the fabled deleveraging in the economies in the wake of the Global Financial Crisis has been banks-balancesheets deleveraging - Western banks dumping liabilities to be picked up by someone else (vulture funds, investors, other banks, the aforementioned systemic retail investment institutions, etc).

And as IMF analysis shows, only 12 advanced economies have posted declines in total non-financial private debt (real economic debt) as a share of GDP over 2008-2015 period.  Alas, in the majority of these, gains in private deleveraging have been more than fully offset by deterioration in government debt:

Crucially, especially for those still believing the austerity-by-cuts narrative presented in popular media, fiscal uplift in debt levels in the Advanced Economies did not take place due to banks-rescues alone. Primary fiscal deficits did most of the debt lifting:

In simple terms, across the advanced economies, there was no spending austerity. There was tax austerity. And on the effectiveness of the latter compared to the former you can read this note: http://trueeconomics.blogspot.com/2016/12/10122016-austerity-three-wrongs-meet.html. Spoiler alert: tax-based austerity is a worse disaster than spending-based austerity.

In summary, thus, years of monetarist activism spurring a massive rise in corporate debt, coupled with the utter inability of the states to cut back on public spending and the depth of the Global Financial Crisis and the Great Recession have combined to propel global debt levels past the pre-crisis peak to a new historical high.

The core root of the 2007-2010 crises is back. With a vengeance.

15/12/16: US Economic Policies in the Era of President Trump

My article on likely President-elect Donald Trump's economic policies for Manning Financial: https://issuu.com/publicationire/docs/mf_winter_2016__1_?e=16572344/41835605

15/12/16: Long-Term Fed Path May Force ECB to Act

My post-mortem analysis of the U.S. Fed's FOMC meeting and policy changes announcements for Sunday Business Post: https://www.businesspost.ie/opinion/constantin-gurdgiev-positives-ireland-feds-move-373461.

Hint: It's about longer term game and the neutral federal funds rate... and traces back to August...

11/12/16: Legal Frameworks Relating to State-led Cyber Attacks

This is a blog about economics and finance, not politics. Alas, geopolitical risks do impact economic risks and they materially influence financial markets. I am trying to stay out of the political analysis and hence offer little in terms of my own thinking on the matter. But that does not mean I should not share with you other analysts' views that I find informative, interesting or thought-provoking. I do so on Twitter, without endorsing (via retweets or 'likes' or shares) any given position, so I shall be able to do the same here, on the blog.

So here is an interesting piece of analysis, from an insightful source, relating to the allegations of Russian State influencing the U.S. election 2016: https://www.project-syndicate.org/commentary/kremlin-cyber-attacks-american-election-by-joseph-s--nye-2016-12?referrer=/xmGEziA4LU. In my opinion, this analysis is particularly valuable because it offers a calm assessment of the treaties and legal frameworks relating to cyber attacks.

Worth a read.


Update 12/12/16: Another take on the legal aspects of alleged intervention here: https://www.bloomberg.com/view/articles/2016-12-12/how-u-s-could-respond-to-russian-intervention-in-trump-election. 

10/12/2016: Austerity: Three Wrongs Meet One Euro

"Is it the 'How' or the 'When' that Matters in Fiscal Adjustments?" asks a recent NBER Working Paper (NBER Working Paper No. w22863). The authors, Alberto Alesina, Gualtiero Azzalini, Carlo A. Favero and Francesco Giavazzi ask a rather interesting and highly non-trivial question.

Much of recent debate about the austerity in the post-GFC world have focused on the timing of fiscal tightening. The argument here goes as follows: the Government should avoid tightening the pursue strings at the time of economic contraction or slowdown. Under this thesis, austerity has been the core cause of the prolonged and deep downturn in the euro area, as compared to to other economies, because austerity in the euro area was brought about during the downturn part of the business cycle.

However, there is an alternative view of the austerity impact. This view looks at the type of austerity policies being deployed. Here, the argument goes that austerity can take two forms: one form - that of reduced Government spending, another form - that of increased taxation.

There is some literature on the analysis of the effects of the two types of austerity compared to each other. But there is no literature, as far as I am aware, that looks at the impact of austerity across different types, while controlling for the timing of austerity policies implementation.

The NBER paper does exactly that. And it uses data from 16 OECD economies covering time period of 1981 through 2014 - allowing for both heterogeneity amongst economic systems and cycles, as well as full accounting of the most recent Great Recession experiences.

The authors "find that the composition of fiscal adjustments is much more important than the state of the cycle in determining their effects on output." So that the 'How' austerity is structured is "much more important" in determining its effects than the 'When' austerity is introduced.

More specifically, "adjustments based upon spending cuts are much less costly than those based upon tax increases regardless of whether they start in a recession or not." This is self explanatory.

But there is an added kicker (emphasis is mine): the overall "results appear not to be systematically explained by different reactions of monetary policy. However, when the domestic central bank can set interest rates -- that is outside of a currency union -- it appears to be able to dampen the recessionary effects of tax-based consolidations implemented during a recession." Now, here is a clear cut evidence of just how disastrous the euro has been for the real economies in Europe during the current crisis. As the authors note, correctly, "European austerity... was mostly tax based and implemented within a currency union". In other words, Europe choose the worst possible type of austerity (tax-based), implemented in the worst possible period (during a recession) and within the worst possible monetary regime (common currency zone).

In allegorical terms, the euro zone was like a food-starved runner starting a marathon by shooting himself in a knee.

10/12/16: Roads to Polluting Hell Outside the Electric Vehicles' Backyard

The old adage that the road to hell is commonly paved with good intentions, taken through the prism of economic analysis, can often be sharpened by modifying it. In truth, more often then not, the road to hell for some is often paved with good intentions and fortunes of the others.

For an example of such modification, consider a recent NBER paper, titled "Distributional Effects of Air Pollution from Electric Vehicle Adoption" (NBER Working Paper No. w22862) by Stephen P. Holland, Erin T. Mansur, Nicholas Z. Muller and Andrew J. Yates.

In the paper, the authors looked at the distribution of gains and losses in the form of air pollution arising from the adoption of electric vehicles in the U.S. To do so, the authors employed "...an econometric model to estimate power plant emissions and an integrated assessment model to value damages in air pollution from both electric and gasoline vehicles." The authors also used the registration location of electric vehicles.

The key findings are:

1. "...people living in census block groups with median income greater than about $65,000 receive positive environmental benefits from these vehicles while those below this threshold receive negative environmental benefits" For the want of better description, the better off are dumping their pollution onto the less better off via electric vehicles.
2. "Asian and Hispanic residents receive positive environmental benefits, but White and Black residents receive negative environmental benefits. In multivariate analyses, environmental benefits are positively correlated with income and urban measures, conditional on racial composition. In addition, conditional on income and urbanization, separate regressions find environmental benefits to be positively related with Asian and Hispanic block-group population shares, negatively correlated with White share, and uncorrelated with Black share." Which means that re-allocation of pollution shifts negative externality toward urban (not rural) poor.
3. "Environmental benefits tend to be larger in states offering purchase subsidies. However, for these states, an increase in subsidy size is associated with a decrease in created environmental benefits." Or put more simply: the greater the subsidies to purchases of the electric vehicles, the lower are the benefits from electric vehicles. Although we have no idea if the associated redistributed costs of these vehicles are any less worse.

The results are pretty intuitive. To power all these Teslas and BMW i-models and the rest of the electric cars lot, one has to generate electricity. Power plants (even those based on renewables, although their social and environmental costs are not factored in the study) are based in areas where those using electric vehicles do not tend to live. So when an executive in Silicon Valley drives her/his Tesla to work, the air pollution around her/him is reduced. But the air around a power generating plant gets worse, because a plant somewhere has to burn some natural gas or captured methane etc to power that Tesla, and that somewhere ain't in the area where the Tesla-driving hipster lives or, even, works.

Hipster's good fortune is a polluting hell for someone who can't afford living outside the industrially intensive areas where hipster's Tesla gets its electricity from. Oh... and one more thing: unlike in normal cases of externalities, there is no mechanism to compensate the losers in this game, because the hipsters get tax subsidies on their Teslas. There is nothing being raised from the beneficiary of the externality to compensate the loser from the externality. Even in theory, someone loses when someone gains.

9/12/16: Trumpismo and the U.S. Economy

My Village column on the outcome of the U.S. Presidential election and the economic implications of Trumpismo : http://villagemagazine.ie/index.php/2016/12/trumpslump/

8/12/16: Democratic Party: The Eraser of Middle Class Vote?

More of the same didn't cut it for the American middle class this November, ... and so the Obama voters went to the Republicans, as Hillary Clinton failed to impress onto the middle class any sort of vision they can relate to.

Per Pew Research, out of 57 'solidly middle-class areas' examined, "In 2016, Trump successfully defended all 27 middle-class areas won by Republicans in 2008. In a dramatic shift, however, Hillary Clinton lost in 18 of the 30 middle-class areas won by Democrats in 2008."

So the "deplorables" turned out to be middle-class voters and they clearly heard Hillary Clinton applying a new descriptive term to them. The term they did not quite embrace.

Now, if I were an adviser to the Democratic Party, I would start by putting its leaders in front of a mirror and ask them to point out every little wrinkle and crease in their faces that makes them so publicly loath middle-class as to endorse a candidate that called them 'deplorables'. Step one of the multi-year journey toward rebuilding the party will then be accomplished.

Rest of Pew Research analysis here.

7/12/16: Bloomberg Blows the Cover on Apple's Irish Tax Dodge, Again

So you know the $13 billion that Apple, allegedly, owes Ireland?.. It really never did owe Ireland much. Instead, it owes the money to taxpayers outside Ireland - in countries where actual business activities took place and in the U.S., where Apple tax avoidance scheme starts, ends and start again. Here's how Bloomberg explains it: https://www.bloomberg.com/graphics/2016-apple-profits/

Oh, yeah, you are reading it right: "a popular corporate tax haven"... that'll be Ireland (per Bloomberg). expect loud protests from Dublin to Bloomberg offices and, potentially, a re-drawing of the scheme to alter the wording...

But you do get an idea: 10 years, at, say $600 million payments, that'll be almost half the $13 billion 'owed to Ireland' that is really U.S. taxpayers cash...