23/7/20: Globalization and Populism: A Recent Study

I recently came across a fascinating paper by Dani Rodrik, an economist always worth reading. The paper, titled "Why Does Globalization Fuel Populism? Economics, Culture, and the Rise of Right-wing Populism" (NBER Working Paper No. 27526, July 2020) argues that "there is compelling evidence that globalization shocks, often working through culture and identity, have played an important role in driving up support for populist movements, particularly of the right-wing kind."

Rodrik carries out "an empirical analysis of the 2016 presidential election in the U.S. to show globalization-related attitudinal variables were important correlates of the switch to Trump."

• "Trump voters were more likely to be white, older, and college-educated. 
• "...they were significantly more hostile to racial equality and perceived themselves to be of higher social class. 
• "The estimated coefficient on racial attitudes is particularly large: a one-point increase in the index of racial hostility – which theoretically ranges from 1 to 5 – is associated with a 0.28 percentage point increase in the probability of voting for Trump (Table below, column 1). 
• "By contrast, economic insecurity does not seem to be associated with a propensity to vote for Trump.

"The finding that Trump voters thought of themselves as belonging to upper social classes ... largely reflects the role played by party identification in shaping voting preferences. When we control for Republican party identification (cols. 2 and 6), the estimated coefficient for social class drops sharply and ceases to be statistically significant."

"Note, however, that racial hostility remains significant, although its estimated coefficient becomes smaller (cols. 2 and 6)."

The other columns in the table above examine attitudes towards globalization (columns 2-5).

• "All three of our measures enter statistically significantly: 
• "Trump voters disliked trade agreements and immigration; 
• "They were also against bank regulation (presumably in line with the general anti-regulation views of (cols. 2-5) the Republican party). 
• "These indictors remain significant in the kitchen-sink version where they are all entered together (col. 6)."

"In none of these regressions does economic insecurity (financial worries) enter significantly. This
changes when we move from Trump voters in general to switchers from Obama to Trump (cols. 7-12). ... financial worries now becomes statistically significant, and switchers do not identify with the upper social classes. "

"Switchers are similar to Trump voters insofar as they too dislike trade agreements and immigration
(cols. 9-11). But they are dissimilar in that they view regulation of banks favorably. Hence switchers
appear to be against all aspects of globalization – trade, immigration, finance. the regression."


Rodrik postulates "a conceptual framework to clarify the various channels through which globalization can stimulate populism" on both "the demand and supply sides of politics". He also lists "the different causal pathways that link globalization shocks to political outcomes". 

Rodrik identifies "four mechanisms in particular, two each on the demand and supply sides:

• (a) a direct effect from economic dislocation to demands for anti-elite, redistributive policies; 
• (b) an indirect demand-side effect, through the amplification of cultural and identity divisions; 
• (c) a supply-side effect through political candidates adopting more populist platforms in response to economic shocks; and 
• (d) another supply-side effect through political candidates adopting platforms that deliberately inflame cultural and identity tensions in order to shift voters’ attention away from economic issues."

The full paper, accessible at https://www.nber.org/papers/w27526.pdf is choke full of other insights and is absolutely worth reading.

23/7/20: Irish property and COVID19

My column for The Currency is covering prospects for Irish property markets: https://www.thecurrency.news/articles/20965/.

22/7/20: COVID19 Update: USA vs EU27

U.S. continues to race ahead of the EU27 in the total counts of COVID19 cases and deaths:

U.S. is now significantly divergent to the EU27 in death rates per capita, both in terms of the actual rates and the rates of growth:

Notably, the EU appears to have virtually arrested the growth rate in deaths per capita, while the U.S. is experiencing relatively persistent growth in the deaths per capita. However, perhaps the most damning evidence of the systemic U.S. failure to deal with the pandemic is the simple fact that the U.S. excess total deaths (even without adjusting for timing lags and population size differences) continue to race ahead of the EU27.

Daily new cases and daily deaths counts confirm the above conclusions:

Meanwhile, some recent COVID19 newsflow:

21/7/20: Stonks and Stinks: S&P500 Net Profit Margins

Stonks reporting season is rolling on. And so far, things are predictably gloomy:

Yeeks! But wait, by sector:

• Seven out of eight sectors are reporting lower net profit margins than 5 year average, with Utilities being the only sector reporting above average margins;
• Nine out of nine sectors reported so far have lower net profit margins than in 2Q 2019.

Per Factset: "For the second quarter, the S&P 500 is reporting a year-over-year decline in earnings of -44.0% and a year-over-year decline in revenues of -10.5%."

Double yeeeks!

Meanwhile, what's S&P and stonks are doing? 1 month chart:

and 3 months

Because happiness is just around the corner for all.

19/7/20: American Exceptionalism on Kool-Aid

American exceptionalism literally transcends education bounds. Here's one instalment: https://twitter.com/MeetThePress/status/1284836775983185921?s=20 - a well-meaning one.

In attempting to allocate fault for the disaster of the U.S. public policy response to COVID19 pandemic (see latest on that here: https://trueeconomics.blogspot.com/2020/07/19720-covid19-update-usa-vs-eu27.html), we are now desperately ignoring the fact that not only the White House Administration of today is unfit for purpose, but the U.S. public health and education systems are also far from being exemplary.

So here is a summary of thee health outcomes for the U.S. of A. compared to other advanced (and some middle-income) economies, with an added reference to education quality metrics:

No, no 'Hell, yeah!' America. So back to Kool-aid.

19/7/20: COVID19 Update: USA vs EU27

Updating charts for the U.S. vs EU27 comparatives for COVID19 pandemic:

U.S. vs EU27 in absolute number of cases and deaths:

Key takeaway from the above chart: on 12/07/2020 the U.S. has surpassed the EU27 in the absolute number of deaths related to COVID19. The U.S. now continues to pull away from EU27 in absolute number of deaths attributed to COVID19.

EU27 vs U.S. in per capita deaths:

Key takeaways from the above chart:

• Death rates per capita: the U.S. has overtaken the EU27 since May 18, 2020, and the trend for the U.S. continues to be worse than that for the EU27.
• Overall counts of deaths in the U.S. are now above the EU27, since July 12, with current excess gap at +5,817 up from -2,867 two weeks ago. This is a swing of 8,684 excess deaths in the U.S. compared to the EU27 within a span of 14 days.

Distance between EU27 and the U.S. in deaths per capita:

Key takeaways from the above chart:

• Current U.S. death rate per capita is 42 percent above that for the EU27. Two week ago, this gap was 33 percent.
• Without timing adjustment, current death rate per 1 million of population in the U.S. is 428. This compares to a much lower rate of deaths per capita in the EU27 at 302.2.

Daily New Cases and Deaths:

Key takeaways from the above charts:

• Since the start of July, U.S. averages 58,995 new cases per day and 736 deaths per day. Over the same time, EU27 averaged 4,263 new cases per day and 106 deaths per day.

Main takeaways from all charts:

• U.S. new cases are now going parabolic (charts 1 and chart 4 above). 
• This is not a 'new wave', but the disastrous trailing of the original pandemic. 
• Deaths are lagging this development, for a number of reasons, covered in the last chart above, but these lags are showing signs of exhaustion. If this exhaustion is confirmed, deaths counts in the U.S. will accelerate beyond prior peak of 3,300 daily (using 14 days average).
• As new cases continue to pile up and lags in hospitalizations are exhausted, we will see a run on the U.S.hospitals capacity. This can further accelerate deaths counts.
• While only the future can tell, the above dynamics suggests that we are nearing an end game for the U.S. fight against COVID19, the one that is increasingly likely to end in the surrender of the U.S. health system to the pandemic, rather than the other way around. 
• A Malthusian Hellhole is beckoning the U.S. of A.

Newsflow of MAGA:

19/7/20: COVID19 Update: Worldwide Cases and Deaths

News flow from the Land of the Dumb and Dumber:

Global charts:

Cases:

Week-to-date, new daily case numbers have ranked within top 10 in history of the series in five days, including three all-time highs set within the last five days. The trend is still to the upside despite usual under-reporting of new cases associated with weekend data.

Deaths:

COVIDIOTS special alert: deaths numbers are not falling. Since the start of July, earlier shallow contraction in daily new deaths counts has been reversed to a 3-5% increase. In the last 10 days, deaths increased on average at 5.93% daily, reversing the negative rates of growth between June 26 and July 7. The rate of increase in daily deaths counts is trending up.

Trends in growth rates:

Another COVIDIOTS special alert: New daily cases growth rates and new daily deaths growth rates are now positive. New deaths counts growth rates have been trending, with some volatility, around 3% average since the end of May 2020. In the last 10 days, deaths increased on average at 5.93% daily, reversing the negative rates of growth between June 26 and July 7.

Both sets of data now indicate risk of a re-acceleration of the pandemic since the end of April troughs.

Summary tables of largest cases, countries with > 25,000 cases (note Japan & Kyrgyzstan are close to 25,000 to breach the bound within 1-2 days):

18/7/20: Europe, the Land of the Unliving Leadership

If the U.S. of A. is the land of the brain-dead leadership, Europe (the EU) is the land of the unliving ones. The difference is the ratio of effort to failure. The Trump Administration is almost effortlessly creates daily flow of disasters. Meanwhile the EU27 is endlessly engages in strenuous attempts to not achieve something trivial.

Latest instalment is the European leadership summit this weekend: https://www.reuters.com/article/us-eu-summit/eu-nations-deadlocked-at-tense-coronavirus-recovery-summit-idUSKBN24J0A2.

One thing of note from Ireland's (and other net contributing states') perspective is that, as I predicted two months ago (https://www.thecurrency.news/articles/17392/france-and-germany-have-proposed-a-e500m-fund-to-shield-european-economy-what-does-it-mean-for-ireland), the proposed EU fund for addressing COVID19-induced recession will be a net cost to the more advanced European states.

What's worse is that this cost will be a function of Ireland's famously grotesquely inflated GDP. The tax avoidance shenanigans of the multinational corporations will cost us more in the COVID19 Fund case. And since all measures of our economic activity, from GDP to GNP to GNI to GNI* already include taxes paid by the multinationals to the Irish Exchequer, this added cost is not going to be recovered through tax revenues.

Here are some facts. The latest data for the official "Modified gross national income at current market prices" or GNI* - a measure of economic activity that is published by the Irish authorities, that partially (note: partially) strips out these tax shenanigans - is 2018. So we can use data through that year as a yardstick by which we can measure the official and only partial gap between the real economic activity in the State and the imaginary pretend-to-matter GDP of the Republic.

In 2018, actual GNI*-measured activity was EUR 197,460 million, while official GDP was EUR 324,038 million. The real economy of Ireland was, therefore, at least 39 percent less than the officially-measured economy of Ireland. Put differently, we claim we had a national income of 324 billion, but in reality, we only made 197.5 billion. If Ireland was filling a mortgage application, it would be lying on its income line.

This gap is growing over time (chart next, with estimates for 2019 based on actual GDP reported and estimated GNI* gap from the gross value added statistics, and 2020 forecast):

Yes, you see it right:

• Officially, actual productive capacity of the Irish economy, was 39.06% lower than implied by GDP measure in 2018.
• Estimated, based on officially released, but not yet fully aggregated, data 2019 gap was around 39.8 percent. Worse than in 2018.
• Based on official growth and inflation forecasts for 2020, and gross value added data for multinationals-led sectors vs domestic sectors for 1Q 2020 already reported by the CSO, real economy gap to imaginary GDP is likely to be in the region of 43.5% in 2020, or, possibly even higher. This higher figure is suggested by the booming exports of the Ireland-based multinationals during the first 3 months of the pandemic.

Since EU contributions are, in part, based on GNI (not GNI*), which is closely linked to GDP, and thus to gross accounting effects from the multinationals, Irish contributions to the EU27 budget are excessively inflated, roughly, by the gap factor. We know as much, as even ESRI - the mouthpiece of the 'official Ireland' - said so before.

Now, back to the EU27 'COVID Fund'. 

Irish authorities finally recognised the fact that Ireland will be a net payer into the fund, as opposed to a net beneficiary: https://twitter.com/tconnellyRTE/status/1284433835581726725?s=20. Which is what I warned about two months ago, when many Irish commentators were busy dividing the imaginary COVID Fund largesse into spending and investment priorities 'made available' to Ireland from Europe. 

Based on the GDP/GNI* gap, Ireland's repayments on the EU27 'COVID Fund' are likely to be 40% higher than the actual Irish economy's productive capacity would entail. 

The Fund is also likely to alter, long-term, the structure and the distribution of the Member States' contributions. Most likely, it will increase a GDP or GNI-linked share being paid in by Ireland. But even without accounting for this, the fact that we will be net payers into the Fund means that our investment priorities to be financed from the Fund will have to change dramatically. In fact, for every EUR1 borrowed from the fund, we will have to generate EUR 1.43 or more in added activity / return only to account for the GDP/GNI* gap. 

Take a simple example: suppose we borrow from the Fund EUR 1 billion to build a hospital. Nice idea. An expected return from the hospital that justifies such a project should be around cost of administration of investment + cost of funds + return and risk premia. Hard to pin these down, but, say we want to invest in a hospital in the first place because it will have socio-economic returns equivalent to 5 percent net of the cost of raising funds, if we were to issue bonds at 0 percent interest rate. With GDP/GNI* gap we have 5%*(1+43% Gap) = 7.15% required return to make that investment compatible to the Fund. And that is assuming we are just repaying our own share to the Fund. If the Fund also lends money to, say, Poland - a net recipient of transfers from the normal EU budgets, we will have to pay, roughly a GDP-weighted share of Poland's borrowings into the fund, too. Say that amounts to our normal net EU taxes contribution of ca 0.15 percent of GDP (historical average for 2016-2018 is actually 0.153%). This means we are actually going to be repaying 0.2145% of our GNI*-based economic capacity for Poland's financing. And so on. 

What could have been economically feasible or efficient to invest in under GDP base consideration may not be feasible or efficient under the repayment cost linked to our real economic activity measures, e.g. GNI*. That hospital we would like to have, and that makes sense as a combination of a fiscal stimulus and socio-economic investment, will no longer make sense to invest in, solely because we have spent decades fooling ourselves and the world around us that we are richer than we really are... whooping 38-40 percent richer. Playing a role of a rich uncle is has a cost, folks... 

Worse, the need for the repayment of the funds in the future, and more egregiously, the need to pay for the funds not borrowed by Ireland, will mean that in the longer run, Ireland will have to run higher debt or higher budget surpluses or both. If, say, Malta or Slovakia, or Hungary or Poland were to draw down funds from the COVID Fund, Ireland will need to contribute to repaying the money they borrowed. Such a repayment will either require Ireland issuing new debt or Ireland paying in from budget surpluses in years to come. 

In other words, the COVID19 Fund is a prescription for more austerity in Ireland in the future years. Not for less. 

Irish PM / Taoiseach says it is a good thing: rescuing Europe is also favourable to Ireland. I agree. The problem is that every little bit counts and Ireland will be going into 'rescuing Europe' with a pretend-to-matter GDP base, not with the real economy-measuring GNI*. And that is wrong. It is a right thing to contribute to other countries' recovery. It is a stupid thing to do so while playing a 'rich uncle' role we hoisted out of vanity and some strategic venality (yes, truth hurts, and truth about MNCs in Ireland hurts our pretence at not beggaring our neighbours though our tax rules).

Ireland's kommentariate will really enjoy investing in public infrastructure, the EU-style... the unliving leadership of Europe is setting us up for another 2012 'Game-changing Deal' (https://www.telegraph.co.uk/finance/financialcrisis/9365504/Debt-crisis-Ireland-hails-euro-game-changer.html). Then, again, the hope is that by the time the EU27 actually agree to the terms and conditions of the 2020 COVID19 Fund, we will be dealing with the recession of 2025 or 2032 or 2087.

17/7/20: COVID19 Update: USA vs EU27

Snippets of news from the Land of Publicly Global Disaster:

Georgia: GOP Governor Brian Kemp suing the Democratic mayor of Atlanta, Keisha Lance Bottoms, because she mandated use of protective masks in public. Kemp issued an executive order banning cities and towns from mandating masks.

Oklahoma: GOP governor Kevin Stitt is infected with COVID19, a few days after he was out in a crowded restaurant and shopping, without wearing a mask.

Federal level of venality: 

And then there are the numbers, if the above snippets were not bad enough.

The U.S. continues to add to the deaths toll that is now well in excess of the entire EU27 death toll - even without adjusting for the fact that the EU27 has much larger (not to mention, older) population:

In per capita terms, the U.S. is a basket case for COVID19 deaths, compared to Europe (two orange lines below):

How bad are per capita death rates in the U.S. compared to the EU27? 40 percent worse!

The #COVIDIOTS, led by the COVIDIOT-in-Chief in the White House drone on about testing rates and volumes. Yep, Florida is currently testing 16.1% POSITIVE rate - more than 3 times the 'norm' for other advanced economies. Arizona is reporting 30% positivity rate. But, never mind: higher rates of testing should be leading to earlier detection of COVID19, and, thus, lower death rates, including on per capita basis. In the Orwellian world of the US of A, the opposite holds.

Now, new cases, daily counts:

Europe may or may not experience a 'second wave' comes Fall, but at least it has smashed the first wave. Remember the outcries from the Washington's Kommentariate about EU27 failures back in March? Now, look at the blue bars and weep.

And deaths, the ones that Trump boasts about falling:

A major uplift in new cases arrivals started in full-swing around 24-26th of June.

These are earlier detection cases, impacting increasingly healthier younger adults in the U.S. Which means that the lags between detection and hospitalization are longer, and the lags between increased hospitalizations and increased deaths will be longer still. In the earlier stages of the pandemic, when European cases were booming, it took 7-14 days for the effects of increased cases to start feeding through to increased deaths. In the U.S. case today, this should be 14-21 days. Worse, in Europe, reporting of deaths - in particular hospitals deaths - was much faster, more centralized. In the U.S. it can take up to 2 weeks for the death that occurs today to arrive into deaths statistics. These lags in the U.S. are driven by the lack of coherent framework for hospitals to report deaths and by the mosaic of local regulations on recording deaths.

The above means that a massive - literally off-the-scale by global standards - new cases arrivals rates in the U.S. are yet to start feeding through to deaths counts. But that will happen, folks, so the blue bars in the last chart are bound to go up.

These lags are, in part, behind the superficially favourable comparative for the U.S. compared to the EU27 in terms of mortality rate from COVID19 or the percentage of detected cases that result in deaths. The U.S. mortality rate is currently at 3.87% against the EU27 rate of 10.32%. Let's take a look at these numbers, because they have been paraded by the White House as evidence of the U.S. winning the war on COVID19.

The White House claimed that the U.S. has the lowest or one of the lowest mortality rates in thee world. This is false. Out of 55 countries with more than 25,000 cases of COVID19 detected, the U.S. ranks 23rd highest in terms of mortality rate.

This is far worse the position than one should expect. Remember:

1. U.S. community-based pandemic started at least a week after the EU27 and the rate of increases in early cases in the U.S. was much slower than in the EU27;
2. Early stages of the U.S. pandemic were highly concentrated (NYC, LA, Bay Area);
3. Much of the U.S. cumulative cases additions took place in most recent 3 weeks period, while much of the EU27 cases arrived in March-April;
4. The U.S. demographics are much more favourable to better chances of survival from COVID19 than EU27 demographics, especially in countries such as Italy, France and Germany.

The above facts mean that the U.S. should at a relative advantage to the EU27 in facing and treating increasing numbers of new cases. Alas, it is not.

U.S. mortality rate of 38.7 per 1,000 cases is statistically higher than the mortality rate for all countries with > 25,000 cases, ex-EU and UK. It is above the median for the top 55 countries in terms of the number of cases, and statistically indistinguishable from the global average.

The 'shining star of the US of A' is exceptional not in a positively distinguishing way: the U.S. currently performs worse on its best self-proclaimed aspect of the COVID19 pandemic than 

• Afghanistan
• Argentina
• Armenia
• Azerbaijan
• Bahrain
• Bangladesh
• Belarus
• Bolivia
• Brazil
• Chile
• Colombia
• Dominican Republic
• Ghana
• Honduras
• India
• Israel
• Kazakhstan
• Kuwait
• Nigeria
• Oman
• Pakistan
• Panama
• Peru
• Phillippines
• Portugal
• Quatar
• Russia
• Saudi Arabia
• Singapore
• South Africa
• Turkey
• Ukraine
• UAE

The U.S. mortality rate from COVID19 is higher than that for 11 members states of the EU27. And it is bound to get worse, once the lags between cases detections and deaths start dissipating. 

Note: Here is thee latest from the Banana Republic of Georgia

Which explains why, in the largely illiterate (logically & mathematically/statistically) population of the U.S. of A., Trump's bullshit flies through much of the voters.

17/7/20: Debt Servicing Burden: U.S. Households

Going into the COVID19 pandemic, the U.S. households cost of servicing debt and other financial obligations has been trending at historical lows. The data we have is through 1Q 2020. In April, personal disposable income rose 13.1 percent, before falling 4.9 percent in May. We won't know the data for actual debt servicing burden for June until July 31st, but the above monthly income figures suggest that the burden of overall financial obligations should have fallen to around 13.955 percent by the end of May, the lowest on record:

The above estimate is, of course, based on no extraordinary uplift in debt levels. It is, however, consistent with the significantly loosened conditions for credit in the U.S. banking system through

Given that April 2020 increase in disposable income was driven exclusively by fiscal transfers, and given the fact that a reduced burden of debt servicing for households is likely to sustain lower default rates on debt than would have occurred in absence of such transfers, the above illustrates a de facto channel for monetary policy transmission from QE (deficit monetization) to the households and then to the banks, with credit tightening peaking in early April and then easing through the week of July 10th.

16/7/2020: Updated: Trumpassery of Coronavirus

I just had to update the Trumpassery of Coronavirus chart with the latest leadership pearl...

The Commander in Beans...

16/720: Updated: America's Scariest Charts: Unemployment Claims

New data for the week prior on continued and new unemployment claims continues to support a view of a relatively slow and slowing-down recovery in the U.S. labour markets.

Continued unemployment claims:

Continued unemployment claims in the week of July 4 amounted to 17,338,000 down 422,000 on prior week. A week before, the rate of decline was 1,000,000, and in 4 weeks prior to the the week of July 4, 2020, average weekly rate of decline was 711,500. Current 4 weeks average rate of decline is 737,750 driven by two weeks of > 1 million declines. The good news is that we now have 8 consecutive weeks of drops in continued unemployment claims. The bad news is that we do not know how much of the decline from the COVID19 pandemic peak is down to benefits expirations, or due to benefits cancelations due to some income being earned, with restored income being below pre-COVID19 levels. In other words, we have no clue as to whether jobs being restored are of comparable quality to jobs lost.

Next, Initial Unemployment Claims: these remain troubling too. In the week of July 11, 2020, there were 1,503,892 new initial unemployment claims filed, the highest number in 5 weeks.

As the table above highlights, we now have more than 17 weeks of new unemployment claims filings in excess of 1 million. Note: new unemployment claims filings can reflect many factors, including:

1. A person becoming newly unemployed;
2. A person who was unemployed and temporarily left unemployment insurance coverage due to receipt of irregular earnings;
3. A person who was unemployed, and run out of benefits coverage, taking a temporary job, but re-listing as an unemployed at that job expiration; 
4. A person who was unemployed before but did not secure past unemployment benefits; and
5. A person who was unemployed but was denied prior benefits due to various reasons.

Here is the history of the Initial Unemployment Claims, smoothed out to a 3mo moving sum:

An updated employment outlook for July 2020: