free market

ECB unprecedented move on negative interest rates

This seems part of the "low political cost" policy recommendations from Krugman and others to take strong unorthodox measures to boost aggregate demand, to get the economy going back to growth from its rut. Read my posting on the Krugman talkbi attended here: /khoryuleng/2014/05/krugman-on-need-for-growth.html. Thus this might seem a belated move to many such economists.

I just had dinner with a friend who's a senior KL banker. She's a bit worried in the shorter term that the VIX volatility index is low, indicating market complacency. We talked about how it seems necessary to boost aggregate demand for employment creation and such; but the low rates policy of the last few years has just fed into non-productive sectors such as financial trading and investment, property and the like with nary a curb on the property sector in many countries. Thus, in Malaysia it seemed a good thing that BNM has been trying to curb the property sector - albeit with some major developers trying to be exempted e.g. in Iskandar Malaysia (here, there is talk of higher price hurdle for foreign buyers but I wonder if big property project owners will allow that).

I'm just a bit concerned about the unintended consequences of what is seemingly the extension of a well-intended policy. Policy making seems controlled by political-rich business interests. They have seemed hardly inclined to put in holistic policies to funnel all the QE money into the right direction. Are they doing things any differently this time with negative rates? The market neo-liberal hegemony is pretty strong.

I've been reading the latest Michael Lewis book, "Flash Boys" that talks about how smart people in the financial sector play and direct regulations to their benefit. I've been analyzing sustainability certification in commodity supply-chains - this is also another regulation that gets linked up with commercial interests. Regulations of increasing complexity benefit those who are able to figure them out and work them to their benefit i.e. mostly the richer companies. Do we end up with a better world as a result of this? In food regulation, I just read a piece that said that business interests have managed to get pizza defined as a vegetable in the US! Read this: How Sugar Went From a Condiment to a Diet Staple

The common feature in all of this: well-intended policies seem to just keep getting hijacked by interest groups and big business. The outcomes end up rather unexpected if not even paradoxical.

I wonder whether this extension of a less than successful economic policy will get us nice job creation for the man in the street or whether it's just another round of asset price pumping for the rich. If the policy has not been well implemented, does escalating it work? Is the policy itself wrong? Is there a structural problem in policy making and more?

Hope it works out successfully in short time so we can get back to regular policy. Time for you all to go out and spend and invest in property, art, wine or whatever... just take your money out from the bank and get it moving ! Just so long as you're not an ageing pensioner...

Update, comment from reader who is from the Asian business sector: "yup.. we are in a crazy crazy world... borrowing money is now better than savings... the world's best brains are telling us all."


ECB Announces Measures to Boost Bank Lending
The European Central Bank said it will introduce a series of measures designed to boost bank lending and head off dangerously low inflation, after announcing a series of interest-rate cuts.
Among the initiatives announced by ECB President Mario Draghi were targeted long-term refinancing operations, which will give banks access to low-interest-rate loans.
The euro plunged to a four-month low against the dollar after the ECB announced the package, falling 0.7% to $1.3503 from above $1.36 before the central bank's rate cuts, while European stocks rose to a fresh six-and-a-half-year high.

source: news links:

Nature has no bank account

On ecosystem services and the moral gap

Patching up the economy by adding on ecosystem services does not make the economy sustainable but it makes it more efficient: you can more efficiently destroy nature. This is a “patch it up” approach. We should not look at ecological systems through the lens of economics. We need some institutions and moral social pressure to consume less rather than more. It may take this generation to consume less; especially the rich people of this generation. All the prices set by the ecosystem services approach is income to somebody. But nature has no bank account.

Source: Norgaard, Richard B. 2013. Ecological Economics and Energy Economics in Historical Context, Spring 2013, Lecture 17: Ecosystem Services - Neoliberal economic thinking invades conservation, biology and ecology. University of California, Berkeley: Unversity of California.

Richard Norgaard, professor of energy and resources;
Separate, but related is this... Occupy was right: capitalism has failed the world
One of the slogans of the 2011 Occupy protests was 'capitalism isn't working'. Now, in an epic, groundbreaking new book, French economist Thomas Piketty explains why they're right;

Interesting that neo-liberal hegemony says we should now seriously tackle the energy sector!

IPCC climate change report: averting catastrophe is eminently affordable;; Landmark UN analysis concludes global roll-out of clean energy would shave only a tiny fraction off economic growth... The new IPCC report warns that carbon emissions have soared in the last decade and are now growing at almost double the previous rate. But its comprehensive ­analysis found rapid action can still limit global warming to 2C, the internationally agreed safe limit, if low-carbon energy triples or quadruples by 2050... “It is actually affordable to do it and people are not going to have to sacrifice their aspirations about improved standards of living,” said Professor Jim Skea, an energy expert at Imperial College London and co-chair of the IPCC report team. “It is not a hair shirt change of lifestyle at all that is being envisaged and there is space for poorer countries to develop too,” Skea told the Guardian.... Nonetheless, to avoid the worst impacts of climate change at the lowest cost, the report envisages an energy revolution ending centuries of dominance by fossil fuels – which will require significant political and commercial change. On Thursday, Archbishop Desmond Tutu called for an anti-apartheid style campaign against ­fossil fuel companies, which he blames for the “injustice” of climate change... Biofuels, used in cars or power stations, could play a “critical role” in cutting emissions, the IPCC found, but it said the negative effects of some biofuels on food prices and wildlife remained unresolved... Kaisa Kosonen, at Greenpeace International, said: “Renewable energy is unstoppable. It’s becoming bigger, better and cheaper every day. Dirty energy industries are sure to put up a fight but it’s only a question of time before public pressure and economics dictate that they either change or go out of business...