Der Mythos von der unabhängigen Zentralbank

In der heutigen Welt des Fiatgeldes hat Geld keinen ‘inneren‘ Wert. Menschen messen ihm einen Wert bei, weil andere Menschen das ebenfalls tun. Solange sich alle einig sind, dass Fiatgeld Wert hat, hat es Wert. Sobald sich aber genügend Menschen plötzlich entscheiden, ungedecktes Papiergeld für wertlos zu halten, wird es wertlos.

In Hochinflationsepisoden verflüchtigt sich das Vertrauen in eine Fiatwährung und versuchen alle, sie zugunsten von Sachgütern, Rohstoffen und sogar anderen Fiatwährungen loszuwerden. Das Anschmeißen der Druckerpresse macht die Sache nur noch schlimmer.

Makroökonomische Modelle mit (Fiat-)Geld sind also naturgemäß Modelle mit multiplen Gleichgewichten. Während der Wert des Geldes in einem bestimmten Gleichgewicht stabil ist, entwickelt sich in einem anderen eine unkontrollierbare Inflationsdynamik mit der Folge, dass das Geld entweder wertlos (Hyperinflation) oder unendlich wertvoll (Fisher-‚Schuldendeflation‘) wird.

In solchen Modellen kann die Wirtschaft plötzlich in ein explosionsartig inflatorisches Gleichgewicht umspringen. Praktisch impliziert das die mögliche Auslösung eines ‘Runs auf die Zentralbank’.

Theoretisch können Zentralbanken natürlich die Nachfrage nach ihrer eigenen Währung immer durch eine Geldschöpfung ex nihilo decken. Wenn aber ständig das Risiko eines plötzlichen Umspringens auf ein explosionsartig inflatorisches oder deflatorisches Gleichgewicht besteht, können sie den Wert nicht garantieren.

Nobelpreisträger Professor Christopher Sims argumentiert, dass es die Fiskalpolitik ist, die den Wert von Fiatgeld garantiert. Deshalb kann es keine regierungsunabhängigen Zentralbanken geben. Die ‘unabhängige Zentralbank’ ist ein Mythos.

Aber was ist mit der Europäischen Zentralbank (EZB), deren Unabhängigkeit von den Regierungen per Abkommen garantiert wird? Das ursprüngliche Konzept des Eurosystems setzt eine strenge Trennung zwischen Geld- und Fiskalpolitik voraus und geht davon aus, dass die Geldpolitik keinen Anlass zu fiskalischen Transfers gibt.

Heute wissen wir, dass alle geldpolitischen Maßnahmen fiskalpolitische Konsequenzen haben: So sorgen beispielsweise Zinserhöhungen dafür, dass sich der Wohlstand aus stärker verschuldeten Ländern auf Länder mit weniger Schulden verlagert. Der Aufkauf von Staatsanleihen nach einem ‘Kapitalzeichnungsschlüssel’ reduziert die Kosten für die Geldaufnahme größerer und reicherer Länder.

Die Existenz des Euro war durch eine finanzielle Schieflage in einigen Ländern der Eurozone bedroht. Darauf musste die EZB gezwungenermaßen reagieren. Also ist auch die EZB mit den Regierungen verflochten.

Notenbanken sind nicht nur nicht von Regierungen unabhängig, sondern zudem auf eine angemessene und plausible antizyklische Finanzpolitik der Regierungen angewiesen. Wie Professor Sims es formuliert: “Wenn die Menschen verstehen, dass die Finanzpolitik in Zeiten starker Inflation die Ausuferung staatlicher Defizite einzudämmen versucht und in Zeiten, in denen sich die Zinsen an oder in der Nähe der unteren Grenze bewegen, die Defizite ausweiten wird, sind Sonnenflecken-Fluktuationen und multiple Gleichgewichte eliminiert.“

Die ‘Fiskaltheorie des Preisniveaus’ (fiscal theory of the price level) besagt, dass die Fiskalpolitik den realen Wert öffentlicher Schulden langfristig aufrechterhalten muss, um den Wert von Fiatgeld stabil zu halten und ein Umspringen auf eine instabile inflatorische Dynamik zu verhindern. Der Fiatgeld-‚Schwindel‘, wonach es – wie bei Tinkerbell – solange Wert hat, wie die Menschen daran glauben, hängt also genauso stark von der Glaubwürdigkeit der Fiskalpolitik wie der Geldpolitik ab.

Die Fähigkeit der Zentralbanken, in einer Krise als Kreditgeber letzter Instanz zu fungieren, ist auf ihre fiskalische Rückendeckung angewiesen. Wenn eine Zentralbank aktiv Vermögenswerte aufkauft, ist ihre technische Insolvenz möglich, wenn diese Vermögenswerte an Wert verlieren. Mehrere Zentralbanken in der Welt weisen derzeit ein negatives Eigenkapital entsprechend der Marktpreisbewertung aus, darunter einige (wie die chilenische Zentralbank) über einen längeren Zeitraum.

Es ist heftig debattiert worden, ob die Solvabilität von Zentralbanken Auswirkungen auf ihre Glaubwürdigkeit als Kreditgeber letzter Instanz oder ihre Fähigkeit zur Inflationsbekämpfung hat. Das scheint wohl nicht der Fall zu sein – vorausgesetzt, dass die Fiskalbehörden sie unterstützen können.

Oft reicht der Nettobarwert der künftigen Seigniorage aus, um Inkongruenzen zwischen Aktiva und Passiva entsprechend der Marktpreisbewertung abzudecken. Reicht die Seigniorage aber nicht aus, werden Steuereinnahmen benötigt, um die Lücken zu schließen. In der Praxis heißt das, dass der Nettobarwert der prognostizierten künftigen Primärüberschüsse ausreichen muss, um die Zentralbank ohne Erhöhung der Staatsverschuldung zu rekapitalisieren.

Was passiert, wenn die Fiskalbehörde nicht zur Rekapitalisierung ihrer Zentralbank bereit ist? In Ländern wie den USA wäre das undenkbar, da die Währung dort durch das ‚volle Vertrauen‘ der US-Regierung gestützt wird.

 

Laureate Christopher Sims during his lecture at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Christopher Sims während seines Vortags auf der 6. Lindauer Tagung der Wirtschaftswissenschaften. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

 

Aber in der Eurozone ist die Zentralbank nicht nur völlig unabhängig von der Regierung, sondern hat es zudem mit 19 Regierungen unterschiedlich starker finanzpolitischer Glaubwürdigkeit zu tun. Die Aufrechterhaltung der Euro-Stabilität hängt von der Bereitschaft all dieser Regierungen ab, für eine Rekapitalisierung der EZB zu sorgen.

Und ihre Bereitschaft wurde, um ehrlich zu sein, bereits auf den Prüfstand gestellt. Seit den ‘Whatever it takes’-Bemerkungen von EZB-Präsident Mario Draghi auf dem Höhepunkt der Euro-Krise 2012 hat die EZB in gewissem Sinne die Rolle einer fiskalischen Institution übernommen, die aktiv öffentliche Schulden von Ländern der Eurozone aufkauft, um die Anleihezinsen niedrig zu halten.

Hätte sie nicht so gehandelt, wären einige dieser Länder zweifelsohne aus der Eurozone gedrängt worden. Dies geschah wohl auf Kosten ihrer eigenen Solvabilität. Ein ‘Run auf die EZB’, wie unter dem Eindruck der Märkte, dass die finanzielle Unterstützung für die EZB auf sich warten lässt, zu erwarten gewesen wäre, hat jedoch nicht stattgefunden.

Aber die EZB könnte nach wie vor gezwungen sein, die öffentlichen Schulden von Ländern mit ‘unverantwortlicher’ Finanzpolitik aufzukaufen, wenn ansonsten ein partieller Einbruch des Euro zu befürchten wäre. Einige Länder der Eurozone könnten davor zurückschrecken, eine Zentralbank zu rekapitalisieren, die ihrer Ansicht nach aktiv Regierungen unterstützt hat, die gegen finanzpolitische Vorschriften verstoßen haben – insbesondere, da es der EZB an einer demokratischen Legitimation für solche Entscheidungen fehlt.

Die Eurozone lebt also weiterhin in einer Welt multipler Gleichgewichte, wenn auch momentan ein plötzliches Umspringen auf eine unkontrollierbare Inflationsdynamik wenig wahrscheinlich erscheint.

Professor Sims sagt, es wäre besser, wenn es eine demokratisch kontrollierbare finanzpolitische Institution für den gesamten Euroraum mit der Befugnis zur Steuererhöhung gäbe, die den An- und Verkauf (oder die Emission) von Staatsanleihen übernehmen könnte. „Aber ich weiß auch nicht, wie man das organisieren sollte“, schloss er seine Ausführungen.

In den Vereinigten Staaten weiß man, wie man so etwas angeht. Sie nennen eine solche Institution ‘Federal Government’. Leider scheinen wir von der Einführung einer solchen Einrichtung im Euroraum weit entfernt zu sein. So werden multiple Gleichgewichte und Sonnenflecken-Fluktuationen wohl noch viele Jahre zur Tagesordnung gehören.

#LiNoEcon Daily Recap – Saturday, 26 August

The 6th Lindau Meeting on Economic Sciences ended with the boat trip to Mainau Island. It was a day full of science, discussions, joy, genuine delight and even some tears. It is hard for us to say goodbye now but we will surely stay in touch. Enjoy the highlights of the last day of #LiNoEcon.

 

Video of the day:

 

Last glimpse of #LiNoEcon – we hope you enjoyed your time with us.

 

 

Picture of the day:

 

#LiNoEcon participants boarding the “Sonnenkönigin” on their way to Mainau Island.

6th Lindau Meeting on Economic Sciences 23.08.2017 - 26.08.2017, Lindau, Germany, Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

For even more pictures from the Lindau Nobel Laureate Meetings, past and present, take a look at our Flickr account.

 

Blog post of the day:

 

Panel Slider

At #LiNoEcon, three Nobel Laureates explored economists’ understanding of how policies on taxes, public spending and interest rates work together in a time of crisis.

Do take a look at more of our inspring blog posts.

 

Tweets of the day:

 

 

 

 

 

Last but not least, follow us on Twitter @lindaunobel and Instagram @lindaunobel and keep an eye out for #LiNoEcon.

This is the last daily recap of the 6th Lindau Meeting on Economic Sciences. The idea behind it was to bring to you the day’s highlights in a blink of an eye. We hope you enjoyed the meeting and wish you all safe travels home.

Blockchain Technology: ‘Proof-Of-Work’ Versus ‘Proof-Of-Stake’

Bitcoins. Photo/Credit: skodonnell/iStock.com

Bitcoins. Photo/Credit: skodonnell/iStock.com

 

Cryptocurrencies like Bitcoin and the blockchain technology that underpins them are gradually becoming household words. Although peer-reviewed research is only just beginning to develop on the topic, the cryptocurrency ecosystem is growing at an exponential rate. Everyday, new businesses, investors and researchers enter this dynamic space.

At the University of Liechtenstein, I have been working on an experimental blockchain project with Professor Dr Martin Angerer and Jonas Gehrlein, MSc from the University of Bern. Our research on blockchain technology has been an educational, demanding and exciting journey.

The terms ‘blockchain technology’ and ‘distributed ledger technology’ refer to a variety of different technologies that attempt to solve different problems. Cryptocurrencies and blockchain technology emerged after the 2007/08 global financial crisis. The most popular example of these technologies is Bitcoin.

Bitcoin is a decentralised and open-source digital currency that stores transactional data in a distributed database that is maintained by computers all around the world. The creator of Bitcoin, who is still unknown but goes by the pseudonym Satoshi Nakamoto, wanted to provide a decentralised, private and secure means of transferring value online that did not rely on trusting sovereign entities, central banks or financial intermediaries.

A major discussion in the cryptocurrency realm relates to the optimal algorithm for achieving a collective agreement on which transactions are valid and which are invalid within a distributed network. Currently, the two most popular methods are known as ‘proof-of-work’ and ‘proof-of-stake’.

Bitcoin’s proof-of-work algorithm uses large quantities of energy and hardware equipment, which have been estimated to cost approximately $400 million per year. Proof-of-stake is a newer invention that has not been rigorously tested in the market.

When my colleagues and I began our research project, we wanted to investigate the differences between these two consensus mechanisms in a laboratory environment. Our motivation was simple: if both systems achieve the same outcome but one system (proof-of-work) incurs a negative externality on the environment, then why are people still using it?

Despite the seeming superiority of proof-of-stake, market participants prefer proof-of-work. Using market capitalisation as a proxy for demand, the highest market capitalisation coins all rely on proof-of-work. But proof-of-stake is gaining popularity: Ethereum, the second largest market capitalisation coin, is expected to switch from proof-of-work to proof-of-stake during the next year.

Our research uses game theory and behavioural economics to study the strengths and weaknesses of these two competing systems in a lab environment with students.

Our first step was to boil down the complex nature of these consensus mechanisms into abstract concepts that could be easily modelled in a lab. We spent months reviewing the research literature and brainstorming possible set-ups for the experiment.

The lab setup for proof-of-work was relatively straightforward. We planned to draw from the public goods literature on network externalities. Students would be given the option to use a medium of exchange that incurred an internal personal cost or a medium of exchange that incurred an external cost for the environment.

Essentially, this represented the current fiat system versus the energy-guzzling Bitcoin. At this point, we were very excited about the direction of our research and about the contribution that it could make to the fields of economics and information science.

Unfortunately, our research hit an insurmountable obstacle when we tried to model proof-of-stake: we could not find a way to do it easily in a lab. We discussed potential drawbacks of the proof-of-stake system such as 51% attacks, deflationary spirals and uncertainty stemming from ambiguity. But we came to the conclusion that Bitcoin’s proof-of-work suffered from the same drawbacks, albeit to a lesser degree.

During my own reflection on the differences between proof-of-work and proof-of-stake, I came to the conclusion that these systems resemble our transition from a gold standard to a fiat standard. Like gold, Bitcoin uses electricity and capital equipment to mine new coins. The probability of randomly being chosen to create a block and receive a reward is equal to each miner’s amount of mining power divided by the total amount of mining power on the network.

On the other hand, proof-of-stake allows the users with the largest holdings to create coins out of thin air. In a proof-of-stake system, the probability of receiving a reward is equal to the fraction of coins held by the user divided by the total number of coins in circulation.

Following this logic, proof-of-stake would appear to be superior to proof-of-work because economic theory argues that the fiat system is superior to the gold standard due to deflationary spirals caused by hoarding. (Note, however, that my late uncle, the American economist Larry Sechrest, argued in his 1993 book, Free Banking: Theory, History, and a Laissez-Faire Model that the problems associated with the gold standard actually stemmed from regulation and not from the scarcity of gold.)

To date, my reflections have not helped us find a suitable set-up for the lab experiment: we have been unable to find a major setback of the proof-of-stake consensus mechanism. The only problem that I could find was quite philosophical in nature and too complicated to be easily modelled in a lab.

The twentieth-century Austrian logician, Kurt Gödel, argued that no system can prove its own correctness from within itself. In reference to proof-of-work and proof-of-stake, the former appears to solve Gödel’s incompleteness theorem while the latter relies on external truth to achieve consensus.

In a proof-of-work system, anyone can join the system and immediately determine the correct history of transactions in the blockchain because the correct chain is the longest chain by default. In comparison, proof-of-stake has not developed a method for ensuring that every computer in the network comes to the same conclusion on the correct history of transactions from within the system.

Instead, proof-of-stake relies on an external third party or host of third parties to establish agreement on the history of transactions. In plain terms: proof-of-stake establishes truth by appealing to an external anchor while proof-of-work establishes proof from within. Although the introduction of counterparties may not be a problem in every case, the original goal of the blockchain technology was to create consensus without intermediaries.

In the end, we could not find a suitable way to model proof-of-stake in a lab with humans. In our own analysis of this problem, we realised that there was a fundamental problem with the premise of our study: we were trying to model a lab experiment with humans based on a technology that was designed to minimise human interaction.

Although we have encountered this major setback in our study, we have learned a tremendous amount about blockchain technology and about our own strengths and weaknesses as researchers. Instead of giving up, we are going in a new direction with our blockchain research. After all, the journey for pioneers is never paved.

Is Economic Policy Ready for the Next Crisis?

The economics profession took a big hit in the wake of the global financial crisis. Why did macroeconomists with their fancy models not see it coming? Should governments inject money into the economy to boost demand or cut spending to reduce record public deficits? And why have zero interest rates and ‘quantitative easing’ not done more to improve anaemic rates of growth?

These questions and many more were up for debate at a panel of three Nobel Laureates and a young economist at the 6th Lindau Meeting on Economic Sciences on Friday 25 August. The participants considered the new conditions for monetary policy – cutting interest rates and rescuing banks – and fiscal policy – changing taxes and spending public money.

They also asked why, before the crisis, policy-makers seemed to have paid insufficient attention to financial markets in their models. Mario Draghi, the President of the European Central Bank, used his keynote speech [link to video on LindauNobel site that I can’t access] that launched the Lindau meeting on 22 August to admit that there was a ‘notable absence’ of a role for banking and finance in these models.

 

Panel discussion during the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Panel discussion during the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

 

Martin Hellwig, the panel chair and director of the Max Planck Institute for Research on Collective Goods, started the discussion by highlighting that a debate over the effectiveness of fiscal stimulus policies in the US had been matched by one over austerity policies in Europe that involved doing the exact opposite.

Peter Diamond, co-recipient of the Nobel Prize in 2010, said that the decision by the US government to pursue an active fiscal policy, which lessened the depth of the recession, helped to explain the gap between growth rates in North America and Europe since the crisis.

But he acknowledged that the time lag involved in passing the legislation to push through fiscal measures, as well as concerns over what the money was spent on, had undermined people’s faith in the policies.

‘The depth and length of the Great Recession put both tax cuts and spending back on the US agenda although they were insufficiently used’, he said. ‘As the recession went on, the political will to do more was gone. The failure to follow up reflected a lack of appreciation by politicians and the general public of the value of suitable stimulus policies.’

Edward Prescott, co-recipient of the Nobel Prize in 2004, took a different view in a presentation with the title ‘The Unimportance of Monetary Policy and Financial Crises on Output and Unemployment’. He cited financial crises that saw countries experiencing contrasting outcomes at the same time: the US and Asia in the 2008 crisis; Chile and Mexico in 1980; and Scandinavia and Japan in 1992.

‘Financial crises do not impede development,’ he claimed. While the 2008 financial crisis was localised in North America and the euro area, there was a short recession and quick recovery in Japan, Taiwan and South Korea and no recession in Scandinavia and Australia. ‘Countries where fiscal policy was irresponsible had problems’, he maintained. ‘Fiscal responsibility is crucial: to spend is to tax and to tax is to depress. That’s what happens every time.’

Christopher Sims, co-recipient of the Nobel Prize in 2011, agreed that responsible fiscal policies were always required. But he went on to say that a responsible fiscal policy in the face of a major recession, in which inflation is falling below target, is ‘to expand and convince people that the expansion, via either additional spending or tax cuts, does not imply future taxes or spending cuts.’

‘You are doing this because you want inflation to go up,’ he added, referring to the struggle that central banks have had to drive inflation up from current levels of close to zero.

Sims urged young economists to fill in the ‘gaps’ in the major directions of monetary and fiscal policy research. But he also warned that many current research projects that simply seek to add extra elements to the standard ‘dynamic stochastic general equilibrium’ (DGSE) models, which were seen as having failed to spot the 2008 crisis, were just ‘fighting the last war’.

‘Right now, the biggest confusion that policy-makers have is that we have had low inflation below target for years despite the drastic measures that independent central banks have taken,’ he said. ‘We don’t have models that explain how we got stuck at this point for so long.’

Sims acknowledged that this was a new area where the paths have not been laid out and that empirical work that connected fiscal policies with the paradoxes of inflation was a ‘risky project’ for a PhD. But he concluded: ‘Precisely because of that, it might earn you the Nobel Prize.’

#LiNoEcon Daily Recap – Friday, 25 August

Friday was the last day in Lindau but not the last day of the meeting. Saturday is going to take the #LiNoEcon participants to Mainau Island, so while you are enjoying your last day on the picturesque island, let’s take a look at what happened yesterday. Here are our highlights from Friday:

 

Video of the day:

 

At #LiNoEcon, Laureate Jean Tirole comments on corporate social responsibility: “We need citizens and corporations to step in for the government and the market and try to do the common good.”

 

 

Picture of the day:

 

Laureate Myron Scholes conversing with young economists during a coffee break.

Myron Scholes in talk with young economists 6th Lindau Meeting on Economic Sciences 23.08.2017 - 26.08.2017, Lindau, Germany, Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

 

For even more pictures from the Lindau Nobel Laureate Meetings, past and present, take a look at our Flickr account.

 

Blog post of the day:

 

Sims

 

The myth of the independent central bank: economics writer Frances Coppola on Christopher Sims #LiNoEcon lecture.

Do take a look at more of our inspring blog posts.

 

Tweets of the day:

 

 

 

 

 

 

 

Last but not least, follow us on Twitter @lindaunobel and Instagram @lindaunobel and keep an eye out for #LiNoEcon.

We will keep you updated on the 6th Lindau Meeting on Economic Sciences with our daily recaps. The idea behind it is to bring to you the day’s highlights in a blink of an eye. The daily recaps will feature blog posts, photos and videos from the mediatheque.

‘Homo oeconomicus’ neu gedacht

Ökonomen leben in einer ideologischen Phantasiewelt. Sie betrachten die Menschen als eine Ansammlung von verlässlich rational handelnden, auf Nutzenmaximierung ausgerichteten, berechnenden Maschinen.

Diese ‘Ökons’ – deren Verhalten von den Ökonomen untersucht wird – machen niemals Fehler. Deshalb lassen sich ihre Verhaltensweisen bei ihren Interaktionen in den freien Märkten zuverlässig mit Hilfe einer Handvoll Gleichungen modellieren, die im Wesentlichen auf die 250 Jahre alten Erkenntnisse von Adam Smith oder anderen klassischen Ökonomen zurückgehen.

Das ist zumindest eine der verbreiteten Vorstellungen darüber, was Ökonomen tun.

Aber einige Tage auf der 6. Lindauer Tagung der Wirtschaftswissenschaften zeigen schnell, dass dieses Bild eine bloße Karikatur des Berufsstands wäre.

Daniel McFadden von der University of California, Berkeley, Nobelpreisträger von 2000, nutzte seinen Vortrag dazu, die Probleme einer Anwendung vereinfachender Modelle wie die von Adam Smith und David Ricardo auf jedes Problem zu verdeutlichen.

„Wir zollen dem, was sie gemacht haben, Anerkennung. Dennoch sollten wir immer hinterfragen, ob es anwendbar ist“, warnte er.

 

Daniel McFadden during his lecture at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Daniel McFadden während seines Vortrags auf der 6. Lindauer Tagung der Wirtschaftwissenschaften. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

 

Peter Diamond vom MIT, einer der Laureaten des Jahres 2010, gab sich keinen Illusionen hin, dass Menschen immer Entscheidungen treffen, die in ihrem eigenen langfristigen Interesse sind und führte dazu die Versäumnisse in der privaten Altersvorsorge an.

„Die Menschen sparen einfach nicht genug, wenn man das ihrer eigenen Regie überlässt“, machte er den Nachwuchsökonomen klar und verwies dabei auf das Ergebnis einer bemerkenswerten Befragung von US-Babyboomern, bei der fast 80 % eine einfache Frage nach Zinseszinsen falsch beantworteten.

Also keine Rechenmaschinen in Sicht.

Diamond beschäftigte sich in seinem Vortrag damit, was wir aus internationalen Erfahrungen für die Ausgestaltung staatlicher und privater Pensionssysteme lernen können. Seine Beispiele reichten von der Entstaatlichung des öffentlichen Rentensystems in Chile bis hin zu kostengünstigen und effizienten Mitteln der Altersversorgung, die rund drei Millionen US-Staatsbediensteten zur Verfügung stehen.

Simple Wirtschaftsmodelle, so die Argumentation von Diamond, sind eine schlechte Grundlage für politische Richtungsentscheidungen. „Modelle sind schon definitionsgemäß unvollständig”, sagte er, “sie eins-zu-eins in die Praxis umzusetzen, wäre also ein schwerer Fehler.“

Sir James Mirrlees von der Chinesischen Universität Hongkong und Mit-Nobelpreisträger 1996 sprach in seinem Vortrag über unsere „eingeschränkte Rationalität“ als Menschen. Er zeigte auf, dass die Entscheidungen, die wir treffen, nicht durchgängig von unserem auf Eigeninteressen beruhenden Kalkül, sondern durch äußere Faktoren wie Erziehung, Werbung oder Erfahrung beeinflusst werden.

Von ihm durchgeführte Modellierungen zeigten, dass unter bestimmten Umständen bessere Ergebnisse erzielt werden können, wenn man den Menschen keine Entscheidungsmöglichkeiten lässt, sondern einfach vorgibt, was zu tun ist. „In der Wirtschaftswelt ist es ungewöhnlich, eine Theorie zu vertreten, die die Freiheit minimieren will“, merkte er an.

 

Sir James Mirrlees talking to young economists after his lecture at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Sir James Mirrlees im Gespräch mit Nachwuchsökonomen während der 6. Lindauer Tagung der Wirtschaftswissenschaften. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

 

Robert Aumann von der Hebräischen Universität Jerusalem, der im Jahr 2005 mit dem Nobelpreis ausgezeichnet wurde, verpasste dem vereinfachenden Konzept von Menschen als nutzenmaximierenden Maschinen aus einem ganz anderen Blickwinkel einen Seitenhieb.

Das zentrale Argument im Vortrag des Spieltheoretikers über ‚Mechanismus-Design-Design‘ war die Forderung, klare Vorstellungen über Anreize und Motivationen zu entwickeln.

Wir essen nicht, wie Aumann betonte, weil wir Nahrungsmittel verdauen möchten, um uns so Lebensenergie zuzuführen (die Art von Fehler, die ein an die Berechenbarkeit von ‚Ökons‘ glaubender Ökonom in Bezug auf menschliche Anreize machen könnte), sondern wir essen, weil wir hungrig sind.

Genauso, wie wir wohl in der Regel nicht deswegen Sex haben, weil wir den Fortbestand der Menschheit sichern wollen, sondern einfach, weil es sich gut anfühlt.

Wenn wir solche unmittelbaren Beweggründe übersehen, könnten wir missverstehen, was menschlichen Verhaltensweisen zugrunde liegt – und somit Ökonomie selbst falsch verstehen.

Winners and Losers From a ‘Commodities-For-Manufactures’ Trade Boom

 

Soy planting in Parana, Brazil.  Photo/Credit: alffoto/iStock.com

Soy planting in Parana, Brazil. Photo/Credit: alffoto/iStock.com

 

The rise of China has been one of the most important events to hit the world economy in recent decades. Rapid economic growth has had enormous implications within China, lifting millions of Chinese citizens out of poverty. But China’s rise has also deeply affected the economies of other countries in ways that we are only beginning to understand.

One fact that economists have learned from studying China’s impact on other countries is that competition from the booming Chinese manufacturing sector has had a big effect on manufacturing workers elsewhere. According to research by David Autor, David Dorn and Gordon Hanson, manufacturing employment has declined much more quickly in parts of the United States that produce goods imported from China.

These findings of negative impacts of Chinese competition for manufacturing workers have been corroborated by studies of European countries. For example, research by João Paulo Pessoa finds that UK workers initially employed in industries competing with Chinese products earned less and spent more time out of employment in the early 2000s.

But China is not only a competitor for other countries’ industries; it has also become an increasingly important consumer of goods produced elsewhere. In particular, China’s rapidly growing economy fuelled a worldwide commodity boom in the early 2000s.

This had an especially big impact on developing countries, whose swiftly rising exports to China became dominated by raw materials such as crops, ores and oil. Exports from low- and middle-income countries to China grew twelvefold from 1995 to 2010, compared with a twofold rise in their exports to everywhere else, so that China became an increasingly important trade partner for the developing world.

In 1995, commodities made up only 20%of these countries’ rather limited exports to China. But by 2010, nearly 70% of exports to China from developing countries were commodities (Figure 1A). Meanwhile, these countries’ rapidly growing imports from China consisted almost entirely of manufactured goods (Figure 1B).

 

Figure 1: Share of commodities in trade of developing countries Notes: ‘Commodities’ include products of the agricultural, forestry, fisheries/aquaculture and mining sectors. ‘Developing countries’ include non-high-income countries as defined by the World Bank, excluding countries in East and Southeast Asia, which tend to participate in regional manufacturing supply chains. Trade data is from CEPII BACI. Credit: Francisco Costa

Figure 1: Share of commodities in trade of developing countries. ‘Commodities’ include products of the agricultural, forestry, fisheries/aquaculture and mining sectors. ‘Developing countries’ include non-high-income countries as defined by the World Bank, excluding countries in East and Southeast Asia, which tend to participate in regional manufacturing supply chains. Trade data is from CEPII BACI. Credit: Francisco Costa

 

This swift transition to a new kind of trade relationship has sometimes been unpopular with China’s trade partners. For example, before a visit to China in 2011, Brazil’s former president Dilma Rousseff promised that she would be “working to promote Brazilian products other than basic commodities,” amid worries about “overreliance on exports of basic items such as iron ore and soy” (Los Angeles Times).

So for countries like Brazil, how did the benefits from the China-driven commodity boom compare to the costs of rising competition from Chinese manufactures?

In my research with Jason Garred and João Paulo Pessoa, published recently in the Journal of International Economics, we look at how the steep rise in ‘commodities-for-manufactures’ trade with China affected workers in Brazil. It turns out that Brazil’s evolving trade relationship with China in the early 2000s echoed that of the rest of the developing world:

  • First, trade with China exploded: just 2% of Brazil’s exports went to China in 1995, but this had risen to 15% by 2010.
  • Second, exports to China became increasingly concentrated in a few commodities (Figure 2A). In 2010, more than 80% of Brazilian exports to China were commodities, mostly soybeans and iron ore. In the first decade of the 2000s, almost all of the growth in export demand for these two Brazilian products came from China.
  • Finally, like the rest of the developing world, Brazil’s imports from China rose quickly but included almost exclusively manufactured goods (Figure 2B).

Our study analyses the 2000 and 2010 Brazilian censuses to check how the fortunes of workers across different regions and industries evolved during the boom in trade with China.

 

Figure 2: Share of commodities in trade of Brazil. ‘Commodities’ include products of the agricultural, forestry, fisheries/aquaculture and mining sectors. Trade data is from CEPII BACI. Credit: Francisco Costa

Figure 2: Share of commodities in trade of Brazil. ‘Commodities’ include products of the agricultural, forestry, fisheries/aquaculture and mining sectors. Trade data is from CEPII BACI. Credit: Francisco Costa

 

We first confirm that during this time, there was a negative effect of Chinese import competition on employees of manufacturing firms. Specifically, in parts of Brazil producing manufactured goods imported from China (such as electronics), growth in manufacturing workers’ wages between 2000 and 2010 was systematically slower.

But our findings also suggest that growth in trade with China created winners as well as losers within Brazil. Wages rose more quickly in parts of the country benefiting more from increasing Chinese demand, which were mainly regions producing soy or iron ore.

We also find that these regions saw a rise in the share of employed workers in formal jobs. Unlike jobs in the informal economy, jobs in the formal sector come with unemployment insurance, paid medical leave and other benefits, and so this increase in formality can be seen as a rise in non-wage compensation.

So while Brazil’s manufacturing workers seem to have lost out from Chinese import competition, rising exports to China appear to have benefited a different subset of Brazilian workers.

Our study concentrates on the short-run effects of trade with China on Brazilian workers. This means that our results don’t provide a full account of the trade-offs between the twin booms in commodity exports and manufacturing imports. For example, we don’t know what happened to the winners from the commodity boom once Chinese demand slowed in the mid-2010s.

We also do not consider the benefits to Brazilian consumers from access to cheaper imported goods from China. But what we do find suggests that trading raw materials for manufactures with China may not have been a raw deal for developing countries like Brazil after all.

The Myth of the Independent Central Bank

In today’s fiat money world, money has no ‘intrinsic’ value. People value fiat money because other people value it. As long as everyone agrees that fiat money has value, then it does have value: but if enough people suddenly decide that fiat money has no value, it becomes worthless.

In hyperinflationary episodes, confidence in a fiat currency evaporates and people dump it in favour of assets, commodities and even other fiat currencies. Printing more of it only makes matters worse.

Macroeconomic models involving (fiat) money are thus inherently models with multiple equilibria. In one equilibrium, the value of money is stable: but in another, inflationary dynamics become explosive and money becomes either worthless (hyperinflation) or infinitely valuable (Fisherian ‘debt deflation’).

In such models, the economy can suddenly jump to an explosively inflationary equilibrium without any change in policy. In effect, they imply that there can be a ‘run on the central bank’.

Central banks can, of course, always meet demand for their own currency, since they can create it ex nihilo. But if there is always the risk of a sudden switch to an explosively inflationary or deflationary equilibrium, they can’t guarantee its value.

Nobel Laureate Professor Christopher Sims argues that it is fiscal policy that guarantees the value of fiat money. Central banks thus can never be independent of government. The ‘independent central bank’ is a myth.

But what about the European Central Bank (ECB), whose independence from government is guaranteed by treaty? The original concept of the Eurosystem assumes that there is a sharp distinction between monetary and fiscal policy, and that monetary policy does not give rise to fiscal transfers.

We now know that all monetary policy actions have fiscal consequences: for example, interest rate rises shift wealth from countries with more debt towards countries with less. Buying government bonds according to a ‘capital key’ reduces the borrowing costs of larger and richer countries.

 

Laureate Christopher Sims during his lecture at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Nobel Laureate Christopher Sims during his lecture at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

 

The euro’s very existence was threatened by fiscal distress in Eurozone countries, to which the ECB was forced to respond. Thus, even the ECB is entwined with government.

Not only are central banks not independent of government, but they are also dependent on governments running appropriate and plausible countercyclical fiscal policy. As Professor Sims says, ‘if people understand that fiscal policy will try to slow the expansion of deficits in periods of high inflation, and will expand deficits when interest rates are at or near the effective lower bound, sunspots and multiple equilibria are eliminated’.

The ‘fiscal theory of the price level’ says that to keep the value of fiat money stable and prevent switching to an unstable inflationary dynamic, fiscal policy must actively maintain the real value of government debt over the long term. The fiat money ‘confidence trick’, in which – like Tinkerbell – it has value as long as people believe in it, thus depends on the credibility of fiscal policy as much as monetary policy.

Central banks’ ability to act as lenders of last resort in a crisis depends on their fiscal backing. When a central bank is actively buying assets, it can become technically insolvent if those assets fall in value. Several central banks around the world currently have negative net worth at market prices: some of them (such as the Chilean central bank) have had negative net worth for a long time.

There has been a considerable debate about whether the solvency of central banks makes any difference to their credibility as lenders of last resort or their ability to control inflation. Arguably, it does not – provided fiscal authorities can support them.

Often, the net present value of future seigniorage receipts is sufficient to cover any asset and liability mismatches at market prices. But if seigniorage is insufficient, then tax receipts will be needed to plug any gaps. In practice, this implies that the net present value of projected future primary surpluses must be sufficient to recapitalise the central bank without increasing government debt.

What happens if the fiscal authority is unwilling to recapitalise its central bank? This would be unthinkable in countries such as the US, where the currency is backed by the ‘full faith’ of the US government.

But in the Eurozone, the central bank is not only fully independent of government, but there are also 19 governments of varying degrees of fiscal credibility. Maintaining the stability of the euro depends on the willingness of all these governments to recapitalise the ECB.

To be sure, their willingness has already been tested. Since the ‘whatever it takes’ remarks of ECB president Mario Draghi at the height of the Eurozone crisis in 2012, the ECB has been to some extent cast in the role of fiscal institution, actively buying the government debt of Eurozone countries to keep bond yields down.

Had it not done so, some of those countries would undoubtedly have been forced out of the euro. It has arguably done this at the price of its own solvency – yet there has been no ‘run on the ECB’, as might be expected if markets thought fiscal support for the ECB would be found wanting.

But the ECB could still be forced to buy the government debt of countries with ‘irresponsible’ fiscal policies, if not doing so meant partial unravelling of the euro. Some Eurozone countries might balk at recapitalising a central bank that in their view was actively supporting governments that were breaking fiscal rules, especially as the ECB lacks the democratic legitimacy to make such decisions.

The Eurozone thus still lives in a world of multiple equilibria, even though the likelihood of a sudden switch to explosive inflationary dynamics appears remote at present.

Professor Sims says it would be better if there were a democratically accountable, Eurozone-wide fiscal institution with the power to raise taxes, which could take over the buying and selling (or issuing) of government debt. ‘But I don’t know how you organise that,’ he concluded.

The US knows how you organise it. They call such an institution a ‘federal government’. Sadly, we seem to be some distance from introducing such an institution in the Eurozone. Multiple equilibria and sunspots seem likely to remain the order of the day for many years to come.

 

The Puzzle of Global Inequality

During a Science Breakfast at #LiNoEcon moderated by Romesh Vaitilingam (left) laureate Eric Maskin, young economist Devaki Ghose and Howard-Yana Shapiro, Chief Agricultural Officer, Mars, Incorporated, discussed how to address global inequality.

During the Mars Science Breakfast moderated by Romesh Vaitilingam (left) laureate Eric Maskin, young economist Devaki Ghose and Howard-Yana Shapiro, Chief Agricultural Officer, Mars, Incorporated, discussed how to address global inequality.

 

New policies are needed to tackle the surprising rise in inequality within developing countries, even as they have become more integrated into the global economy. That was the core message of a panel of researchers speaking at a science breakfast sponsored by Mars, Inc., on Thursday, 24 August at the 6th Lindau Meeting on Economic Sciences.

The fact that the dramatic growth in average income in large developing countries like China and India has led to increased inequality is ‘deeply troubling’, according to the opening speaker, Nobel Laureate Eric Maskin.

This seems to contradict the long-established theory of comparative advantage, which predicts that relative wages of unskilled labour should rise as their trade increases. It also contrasts with what happened in previous periods of globalisation, for example, in the late 19th century.

Professor Maskin explained that what has changed is that the production process has been internationalised. Communications technologies now allow companies to establish just-in-time global supply chains, and to employ skilled workers around the world, so that the gains of trade are no longer distributed on a countrywide level.

Domestic migration is also fuelling inequality, he added. There is a growing gap between the city and the countryside in developing countries. Those who move to the cities have improved opportunities for education, jobs and income, while the countryside is increasingly impoverished.

Panel member Devaki Ghose, of the University of Virginia, one of the young economists attending the Lindau meeting, drew on her experience of research in India to reinforce these points.

She noted that India’s high-tech sectors, such as its IT outsourcing business, which has been a huge international success, employ only a small percentage of the Indian workforce. It is only open to a small proportion of the population – under 6% – who are both computer-literate and English speakers. She also said that these high-tech firms are concentrated in just a few states in India where they have close links to universities.

In contrast, 60% of the Indian population works in agriculture, where they face problems of low productivity, poverty and lack of investment in modern production techniques.

Dr Ghose cited a personal example, where a large family she knew from a tribal area was unable to farm all the land they owned, but were too poor either to hire extra labour or to buy expensive inputs like fertiliser to improve crop yields. What’s more, the legal system in India, which seeks to protect poor farmers’ land ownership rights, prevented them from selling part of their landholdings to others who could make more productive use of it.

Genetic scientist Dr Howard-Yana Shapiro, chief agricultural officer at Mars, Inc, argued that now was the time for action. What we need, he said, is ‘a change of theory, not a theory of change.’

He pointed out that 37% of the population in rural Africa is malnourished at birth, as are 43% of Indian children. There is a moral obligation to tackle the problem of chronic malnutrition in countries where farmers cannot produce enough food to feed themselves. He said that only an inclusive approach, which could both discover solutions and scale them up would work, using the skills of industry, universities, NGOs and governments alike.

Mars is committed to developing new crop varieties with increased yields that can be freely distributed to farmers. Dr Shapiro said that although the yields on the ten major food crops may have reached their natural limits, there are great gains to be made by genetic modification of 100 less widely grown food crops in Africa.

In India, Mars is working with farmers to improve the yields of chick peas, one of its major food crops yet a commodity for which continuing low yields means it still has to be imported from abroad. Mars has also mapped the genetic sequence of cacao to breed a higher yielding, disease resistant tree, which can also produce tastier chocolate. The company has made the genome data freely available to growers in developing countries.

Professor Maskin suggested that higher crop yields alone would not be enough to tackle rural inequality, as early adopters would gain at the expense of those who could not or would not take up the new crop varieties.

There was considerable discussion about the incentives that might motivate companies to take actions that tackle poverty and inequality, including improving human capital through training. Professor Maskin expressed scepticism that many companies would do so on their own initiative without government incentives such as tax breaks.

Dr Shapiro commented that although Mars had an advantage as it is a privately held company that is not subject to short-term pressure from shareholders, other companies, such as rivals Nestle and Unilever, were following in its footsteps, in their own long-term self-interest.

He added that tackling climate change was another area where companies, such as Mars, were increasingly willing to act on their own to develop a zero carbon footprint, independent of government actions such as the US decision to withdraw from the Paris agreement on climate change.


 

 

 

#LiNoEcon Daily Recap – Thursday, 24 August

Thursday was packed with lectures, seminars and the first panel discussion of #LiNoEcon. In our mediatheque, you may find many great pictures, videos of exceptional lectures and thought-provoking blog contributions. There is so much more worth checking out than what we present to you in our daily recap, so do have a look. Enjoy the following highlights of Thursday!

 

Video of the day:

 

For #LiNoEcon young economist Eric Schaanning, the big policy challenges facing economists today include inequality, pension design, artificial intelligence and climate change. 

 

 

Picture of the day:

 

Laureate Daniel L. McFadden with “his” knowledge pylon that is part of the Lindau Science Trail.

Daniel McFadden standing next to

For even more pictures from the Lindau Nobel Laureate Meetings, past and present, take a look at our Flickr account.

 

Blog post of the day:

 

Blog of the day

‘Homo Economicus’ Reconsidered: Ben Chu on how Nobel economists rebel against simplistic conceptions of rationality at #LiNoEcon

Do take a look at more of our inspring blog posts.

 

Tweets of the day:

 

 

 

 

 

 

 

Last but not least, follow us on Twitter @lindaunobel and Instagram @lindaunobel and keep an eye out for #LiNoEcon.

We will keep you updated on the 6th Lindau Meeting on Economic Sciences with our daily recaps. The idea behind it is to bring to you the day’s highlights in a blink of an eye. The daily recaps will feature blog posts, photos and videos from the mediatheque.