The shocks that remade German politics

Adam Tooze has an excellent post. Some teasers. He starts off with an excerpt from The Economist.

In a recent piece in the Economist Jeremy Cliffe put it well: 

Why, then, is Germany less mighty than it looks? First, its size can be a weakness … too small to dominate Europe (proportionally it is about as big in population terms as California in America) but big enough that others feel daunted and seek to contain it … Second, Germany’s establishment is different. America has a powerful executive, Britain has a high degree of centralisation and France has both, but in Germany power is diffuse and plural. Opinion is more diverse than the notion of a monolithic German interest and outlook allows … So multilayered and multifaceted are German politics and public life that the country can be in fact frustratingly introverted. Even at the peak of her powers, Mrs Merkel was more a crisis manager than a visionary leader.”

He then addresses Germany's climate/energy policy that is high on aims but rather low on promised results before he then turns to Germany's real problem, the connection between inequality and macroeconomic imbalance and shows an IMF flowchart.

Today, Germany runs a trade surplus which, in proportion to GDP, is far in excess of the levels achieved during the golden age of the “economic miracle”. 

Here are Germany’s figures in European comparison from an excellent recent report by the IMK, the macroeconomic research institute of the German trade union movement, now headed by Sebastian Dullien.

He then turns to Germany's main problem, weak consumption and high income inequality. Coincidentally, the FAZ shitpaper today runs an article "Rich as never before" which regurgitates a Bundesbank publication.

Do read the full post. Lots of good graphs.

Great Recession in Europe and the U.S. Great Depression - oh, Greece again

Post from the excellent True Economics

In a one-chart summary, why the Euro has been a painfully failing experiment in monetary policy:

The US Great Depression versus the Greek Recession

Greek Great Recession is now in year 11, and counting. By the end of 2019, the IMF estimates that the Greek economy will be 22.1 percent below the 2007 levels, and by 2024 (the furthest IMF forecast we have), it is expected to be 16.2 percent below the 2007 levels. ...

Greece is hardly the only economy in this situation. Italy is patently in the same boat, and as shown in the chart below, nine out of the EA19 states have experienced longer duration of recovery from the Great Recession than the U.S. from the Great Depression.

Euro area countries recession duration

Full post here.

Here is more on Greece by Bill Mitchell:

As you were Greece – remain in permanent depression – commitments are commitments!

China's Changing Relationship with the World Economy

This graph caught our eye.

The figure shows the total GDP of China, Japan, and Germany as a share of the US level, which is set at 100%. On this figure, Germany's GDP as a share of the US level peaked in 1979, and Japan's peaked in 1991.

What's interesting about China's situation is not just that the level has risen so sharply. In addition, the peaks for Germany and Japan happened when their levels of per capita GDP were similar or higher to the US level (given the prevailing exchange rates at the time). China's per capita GDP is much lower, suggesting much more room to grow. Similarly, the urbanization rates for Germany in 1979 and Japan in 1991 were in the 70s, while China's urbanization rate is only 58%--again suggesting considerably more room for China to grow.

Full post of Tim Taylor here. 

How Much did the Gothic Churches Cost?

After Notre Dame

An Estimate of Ecclesiastical Building Costs in the Paris Basin between 1100-1250

By Amy Denning

Bachelor’s Thesis, Florida Atlantic University (2012)

Abstract: Several scholars have studied the explicit (tangible) costs of the ecclesiastical buildings constructed in the High Middle Ages. However, no scholar has examined the implicit (opportunity) cost of unskilled labor required for their construction, or tried to estimate the total cost of their building as a percentage of regional GDP.

This thesis examines the implicit costs of building the Gothic churches of the Paris Basin built between 1100-1250, and attempts to estimate the percentage of the regional economy that was devoted to build them. I estimate that over this 150-year period, on average, 21.5 percent of the regional economy was devoted to the construction of these Gothic churches, 1.5 percent of which is directly related to the implicit cost of labor.

Introduction: During the High Middle Ages, Western Europe was plagued with famine, disease, and dismal economic growth. Population was increasing at a rate faster than the (Maddison, 2003), leaving the average person experiencing declining levels of sustenance every year. However, during the period known as the High Middle Ages, between 1100-1250, the Catholic Church built over 1400 Gothic churches in the Paris Basin alone. The lavish ecclesiastical building campaigns of the Church represented a portion of the GDP for the region, but what percentage of GDP does this building campaign represent?

Excerpt from the Pdf:

History and Background

At the start of the High Middle Ages, circa 500 C.E., the Church was in its infancy; however, by 1100 C.E., the Church had grown to possibly the largest private organization the world had seen to date. Today, there are over 1.1 billion Roman Catholics (around 17 percent of the world’s population). After the conversion of Constantine (circa 300 C.E.) and other important political figures, the Catholic Church proliferated throughout Western Europe. During the High Middle Ages and before the Protestant Reformation, the Popes had more power than at any time in history. The Church crowned rulers, such as Charlemagne, created laws, started wars, and served as the supreme authority on salvation and the afterlife. 

...

Opportunity costs

The Catholic Church maximized profits by utilizing what was essentially slave labor (Kraus, 1979: 11). This caused the burden of high opportunity costs to plague Western Europe’s economy. Ekelund et al. address opportunity costs and their effect on economic development, reminding us that “economic resources have alternative uses” (2006: 203). The authors estimate that 9 percent of adult men built ecclesiastical buildings in France between 1100 and 1400 C.E. Instead of building churches, they could have built “fences around common areas” or invested in technology, infrastructure, and education (Ekelund et al. 2006: 203).

Cathedrals as an entry barrier for other religions and signalling

In addition to being the seat of a bishop, Ekelund et al. suggests that the cathedrals (and other large churches) operated as both a limit-pricing device and as a signaling device. These two devices functioned as a barrier-to-entry for other competing religions, such as the Muslims and the Gnostics (2006: 198-231). Viewing the Church as a monopoly, the Church’s actions to increase barriers-to-entry allowed it to continue to function as a monopoly by dissuading competition. The medieval Church effectively reduced the threat of competition throughout the High Middle Ages. In fact, it was not until the Protestant Reformation during the 16th century that the Catholic Church lost control of its monopoly. The churches played a large role in the Church’s profit-maximizing agenda.

Another way the Church controlled the market was by “overproducing” goods to ensure that other religions would be unable to compete with it. One way to see the overproduction is by looking at the over 1400 churches built in the Paris Basin in a 150-year period. Large, adorned churches can be viewed as a marketing tool, projecting their market dominance over other possible competitors, and also representing its services to the consumer in order to maintain market share. In this case, the larger churches also functioned as a signaling device by presenting wealth and power to potential rivals of the Church and its general wealth.

How did they finance it?

In order to finance so many churches, the Church had multiple sources of revenue during this time, including “tithes, land rents, donations, bequests, fees charged for judicial services, proceeds from the sale of indulgences, and income derived from the monastic production and marketing of agricultural produce” (Ekelund et al., 1996: 33). These revenue streams created one of the richest and most powerful private organizations in the world. 

The resources needed were enormous

In the 150-year period between 1100-1250 C.E., 1,472 Gothic churches were built in the Paris Basin alone (James, 2003). According to Gimpel, “more stone was quarried in France [from 1050-1350] than in ancient Egypt during its whole history” (1961: 5). In order to understand the immensity of resources required for the Gothic churches, a basic understanding of church architecture and construction is imperative. 

The cost of one cathedral

The unit method developed by James uses the Building Inflation Index, which adjusts for building costs from year to year. He also adjusts for the changes in building techniques by inflating the cost of the units by 70 percent. The overall impact of this adjustment results in each unit being worth almost $73,000 a unit in 2011 dollars. The average unit per church is approximately 205. Thus, Chartres, at 7448 units, would be estimated to be $543 million to build (2011 dollars). The total estimated explicit cost of building these Gothic churches is just under $22 billion (US 2011 dollars). 

...

Two questions were raised: What would have happened if the Church had spent less on ecclesiastical buildings and more on schools, infrastructure, or other technologies? Could the low economic growth that plagued the High Middle Ages have ended sooner than it did?  

There is more. Interesting read throughout. 

Reading Lounge

1. Why Are People Still Dying in China’s Dragon Boat Races?

2. Showers – 19th century luxury and health

3. Krugman on trade war

4. The Psychology of Money

5. Meditation and yoga good for ego - another illusion shattered

Less post-purchase word of mouth engagement from poorer clientele

Understandable. Nobody wants to broadcast the pitiful state of finances he/she is in.

On the other hand, it potentially deprives others from learning about a good deal. Here is the study.

Too Constrained to Converse: The Effect of Financial Constraints on Word of Mouth

Abstract

Existing research demonstrates that financial constraints are widespread and influence consumer attention, preference, choice, and consumption in a variety of ways. Despite the growing knowledge of how financial constraints affect the consumer decision-making process, less is known about its impact on post-purchase behavior. This work examines whether financial constraints impact an important post-purchase behavior—word of mouth—and in what direction. Seven studies show that financial constraints reduce purchase-related word of mouth. This effect emerges across consumers’ reported frequencies of discussing their purchases, as well as their intentions, desires, and real decisions to engage in word of mouth. This effect is explained by reduced anticipated pleasure of engaging in purchase-related word of mouth, which results from financially constrained consumers’ belief that rehearsing their monetary expenditures will reinforce negative feelings about their limited financial situation. This effect cannot be similarly explained by other accounts such as impression management or the desire to hoard informational resources. Further, the authors show that the reduction in anticipated pleasure from word of mouth is specific to sharing about one’s monetary expenditures. Thus, financial constraints reduce purchase-related word of mouth, but they do not universally decrease one’s propensity to share.

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1. Bon Appétit

2. A different Socker World Cup

3. Every country invaded by France

4. Some suspense featuring a Thai gardener - The Blue Diamond Affair

5. Cyclist was doping with drug withdrawn from trials on rats

6. The Bullshit-Job Boom

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1. Trade, Institutions and Ethnic Tolerance: Evidence from South Asia

2. Based on the above study: How Trade Leads to Tolerance

3. A surplus of trade discussions - This is also a response to Steve Keen

4. Against metrics: how measuring performance by numbers backfires

5. 50% of people cheat at Monopoly, so Hasbro redesigned it for them

6. The very best at last.

"It said it had sponsored four Ukrainian “crypto enthusiasts” to climb Mount Everest and bury a hard drive holding cryptocurrency at the summit"

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1. How Hungary Ran George Soros Out of Town

2. Jane Austen and social judgement - older but good

3. We Need to Talk About Zeki Müren: Meet Turkey’s Liberace

4. Pollution in the Roman Empire

5. Uber and other gig platforms account for far less of the economy than many estimates suggest

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1. Growing Pains: A Father and Daughter on Islamic Parenting in Japan

2. "After all, Bond-worthy witticisms don’t sound as good when you’ve got to holler."

3. European movies don't fail to get picked up by Netflix because they aren't American, but because they are terrible. - and German are unwatchable

4. The Happiest Guy in the World?

Must read!

5. Trade and external finance mysteries – Part 1

Trade and finance mysteries – Part 2

Reading Lounge

1. The Guardian view on a job guarantee: a policy whose time has come - all the while ze Germans prefer so stay mired in their Hartz 4/UBI (gasp) discussion

2. Is the Great Recession Still Holding Down Wages? (Wonkish)

3. The Gambler Who Cracked the Horse-Racing Code

4. How Master Japanese Animator Satoshi Kon Pushed the Boundaries of Making Anime: A Video Essay

5. Two thirds of children don’t know what a floppy disk is

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1. What did Hannah Arendt really mean by the banality of evil?

2. The Man Who Brought Down Lance Armstrong

3. Bank of Japan’s QE strategy is failing

4. Sex wearable is coming to track your performance and judge you

It's basically a Fitbit for your man bits that tracks thrust speed and velocity. But don't be too hard on yourself.

No idea, if live tweeting is included.

5. THE MORE OF EVERYTHING PROBLEM

Is this the best way to stimulate startup activity in the EU?

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1. El­iz­a­beth Reed - one of the best live albums

2. Wes Anderson-Inspired Restaurant - super cool

3. ‘My Dearest Fidel’

"You may be the prime minister, but I’m a very important journalist. How dare you keep me waiting,”

4. The hidden world of the hikikomori

At the time when Elan photographed 34 year-old Ikuo Nakamura, he had been in his room for seven years.

5. The pink choice - homosexuals in Vietnam

6. Forget European reform – the Germans have anyway

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1. Dazzling Elements of Ancient Islamic Architecture We Still See Today

2. Deutschland gebrochen

3. PUBLIC SERVICE EMPLOYMENT: A PATH TO FULL EMPLOYMENT - must read

4. Crime in Japan

5. International marriages in Japan

6. The Feynman Lectures on Physics, The Most Popular Physics Book Ever Written, Is Now Completely Online

7. Hans Asperger, National Socialism, and “race hygiene” in Nazi-era Vienna - a little help for his Nazi friends

8. If you don’t like trade deficits – tax the rich? - Must read, except for Germans who don't get it.

Reading Lounge

1. Does High IQ Increase the Risk of Depression and Mental Disorders?

2. A Young Steve Jobs Teaches a Class at MIT (1992)

3. Rescue on the Killer Mountain

4. Pakistan, through the eyes of William Dalrymple

5. Tariffs, Vendor Financing And Beggar Thy Neighbor Trade Policy - must read

That US debt ceiling and gun ownership

Graphics via Ralphanomics

Bragging Rights: Does Male Boasting Imply Enhanced Valuation in Women?

Totally interesting and riveting study about, what else could matter, men of course.

Abstract

We examine 500 men over 1999-2014 that publicly characterize their annual performance with women with extreme positive language. We find that only 18% of such men increase in peceived personal value, while nearly 75% have insignificant increase of value, and the remaining 7% actually destroy any value estimation that women harbored. Our evidence suggests that men often base their positive claims on high raw sexual returns or strong relative semi-sexual performance. In comparison to men that generate positive abnormal returns without boasting, our sample men tend to have superior accounting performance. These results show that boasting about performance is rarely associated with value creation and is consistent with male narcissism.

Ok, I edited the title and the abstract of the study slightly to stay relevant in the current dominating discussion. This is the correct one:

Bragging Rights: Does Corporate Boasting Imply Value Creation?

Abstract

We examine all S&P 500 firms over 1999-2014 that publicly characterize their annual performance with extreme positive language. We find that only 18% of such firms increase shareholder value, while nearly 75% have insignificant performance, and the remaining 7% actually destroy shareholder value. Our evidence suggests that firms often base their positive claims on high raw returns or strong relative accounting performance. In comparison to firms that generate positive abnormal returns without boasting, our sample firms tend to have superior accounting performance. These results show that boasting about performance is rarely associated with value creation and is consistent with executive narcissism

6. Summary and Conclusions

In this study, we examine the incidence of corporate boasting to examine whether CEOs either understand or apply the principle of shareholder wealth maximization when they discuss corporate performance. We argue that corporate boasting conveys to shareholders and other stakeholders the company’s belief that its performance has been outstanding. From the shareholders’ perspective, outstanding performance should translate into an increase in shareholder wealth, which occurs with positive abnormal returns. Perhaps not surprisingly, we find that boasting is not generally associated with increases in shareholder wealth. While companies generate increases in shareholder wealth about 20% of the time, about 11% of the time they actually destroyed shareholder wealth. We find that when boasting occurs, it is often motivated by strong accounting and systematic stock price performance. While we cannot prove why boasting occurs, we argue that it is highly consistent with narcissistic CEOs.

The importance of these findings resides in their insights regarding how CEOs and other executives think about performance as well as the forces that shape their response to it. If executives are unable or unwilling to assess what constitutes gains in shareholder wealth then perhaps they are unable or unwilling to frame other strategic corporate decisions in terms of changes to shareholder wealth. For instance, capital expenditures are normatively made on the basis of present value. But when CEOs are unware of or unwilling to incorporate a shareholder wealth perspective in their capital budgeting process, corporate capital investment will be nonoptimal. Closely related is the company’s cost of capital and an understanding of the equilibrium trade-off between risk and required return in the capital markets, which represents the opportunity cost to shareholders. Merger and acquisition decisions require an understanding of synergy creation as well as estimating current and future risk in the context of maximizing shareholder wealth.

Our findings can suggest one or both of two disturbing implications. The first is that there is a surprisingly limited understanding by CEOs of the real effect on shareholder wealth generated from corporate decisions. Our evidence that CEOs are more focused on accounting performance, to the point where they might claim that the firm had experienced an excellent year even though the company had destroyed shareholder wealth is especially troubling. Another conclusion, however, could be that executives understand the concept but simply ignore it. Executive narcissism is consistent with both conclusions. Either way, the public statements companies make about their performance are largely inconsistent with the wealth changes experienced by shareholders.

Pdf here

Reading Lounge

1. A prickly pair - Nepalese nationalists force a Bollywood muscleman to retreat

2. In to Asia

3. Marcel Fratzscher on the dark side of the German economy — now with transcript!!

4. THE FRENCH KING WHO BELIEVED HE WAS MADE OF GLASS

5. Traffic - Life as an air-traffic controller at LaGuardia.

6. Cut Sleeve, Cut Scenes: Gay Films Have a Real Hard Time in China

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1. The forgotten history of free trade: the Medici dynasty and Livorno

2. Single Woman Surprises Her Ailing Grandfather by Fulfilling a Special Wedding Wish

3. Cambridge Analytica And The Left’s Strange New Respect For The Social Media Menace

4. Guy Takes Giant Telescope Around LA and Shows People the Moon Up Close

5. Finally some Dating advice

6. From the finest news source of Arabia - Regional Banksy Shocks Art Dubai With New Exhibition

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1. I Want My ChessTV

“You might see chairs thrown amid a torrent of f-bombs, freestyle rapping mid-game, and a never-ending barrage of trash talk. This is the new, online era of chess.”

2. On Writer’s Block: Advice from Twelve Writers

"I have three rules to live by. One, get your work done. If that doesn’t work, shut up and drink your gin. And when all else fails, run like hell!” — Ray Bradbury

3. Don’t believe the hype about AI in business

4. The iPhone alone accounts for $15.7 billion of the US trade deficit with China

5. Death in the snow - Story from 2003 but still thrilling.

6. The euro area’s deepening political divide

7. In a trade war Germany is the weakest link