The 2022-23 Economic Crisis Megathread

[Oexmelin]

Well now you are putting me in a tough spot.  The paper cites Piero Sraffa, Joan Robinson AND Abba Lerner so I would feel very bad criticizing it.   That sort of thing needs more encouragement.

Hence my recommendation. 

[Syt]

https://www.bbc.com/news/business-65908054

Beyoncé blamed for inflation surprise in Sweden

Thought the war in Ukraine or supply chain snarls were to blame for rising prices? You must not know 'bout Beyoncé.

The start of the singer's world tour in Sweden last month sparked such a frenzy of demand for hotels and restaurant meals that it has shown up in the country's economic statistics.

Sweden reported higher-than-expected inflation of 9.7% in May.

Rising prices for hotels and restaurants were behind the surprise.

Michael Grahn, economist at Danske Bank, said he thought Beyoncé helped drive the jump in hotel rates. She may also have been the force behind the unexpectedly strong uptick in recreation and culture prices, he said.

"I wouldn't ... blame Beyoncé for [the] high inflation print, but her performance and global demand to see her perform in Sweden apparently added a little to it," he wrote in an email to the BBC.

There is little doubt that the singer's first solo tour in seven years marks a big economic moment. At least one estimate suggests the run could gross almost £2bn by the time it ends in September.

Searches for accommodations in cities on the tour shot up after it was announced, Airbnb reported. Tickets for many concerts sold out within days and prices soared on the resale market.

In the UK, 60,000 people descended on Cardiff, including fans from Lebanon, the US and Australia. Demand for hotel rooms tied to her concert in London was so strong that in one case, some homeless families being housed in a hotel by the local council were reportedly booted to make way for her fans.

The Stockholm concerts, where Beyoncé played to a crowd of 46,000 for two nights, reportedly drew fans from around the world - especially the US, where a strong dollar against the krona helped to make tickets in the Nordic country seem a relative steal.

In an email to the Washington Post last month, Visit Stockholm described the boom in tourism to the city as the "Beyoncé effect" .

Inflation in Sweden peaked at 12.3% in December. The 9.7% rate last month was down from 10.5% in April, official figures show. Financial markets had expected around 9.4%.

For one star to have such an impact is "very rare", Mr Grahn told the BBC, adding that big soccer tournaments can have a similar effect.

He wrote on social media that he expected trends to return to normal in June.

[grumbler]

So, an economic forecast doesn't match reality, so the forecasters blame reality for being wrong?

[Zanza]

Germany: Once again the 'sick man' of Europe?
Henrik Böhme

The German economy has been treading water, with no improvement in sight. The multiple crises of recent years have revealed the weaknesses in the country's business model.

It was just before the turn of the millennium that the British business magazine The Economist passed a verdict on the German economy, referring to the country as the sick man of Europe. Such an assessment served as a wake-up call for German politics, which, still intoxicated by the economically strong years after reunification, had been dragging its feet on reforms. The government of Chancellor Gerhard Schröder then reformed the labor market, which finally paid off: In 2014, a group of economists from Berlin and London wrote that Germany had developed"From sick man of Europe to an economic superstar."

The German economy is again struggling. For two quarters in a row, its economic output has declined — something economists label a "technical recession." In the most recent quarter, Germany's gross domestic product (GDP) has stagnated at the level of the previous quarter, and all the important economic indicators show a decline.

"Germany's economic situation is darkening," was the conclusion of the president of the ifo Institute, the Leibniz Institute for Economic Research at the University of Munich, Clemens Fuest. The ifo Institute surveys 9,000 executives each month about the current state of their businesses and their expectations for the next six months. The resulting ifo Business Climate Index (July 2023) has fallen for the third month in a row. The ifo researchers expect Germany's GDP to decline again during the current quarter.

The situation is also clear to Commerzbank chief economist Jörg Krämer: "Unfortunately, there is no improvement in sight," Krämer told the Reuters news agency. "The worldwide interest rate increases are taking their toll, especially since German businesses are already unsettled due to the eroding quality of their location."

Industry is no longer the showpiece
Compared with other industrialized nations, Germany is performing exceptionally poorly — and according to an estimate by the International Monetary Fund (IMF) will be the only large country to have a shrinking economic output. The country's industrial sector, the showpiece of its economy, is causing the most concern. It accounts for a relatively large portion of Germany's gross value added (GVA), about 24%, and hasbeen suffering through a global economic slump. The engineering and automotive sectors, which are heavily reliant on exports, are particularly feeling the effects of foreign customers holding back.

Companies in the manufacturing industries are still saving themselves thanks to the large backlog of orders that accumulated during the COVID-19 pandemic because of signifcant supply chain problems. But these orders will soon be fulfilled — and new ones are coming in more sparsely: From March until May, the number of orders received was just over 6% down on the three months prior.

Germany's economic decline has many causes. One of them is the monetary policy of central banks. The Federal Reserve, European Central Bank and others want to curb inflation via significant interest rate increases. That makes credit more expensive for companies and consumers, which has a slowing effect on another important economic sector in Germany — construction — as well as dampening companies' willingness to invest.

This "stalling" of economic dynamism is the whole point of increasing interest rates. But other Eurozone countries, such as France or Spain, have coped with this much better. "All of our European neighbors have higher economic momentum," stated Moritz Schularick, the new President of the Kiel Institute for the World Economy (IfW).

So, structural problems are holding Germany back. The country's economic model used to be based on importing cheap — primarily Russian — energy and cheap raw materials and semi-finished goods, processing them and exporting them as high-value, expensive goods. But that is not working anymore. The multiple crises of recent years have ruthlessly laid bare Germany's weaknesses. Energy-intensive enterprises are suffering under the high energy costs, and those who have relocated their production are not coming back. But Germany's problems do not end there.

How to turn things around?
A current study by DZ Bank, the second-largest bank in Germany, has concluded that small and medium-sized enterprises, commonly described as the "backbone of the German economy," are in danger.

The authors note a veritable cocktail of locational disadvantages: Aside from the energy prices, they listed the latent skills shortage, but also excessive bureaucracy, high taxes, and ailing infrastructure, including struggles in implementing digitalization. In addition, Germany has an aging population. "Large parts of our economy are lacking confidence that investments in Germany as a business location, in light of the high costs and in some parts contradictory regulations, will pay off," Peter Adrian, president of the Association of German Chambers of Commerce and Industry recently told German news agency dpa.

Kiel Institute (ifW) President Moritz Schularick outlined a possible way out of this dilemma in a piece on the website of his Institute: "If Germany does not want to become the 'sick man of Europe' once again, it must now courageously turn its attention to the growth sectors of tomorrow instead of fearfully spending billions to preserve yesterday's energy-intensive industries."

Germany must, Schularick continued, quickly address the shortcomings and missed opportunities of the past decade: "The sometimes bizarre backwardness in all things digital, the sharp decline in state capacity and public infrastructure, as well as the lack of a meaningful strategy to improve the shortage of housing and increase immigration to deal with the effects of an aging workforce."

https://www.dw.com/en/germany-once-again-the-sick-man-of-europe/a-66403943

Lots of doom and gloom articles on Germany in the last weeks and months.

[Tamas]

Interesting, all the while it seems the US might actually be having their soft landing, with the much-predicted recession failing so far to materialise.

[Syt]

Finally someone with constructive suggestions.

https://www.washingtonpost.com/world/2023/09/13/tim-gurner-unemployment/

CEO calls for more unemployment to give companies upper hand over workers

An Australian millionaire property developer is drawing backlash for calling for more unemployment to give companies more leverage over employees, whom he said had become "arrogant" since the covid pandemic.

"We need to see pain in the economy," Tim Gurner, CEO of the Gurner Group, told the Australian Financial Review's property summit Tuesday. "We need to see unemployment rise — unemployment has to jump 40 to 50 percent, in my view."

"I think the problem that we've had is that people decided they didn't really want to work so much any more through covid, and that has had a massive issue on productivity," he said. Tradespeople, he said, "have been paid a lot to do not too much in the last few years, and we need to see that change."

"We need to remind people that they work for the employer, not the other way around," he continued. "There's been a systematic change where employees feel the employer is extremely lucky to have them, as opposed to the other way around. So it's a dynamic that has to change."

Those changes had already begun, Gurner said, with "massive layoffs" leading to what he described as "less arrogance in the employment market."

His remarks drew a scathing response, with one Australian official, Labor MP Jerome Laxale, describing them on X, the platform formally known as Twitter, as "comments you'd associate with a cartoon supervillain, not the ceo of a company in 2023."

Job losses "mean people on the streets and dependent upon food banks," Liberal Australian lawmaker Keith Wolahan told Australian media.

Rep. Alexandria Ocasio-Cortez (D-N.Y.) also tweeted, in response to a video of Gurner's comments that circulated online: "Reminder that major CEOs have skyrocketed their own pay so much that the ratio of CEO-to-worker pay is now at some of the highest levels *ever* recorded."

Around the world, including in the United States, the pandemic and its lockdowns reshaped the labor force, upending dynamics between employers and workers.

Most of the country's missing workers are back, propelling the economy

Companies sought to offer incentives during much of the pandemic to lure people back into the job market from early retirements, family obligations due to lack of child care and other personal decisions.

But most Americans who left the workforce in what was dubbed the "Great Resignation" have since returned, easing labor shortages and reflecting the strain of higher prices. According to a Washington Post analysis, the labor market as a whole regained 75 percent of the 4 million workers who had dropped out of the workforce due to a range of reasons including health concerns, covid illness and death.

Employers also reclaimed more leverage as the pace of job creation largely tempered.

Major companies, including Lyft, Deloitte, Meta and Whole Foods recently announced mass layoffs, with many of them linked to industries that boomed during the pandemic, including tech and financial services.

Despite the return of many workers, some employers are still struggling to hire as jobseekers switch industries. Workplaces that offer remote opportunities have more workers than before the pandemic, while other sectors, such as leisure and hospitality, continue to report shortfalls, The Post has reported.

And while companies experimented with digital perks for workers during the pandemic, tech companies that once supported those who wanted to work from home are now telling them to return to the office.

Government data put Australia's unemployment rate at 3.7 percent in July, and the Reserve Bank of Australia has said the rate of unemployment would have to rise to 4.5 percent to curb inflation.

Gurner's suggested increase in Australian unemployment could bring the number of people in the country out of work to over 800,000 people, the Australian Financial Review reported, and it could mean a return to unemployment rates of around 5.5 percent. The last time the country saw that figure or higher was during the throes of the pandemic.

Gurner is no stranger to controversy: He was once lampooned for suggesting that millennials' difficulties in getting onto the property ladder could be attributed to their love of avocado toast and coffees, telling "60 Minutes Australia" in 2017 that many young people were unlikely to ever own their own homes: "When you're spending $40 a day on smashed avocado and coffees and not working — of course not, absolutely!"

[Syt]

Here's the full quote in video form: https://www.independent.co.uk/news/world/americas/tim-gurner-property-developer-australia-b2411998.html

[garbon]

Wealthy people are great.

[Syt]

He's worth only half a billion from what I gather, he's hardly super rich!

This article is ont entirely sympathetic:

https://www.afr.com/rear-window/gurner-got-his-start-with-loans-from-his-boss-grandfather-20230913-p5e48z

[...]

This year, Timbo spruiked his $150 million luxury anti-ageing brand, Saint Haven. It turns out Timbo is not just obsessed with staying young – a red flag in itself – but he's building "cult-like" man caves, where he can rope in the rich to steam themselves and drink tequila.

Timbo, with all this chilling out in oxygen chambers and fiddling around with your oura ring, it's no wonder Australia's productivity is so low!

Fellow Rich Lister Harry Triguboff once called Timbo "the future", while Morry Schwarz has been fingered as a mentor.

A few years ago, Timbo revealed that he first bought a St Kilda apartment for "180k" and then had "my boss at the time approach me to renovate it while he fronted the money".

He fronted the money. The boss did. Golly it must be nice to have an employer who doesn't think you're a lazy arsehole, but rather reaches into their pocket to help out a young fella.

Timbo went on to say that he later "took out a $150,000 loan using the $34,000 from his grandfather".

Of course! Because it's a tale stitched into the fabric of the Australian dream. The lump sum inheritance, or the familial guarantor. The financial backstop that's always there in every story, though never in the headline. They are the foundational facts that are glazed over in the origin stories of Australia's over-levered property wunderkinds.

The reason Timbo's comments have resonated globally is not so much that he's a capitalist edgelord who is willing to publicly say the thing that other bosses are secretly thinking. Although there are surely readers of this newspaper who are quietly agreeing with him.

It's because Tim Gurner encapsulates all the fears that regular people have of the property industry. That when landlords and property developers go into functions and hotel ballrooms, they all privately gripe about the ungrateful serfs. But the mask didn't slip here. Timbo ripped it off.

The next time Timbo chunters on about any aspect of economic policy, or about the current predicament of employer-employee relationships, he should be forced to staple to his forehead how he really "made it". Lord knows there's enough room.

[grumbler]

Australia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.

[DGuller]

Australia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.

I've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.

[Jacob]

I've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.

Obviously what you want is for everyone ELSE to pay their workers well so they can consume your products, while you pay your workers as little as possible to increase your margins.

[Syt]

Australia having labor issues?  Perish the thought!

Gurner seems to be missing the point that workers are also consumers.  Lower wages could bolster his profit margin in the short term, but those lower wages also mean that less people can afford his product, which would be a real issue in the long term.

I think he's in high price properties, so I don't think the riff-raff are his prime clientele.

[HVC]

I've always been highly skeptical of that argument.  It can essentially be reduced to giving your customers money so that they could buy more of your products.  While your payments may not be a 100% write-off, without a lot of second-order effects, it's hard to see how they would be a profitable investment.

The opposite side of the coin is an argument against raising the minimum wage, because it would just lead to increased inflation.  Maybe, maybe not, but in any case the increase in costs in inflation wouldn't be 1-1 with the increase in salary for the people impacted by the minimum wage.

Obviously what you want is for everyone ELSE to pay their workers well so they can consume your products, while you pay your workers as little as possible to increase your margins.

The Patton method to economics.

[Sheilbh]

Also less than 1% of their rental units are available which is obviously causing huge pressure on cost of living - or ability of those workers to have much for consumption.

As I say, there's other places where it's a problem, but housing seems a particular issue in the Anglo world.