TheInternationalForecaster.com has a different take on this unusual quietude, and refers to “the deafening silence in the media and newsletters concerning the Quadrillion Dollar Derivative Death Star”, which references the disgusting, convoluted spider’s web of weird derivatives, and derivatives on derivatives, all based on lies and leveraged fraud, as far as I can tell.

If you want a way to understand leverage, remember there is only $927.6 billion in actual US coins and paper money in existence. Thanks to the insanity of derivatives like massive fractional-reserve banking (where the fraction of deposits that are held in reserve against about $12 trillion in US bank loans and leases, and another $12 trillion in deposits, steadily ran less than the mere pittance of $40 billion for over a decade, thanks to that bastard Alan Greenspan at the Federal Reserve at the time. And bank reserves are still only $65 billion under Bernanke!), this little bit of cash money was morphed into $17 trillion or so in the stock market, plus another $14 trillion or so in the bond market, plus a housing stock valued at $17 trillion or so, plus a couple of hundred trillion dollars in bizarre derivatives here and there.

In short, this piddly $927.6 billion in actual cash has been multiplied thousands of times over, so that people could go into debt to pay for all these things and so, so many more. And all of this in a $14 trillion GDP!

So you can see that derivatives dwarf everything else. The true size of the total of derivatives outstanding is understandably hard to compute, and that is why it was interesting that the Bank for International Settlements (BIS) calculates that there are about $620 trillion of derivatives floating around the world, and some estimates from others have gone as high as the incomprehensible $200 quadrillion, all of which seems Too, Too Bizarre (TTB) for words since global GDP – the sum total of all the goods and services produced by the Whole Freaking World (WFW) in an entire year – is only around $60 trillion!

But the BIS’s estimate of $620 billion in derivatives means that there are over $10 in derivatives for every $1 of global economic activity, which is like one guy at the roulette table betting $1 while 5 guys around him are each betting each other $2 on whether the guy wins or loses!

I say this without fully understanding anything, which is OK with me since I am kind of stupid and would probably get it all wrong, anyway, but I feel very confident in my universal condemnation and disgust with the whole mess, mostly since I never heard of anybody saying, “I got rich from derivatives!” and, in fact, the opposite is manifestly true.

But this financial insanity is just a small, small part of the Sheer Economic Insanity (SEI) of the Federal Reserve creating So Freaking Much Money (SFMM), and as to the implications, I join with The International Forecaster in saying that “if people truly understood the implications, they would be buying gold and silver by the truckload, along with their related shares, which together comprise your only salvation at this point.”

I know what you are thinking. You are thinking to yourself, “Well, maybe they are both just saying that because The International Forecaster is as stupid and crazy as that Mogambo lowlife idiot!”

Well, I doubt that, especially since I never heard my wife yell at them for being idiots, or heard her say how the only real idiot around here is her for putting up with them all these years, or go into one of those episodes where she ends up crying out, “Oh, death, where is thy sting?” about something they did, or didn’t do, but should have or shouldn’t have, depending.

Well, questions of my mental capacity aside, to buttress our joint opinion about gold, they note that inflation in prices is showing up in imports, as “The import price index reached 0.9% in April compared to 0.5% in March”, which is bad enough inflation in prices to give you the shakes, but, worse, “Over the year, the import price index registered 11.1% in April.” Yow!

And if the horror of 11.1% inflation in prices, or the looming horror of disastrous hyperinflation in prices thanks to the central banks of the world creating So Freaking Much Money (SFMM) is not enough to scare you into getting into your car to drive like a maniac in a screaming frenzy to buy more gold, zooming down the street and even onto the sidewalk when you have to (Honk! Honk! “Outta my way, morons!”), then remember that the Treasury says they only have 260 million ounces of gold (and this is assuming that all the gold is still there, which I don’t believe for a second), which, at the ludicrously low price of $1,230 an ounce, is worth only $319 billion!

Thus, all the gold in Fort Knox is worth, at these low prices, less than a fifth of one year’s deficit-spending in the Obama budget! Wow!

You can “do the math” because I probably can’t, or, if I could, I wouldn’t because it is pointless, since even an idiot like me can see that the price of gold is Too, Too Low (TTL)! And by a Long, Long Shot (LLS), too!

And speaking as an idiot, I am happy that even an idiot can see it, which is probably what makes me tingle all over and say, “Whee! This investing stuff is easy!”

Comprehending the Enormity of Derivatives originally appeared in the Daily Reckoning.

Related posts:

1. Hedging using derivatives
2. Corporations and OTC derivatives
3. Gold, Silver and Oil: Buying the Essentials in Tough Markets

Theory teaches us that liquidity varies with volatility and asymmetric information. Using daily returns for all points seen in 2010, the three vols (all annualised) for these three underlyings work out to:

• INR/USD: 6.6%
• Nifty: 15.2%
• Reliance: 24.5%

So we expect Reliance will be the least liquid, given the asymmetric information which afflicts individual firms and given the high volatility of Reliance. Both Nifty and INR/USD will have better liquidity since they are macroeconomic underlyings (with low asymmetric information). Of these, INR/USD will fare the best because it has a low volatility.

The data that I got was for the top 20 prices in the order book. This shows the following picture of how impact cost when buying (in basis points) varies with transaction size (measured in million rupees):

The blue line is the impact cost of Reliance. The quantity available in the top 20 prices is low, and the impact cost therein goes up rapidly from a spread of around 1 basis point to around 9 basis points at the end. This is the combination of high asymmetric information and high volatility.

The black line is the impact cost for the April Nifty futures. Within the top 20 prices, roughly Rs.100 million or $2 million was available at this time. A single market order for $1 million would get done at roughly 2 basis points and a single market order for $2 million would get done in a bit less than 3 basis points.

The INR/USD futures yields a lot of quantity within the top 20 prices: all the way out to Rs.250 million or roughly $5 million or 5000 contracts. The impact cost for $1 million is below 1 basis point and that at $2 million is below 2 basis points – so this is more liquid than the currency forward. I found it interesting that at $2 million (i.e. Rs.100 million) the impact cost for Nifty and for the INR/USD were not that different.

To look at these orderbooks in realtime, use the links in the previous blog post.

Related posts:

1. Liquidity on the Currency Futures vs. the Nifty Futures
2. Currency Futures Liquidity Ahead of the Forward Market?
3. When a Currency Futures Market Dominates a Currency Forward Market

As general economic conditions have the appearance of recovery, elections are coming up after all, the demand for both silver and platinum will likely increase. Governmental purchases for the green economy will put further strain on the physical market.

Gold, silver and platinum, unlike little colored coupons, cannot be produced by a bald monkey pushing buttons on a computer that add digits to a database on some server. Additionally, almost all the monetary and mind calming reasons an investor would desire to hold gold also apply to silver and platinum.

EFFICIENT MARKET HYPOTHESIS BUNK

Many academicians propound the efficient market hypothesis which asserts that financial markets are “informationally efficient”. That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information publicly available at the time the investment is made.

There is a funny joke that those who cannot do teach. I am of the opinion that money is made when you buy not when you sell. The goal is to buy when cheap and sell when expensive. The omnipresent inefficiencies in the market allow this to happen. Based on the premise of information asymmetry the market is always ‘irrational’ under the efficient market hypothesis because of the economic calculation problem. After all, how many people continue to dispute the gold price suppression scheme?

As Mr. Robert Landis, a Wall Street veteran and Harvard trained lawyer has asserted, “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.”

The information may be available but because of emotional, psychological, etc. reasons individuals may engage in human action completely contrary to the ‘rational’ choice. I suppose some people could stare at the noonday sun and proclaim ‘What sun?’ Large organizations are merely coagulations of individuals and when the choices are made without deliberation, skilled, calculated thought and in an irrational way then the system becomes more unstable and the more inefficiencies result. One symptom of these inefficiencies is increased volatility.

The increased volatility in the markets, stimulated this time around by the Eurozone credit crisis, can be particularly annoying and costly, in unrealized terms over short periods of time, for average investors. For example, the 700 point drop in the DOW in under ten minutes is an example of the return of volatility that is primarily caused by High Frequency Trading and fake volume.

INVESTMENT TIMEFRAME

Perhaps I have a different perspective. If I do not feel comfortable owning something for ten years then I do not own it for ten minutes within which it can lose ten percent of its value.

To be honest, I derive greater utility from other activities than doting over a ten second chart. This is a reason I focus on passive income cash flowing assets; then I can clear my mind, swim with great white sharks, present at Cambridge House Investment Conferences on June 6-7 (hope to see you there!), swim with sperm whales, or a myriad of other hobbies.

So as you make decisions in life I think it wise that you able to explain why you are taking the job, making the investment, or whatever it may be. And if it can not stand applying pencil to paper then perhaps you should further deliberate and calculate on the decision. And if you can not write an intelligent answer to those questions then perhaps you should not make the decision. But no choice is a choice so what should you do in the meantime?

Because of the risks inherent in the banking system and because the little colored coupons are trending towards their intrinsic value, nothing, therefore I think it is prudent to eliminate both counter-party and payment risk where possible between myself and my capital. When you own a ton of gold, silver and platinum that is unencumbered in anyway then you can sit, deliberate and calculate decisions for a long time. In other words, I can remain liquid longer than the market can remain irrational.

Think about if you placed your capital in Euros deliberating what to buy? The Euro has gone from $1.512 or €798.87 per gold ounce on 3 Dec 2009 to €999.55 on 17 May 2010 or $1.227 on 19 May 2010. Four months and 25% of its purchasing power, POOF!

Unlike little colored coupons like Euros, Federal Reserve Note Dollars, etc. you can be assured that any of these metals will still buy at least something tomorrow morning. You need not fear some rapid valuation change like Harvard Professor Kessler recounted about Germany’s Mark. “It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty. You could buy nothing with your paper money.”

So, if you are in doubt about what to buy then why not make the stress free decision and buy gold, silver or platinum? You can always buy something else later and will probably have a clearer mind for the deliberation anyway. Will you always be able to buy more later? No, not necessarily. But you will always be able to buy something.

PLATINUM VALUATION AND VOLATILITY

Buying gold perfectly serves the purposes of eliminating counter-party and payment risks. As do silver and platinum. So among these three competing currencies which is the cheapest?

Over the past few years silver has hovered around a ratio of 55:1 with gold while it usually takes about two ounces of gold to buy an ounce of platinum. In the extremes the silver to gold ratio can reach 16:1 and gold to platinum has reached as high as 2.4:1. Currently, silver to gold is about 65.6:1 and platinum to gold is about 1.34:1. In both cases, it appears they are undervalued relative to gold.

The volatility in the platinum market has been especially fierce lately. Some days the metal is up $75 per ounce while other days it is down $75 per ounce. As the fiat currency system continues its evaporation this type of volatility will wend its way into the much larger gold market. Beware of jumping on the trampoline.

So I think that platinum is particularly undervalued relative to gold. The increased volatility gives me opportunities to buy which I have been doing on a regular basis since I recommended it at $1,118.

CONCLUSION

But to be honest, I hate buying gold, silver and platinum. They sit in my vault, safe, buried under my favorite tree, etc. and do not increase in ounces. So why have I been buying platinum? Because I cannot find anything else worth buying.

While I am swimming with sperm whales, speaking at Cambridge House World Investment Conference or deliberating over the next investment I want to make the last thing I want to have cluttering my thoughts like a memory leak clutters my computer’s RAM is the issue of whether my little intrinsically worthless colored coupons in a zombie bank still have purchasing power. Have you seen the FDIC failed bank list lately?

Just to put things in perspective. IndyMac had assets of about $32 billion and deposits of $19 billion and this mammoth failure cost the FDIC an estimated $8 billion. The seven banks that failed the week of 30 April 2010 had combined assets of about $25.8 billion and deposits of $19.6 billion. These failures cost the FDIC an estimated $7.33 billion. There are about $4.8T of deposits insured by the FDIC which has a negative $20.9B insurance fund balance. Annual worldwide platinum production is valued at about $7.8B. Got bullion?

DISCLOSURE: Long physical gold, silver and platinum with no interest the DOW, problematic SLV or GLD ETFs or the platinum ETFs or in the Angloplat, Impala Platinum (IMPJ.J), Lonmin and Norilsk Nickel (GMKN.MM) or Stillwater Mining Company (SWC).

Related posts:

1. Is Platinum Overvalued
2. Fake Volume And Increased Volatility
3. Platinum Liquidity Increases

At 10:00 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.

Also at 10:00 AM EDT, the Leading Indicators report for April will be released.  The consensus is that this index increased by 0.1% last month, which would continue the positive tend in 2010, but is a smaller increase than the one reported last month.

Also at 10:00 AM EDT, the Philadelphia Fed Survey report will be released.  The consensus is that there will be a gain of 1.3 points from last month, with the index continuing to move further into positive territory, signaling a higher rate of economic growth.

At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.

Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.

Related posts:

1. Economic Events on May 13, 2010
2. Economic Events on May 6, 2010
3. Economic Events on April 22, 2010

Yours truly is actually a macroeconomist, indeed with a knack for financial markets, but still; a macroeconomist nonetheless. However, you would not have gotten that impression from the writings here end last week where I worried a lot about the worry of financial markets. I still do, worry that is, mostly because we are in a very delicate situation where a severe shock in financial markets can easily and quickly be transmitted into the real economy. Moreover and as Edward eloquently conveys in his recent post the structural challenges we face are complex and difficult.

Yet, in terms of the immediate evolution in the real economy, and in case you had not noticed, the recovery is coming along just fine.

(click on pictures for better viewing)

If ever there was a clearer sign of a v-shaped recovery I’d like to see it. On an annual basis the EMU industrial production index rose 11.6% in Q1 2010 and on the quarter the increase was 4%. Despite the emerging crisis in the Eurozone and with reservations for the final number of Q2-10, this suggests that the turnaround is intact so far. Naturally, the level of industrial production is still very low compared to before the crisis and, as I have argued, this is an important gauge in terms of the overall strength of the momentum. But, the recovery remains real at this point

Of course, it is not difficult to pick the positive discourse apart and this applies especially to the Eurozone there is a bound to be notable divergence between the growth rate of economies. In particular, it does not take much Roubinesque imagination to see what awaits the famed Eurozone periphery (Spain, Portugal and Greece) who are now about to embark on a very brutal spell of internal devaluation; kind of like in the Baltics who are undergoing the same [1].

This comparison may of course be inappropriate for a number of reasons, but it provides a good yardstick with which to look ahead into especially 2011 where the first part of austerity measures will really start to bite. Whether the Eurozone “core” remains enough momentum to pull the Eurozone forward is really not the important issue here. The real problem here is that from here on imbalances (not just external) will compound. In the lingo of development economics the convergence which was thought inevitable and on track is now about to unravel. In this respect, the comparison with key parts of Eastern Europe is well chosen I think.

And not just Europe…

Yet, if the outlook for Europe is still very uncertain the global outlook is positive for the remainder of 2010 even if the momentum appears to be flattening out;

On an annual basis leading indicators for the major emerging economies as well as the OECD are coming in very strongly for Q1-10 and also over the quarter (i.e. from Q4-10) do we observe growth with the notable exception of China where activity seems to levelling off a tad going into 2010 on the back of continuing measures by the government to restrain the economy.

It is difficult to deny that the leading indicators tracked by the OECD seems to be flattening moving into Q2-10 and it will naturally be interesting to see whether momentum will be sustained. As ever, divergence both in levels and actual growth rates will be paramount to factor in, but I am very confident that we are not going to see a double dip recession in for example the US let alone the emerging market edifice in 2010. In Europe, the tug-of-war will between growth in France and Germany (with the latter exporting to EMs as the only real source of growth) and a continuing slump in Southern Europe. However, since 2010 budgets are already passed to indicate very stimulative policies throughout Europe the growth momentum will be strong in 2010 although the medium to long term look decidedly awful.

Event Risk still High

As a natural finishing point it should not escape market participants and analysts alike that event risk is currently at a very high level. In many ways, we already have an event in so far as goes the crisis in Europe but I can think of plenty of more sources of potential market destabilisers. The point here is then that at the current juncture the transmission between market distress and the real economy is likely to be strong and relatively quick. In this sense, the recent news that the interbank market is freezing over once again is indicative that not all is well and I am watching this very closely.

As such I maintain my somewhat bearish inclination and deep skepticism for where aggregate demand is actually going to come from in the medium to long term; this especially the case in Europe whereas I am much more constructive on emerging economies who are, for all intent and purposes, doing well (indeed almost too well in some cases).

A number of well known proverbs spring to mind here; is the glass half full or half empty? Is this the end of the beginning or the beginning of the end? Whatever methaphor you prefer forward looking indicators point to strong growth in the first half of 2010 (at least). The key message on the real economy will thus be one of divergence and especially how some economies are doomed to deflation and negative growth in nominal GDP (in the context of internal devaluation) while others will fly on the back of excess global liquidity. For me, this is the main meta-discourse currently describing the global economy.

—

[1] – Q1-10 GDP is only available for Lithuania so for the two others the calculations ends with Q4-09.

Related posts:

1. FX Markets 2010 – The Old Maid, Global Imbalances and Carry Trade
2. Global Growth Forecasts – Seeing is Believing?
3. Central Banks: The Neurosurgeons of the Global Economy

h/t to Sharelynx

Related posts:

1. Bubble Top Indicators
2. Restart the bubble
3. GOLD STANDARD … DEBUNKED OR ANOTHER BUBBLE?

At 8:30 AM EDT, the Consumer Price Index report for April will be released.  The consensus is that CPI will be flat for last month, with a 0.1% increase in CPI when food and energy are removed.

At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update after a negative week for oil prices.

At 2:00 PM EDT, the Federal Open Market Committee will release its minutes for the meeting held on April 28, 2010.  This report contains quarterly economic forecasts from the Federal Reserve and policy changes that were discussed.

Join the forum discussion on this post - (1) Posts

Related posts:

1. Economic Events on May 5, 2010
2. Economic Events on May 12, 2010
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Consequently, the official figure for a Greek bailout has now risen to EUR120-130bn and with S&P downgrading Spain earlier this month it suggests that the ultimate cost of this mess may exceed the already dizzying number note above many times over. As the Economist neatly puts it this week;

THERE comes a moment in many debt crises when events spiral out of control. As panic sets in, bond yields lurch sickeningly upwards and fear spreads to shares and currencies. In September 2008 the failure of once-stellar Lehman Brothers almost brought down the world’s banking system. A decade earlier, Russia’s chaotic default on its sovereign debt rocked the credit markets, felling Long Term Capital Management, a hugely profitable American hedge fund. When the unthinkable suddenly becomes the inevitable, without pausing in the realm of the improbable, then you have contagion.

As the Economist goes on to argue events are indeed spiraling out of control, a statement with which I concur in full. One question then which, at the moment, may not seem particularly important is how we managed to get ourselves into this mess.

In my most recent working paper entitled Quantifying and Correcting Eurozone Imbalances – Fighting the Debt Snowball I try to provide an intial answer to this question. Well actually, I don’t set out to address this question specifically. But, I do think that if you want to understand why the Eurozone has ended up where it is today and why it is essentially threatened as an economic entity you need to take a long hard look at the issue of intra-Eurozone imbalances and why correcting them from within the Eurozone is almost impossible without some form of disruptive sovereign default in key member economies.

As an introduction, here is the abstract:

This paper quantifies and discusses the concept of Eurozone current account imbalances. Using panel data estimations, the analysis shows how the external positions of the Eurozone economies can be modelled as a function of divergences in unit labour costs. Specifically, the results indicate that the formation of EMU has exacerbated the extent to which even relatively small divergences in unit labour costs may materialize in large current account imbalances. These results are framed in the context of the idea of a debt snowball effect and why the idea of an internal devaluation as a tool to correct external imbalances is inconsistent with the current setup of the Eurozone.

So, do I bring anything new to the table in terms of the overall discourse on the Eurozone’s economic problems? Not really. The story I tell is pretty well known but I still see the main contribution of the paper as the attempt to give a concrete quantitative perspective on the effect of divergent inflation rates (in my case unit labour costs) in an economic setting where countries are grouped together with seperate control over fiscal policy and no sovereign monetary policy and exchange rate.

Crucially, I argue that the forces which have lead to the build-up of imbalances are joined at the hip with the same forces which make it almost impossible to correct from within the Eurozone. Specifically the idea of a debt snowball effect is a good way to show why it will be almost impossible for some economies to correct their external imbalances without an explosive evolution in government debt and since they need to correct external competitiveness issues in order to achieve economic growth, the whole thing turns into a vice and essentially a catch 22.

Please note that this is a first draft only and still subject to several re-reads and editing (especially the tables) before I send it off for hopeful approval somewhere. However, for now your comments are welcome both on the paper itself as well as the topic.

Related posts:

1. Eurozone Imbalances at a Glance
2. Quantifying Eurozone Imbalances and the Internal Devaluation of Greece and Spain
3. Danske on Eurozone Debt – The Peril of Internal Devaluations

Since Marx wrote that, real wages have increased by massive amounts in industrialized countries. Authors of some books I have read recently suggest, however, that Marx’s predictions could end up being right in the end. Gregg Easterbrook warns that we should not take too much comfort from the fact that Marx’s predictions of gloom have not yet come true (‘Sonic Boom’, p 153; discussed here) and Jacques Attali suggests that tomorrows West will resemble today’s Africa (‘A brief history of the future’, discussed here).

In attempting to think our way around this question an obvious place to start is with the effects of technological progress on the demand for labour. This approach makes sense if labour can be assumed to be more or less homogeneous, that aggregate capital stock can be measured appropriately, that most income from capital tends to accrue to people with high incomes and that technological change is the only factor influencing income distribution. I’m actually not sure that any of those assumptions stand up to scrutiny, but let us keep the discussion as simple as possible to begin with.

As Marx observed, new technology often involves capital-intensive processes displacing labour-intensive processes, e.g. the use of power looms to replace hand looms in the textile industry at the beginning of the industrial revolution and, more recently, increased use of robot technology in car manufacture replacing labour-intensive assembly lines. This kind of technological change tends to increase the ratio of capital to labour. However, introduction of new technology often occurs through the introduction of superior capital equipment that replaces existing capital (or more efficient sources of energy, financing innovations, business practices etc) without necessarily increasing the ratio of capital to labour. Most importantly, new technology makes possible an increase in national product, or real national income, and with increased demand for factors of production, including labour.

The net effect of those factors on future demand for labour will depend partly on whether, on balance, the new technology is a closer substitute for labour than for existing capital equipment (and other factors of production). Further development of electronics and robotics, in particular, can be expected to displace a lot more manual and mental labour, but my guess is that before too long new technology will largely involve superior robots replacing inferior robots, leaving demand for human labour relatively unaffected. There are some parts of the economy where new technology is unlikely to have much effect at all on the ratio of capital to labour, e.g. symphony orchestras. (That example has, unfortunately, been cited before by someone else, but I can’t remember who.)

Another important influence on the future demand for labour will be whether average incomes are likely to result in a changing pattern of consumer spending toward more on labour-intensive or more capital-intensive goods and services. My guess is that ‘real’ experience (of foreign travel etc.) will trump ‘virtual’ experience and that people will prefer to interact with other humans rather than robots to obtain services such as restaurant meals.

So, I think there are limits to the extent that technological progress will result in substitution of capital for labour. When we take into account the fact that labour is not homogeneous, that investment in human capital and investment in physical capital can be substitutes or complements, and that people embody new technology in the skills they acquire it is not even obvious that it is particularly helpful to think in terms of aggregate categories such as labour and capital. It is probably more meaningful to consider demand for particular categories of labour e.g. unskilled labour. Perhaps it is reasonable to predict that demand for unskilled labour will continue to shrink, but even that is problematic if we define ‘unskilled’ in terms of lack of formal qualifications and overlook the possibility that inter-personal skills – often acquired without formal training – will become increasingly important.

The idea that there is a class of people who obtain their income from selling their labour (workers) and another class of people who obtain their income from ownership of capital (the idle rich) seems likely to become increasingly irrelevant. As working people invest for their retirement they will be increasingly buying shares in the robots that will earn the income they previously earned for themselves.

Technological progress is not the only factor influencing income distribution. Factors affecting the supply of labour, e.g. immigration, could have effects on wage rates in some countries that are as important as the effect of technological progress. Then there are the effects of globalization both in providing international competition for labour-intensive industries and, increasingly, new sources of innovation and competition for technology-intensive sectors of industrialized countries.

Finally, the taxing and spending policies of governments modify the effects of technological progress on income redistribution. If Marx turns out to have been right about technological progress, it seems likely that governments in democratic countries will come under increasing pressure to intervene further in income distribution to ensure that all groups have an opportunity to benefit from the fruits of technological progress.

However, my personal view is that history will probably continue to judge Marx to have been largely wrong about the effects of technological progress on income distribution.

Related posts:

1. How Silly Were J.S. Mill’s Views About Income Distribution?
2. Does Nicole Kidman Worsen Income Inequality in the United States?
3. The Technological “Dark Age”

At 8:30 AM EDT, the Housing Starts report for April will be released.  The consensus is that construction on 650,000 new homes was started last month due to a major increase in the number of housing permit applications submitted in March.

Also at 8:30 AM EDT, the Producer Price Index for April will be released.  The consensus is that the index increased 0.1% over last month, and 0.1% when food and energy are excluded, after cold weather caused a higher than expected index value in March.

At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.

Join the forum discussion on this post - (1) Posts

Related posts:

1. Economic Events on May 4, 2010
2. Economic Events on April 27, 2010
3. Economic Events on May 11, 2010