Hollywood’s monetary policy AIER

Reprinted from EconLib

Many great movies are “based on a true story” – which means some parts are true, but the details and even the whole plotlines are sometimes called “poetic licenses”.

Although it’s not (yet) on the big screen, it’s Christopher Leonard The Lords of Easy Money: How the Federal Reserve Broke the American Economy Hollywood version of monetary policy. Leonard describes the activities of the Federal Reserve with a compelling narrative that reveals many difficulties in setting monetary policy, as well as dangerous consequences if those policies are wrong. To do this, however, the author has turned complex economic issues into a general story that gives many false ideas about finances and the financial system.

The protagonist in this story is Thomas Hoenig. While at the Federal Reserve Bank of Kansas City in the 1970s and 1980s, Hoenig observed that banks had expanded their risky lending based on inflationary and overly optimistic estimates. By 1991, he was president of the Regional Reserve Bank and served on the Federal Open Market Committee (FOMC), which sets the Fed’s monetary policy. Hoeing was later nominated vice chairman of the Federal Deposit Insurance Corporation (FDIC) where he championed stricter regulations for U.S. banks.

Incumbent Federal Reserve Chair Jerome Powell, who began his career as a corporate attorney and investment banker before moving into private equity with the prestigious Carlyle Group, has been cast as the villain. The Leonard Corporation focused on Powell’s work with Rexnard, who, according to Leonard, was repeatedly pressured to increase leverage and reduce costs until it was forced to lay off parts of the U.S. workforce and relocate operations to a plant in Mexico. Leonard is credited with being the primary critic of the first Quantitative Simplification (QE) program for Powell’s transition from a Fed governor to the head of the Fed chair since 2018.

The main focus Easy Money Lords The role of the Fed in credit management বা or misdirection. As an independent central bank, the Fed’s objective is, or should be, to support trade and financial system needs rather than influencing where funds are sent and invested. Leonard explains in detail how excessive expansionary policies বিশেষ especially huge financial injections under QE-can lead to additional financial markets, drive asset inflation, reach yields, and take additional risks.

The main part of the book is dedicated to the Fed driving the recurring cycle of financial risk through simple credit terms and creating risk across the entire financial system until the economy collapses into recession. Leonard blames Fed policy for a variety of economic and social ills, including increasingly fragile financial systems, increased income inequality, and even off-shoring of production যা an ongoing trend since the 1970s.

What is real vs. fiction in this story? While we must take Fed-induced risk and be wary of misallocation of credit, I suspect it was a major problem during the QE period. Yes, the Fed created an unprecedented trillion in new base money from 2008 to 2014. But the book rarely touches on the Fed’s most significant change in monetary policy: its transition from a monetary policy corridor system to a floor system when it begins to pay. Interest on additional reserves (IOER) that banks hold in the Fed.

Since the Fed was paying interest to banks to keep reserves, the lion’s share of the money generated by QE was sitting on the bank balance sheet instead of lending to the economy. Although this topic is divided among economists, in my recent research paper Journal of Macroeconomics Banks have reduced their lending as a result of the Fed’s IOER payments, possibly mitigating the effects of QE. Instead of taking risks in the financial system, banks are retaining newly-created, ultra-secure base money because the Fed is paying them to do so.

Could the new money added by QE lead to asset inflation in the larger financial system? Perhaps, but this seems unlikely. Consumer inflation has repeatedly lowered the Fed’s two percent target for nearly a decade. The Fed could have done more QE, but perhaps it could have achieved its goal by doing so Less QE If it lowers the IOER rate, which for most of the time was set higher than the short-term market interest rate. Leonard did not say how asset inflation could be detected, but the combination of below-target consumer inflation, declining debt, and higher than market rates in the IOER suggests that money যদি if anything মধ্যে was too tight during this period. , So it was probably not driving a major price bubble of financial assets.

This criticism is especially true in the case of the Great Depression of 2007-2009. As Scott puts it bluntly, the main contraction in 2008 was the result of monetary policy, not too tight, loose. Hoenig and several other FOMC members were vocal in their opposition to financial expansion. They even offered Raise Interest rates during this period. This opposition hinders the Fed’s financial expansion, which almost certainly exacerbates the recession. So while too much loose monetary policy may actually be a problem, it doesn’t seem to have been a problem in 2008 or the decade that followed. Of course, an extended Fed balance sheet can also lead to misallocation of credit, as George Selgin dubbed “Fiscal Kiwi,” not in the way described in the book.

The risk of misuse of assets and higher financial risk seems more reasonable in the recent QE period starting in 2020. High inflation has made appropriate risk analysis more difficult. The Fed has kept interest rates close to zero, despite the highest inflation in 40 years and the lowest unemployment rate since World War II. Fed officials have failed to work to reduce its monetary stimulus and have ignored warning signs of high inflation. Only time will tell whether the Fed policy has actually increased Leonard’s discussed negative effects such as excessive leverage and financial fragility.

In addition to monetary policy, the book discusses how Fed officials came under widespread political pressure during the coronavirus epidemic. The Fed has coordinated with the Treasury in its monetary policy and lending program, which, in conjunction with Coronavirus Aid, Recovery and Economic Security (CARES) legislation, allows it to go beyond its normal emergency lending role.

The Fed provided funding to nonbank companies and state and local governments, which former Fed chairmen Ben Bernanke and Janet Yellen said the Fed should never do. In contrast, Chair Powell promised that the Fed would do “whatever it takes” to support the economy. Fed officials have succumbed to political pressure to pursue climate and social goals that are clearly outside its legal mandate.

Another thing that gets the book right is Hoenig’s critique of the complexity of Unite Bank’s capital regulation. Like a complex tax code, complex regulations allow banks to understand or avoid regulations. Since regulators cannot accurately identify the risk of each asset, complexity can encourage banks to take more risk than usual. These rules encouraged banks to increase their holdings of their high-rated MBS and credit default obligations (CDOs) leading to the 2008 financial crisis.

Researchers from the Bank of England, the World Bank and the International Monetary Fund (IMF), and even the Federal Reserve Bank of New York, have found that complex rules do not better predict bank risk than general systems such as equity capital. Ratio. Complex regulations have large costs and small (possibly negative) advantages.

There are important lessons to be learned, and even readers who are already skeptical about the Fed will appreciate the thoroughness of Leonard’s explanations. Unfortunately, much of the “information” and economic explanation in the book is either inadequately explained or simply a common misconception. There are many minor errors and misrepresentations. Criticism of Leonard is often politically one-sided. He regularly calls for government intervention, but he usually fails to recognize the government as the source of such problems or private entrepreneurs can offer superior solutions.

It is possible that Leonard is right about the amount of inflation in assets. Alas, the abundant factual errors in the book make it difficult to evaluate his claims. He provides little evidence that monetary policy Created High income inequality, low economic productivity, or changes in production technology — all of which seem to be largely due to non-financial factors.

Easy Money Lords The dangers of flawed monetary policy play an attractive role, but readers should be skeptical of the Hollywood version. Should we criticize Fed policy? Yes. Should we worry about misuse of resources and excessive financial risk? Absolutely. Should we blame every economic problem (real and imaginary) on the Fed? As Tom Hoenig would say, “Respectfully, no.”

Thomas L. Hogan

Thomas L. Hogan

Thomas L. Hogan, Ph.D., Senior Research Faculty of AIER. He was previously chief economist for the U.S. Senate Committee on Banking, Housing and Urban Affairs. He has also worked for Rice University’s Baker Institute for Public Policy, Troy University, West Texas A&M University, Cato Institute, World Bank, Merrill Lynch Commodity Trading Group, and investment firms in the United States and Europe.

Dr. Hogan’s research has been published in academic journals Journal of Macroeconomics And Journal of Money, Credit and Banking. He has appeared on shows such as BBC World News, Stasel TV and Bloomberg Radio and has been quoted by news outlets including CNN Business, American Banker and National Review.

Selected publications

“Bank loans and interest on additional reserves: an empirical investigation,” Journal of Macroeconomics, Upcoming

“The Calculus of Dissent: Bias and Diversity in FOMC Projection,” Public choice 19: 105-135 (2022).

“Hayek, Castle and the Source of the Great Depression,” (with Lawrence H. White) Journal of Economic Behavior and Organization181: 241-251 (2021).

“Did Dodd-Frank affect bank spending?” (With Scott Burns) Journal of Regulatory Economics55 (2): 214–236 (2019).

“Ben Bernanke and Baguette’s Rules” (with Lynn Lee and Alexander William Salter) Journal of Money, Credit and Banking 47 (2-3): 333-348 (2015).

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Private wage growth was strong in June

U.S. nonfarm payrolls added 372,000 jobs in June. Although that result will be considered extremely strong by long-term historical comparisons, it is at the lower end of recent gains (see first chart). The average monthly profit from 2010 to 2019 was 183,000 whereas the average monthly profit in the last twelve months was 524,000.

Private payroll gained 381,000 in June (see first chart). The average monthly profit from 2010 to 2019 was 181,000 whereas the average monthly profit in the last twelve months is 508,000. Total non-firm wages are 0.3 percent below their February 2020 level where individual salaries have finally surpassed the February 2020 top (see Chart 2).

Profits have generally been broad-based in recent months Of the 381,000 gains in private pay, personal services added 333,000 as against the 12-month average of 436,000 while the manufacturing industries added 48,000 vs. the 12-month average of 71,700.

Among the private service-producing industries, education and health services increased by 96,000 (58,300 twelve-month average), business and professional services added 74,000 (vs. 99,100), leisure and hospitality added 67,000 (vs. 134,300), transportation and 350 added. Jobs (against an average of 41,000), information services 25,000 (vs. 15,700), wholesale trade 16,400 (vs. 16,600) and retail employment increased 15,400 (32,900; see third chart).

Of the 48,000 gains in the commodity-manufacturing industry, sustainable-goods production added 18,000, construction added 13,000, sustainable-product production increased 11,000, and the mining and logging industry grew 6,000-thirds (four).

Although the actual monthly private salary gains are influenced by a few service industries, the monthly percentage changes paint a slightly different picture. The mining and logging industry, information services, and transportation and warehousing are recently posting strong monthly percentage gains (see Chart 4).

Average hourly earnings rose 0.3 percent in June, leaving the 12-month profit at 5.1 percent. Average hourly earnings for manufacturing and non-supervisory workers increased 0.5 percent month-over-month and 6.4 percent year-on-year. The average work week for all employees in June was unchanged at 34.5 hours whereas the average work week for manufacturing and non-supervisory was held at 34.0 hours.

Combined with hourly earnings and working hours, the overall weekly wage index for all employees rose 0.6 percent in June and 9.4 percent from a year earlier; The index for production and supervisory workers rose 0.8 percent, up 10.7 percent from a year earlier.

The total number of officially unemployed in June was 5.912 million, down from 38,000. The unemployment rate remained unchanged at 3.6 percent while the lower employment rate, referred to as the U-6 rate, fell 0.4 percentage points to 6.7 percent in June. In February 2020, the unemployment rate was 3.5 percent while the low-unemployment rate was 7.0 percent.

The employment-population ratio, one of the AIER’s fairly coincidental indicators, fell to 59.9 percent for June, down 0.2 percent and still significantly below 61.2 percent in February 2020. The labor force participation rate fell to 0.1 percentage points in June, from 62.2 percent, but still below 63.4 percent in February 2020 (see Fifth Chart). The total workforce came in at 164.0 million, down 353,000 from the previous month and less than half a million at the 164.6 million level in February 2020 (see Fifth Chart).

One of the reasons for the weak participation rate is that the labor market is so tense. Based on the latest Job Openings and Labor Turnover Survey (JOLTS), there are 1,034 employees available for each opening, which is slightly higher than the April record of 0.957 (see Chart 6). The JOLTS report shows that the total number of private-sector job openings and the number of private-sector jobs leaving returned in April and May, suggesting that labor conditions have eased somewhat.

The June job report shows that total nonfarm and private pay-rolls have posted strong, albeit somewhat slow, gains. Slightly slower gains are consistent with the upward trend in weekly initial claims for unemployment insurance, and the number of job openings and departures in May is slightly lower. Less confidence in the labor market can lead to lower consumer spending. The constant rate of inflation is also hurting the attitude of consumers and can also affect the type of spending. Moreover, an intense cycle of tightening Fed policy is increasing the cost of borrowing for consumers and businesses alike. At the same time, the Russian aggression in Ukraine is disrupting the global supply chain. The outlook remains highly uncertain, and warnings have been confirmed.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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Understanding “half-paid” workers AIER

People often complain that, under capitalism, employers do not pay workers their wages. Gallup reported in 2018 that 43 percent of workers think they are getting a lower salary, while Robert Huff reported this number as 46 percent in 2019. In addition, depending on how you do a Google search phrase for such a claim, you’ll get thousands or even millions of hits.

There are several ways that that allegation can be true. But those who make such claims are not those ways. Moreover, the generally drawn meaning that government coercion will improve things is false.

Understandably, market processes do not guarantee that your compensation is equal to your value to your employer. They guarantee that your compensation will be at least as much as your next best known option (will be adjusted for other situations and preferences).

Say John and Jane are your potential employers. John offers you 60,000. If Jane values ​​your productivity at $ 75,000, how much will she offer you? It is uncertain. We just know that it must be enough to surpass John in order to attract you. Jane you don’t have to pay her price. He can offer 60,001. He can offer you 74,999. He can offer you some of this. But importantly, even if you pay Jane less than your full value, your supposed “wait” doesn’t hurt you. You are better than you John you have to make an offer.

However, if Gina joins those who want your services and offers you 70,000, Jane will have to lose it instead of $ 60,000 to keep your services. If Gene also joins 74,000 for your labor services, that would be the number that must be hit. In other words, the more competitive the market for your labor, the closer your salary will be to your employer, because the value of your options has reached your value to your chosen employer. And only the free market guarantees that you will be paid at least well. In a market economy, as Donald Boudrox puts it, “Low-wage workers are like $ 100 bills lying on the sidewalk … Although every employer probably wants to pay workers less than the productivity value, every employer is interested in earning. . “

It reveals why government coercion is not a way to increase the well-being of workers in general. Governments and their “big labor” influencers are constantly advancing mandates that impose barriers to entry and restrictions on competition in order to protect their preferred parties from open competition with other workers. While reducing entry barriers and increasing competition is a way for workers to get higher wages, such coercive government “solutions” actually guarantee that many workers will be paid much less than they would by taking away access to competitive offers for them. Services. For example, think of those who lose their jobs because of the increased minimum wage.

Government policy is also the source of another reason why workers’ wages are lower than their value to employers.

Government-directed staff benefits illustrate this. The cost of these benefits will eventually have to come out of the total compensation to employees. As Ludwig von Mrs. says, “If the law or business customs forces the employer to incur other expenses in addition to the wages he pays to the employee, the wages taken at home are reduced accordingly.” So while government sponsors demand credit from recipients for compulsory health coverage, staff training, family leave, worker compensation, etc., workers’ earnings are reduced to cover their additional costs. This compensation is to be paid to the employers and the wage workers identify a significant rift in the receipt, including praise to the government for the benefits, but such an order places employers responsible for lower wages.

Another source of “low pay” for such workers is the employer’s “contribution” to state unemployment and disability insurance, as well as half of their social security and Medicare taxes. Employers, knowing they will be hooked on these bills, offer higher wages and lower wages. Again, the money ultimately comes from the pockets of employees, but they blame their employers rather than the government for reducing the resulting homecoming. When employees say “I’m robbed,” they may be right – but they point the finger at the wrong suspect.

And this cost is enough. The BLS recently reported that for civilian workers, wage and salary costs averaged 69.1 percent of total compensation, while benefit costs accounted for 30.9 percent of total compensation. So if you think your salary is 30 percent less than your employer’s price, it doesn’t mean you’ve got a lower salary at all.

Corporate taxes have a similarly detrimental effect on employee compensation. To the extent that the impact of such taxes reduces tax-of-net income, they reduce the value of workers to employers. Again, government-funded extra spending receives money and praise from beneficiaries, while businesses are treated like scapegoats as if they have paid less. Steven Anten summarizes a recent data-driven study of corporate tax phenomena as showing that “labor carries between 50 percent and 100 percent of corporate income tax, with 70 percent or more of the potential consequences.”

Extensive and frequently repeated claims that people are not paid their dues to employers may be true in one sense, but not in the sense that those claims are commonly referred to. “Greed” or some flawed “ism” cannot be blamed. Further government intervention provides no magic solution. In a competitive labor market, this type of maximum “half-payment” is the amount that you value your most valuable employer more than your second-most valuable employer. And as labor markets become more competitive, this gap becomes smaller. Moreover, no matter how big the difference, workers are still better off if they accept any other offer.

The coercive power of government has many ways that force workers to take home benefits from their employers for less than their price which ultimately comes out of workers ’pockets at lower wages and reduces competition which leads to better offers to meet them. Protects their “friends” from the treasury and competition. So, if an employer pays someone to use the criteria, the government is the problem and the answer is to allow less mandate and free competition.

Gary M. Gals

Gary M. Gals

Dr. Gary Galles is a professor of economics at Pepperdine.

His research focuses on the role of independence, including public finance, public choice, firm theory, industry organization, and the views of many classical liberals and American founders.

His books included The path to policy failure, Defective premises, Bad policy, Messenger of peaceAnd Line of Liberty.

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10 Friday AM Read – Big picture

My weekend morning The train WFH reads:

A How Wall Street Survived Crypto Meltdown: As cryptocurrency prices plummet and funds fail, stricter rules on risky assets have helped Wall Street companies move from the worst to the worst. Retail investors were not so lucky. (New York Times)

A Crazy prices and long waiting times can ruin an electric-car test: Supply-chain snarls, shortage of raw materials, and record-setting inflation are turning the easy task of buying a car into a war against everyone, and there is no relief here. Could the electric-car market collapse under its own weight? (Vanity Fair) See more The electric car market is going crazy (and confusing) Bloomberg Green’s electric car ratings will help you create chaotic market ideas and find the most climate-friendly EV. (Bloomberg)

A Bond ETFs attract new investors with narrow offers Specialization allows investors to find profitable sectors despite increasing rates. But there are risks. (Wall Street Journal)

A Chaos is a ladder Everyone hates rules and regulations until it’s too late. The imaginary notion of software protocols and algorithms and communities polishing themselves flew in the face of 500 years of financial market history. Digital money is still money and people are crazy. No matter what kind of investment we are talking about, it does not change. Financial markets were born at a time where you could not drink water safely so everyone drank alcohol all day from lead-made cups. This is Europe of the 1500s. We were crazy then, crazy now. (Reform brokers)

A Time consuming, complex and misconceptions: why pension funds can’t keep a number on private equity fees The SEC and others are pushing for more transparency in the private market – but pensioners are concerned about the consequences. (Institutional Investors)

A Home sellers are reducing prices due to the sudden cessation of the epidemic boom The rapid rise in mortgage rates is cooling demand, pushing markets from coast to coast. https://www.bloomberg.com/news/articles/2022-07-01/will-home-prices-fall-sudden-housing-turn-has-sellers-paring-expectations

A Why you should quit your job after 10 years Labor experts say a radical career change every decade or two could be good for both workers and employers. (Business Week)

A You are not allowed to have the best sunscreen in the world: New, improved UV-blocking agents are being used in other countries year after year. Why can’t we keep them here? (Atlantic)

A Public land is the birthright of Americans. It is our duty to protect them against new land grabs How a couple helped save vast areas of the desert in the 1940s – and today provides a map to protect them. (Parent)

A And then the sea turned into a great milky green: Facing an Opportunity with a Rare Event called the Milky Sea Connects a sailor and a scientist to explain the haunting glow of the sea. (Hakai Magazine)

Be sure to check out our Masters in Business interview this weekend with Spencer Jacob, editor and author of The Wall Street Journal’s Hard on the Street column. In front of the tape Column He began his career as an analyst at Credit Suisse, where he eventually became director of emerging market equity research. He is the author of “That wasn’t the revolution: Gamestop, Reddit and the flirting of small investors

The Bloomberg Economics model says the probability of a US recession will increase by 36%

Source: Bloomberg

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Uses machine learning to evaluate the impact of deep trade agreements

Holger Brainlich, Valentina Koradi, Nadia Rocha, Joao MC Santos Silva, Thomas Zilkin 08 July 2022

Preferential trade agreements (PTAs) have become more frequent and increasingly complex in recent decades, making it important to assess how they affect trade and economic activity. Modern PTAs have many provisions in addition to tariff reductions in various areas such as service trade, competition policy, or public procurement. To illustrate this expansion of the non-tariff provision, part of the PTA is in force until Figure 1 2017 and the WTO has been notified which covers the areas of the selected policy. More than 40% of the contract includes provisions such as investment, movement of capital and technical barriers to trade. And covers more than two-thirds of the contract, such as competition policy or trade advantage.

Figure 1 PTA shares that cover selected policy areas

Note:: The figure shows the share of PTA that covers a policy area. Sources: Hofmann, Osnago and Ruta (2019).

Recent research has sought to go beyond estimating the overall impact of PTA on trade and establish the relative importance of individual PTA provisions (e.g. Kohl et al. 2016, Mulabdic et al. 2017, Dhingra et al. 2018, Regmi and Baier 2020). , Such attempts are hampered by the fact that the number of provisions included in the PTA is much higher than the number of PTAs available for study (see Figure 2), making it difficult to distinguish their personal effects on trade flows.

Figure 2 The number of provisions in the PTA over time

Formula: Mattu et al. (2020).

Researchers have tried to address the growing complexity of PTA in a variety of ways. For example, Mattu et al. Use the provision calculation in a contract as a measure of the ‘depth’ of (2017) and examine whether the increase in trade flow after a given PTA is related to this measure. Dhingra et al. (2018) group into categories (e.g. provision of services, investment, and competition) and examine the impact of this ‘provision bundle’ on trade flow. Clearly, these methods come at the cost of not allowing the identification of the effects of individual provisions within each group.

New methods

In recent studies (Breinlich et al. 2022), we instead adopt a strategy from the machine learning literature – ‘Minimum Perfect Compression and Selection Operator’ (LASO) – in the context of selecting the most important provisions and quantifying their impact. More explicitly, we adapt to Baloni et al’s ‘hard lasso’ approach. (2016) Estimation of sophisticated gravity models for trade (e.g. Yotov et al. 2016, Weidner and Zylkin 2021).1

In contrast to traditional estimating methods such as minimum squares and maximum probability which is based on optimizing the in-sample fit of the approximate model, Lasso balances the sample fit with persimmons to optimize the outer fit of the sample and at the same time select more. Estimate their effects on important regressors and trade flows. In our context, Lasso works by minimizing the effect of individual provisions to zero and gradually removing those that do not significantly affect the suitability of the model (for an intuitive description, see Breinlich et al. 2021; for more details, see Breinlich et al. 2022). ). Strict lasso of Baloni et al. (2016), Lasso refers to a relatively recent variant, considering the idiosyncratic variation of data and refining this method by leaving variables that have a statistically large effect on the suitability of the model.

Since strict lasso is in favor of very trivial models, it may miss some important provisions. To solve this problem, we introduce two methods to identify potentially important provisions that may be missed by strict lasso. One of the methods, which we call ‘iceberg lasso’, involves revoking every provision selected by the strict lasso over all other provisions, with the aim of identifying relevant variables that were initially missed due to their integration with the selected provisions. Initial steps. Another method, called ‘bootstrap lasso’, increases the set of variables selected by the plug-in lasso when rigid lasso is bootstrapped.

Results and warnings

We use the World Bank’s database on deep trade agreements, where we observe 283 PTAs and 305 ‘necessary’ provisions that are divided into 17 sections detailed in Figure 1.2 Strict LASO selected eight provisions that are more strongly associated with increasing trade flows after the implementation of the relevant PTAs. As detailed in Table 1, these provisions include anti-dumping, competition policy, technical barriers to trade, and trade facilitation.

Table 1 Provisions selected by strict lasso

Based on these results, the Iceberg Lasso method identifies a set of 42 provisions and the Bootstrap Lasso identifies between 30 to 74 provisions that can affect trade, depending on how it is applied. Therefore, the Iceberg Lasso and Bootstrap Lasso methods select sets of provisions that are small enough and large enough to explain so as to give us some confidence that they include more relevant provisions. In contrast, the more traditional implementation of Lasso based on cross-validation selects 133 provisions.

Reassuringly, both Iceberg Lasso and Bootstrap Lasso choose similar provisions, mainly related to anti-dumping, competition policy, subsidies, technical barriers to trade, and trade facilitation. Therefore, although there is no causal explanation of our results and as a result, we cannot be sure which provisions are more important, we can reasonably be confident that the provisions in this field have a positive effect on trade.

In addition to identifying sets of provisions that may affect trade, our methods also provide an estimate of the increase in trade flows associated with selected provisions. We use these results to estimate the effects of various PTAs already implemented. Table 2 summarizes the approximate effects for the selected PTAs obtained using the various methods introduced. For example, Baier et al. (2017 and 2019), we find a wide variety of effects, ranging from very large influences to agreements that include a number of selected provisions that are not at all effective in non-inclusive agreements.3

Table 2 also shows that different methods can be quite different estimates, and therefore these results need to be interpreted carefully. As mentioned above, we do not have a causal explanation of the results. The accuracy of the predicted effect of the individual PTA will therefore depend on whether the selected provision will have a causal effect on trade or act as a signal of the presence of provisions that have causal effect. When this is the case, predictions based on this approach can be reasonably accurate, and Breinlich et al. (2022), we report simulation results that this is the case. However, it is possible to imagine situations where predictions based on our approach fail dramatically; For example, it may be that a PTA is incorrectly measured for zero effect despite having many true causal provisions. Finally, we note that our results can also be used to predict the effects of the new PTA, but the same caution applies.

Table 2 Partial effect for PTA estimated by various methods


We presented the results of an ongoing research project where we developed new methods for estimating the impact of individual PTA provisions on trade flows. By adopting strategies from the machine learning literature, we have created data-driven methods to select the most important provisions and measure their impact on trade flows. While our approach may not completely solve the fundamental problem of identifying provisions with a causal effect on trade, we have been able to make considerable progress. In particular, our results show that provisions relating to anti-dumping, competition policy, subsidies, technical barriers to trade, and trade facilitation methods may increase the trade-enhancing impact of PTAs. Based on these results, we were able to estimate the effects of individual PTAs.

Author’s note: This column updates and expands Breinlich et al. (2021). See also Fernandez et al. (2021).


Baier, SL, YV Yotov and T Zylkin (2017), “One size fits all: on the heterogeneous effects of free trade agreements”, VoxEU.org, 28 April.

Baier, SL, YV Yotov and T Zylkin (2019), “On the Widely Different Impact of the Free Trade Agreement: Lessons from Twenty Years of Trade Integration”, Journal of International Economics 116: 206-228.

Baloni, A., V. Chernozukov, C. Hansen and D. Kozbur (2016), “Estimation of high-level panel models with an application in gun control”, Journal of Business and Economic Statistics 34: 590-605.

Breinlich, H, V Corradi, N Rocha, M Ruta, JMC Santos Silva and T Zylkin (2021), “Using Machine Learning to Evaluate the Impact of the Impact of Deep Trade Agreements”, AM Fernandez, N Rocha and M Ruta (Addis) ), The economy of deep trade agreementsCEPR Press.

Breinlich, H, V Corradi, N Rocha, M Ruta, JMC Santos Silva and T Zylkin (2022), “Machine Learning in International Trade Research – Assessing the Impact of Trade Agreements”, CEPR Discussion Paper 17325.

Dhingra, S, R Freeman and E Mavroeidi (2018), “Beyond Tariff Reduction: What Additional Boost for Trade from Contract Provisions?”, LSE Center for Economic Performance Discussion Paper 1532.

Fernandez, A. N. Rocha and M. Ruta (2021), “The Economy of the Deep Trade Agreement: A New Ebook”, VoxEU.org, 23 June.

Hofmann, C, A Osnago and M Ruta (2019), “The Content of Preferential Trade Agreements”, World Trade Review 18 (3): 365-398.

Kohl, T. S. Brackman and H. Garrettsen (2016), “Does the Trade Agreement Stimulate International Trade Differently? Evidence from 296 Trade Agreements”, The world economy 39: 97-131.

Mattoo, A, A Mulabdic and M Ruta (2017), “Creating Trade in Deep Contracts and Destroying Trade”, Policy Research Working Paper Series 8206, World Bank, Washington, DC.

Mattu, A, N Rocha and M Ruta (2020), Handbook of deep trade agreementsWashington, DC: World Bank.

Mulabdic, A, A Osnago and M Ruta (2017), “Deep integration and UK-EU trade relations,” World Bank Policy Research Working Paper Series 7947.

Regmi, N. and S. Bare (2020), “Using Machine Learning Methods to Capture Differences in Free Trade Agreements,” Mimeograph.

Weidner, M. T. Zilkin (2021), “Bias and Consistency in the Three-Way Gravity Model,” Journal of International Economics: 103513.

Yotov, YV, R Piermartini, JA Monteiro and M Larch (2016), An Advanced Guide to Trade Policy Analysis: The Structural Gravity ModelGeneva: World Trade Organization.


1 Our method complements the method adopted by Regmi and Baier (2020), who use machine learning tools to create provision groups and then use these clusters in gravity equations. The main difference between the two methods is that Regmi and Baier (2020) use what is called an unsupervised machine learning method, which uses only the information of the provisions for cluster formation. In contrast, we select provisions using a monitoring method that considers the impact of the provisions on trade.

2 The provisions required in the PTA include a set of key provisions (which require specific integration / liberalization commitments and obligations) and discipline, transparency, application or objectives in procedures that are necessary to achieve key commitments (Mattu et al. 2020).

3 It is noteworthy that based on the traditional cross-validation method, Lasso leads to very sparse estimates of trade effects, some of which are clearly unimaginable. This further illustrates the superiority of our proposed methods.

Europe’s growing league of small corporate bond issuers

Europe’s Growing League of Small Corporate Bond Issuers: New Players, Dynamics of Different Games

The global rise of bond financing is of particular interest in Europe, as its financial sector has always been more bank-based than in the United States. In the euro area since 2008, overall market financing has been growing significantly faster than bank lending. Policymakers have supported the increase in bond financing because it could help keep firms away from pushing the banking sector through diversification of sources of funds.

Historically, only the largest companies were included in the European bond market. But the entry of small issuers is increasing. These new players are seen as the key to achieving a transition from a larger bank-based system to more capital market funding. To fully understand these changes in the state of the game in the bond market, we need to go beyond the overall data and dig into the features of this new arrival. We need to understand how they compare to historical issuers, we need a clear view of who buys their bonds, and how they can be affected by market disruptions.

To this end, Darmouni and Papoutsi (2022), we have created a large panel dataset using two decades of micro-data. We used it to study new players in the European corporate bond market: small, private, and rated issuers entering the market in recent years.

Focus on small and first time bond issuers

Using micro-data enables us to look beyond our overall growth and uncover firm-level patterns. This is important because, when these new issuers move to increased capital market funds, they may ‘disappear’ in the overall bond-market volume or spread. Such market indicators are large, universal and driven by rate providers. Our dataset looks at the details of the debt structure and balance sheet over the past 20 years.

Although bank lending is still responsible for the largest share of corporate lending, eurozone firms have increasingly resorted to bond financing, especially after the 2008-09 global financial crisis. Corporate bonds have risen significantly by about 30% compared to bank borrowings by euro area firms, up from about 15% in mid-2008 (Cappiello et al. 2021).

We focus on new issuers. This is justified by the number of companies entering the bond market. About 10% of issuers each year were new entrants to the market and access has accelerated in recent years.

Figure 1 The number of companies entering the euro area corporate bond market each year

Comments: This figure represents the total number of new public and private issuers by the year of entry from 2010 to 2021. The sample includes all firms with zero non-zero bond arrears between 2018 and 2021. Each year, new issuers are defined as companies that issue bonds for the first time that year. The first year of issue was obtained by combining data from the Capital IQ and the Centralized Securities Database (CSDB): this corresponds to the first issue year identifiable for any subsidiary or branch within the group structure of the firms in the sample. That is, for any group, we set the issue date – either marked using the variable date of issue directly from the CSDB or the first year with a non-zero bond volume outstanding in capital IQ – which corresponds to the first issue date across all entities. The team goes. Bonds in capital IQ are matched to the sum of all senior bonds, subordinate bonds and commercial paper. In CSDB, bonds are matched with debt securities. Source: Darmuni and Papautsi (2022)

These new issuers differ from the historic European bond issuers. They tend to be significantly smaller and mostly private firms. Most ratingless: They do not have a credit rating from one of the three largest rating agencies. This is in contrast to the United States, where rating coverage is much broader.

Who buys bonds from small and first-time issuers?

It is important to know who is buying which bonds in Europe, as this could shed light on the potential fragility of the credit supply. While traditional ‘buy-and-hold’ bond investors such as pension funds and insurance companies have a long-term horizon (Baker and Benmelac 2021), other bond investors such as investment funds may be responsible for fire sales and price displacement at bad times (Goldstein et al. 2017, Falato et al. 2021).

Figure 2 Euro zone non-financial corporate bond investor formation

Comments: This statistic represents the investor structure of debt securities issued by firms in our sample at the end of 2019. The rest of the world is estimated to be the remaining amount held by selected investors in the eurozone Due to space constraints, the ‘Insurance and Pension Fund’ in the legend is an acronym for ‘Insurance Corporation and Pension Fund’. The sources of these data are ECB Securities Holdings Statistics by Sector and ECB Securities Holdings Statistics of Eurosystem. Sources: Darmouni and Papoutsi (2022).

Figure 2 shows that conventional ‘buy-and-hold’ investors occupied a large portion of the total in 2019. Insurance companies and pension funds account for about a quarter of the total and the ECB, plus 10%. Investment funds cover less than 25% and financial institutions and households 15%, while the rest of the world covers the final 26%.

Looking outside the overall data, Figure 3 considers the issuer with different ratings and sizes and plots investor composition at the end of 2019. What initially stands out is that, for the largest and investment-grade rate issuers, the composition of the investor is significantly similar to the aggregate. . For example, insurance companies and pension funds hold about a quarter and the ECB 10%. This is not surprising, since the largest companies are so large that they run entirely on overall patterns.

Figure 3 The structure of the investor according to the rating and size of the firm

Comments: This statistic represents the investor composition of debt securities issued by firms in our sample at the end of 2019, divided by size and rating category. Samples are divided using solid resources as estimates of firm size. The firm’s assets increase with each quarter (i.e. the first quarter includes companies with the lowest level of total assets in the sample, while the fourth-fourth has the highest level of total assets). The rating categories are consistent with ‘Investment Grade’ (IG) if the firm’s rating is above BBB +, if the rating is between BBB- and BBB +, ‘High Yield’ (HY) if the rating is below BBB +, and ‘Unrated’ ( NR) if the firm is not rated. The rest of the world is estimated as the remaining amount held by selected investors in the euro area. ECB Securities Holdings Statistics by Sector and ECB Securities Holdings Statistics of Eurosystem. Issuers’ ratings were found to be broken after collecting data on firm and bond ratings issued by each firm from Standard & Poor’s, Moody’s or Fitch from the CSDB rating database. Ratings are dynamic over time, meaning they are calculated every month After collecting data on the size of the assets of all the companies in the sample from Orbis, Capital IQ and RIAD, the size breakdown of the issuers was found. Quartiles are static, meaning they are calculated for 2019 asset values ​​৷ Investors’ shares are expressed in 7 percent Sources: Darmouni and Papoutsi (2022).

But who holds the bonds issued by new players in the European bond market? Based on Figure 3, investor compositions for small and non-rated issuers are strikingly different. For example, shares of ‘buy-and-hold’ investors (ECBs, insurance companies, pension funds) are only 5% lower for the smallest issuers, or about 30 percentage points lower than the total.

We see that banks buy an unequal share of bonds issued by small companies. Traditional banks hold bonds of 20% of the smallest and aerated issuers in our sample. This is noteworthy, because access to the bond market is often seen as a way to help companies reduce their reliance on banks. The relatively large share of banks holding corporate bonds suggests that the bank-dependence of this part of the issuers may have been reduced. This fact also raises potential concerns about the stability of the credit supply of these firms: banks are often perceived to face balance sheet effects in recessions (Baker and Benmalek 2021). To better understand this, we would like to study the effects of the period of turmoil on the credit market in the spring of 2020.

Crisis in the credit market in the spring of 2020

In March 2020, when the COVID-19 epidemic began, European corporate bond markets were in turmoil. An investor closing sale increases the cost of borrowing for firms and dries up new issues. The ECB had to intervene to restore market functionality and allow companies to borrow in the bond market again.

There is a concern that the ‘buy-end-hold’ of small firms may be unevenly affected by the sell-off of investors with a small share of investors. However, our study paints a different picture: it seems that the pullback of bond investors was initially the goal of the largest, rate issuers. Insurers, pension funds, mutual funds and banks have reduced their holdings of bonds issued by the largest corporations. Interestingly, this is consistent with the ‘opposite flight to quality’, where the bonds of the largest companies are sold first because they are more liquid, safer and / or have lower yields (Falato et al. 2021, Ma et al. 2022). , Haddad et al. 2021).

Our inquiries indicate that from March to December 2020, only the largest companies have tapped into the bond market in the next issue wave. Smaller and rated issuers borrowed less through bonds before 2020 If they are able to raise funds at all, it comes from the debt market.

Policy effect

Overall, our research suggests that the new players in the growing ‘minor leagues’ of the European bond market are much more established, isolated from the ‘top-division’ players and still largely bank-dependent. This evidence has three main policy implications. First, if we rely solely on the aggregate bond market index, we may not take into account what is happening with smaller issuers. Second, the bank-reliance reduction of small issuers may be exaggerated. Banks are the main investors in the market for small issuer bonds and therefore entering the bond market has not diversified the sources of funding of these companies as much as previously thought. Third, interventions aimed at stimulating the bond market may have limited effects on smaller issuers compared to larger, investment-grade firms.

Overall, looking at the European corporate bond market through a firm-level data lens reveals striking differences between the big and small leagues. It can help us better understand the problems related to financial stability, capital market development and growth.

Author’s Note: This column was first published as a European Central Bank Research Bulletin. The author gratefully acknowledges the comments of Jonathan Drake, Simon Manganelli, Alexander Popov and Joe Sprackel. The views expressed herein do not necessarily represent those of the author and of the European Central Bank or the Eurosystem.


Baker, B., and E. Benmelech (2021), “The Resilience of the U.S. Corporate Bond Market in the Time of the Financial Crisis”, NBER Working Paper 28868.

Cappiello, L, F Holm-Hadulla, A Maddaloni, S Mayordomo, R Unger et al. (2021), “Non-Bank Financial Intermediation in the Eurozone: Implications for Monetary Transmission and Key Weaknesses”, Occasional Paper Series No. 270, Frankfurt am Main: ECB.

Darmouni, O, and M Papoutsi (2022), “The Rise of Bond Financing in Europe”, Working Paper Series No. 2663, Frankfurt am Main: ECB.

Falato, A., I. Goldstein and A. Hortasu (2021), “Financial Fragility in the Covid-19 Crisis: In the case of investment funds in the corporate bond market”, Journal of Monetary Economics 123: 35-52.

Goldstein, I, H. Jiang and DT Ng (2017), “Investor Flow and Fragility in Corporate Bond Funds”, Journal of Financial Economics 126 (3): 592–613.

Haddad, V, A Moreira and T Muir (2021), “When Sales Go Viral: COVID-19 Crisis Crisis Market Debt and Fed’s Response”, Review of Financial Studies 34 (11): 5309–51.

Ma, Y, K Xiao and Y Zeng (2022), “Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity”, Review of Financial Studies.

25 years from the financial crisis in East Asia: 2 forgotten lessons

My friend Bert Hoffman, director of the East Asian Institute at the National University of Singapore, wrote an insightful account of the financial crisis in East Asia. On July 2, 1997, exactly 25 years ago, the Thai authorities devalued Bahat, causing a wave of economic crisis in East Asia, affecting other emerging economies, including Russia and Brazil.

Much has been written about the causes of the East Asian crisis and the policy responses of different countries. The crisis triggered a wave of structural reforms that undoubtedly strengthened East Asian economies to a point where they were relatively unaffected by the Great Depression of 2008 and 2009. This has encouraged a learning culture that seems to have spread to other regions: Asian experiences in managing SARS and avian flu outbreaks in 2003 helped establish their public health systems that were effective in managing coronaviruses.

Yet there are two lessons to the East Asian financial crisis that seem to have been forgotten, but they are relevant to today’s economic concerns.

The first lesson is that when economies are built on a flawed foundation, growth is not always beneficial. This can only lead to risk savings. In the case of East Asia, the crack in the foundation was that the pegging of the currency to the US dollar through a fixed exchange rate would not change much. These poles were not formal but were formal in the code of conduct. East Asian policymakers, with their export adaptations and strong links to the global supply chain, were generally described as “floating fears”. Banks, businesses and government policymakers have worked year after year on the assumption that any deviation from the US dollar in the bilateral exchange rate of their currencies will be minimal.

For all intents and purposes, “volatile resources”, businesses, financial institutions and many governments সহ including the developing world — are still increasingly exposed to fossil fuels. It’s dangerous.

The result was a huge buildup of currency discrepancies on the balance sheet. Large property and construction companies in the region have created real estate assets in financing by borrowing in US dollars. Banks and financial institutions use loans from abroad to expand loans to domestic businesses and small and medium enterprises. Governments use forward market transactions in the guise of the size of their net foreign exchange reserves against which domestic debt is being issued.

The consequence of this currency mismatch on so many balance sheets is that when the currencies were adjusted in the face of a dollar deficit, the economic losses were devastating. The exact timing of the crisis in Thailand and its spread to other countries is still the subject of considerable academic debate. I personally favor an explanation that revolves around the devaluation of the yen since 1995 that caused Japanese banks to shrink their balance sheets and reduce dollar debt exposure – a flight of $ 100 billion capital from the region in a matter of months. But the real point I’m saying is that an external shock had a huge economic impact, even in economies that were seen as strong performers.

What is the relevance today? Again, we see economies built on a flawed foundation – fossil fuels. We are in another energy crisis, but the response of a developed economy is to double oil and coal production, but also to accelerate structural reforms in a transformed economy on a more sustainable basis. For all intents and purposes, “volatile resources”, businesses, financial institutions and many governments সহ including the developing world — are still increasingly exposed to fossil fuels. It’s dangerous.

The second forgotten lesson from the East Asian crisis is that the onset of the debt crisis has more to do with weak institutions and low resilience than the debt index. Each of the affected East Asian countries had relatively strong macroeconomic fundamentals — low government debt levels, high growth, reasonable fiscal and current account balances, and low inflation. Yet when the crisis hit, governments had to take out large loans to bail out banks and businesses (and in some cases to secure a safety net for the poor). Their financial situation was not stable.

Today, we hear concerns that investments by governments in developing countries for resilience to climate risks are not affordable because of their high levels of debt. Changes from disaster response to disaster risk reduction are being prevented. Nature-based solutions and human capital investments that create resilience are being put on hold. It is a backward economy. The risk of a debt crisis in developing countries is increasing not because of excessive government spending, but because shrinking access to funding for key projects to build resilience.

So, 25 years after the East Asian crisis, let’s remember two things. When the economic foundation is flawed, it is not too early to begin the transition to a sustainable structure. Doing otherwise may support growth for a few years but when a crisis hits it it faces a much bigger recession. And let’s focus more on the resilience of public institutions and public finance when it comes to creditworthiness and less attention to numerical debt margins with little explanatory power when it comes to forecasting the debt crisis, when we evaluate the size and allocation of government spending. Ignoring these teachings is making the world economy weaker than it needs to be today.

There must be a law or at least a regulation.

The Biden administration, sponsored by the US Food and Drug Administration (FDA), has announced plans to force cigarette manufacturers to reduce the amount of nicotine in their products by as much as 90 percent. The FDA has also announced that Jules, a manufacturer of nicotine-based e-cigarettes, will no longer be allowed to sell products in the United States. Another pending FDA rule would ban menthol cigarettes, which is preferred by 40 percent of smokers.

By doing so, the Biden administration, which was partially elected in a promise to reform our shattered criminal justice system, limit the war on drugs and read the discriminatory effects of federal policy on the minority community, will criminalize more Americans, opening a new theater. Fight the drug, and ensure a different impact for decades to come.

The legacy of this nation’s prohibition has taught dark, harsh lessons about how people behave. The only ones who do not seem to be able to learn these lessons are the moderators, who are able to force others to live as they wish in the infinite view of the flexibility of human nature. Prohibition lessons have proven thousands of times that people, in general, act according to their own preferences, and that attempts to shape human behavior from the outside lead to predictable – but often completely predictable, results.

Prohibitions do not prevent people from getting drugs who want to get drugs. People have been changing their consciousness and perception with matter for thousands of years. How people react to such bans (by going around them, not leaving forbidden things), bans make drug use more dangerous and make drugs more dangerous.

For the moment, take the recommended reduction of nicotine in each cigarette sold. Cigarettes are the delivery system of nicotine, which is found naturally in tobacco leaves. Nicotine itself does not cause cancer or serious disease, but it is nicotine that enlightens people. Within ten seconds of lighting a cigarette, nicotine is delivered to the brain, which produces the immediate physiological effects of cigarettes: improved mood and concentration, decreased arousal and stress, reduced muscle tension and appetite. For habitual smokers, smoking primarily works to reduce the symptoms of nicotine withdrawal, which makes nicotine particularly addictive.

But cigarettes are the only way to supply nicotine to the brain. These are a common, well-established, but especially dangerous and dirty method. Most of the cancer- and disease-causing properties of cigarettes come from tar, the burnt smell of leaves and additives – not from nicotine. Gum, patches and evaporation devices for nicotine delivery have entered the market in recent years, and are credited with helping many smokers quit the habit of more toxic cigarettes. For at least a significant portion of smokers, it’s nicotine, and not the smoking experience they want.

Since nicotine, and nicotine addiction, drive cigarette smoking, it may seem natural that reducing the chemical of addiction can slow down the drive of smoking. Some studies have shown that the first 1-2 drugs in a cigarette can produce enough nicotine to withdraw and the rest of the cigarette can be effectively discarded. But for people with an established habit, the most likely outcome is that they will More cigarette smokingTo get the same level of nicotine, take more of the pathogenic smoke. It doesn’t take great human empathy or even medical studies to guess. All we need is a little common sense.

Iron law of prohibition

Picture of a large college football stadium on the day of the game. There are tents and tailgate parties on each side for up to a quarter of a mile, everyone is enjoying the day outside. In these picnic coolers, you can probably find beer (4-7 percent alcohol by volume), hard selted and spiced lemonade (4-10 percent ABV), and wine (8-11 percent ABV). Inside the stadium, the price of beer in the parking lot is at least four times higher. Many people try to smuggle “outside drinks” through security to continue their enjoyment inside the home at a discount. Irresistibly, outside beer drinkers smuggle whiskey and vodka. If your priority is a product but don’t get caught up with it, you want the most addictive effect for the least amount of volume, because the smaller the container the easier it is to hide. During the alcohol ban, bootleggers smuggled very strong alcohol because the risk was high and the alcohol margin was high.

This phenomenon is known as the iron law of prohibition: the prohibition of something creates a stimulus to increase the power of the product to be sold on the black market. Richard Cowan found a similar arc in an article titled “How Narcissus Makes Cracks”. He summed up his iron law as follows: “The harder the application, the harder the drug.”

So, what are the possible consequences of the FDA order for low-nicotine cigarettes? The need to make all commercially sold cigarettes low-nicotine not only encourages the black market of full-energy products, but also a direct incentive for anyone to make super-charged cigarettes: from cigarette beer to whiskey. This allows you to charge a higher price for each cigarette (reducing the risk of high volume smuggling) but it also engineers one of the most addictive, ultra-high concentration cigarettes that is not yet on the market – but will result in an effort to reduce smoking.

Just another war against drugs

The ban on joule products will result in a similar phenomenon, providing a much lower-risk supply for nicotine than cigarettes. Of all Americans, by far the most likely to use e-cigarettes (of any kind, not just Joule) are adults who quit smoking last year. There are significant health risks associated with vaping, but they are much lower than cigarettes – 90 percent safer than smoking. By removing one of the most popular, and most regulated, cigarette options from the market, the FDA will bring back at least some of these recent winners to their cigarettes.

For high school students in most states, cigarettes have been illegal for the past century, with the minimum age of purchase fluctuating between 21 years in 1920, 16 in 1980, 18 in 1993, and 21 today. During that time, the use of cigarettes by adolescents continued to decline, but never to zero. Prohibiting the purchase of just one item does not stop its use. Similarly, prohibiting the use of e-cigarettes by teenagers has not stopped devices from reaching children. While there has been a significant spike in acute illness or injury through vaping devices such as 2019-2020, those tragedies were associated not with the transparent legal market, but with the additions to the black market THC cartridges. This has made the product in the vicinity of the law even more dangerous.

Illegal cigarette smuggling is already a big business in the United States, with the continued demand of 30 million American smokers generating substantial financial incentives for international trade and tax evasion. More than half of cigarettes sold in New York and California are “trafficked” to avoid sales taxes. Organized criminal networks are eagerly expanding into vaping products Soon they may have special opportunities in menthol products.

Cigarette counterfeits, where foreign manufacturers are known, imitate branded cigarettes, creating more-significant health risks than “ordinary” cigarettes. Studies have shown that such products contain high levels of toxic heavy metals, as well as insect eggs, dead flies, mold and human feces. Similar adulterations have been found in illegal vaping cartridges. Increasing taxes, or making it more difficult to access desirable products, encouraging more consumers to look for illegal sources will likely worsen public health outcomes.

Making drug addicts criminals

The biggest mistake in the war on drugs is to criminalize products, behaviors and people who will be better helped by appropriate health care, either to give up or to reduce the harm of use.

Those who fall into the harmful spiral of addiction do so for a variety of physiological, psychological, social and societal reasons and will rarely be discouraged by the well-intentioned barrier between them. Indeed, most of them will suffer not only the consequences of poor health, but also of criminalization, deprivation, and even death, because of the intervention of nanny-state prohibitors who believe that human nature can be defeated, or re-engineered by policy.

Regulators feel that even when they have taken an e-cigarette company out of the market and imposed a strict ceiling on the nicotine in cigarettes, they simply cannot ban cigarettes altogether.

This is partly due to the tobacco lobby, one of the biggest and most effective special interests in modern politics. And this is partly due to the government’s reliance on revenue collected from the cigarette tax.

We can assume that regulators also know that a blanket ban is impossible – that the 30 million Americans who currently smoke will not stop being addicted to pen strokes. The supply and use of marijuana, cocaine and even heroin has not been significantly reduced by strict bans on these products, even though there are far more social stigmas and criminal fines than nicotine products.

Regulators may even realize that increasing the size of the smuggling market (effectively turning all cigarettes currently sold in the United States into black market products) will attract more illegal traders, and, as seen in previously banned era, will lead to violence over profitable illicit trade shares. .

But the FDA’s behavior does not indicate that they have learned these lessons. They seem unable to predict even the most basic unintended consequences of trying to interfere with human motivation and hinder individual motivation.

When busy people at the FDA portray the effects of their new regulations, they imagine that these interventions would save lives, reduce health consequences, and protect Americans. They only imagine the outcome of their choice, not the way people actually behave.

They imagine that the adult smoker is putting his last cigarette in the ashtray, ignoring how many smokers have tried to quit for their own reasons; And they imagine the bright white smiles of millions of kids who are never addicted.

What they should portray is that the prisoners are wrapping patches of nicotine with tea leaves and paper, they are smoking. They should think of the adolescents who were hospitalized with the additive in the vaping cartridge on the black-market, who were bought because the controlled products were inaccessible or too expensive. They should be predicted to shoot at a speedboat smuggling goods available in convenience stores today.

And they should remember that Eric Garner, stumbling on the sidewalk in New York City, was suffocated by a police officer for selling loose cigarettes by evading the per-pack tax with the aim of gradually reducing smoking.

Prohibition, because it fails to account for people’s motivation and motivation, is therefore reversed every time.

Laura Williams

Laura Williams

Laura Williams is a communications strategist, author and educator based in Atlanta, GA.

He is an ardent advocate for critical thinking, individual freedom and the Oxford fall.

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Amtrak is disgusting AIER

The same policymakers who wanted to shut down the American economy indefinitely to save only one from dying with Covid have refused to shut down the increasingly dangerous and costly government-backed monopoly, the National Railroad Passenger Corporation, better known as Amtrak. Instead of leading with policy improvements, American leaders prefer to confuse the nation with weak virtues. Unless the Federal Reserve brings inflation under control, however, the only real virtue will be to increase economic efficiency through bold reforms, including (second) selling Amtrak to the highest bidder.

On the weekend before the 2022 Independence Day holiday, an Amtrak train hit a car in California, killing three and injuring two. Another derailment in Missouri killed multiple passengers and injured many more. Accidents can never be completely eliminated, but Amtrak’s record is worse than in other countries, especially because of its snail speed. Sport trains from other economically developed countries travel at hundreds of miles per hour with very good safety records. Eastern European trains are also safer than Amtrak, even suitable for passenger mile travel.

In terms of tax dollars, Amtrak’s overall performance is extremely poor. Passengers pay a hefty fee for their tickets, but travelers on the Northeast Corridor route subsidize travelers to the vast west of America. And all Americans subsidize Amtrak by increasing bailouts. Amtrak leaders have learned, for example, that they could spend $ 450 million in 11 years to save more than a minute and a half of Acela passengers running from Philly to New York and will not be fired for it. Since the formation of Amtrak in 1970-71, annual taxpayer subsidies have averaged more than বিল 1 billion.

Why was Amtrak Hate created at all and why? America, after all, led the world in both freight and passenger rail services for fierce competition between numerous privately owned and operated railway corporations.

Wilma Sauss (1900-1986), PR Hughes, corporate bigwig nemesis, and an upcoming biography of me and John Traflett of Bucknell University, was a big fan of passenger rail. In his youth, he regularly traveled by train between his native San Francisco and his grandparents’ homes in New York City. During World War II, he traveled by rail between Manhattan and Detroit and worked as a PR for Bud after the war for the Philadelphia-based passenger train car manufacturer Bud. After Robert R. Young failed to turn around on the New York Central Railway in the late 1950s, he counted the days of the passenger train.

In the early 1960s, Sauss protested against railway employees who attended their annual stockholder meeting in Chicago. Instead of fighting for the long-term health of their industry, as many executives have seen for short-term gains, investors will be cursed. According to Sauce on his nationally syndicated NBC radio show, Young committed suicide after receiving a note from an elderly widow who mourned the loss of most of his investment in the Flying Railroad.

Not that the collapse of the industry was Young’s fault. In the early 1960s, railroads faced numerous competitors, especially Eisenhower’s heavily subsidized interstate highway system. Nevertheless, certain intercity passenger rail routes, too close for planes and too much traffic for cars, make good economic money. Regulators, however, derail the innovation between controlling ticket prices and rising costs, and reduce rail profits. The onset of great inflation hastened the destruction of the once powerful industry, and the nationalization of its remnants provoked Amtrak hatred.

Fifty years later, the U.S. government has proven itself incapable of running railways like the Soviet Union. It should deregulate intercity passenger rail travel and sell all Amtrak to the second highest bidder at the sale seal-bid auction. The income, which will be enough, could be used to plug deficit holes and perhaps pay off some of the national debt. A sale would free the American people from the cost of subsidizing Amtrak in the future and the shame of its ruthless existence.

Great Brandon inflation, aka climate change and epidemic overactive inflation, promises a lot of pain to Americans, especially if more employers are not aware of the need to implement COLA. But if freedom-lovers are awakened to the view that a good crisis does not go in vain, some regulatory improvement may occur, if it is now politically expedient to reduce prices without deficits for any other reason.

During the great inflation of 1970, for example, the price of air tickets (1978) and the brokerage commission (May Day 1975) were deregulated. Increased competition has created rapid skill improvements that allow for real price reductions in both industries.

With the current rise in gasoline prices and air ticket prices, and the lessons learned about the disadvantages of price control, I hope that the reform of the intercity passenger rail may take place in America in the near future. While trains are not particularly good for the environment, many people assume that they are “green”, also signaling some fake qualities that many American politicians seem to aspire to.

Robert E. Right

Robert E.  Right

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research. He is the author (or co-editor) of more than two dozen major books, book series and edited collections, including AIER. Best of Thomas Payne (2021) and Financial exclusion (2019). He has also written numerous articles for (including) important journals, including American Economic Review, Business history review, Independent review, Journal of Private Enterprise, Money reviewAnd Southern Economic Review. Since taking his PhD, Robert has taught business, economics and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, University of Virginia and elsewhere. History from SUNY Buffalo in 1997.

Selected publications

  • Reducing Recidivism and Encouraging Prevention: A Social Entrepreneurial Approach Journal of Entrepreneurship and Public Policy (Summer 2022).
  • “The Political Economy of Modern Wildlife Management: How Commercialization Can Reduce Game Excess.” Independent review (Spring 2022).
  • “Sowing the Crisis of the Future Crisis: The Rise of the SEC and the Nationally Recognized Statistical Rating Organization (NRSRO) Division, 1971-75.” Co-author with Andrew Smith. Business history review (Winter 2021).
  • “AI ≠ UBI Income Portfolio Adjustment to Technological Transformation.” Alexandra Prozegalinska co-author. Boundaries of Human Dynamics: Social Networks (2021).
  • “Liberty is for everyone: Stowe and Uncle Tom’s cabinIndependent review (Winter 2020).
  • “Pioneer Financial News National Broadcast Journalist Wilma Sauss, NBC Radio, 1954-1980.” History of journalism (Fall 2018).
  • “The Evolution of the Republican Model of Anglo-American Corporate Governance.” Progress in the financial economy (2015).
  • “The Leading Role of Private Enterprise in the American Transport Age, 1790-1860.” Journal of Private Enterprise (Spring 2014)
  • “Corporate Insurers in Antebellum America.” Co-author with Christopher Kingston. Business history review (Autumn 2012).
  • “The Deadlist of Games: The Institution of Dueling.” Co-author with Christopher Kingston. Southern Economic Journal (April 2010).
  • “Alexander Hamilton, central banker: Crisis management during the 1792 U.S. financial crisis.” Richard E. Silla and David J. Co-author with Cowen 6 Business history review (Spring 2009).
  • “Integration of Trans-Atlantic Capital Markets, 1790-1845.” Co-author with Richard Silla and Jack Wilson. Money review (December 2006), 613-44.
  • “State ‘currency’ and conversion into US dollars: to clear up some confusion.” Co-author with Ron Michner. American Economic Review (June 2005).
  • “US IPO Market Reform: Lessons from History and Theory,” Accounting, business and financial history (November 2002).
  • “Bank Ownership and Lending Types in New York and Pennsylvania, 1781-1831.” Business history review (Spring 1999).

Find Robert

  1. SSRN: https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=362640
  2. ORCID: https://orcid.org/0000-0003-3792-3506
  3. Academia: https://robertwright.academia.edu/
  4. Google: https://scholar.google.com/citations?user=D9Qsx6QAAAAJ&hl=en&oi=sra
  5. Twitter, Gator and Parlor: @robertewright

Robert E. Wright’s book

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The average weekly initial demand increased again

Initial claims for regular state unemployment insurance rose 4,000 in the week ended July 2nd, Coming in at 235,000. 231,000 from the previous week were unpaid from the initial tally (see first chart). By long-term historical comparisons, the initial claims remain very low.

However, the four-week average has risen for the twelfth time in the last thirteen weeks (the four-week average was unchanged), coming in at 232,500, up 750 from the previous week and the highest level since February 19.M. Weekly preliminary demand data suggests a very tough labor market, although the recent upward trend is a growing concern. The sustained high rate of inflation represents a risk to the economic outlook as a result of the Fed’s austerity cycle and Russia’s aggression in Ukraine.

The total number of ongoing claims for the state unemployment program for the week ended June 18 was 1.299 millionM, Up 12,535 from the previous week (see second chart). State continued claims have now risen to five in the last six weeks and are at their highest level since April 30MAlthough the level is very low by long-term comparison (see second chart).

The latest results from the combined federal and state programs put the total number of people claiming benefits in all unemployment programs for the week ended June 18 at 1.328 million.M, Up 13,570 from the previous week. The latest results are the highest since April 30thM But under 2 million in nineteen consecutive weeks.

Early claims remain at very low levels by historical comparison, but an upward trend has become more apparent in recent weeks. Weekly initial claims for unemployment insurance are an AIER leading indicator, and could be an early warning sign if the trend continues in an upward trajectory. Moreover, the number of open jobs in the country has declined for two consecutive months, although the level is much higher in terms of historical comparison.

Although the overall low-level demands combined with the high number of open jobs suggest that the labor market is very tense, both systems are showing signs of softening. Tight labor is an important component of the market economy, which provides support for consumer spending. However, the steady rate of price rise is already weighing on consumer attitudes, and if consumers lose confidence in the tight labor market, they can significantly reduce costs. The outlook remains highly uncertain.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.

Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.

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