Alpha.Sources — Alpha Sources.CV

Things to think about #5

There’s been a lot of talk about the political center* in Europe in the past few weeks, in the wake of the French parliamentary elections and the landslide victory for Labour in the UK. Is it reinvigorated, complacent, or perhaps just lucky? I offer two thoughts on this.

Firstly, sometimes a long-in-the-tooth incumbent is sacrificed on the altar of change no matter how reasonable or uncontroversial he or she is. In the context the most recent elections in Europe, this applies mostly to France, where the people has a tendency to throw their leaders under the bus, for no other reason that they’ve been in power for a bit too long. But I think it applies to England too, to an extent. Rishi Sunak and his cabinet weren’t that bad, or more specifically, the Sunak government was a lot of less controversial and risk-seeking than its Tory predecessors. But in the end, the weight of dissatisfaction and disillusion with previous iterations of Conservative cabinets were too much to bear. The Tories received the drubbing they deserved, having put their faith in a toxic mix of volatility and incompetence under Boris Johnson and Liz Truss. The doomed political and economic project of Brexit looms large in this story too. Whatever Labour decides to do with this smelling carcass of a political legacy, it brought the destruction of the Conservative party, and the right in UK politics, as we know it. Perhaps for that reason, Starmer will be inclined to leave it smelling for a bit longer, to remind people of what they’ll get should they consider jumping back into the Tory fold.

The case for reading old economists and the elephant in the room in EM equities

I hope you’re enjoying the 2023 Chat-GPT advent calendar even if it is quite a deviation from the content normally posted here. Fret not, I will pepper the flow of advent stories with some economics, and a lookahead to markets next year.

I really enjoyed @EconTalker's conversation with @tylercowen, the founder of the most widely read economics blog out there, reminding us that there is still value in reading the grand old masters of economics. I enjoyed re-reading most of Keynes’ the General Theory for my essay on fiscal policy, and it was also fun to remind myself about Milton Friedman’s permanent-income-hypothesis for the essay on the life cycle hypothesis. But in reality, I fall foul of Tyler’s accusation of an economist who is probably not as well acquainted with the classics as I should be. I have read very little of Smith for example, I find Hayek very difficult to read, and as an economist interested in demographics, I also regret to say that I have only read few parts of Malthus in the primary versions. Fortunately for me and others, Tyler has made his new his new book—"GOAT" of economics—freely available, and I am looking forward to dig in over Christmas.

Random shots

I am still collecting my thoughts, and catching up with work, after holiday, so a few Random Shots are in order. For general reading inspiration I’d recommend Aeon, Arts and Letters Daily, The Hedgehog Review and The Point. I try to consume as much from all of these as I can, in between the mandatory market/investment-related research.

The Real Macro Wars

I am still not entirely sure whether Noah Smith, a U.S. Economist and prolific blogger, is a converted MMTer or not. But I do know that he is doing a great job in describing the discourse around this newfound holy grail of macroeconomic policymaking. In my attempt to label MMT as “Woke Economics”, I leaned on some of Noah’s earlier pieces on this, and now he is back with his invocation of the new Macro Wars. The stage, according to Noah, is the recent fiscal relief bill in the US, prompting even otherwise pro-stimulus economists to push back. Oliver Blanchard and Lawrence Summers both suggest that $1.9T might be too much of a good thing, while Krugman is sticking to his Keynesian ethos, arguing that Biden’s bill really is ‘disaster relief’, a position that Noah seems to agree with. Replying specifically to Noah’s recent post, he argues that Keynesianism won the theoretical battle a decade ago, leaving only “cranks, charlatans and WSJ Op-ed writers” on the other side. Tyler Cowen chimes in, pointing out that Biden’s post-election fiscal stimulus push has as much to do with populism as it has to do with careful application of Keynesian macroeconomics. As it turns out, this is a position I have a lot of sympathy for.

02

Alpha Sources Blog