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Charting Global Economy: US Employment, Manufacturing Power Up – BNN

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(Bloomberg) — Job growth and manufacturing in the U.S. powered ahead at end of the first quarter as a robust pace of coronavirus vaccinations, fewer restrictions on business and fiscal support generate a stronger tailwind for the economy.

Sweden, Norway and Russia are among countries on pace to return to pre-pandemic levels of growth by year-end, while Covid-19 infections continue to haunt emerging economies such as Brazil.

The pandemic may have expedited China’s bid to overcome the U.S. as the world’s largest economy later this decade.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

U.S.

Employers added the most jobs in seven months with improvement across most industries in March, as more vaccinations and fewer business restrictions supercharged the labor market recovery in the world’s largest economy.

Manufacturing expanded in March at the fastest pace since 1983, catapulted by the firmest orders and production readings in 17 years, adding to evidence of an economy poised to accelerate.

The average time it takes for production materials to reach U.S. factory floors is now the longest on record, the ISM report showed. The purchasing managers group said lead times stretched to 75 days in March from 67 days a month earlier. Shortages of basic materials, higher input prices and difficulties in transporting products are creating headaches for an otherwise robust factory sector.

Europe

Russia’s economy continued to rebound from its pandemic-induced recession in the fourth quarter of 2020, easing its contraction as President Vladimir Putin opted against imposing a second national lockdown.

By the end of 2021, Bloomberg Economics forecast output will exceed its pre-pandemic level in Sweden and Norway. That’s set to bring interest rate increases into view.

Home working is likely to remain after the pandemic finishes, according to a survey of 2,000 companies the U.K., most of which are planning to allow employees greater flexibility on where and when they do their jobs.

Asia

Since the 1970s, China has been racing to become the world’s largest economy. Its recovery from the pandemic means it could eclipse the U.S. this decade.

Returning to a high growth path will be the easy part for South Asian economies led by India, which confront much harder challenges in the form of increased inequalities and reduced access to education in the wake of the pandemic, according to the World Bank.

Emerging Markets

Brazil’s unemployment rate rose as another, more contagious wave of the coronavirus began spreading across the nation.

Countries across Asia are trying everything from fertility tours to baby bonuses to spur population growth in an aging world. Not so in Indonesia, where officials are trying to convince people to have fewer children.

World

Bloomberg Economics’ nowcasts of GDP growth across major economies show output for a significant chunk of the world economy poised to move above the pre-crisis peak, but with a widening divide as China and the U.S accelerate out of the slump, and European countries sink lower.

The International Monetary Fund is preparing to give its member countries the biggest resource injection in its history, $650 billion, to boost global liquidity and help emerging and low-income nations deal with mounting debt and Covid-19.

©2021 Bloomberg L.P.

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New Zealand's Economy Was Humming Prior to Delta Lockdown – BNN

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(Bloomberg) — New Zealand’s economy was expanding at a rapid pace before a nationwide lockdown interrupted its momentum, latest data show. 

Gross domestic product climbed 2.8% in the second quarter after jumping 1.4% in the first, Statistics New Zealand said Thursday in Wellington. Economists forecast a 1.1% gain. From a year earlier, when the country was in its initial pandemic lockdown, the economy expanded 17.4% against expectations of 16.1% growth.

Today’s report will do nothing to dissuade the central bank from raising interest rates at its next meeting on Oct. 6 as it frets about mounting inflation pressures. While a contraction is expected in the current quarter after an outbreak of the delta strain of coronavirus prompted a three-week national lockdown, last year’s experience shows that demand quickly bounces back when restrictions are lifted. 

The New Zealand dollar rose on the data. It bought 71.29 U.S. cents at 10:47 a.m. in Wellington, up from 71.2 cents beforehand.

©2021 Bloomberg L.P.

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Global economy projected to show fastest growth in 50 years – UN News

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In its new report released on Wednesday, the agency said that the rebound was highly uneven along regional, sectoral and income lines, however.  

During 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income levels trailing some 3.7 per cent below the pre-pandemic trend line. 

The report also warns that growth deceleration could be bigger than expected, if policymakers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity. 


Two women check industrial looms in a rug factory in Mongolia. International rules and practices have locked developing countries into pre-pandemic responses

Differences in growth 

The report says that, while the response saw an end to public spending constraints in many developed countries, international rules and practices have locked developing countries into pre-pandemic responses, and a semi-permanent state of economic stress. 

Many countries in the South have been hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for maneuvering their way out through public spending. 

Lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade”. 

“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD. 

“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.” 

Lessons of the pandemic 

UNCTAD includes several proposals in the report that are drawn from the lessons of the pandemic. 

They include concerted debt relief and even cancellation in some cases, a reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment. 


Women sell fruit and vegetables on a sidewalk in the Philippines, where workers in the informal economy are in danger of having their livelihoods destroyed by the impacts of COVID-19.

ILO/Minette Rimando.

Women sell fruit and vegetables on a sidewalk in the Philippines, where workers in the informal economy are in danger of having their livelihoods destroyed by the impacts of COVID-19.

Even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945. 

Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices. 

After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again, according to the trade and development body’s analysis. 

Food prices and global trade 

Despite current trends on inflation, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis. 

Globally, international trade in goods and services has recovered, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier. 


Lack of monetary autonomy and access to vaccines are also holding many developing economies back

Lack of monetary autonomy and access to vaccines are also holding many developing economies back, by ILO/K.B. Mpofu

The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. Still, the consequences of the crisis will continue to weigh on the trade performance in the years ahead. 

For director of UNCTAD’s globalization and development strategies division, Richard Kozul-Wright, “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.” 

“In less than a year, wide-ranging US policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.” 

The report highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine-related intellectual property rights.  

UNCTAD warns, though, that these proposals “will need much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyperglobalization and the deepening environmental crisis in a timely manner.” 

For the UN agency, the biggest risk for the global economy is that “a rebound in the North will divert attention from long-needed reforms without which developing countries will remain in a weak and vulnerable position.”

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From Coordination to Collapse in Rigged Economies – Physics

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September 15, 2021• Physics 14, 129

A game-theoretical model of a rigged economy predicts the emergence of cartels followed by a risk of instability as the economy becomes more complex.

Hans Holbein (1543)

Figure 1: King Henry VIII and the Barber Surgeons by Hans Holbein the Younger. Medieval guilds played negative as well as positive roles by rigging the economy: They acted as cartels to privilege their members while at the same time working in concert to promote property rights and to prevent the arbitrary use of power by monarchs.King Henry VIII and the Barber Surgeons by Hans Holbein the Younger. Medieval guilds played negative as well as positive roles by rigging the economy: They acted as cartels to privilege their members while at the same time working in concert to promo… Show more

“The economy is rigged!” This claim, which was voiced by both Bernie Sanders and Donald Trump during their 2016 presidential campaigns, might be the only belief shared by people from opposite ends of the political spectrum. But what does “rigging” mean for the economy and its dynamics? Luís Seoane at the National Center for Biotechnology in Spain has now addressed this question by modeling the economy as a system of “games” that agents can rig—for a price [1]. The study reveals that the rigged economy undergoes a sequence of transitions as its complexity and size increase, with “cartels” forming and then dissolving. Although these transitions appear to imply that economic development will ultimately make the economy fairer, Seoane shows that if an economy’s size does not keep pace with its rising complexity, large fluctuations in wealth distribution can occur, causing inequality to rise steeply and making the economy liable to collapse.

The use of games to study economic phenomena dates back to the work of John von Neumann in the middle of the last century [2]. The theory quickly became the lingua franca for economists and subsequently emerged as an area of inquiry for the physics community. For example, statistical physicists have shown that versions of the “minority game”—in which several agents choose between two possibilities, with the option chosen by fewest agents becoming the winning choice—can be used to explore the rich emergent properties of simple adaptive systems [3].

Minority games can be used to model situations in which agents compete for scant resources—including financial markets. However, the economy is also marked by phenomena in which the advantage lies with those in the majority, for example, when positive feedback reinforces a particular choice, such as joining a boycott [4]. Seoane shows that rigged economies exhibit features of both minority and majority games [5, 6].

In Seoane’s model, multiple agents engage in a number of games simultaneously. Each game involves choosing one of two possible actions. An agent can also choose to pay to rig a game to favor its choice. The winning choice in each round is the action chosen by the majority of the agents who have paid to intervene. Increasing the number of games played in each round increases the degrees of freedom in the economy and is thus a measure of its complexity. After each round of a game, the winners share a fixed amount of money equally. The value of the winnings multiplied by the number of games played defines the total “wealth” that can be redistributed among the agents in each round. This wealth is thus a measure of the size of the economy and, along with complexity, is a key parameter of the model.

To observe how the optimal strategy for an agent changes as the economy develops, Seoane includes in the model an evolutionary process: Agents can replicate themselves after each round, such that each offspring has a high probability of adopting the same strategy as its parent. Since replication costs a fixed amount, more successful agents reproduce in greater numbers.

Seoane observes that, for a fixed level of complexity, a small economy yields agents with diverse strategies and a general preference to be in the minority when they win (to claim more of the prize pot in each round). As the economy increases in size, more wealth becomes available for agents to create progeny, as well as to pay the intervention costs required to rig games. Then, agents switch from playing minority games to majority games, meaning growing economies transition to coordination between agents (cartel formation), with an accompanying drop in strategic diversity. However, if the complexity (the number of games per round) increases faster than the economy grows, the relative returns per game are diminished, causing agents to seek minority positions across multiple games. This switch leads to the dissolution of cartels and a rise in the diversity of strategies employed by the agents.

Seoane also studies how an economy fares under other size-complexity relations. For example, he finds that when the amount disbursed in each game is constant, such that the size of the economy increases linearly with the number of games, there is a critical “complexity threshold” at which the distribution of agent-population size transitions from unimodal to bimodal. This transition gives rise to extremely large fluctuations in agent populations that threaten the stability of the economy. The distribution of agent wealth also exhibits a crossover at this point, becoming broad-tailed in the large-fluctuation regime, indicating rising inequality among agents. A reader familiar with the world’s economy today will likely see eerie parallels with this regime of the model.

It could be argued that some of the outcomes observed by Seoane come from the specific choices he makes in constructing the model. For example, the transition to coordinated action as the economy grows might result from the assumption that intervention costs are constant. In reality, intervention costs are related to the size of the economy and vary between players. Another important limitation of the model is that all agents are equally able to rig games—an assumption that misses the asymmetric influence of the wealthy in real economies [7].

Even with these limitations, Seoane’s model is significant in that it provides a framework for others to explore the ramifications of real-world rigged economies, such as those in which information is unevenly distributed among agents. Modifying the model might, for example, reveal how informationally disadvantaged agents can use the emergence of coordination to obtain advantage, as seen in other agent-based models [8]. Such counter-rigging of the system by less powerful players is shown by the history of the medieval merchant guilds. Those institutions used the threat of coordinated embargo to resist arbitrary expropriation by powerful local rulers [9], proving that a rigged economy does not necessarily imply that David doesn’t stand a chance against Goliath.

References

  1. L. F. Seoane, “Games in rigged economies,” Phys. Rev. X 11, 031058 (2021).
  2. J. von Neumann and O. Morgenstern, Theory of games and economic behavior (Princeton University Press, Princeton, 1944)[Amazon][WorldCat].
  3. D. Challet et al., Minority games: Interacting agents in financial markets (Oxford University Press, New York, 2005)[Amazon][WorldCat].
  4. T. C. Schelling, Micromotives and macrobehavior (W. W. Norton, New York, 1978)[Amazon][WorldCat].
  5. J. Vitting Andersen and D. Sornette, “The $-game,” Eur. Phys. J. B 31, 141 (2003).
  6. Y. Baek et al., “Market behavior and performance of different strategy evaluation schemes,” Phys. Rev. E 82, 026109 (2010).
  7. J. E. Stiglitz, “The American economy is rigged,” Sci. Am. 319, 56 (2018).
  8. V. Sasidevan et al., “When big data fails: Adaptive agents using coarse-grained information have competitive advantage,” Phys. Rev. E 98, 020301 (2018).
  9. A. Greif et al., “Coordination, commitment, and enforcement: The case of the merchant guild,” J. Polit. Econ. 102, 745 (1994).

About the Author

Image of Sitabhra Sinha

Sitabhra Sinha is a professor of theoretical physics and the dean of the Computational Biology Graduate Program at the Institute of Mathematical Sciences (IMSc) in India. He did his Ph.D. at the Indian Statistical Institute, Kolkata, and postdoctoral research at the Indian Institute of Science, Bangalore, and at the Weill Medical College of Cornell University, New York, joining the faculty of IMSc in 2002. His research falls broadly under complex systems, nonlinear dynamics, and statistical physics, with applications to systems biology, economic and social sciences, and computational linguistics.


Subject Areas

Complex Systems

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