Economists are out of touch with climate change

In the debate over climate change, there is one group you don't hear much from: economists. The failure of climate economics to make a difference in the public discussion about climate policy should be a concern for the profession...
Climate economists are just as worried as anyone about the prospect of global warming. A recent survey by the Institute for Policy Integrity found that most climate economists believe climate change is a grave threat. Most supported carbon taxes or cap-and-trade programs to limit emissions, even if these actions were taken unilaterally by the U.S.­ The consensus view was that a catastrophic loss of global gross domestic product -- a 25 percent decline or more -- is possible under a “business as usual” scenario.
But for all this concern, climate econ research has had little impact on the public debate.

Regrettably, climate economics tends to lag behind climate science, especially in the slow-paced, peer-reviewed economics literature. The analyses rarely portray the most recent advances in climate science; instead, they often incorporate simplified representations of scientific knowledge that is out of date by several years, if not decades. Moreover, climate economics has often been hampered by its uncritical adoption of a traditional cost-benefit framework, minimizing or overlooking the deep theoretical problems posed by uncertainty, intergenerational impacts, and long-term technological change.

The physics of inequality

How does a significant change in inequality affect the overall level of exchange? Their study makes use of some fairly abstruse mathematics coming from physics, developed precisely for messy network problems of this kind. What they find is troubling, although not all that surprising -- rising inequality tends to undermine exchange.
As inequality gets more pronounced, a larger fraction of the population faces more stringent budget constraints, and the spectrum of possible economic interactions open to them narrows. Fewer people have the wherewithal to engage in economic activity. This mathematical economy actually demonstrates a sharp transition, akin to the abrupt freezing of a liquid, as the level of inequality exceeds a certain threshold. Worryingly, the wealth distribution in the U.S. over the past few decades has been moving ever closer to this critical edge....
The researchers found another interesting effect -- a “trickle up” flow of wealth quite different from the usual “trickle down” picture of supply-side economics. In an economy with appreciable inequality, capital tends to flow from those with less to those with more, generating a cascade of transactions along the way. Hence, policy interventions aiming to spur economic activity should work better if they inject money into the system at the lower end, rather than from the top.
This fits with the argument that quantitative easing -- in which central banks purchase securities -- may ultimately be misguided. Such a policy is supposed to encourage spending by propping up the prices of stocks and bonds, which tends to boost wealth only at the top end of the distribution. Central bankers might have a more powerful and beneficial effect if they instead injected money directly into the accounts of citizens, who could then use it to pay down debts or spend as they like.

NIRP: It's not working

All 11 companies running money-market funds stopped accepting new investments, citing the BOJ stimulus. They plan to return money to investors, the Nikkei newspaper reported, and money from the funds is moving to deposits, according to analysts at Deutsche Bank.
While the BOJ’s monetary easing policies are meant to stimulate lending and encourage borrowing, lending growth slowed slightly in February while deposits rose -- the exact opposite of what the bank was aiming for.
With concerns that deposit rates may go below zero, sales of safes are surging. The number of 10,000 bills in circulation in 2015 rose at the fastest pace in more than a decade, which may suggest households are hoarding cash.
Consumers’ and merchants’ sentiment dropped in February, requiring the government to lower its assessment of confidence.

central banks frankenstein

As BlackRock CEO Larry Fink put it in a recent article, "Let's be clear: Negative interest rates are terrible."
While European central bankers first started experimenting with this tool in 2014, the volume of such notes has ballooned in recent months, now accounting for more than 46 percent of all non-U.S. sovereign bonds, according to an analysis by Jim Bianco, president of Bianco Research in Chicago.
"We're making this leap into this unknown and we're trusting that it's all going to work out,'' Bianco said in a phone conversation on Monday. He compared the negative-yield project to the creation of Frankenstein's monster.

The Bull Market is phony

As the financial crisis reached a fevered pitch in 2008, the Federal Reserve took to flooding the financial market with dollars by buying up bonds. Simultaneously, interest rates fell dramatically, as bond yields move in the opposite direction of bond prices. Barnier sees the Fed as responsible for over 93% of the market from the start of QE until today. During the first half of 2013, the Fed caused the entire market’s growth, he said.