Technology is about to put an end to Putin’s fossil Czardom.

Spoiler: Technological progress is making green energy cheaper. This is bad news for Putin. He became president when oil prices started to rise again. Putin has done nothing to reform the economy, so the Russian is still heavily dependent on fossil fuel prices. Energy related revenues constitute more than a third of Russian budget revenues.  

World market demand for fossil fuels falls as countries strive to attain zero carbon emission targets. This will translate into low future growth for the Russian economy and make it difficult for Putin to fulfil his promises about higher living standards for the Russian people.  Russian foreign policy will also have fewer instrument. The Kremlin won’t be able to use gas or oil to weaponize foreign policy when other economies become less dependent on fossil fuel.

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Why European Champions is a bad idea.

Spoiler: French and German government want to create “European Champions”. Following the EC decision to block the merger between Alstom and Siemens, Berlin, and Paris push for less strict competition rules in the EU. They were later joined by Rome and Warsaw.  Pushing for European Champions is a bad idea. EU competition rules are designed to benefit consumers. Consumers will be harmed by relaxed competition rules that allow some firms to gain more market power by weakened competition.   

In concentrated markets become, prices are higher, and outputs are lower. Profits are higher but real wages are lower, so capital shares of income are higher and labour shares lower. Income inequality is higher in a society with weak competition.

In fact, it would be counterproductive to amend the pro-competitive EU framework for making it easier to subsidise potential large EU tech firms. Intense competition on domestic markets is beneficial for innovation and export competition on international markets.

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The Crumbling States of America

Spoiler: USA has changed from being exceptional in a good way to being exceptional in a bad way. The dynamism of US product markets has decreased. It shows up in lower firm growth, higher concentration and weaker competition. This has led to increased inequality, lower investments, innovation, and productivity growth. At the same time, horrible things are happening with parts of the population. Life expectancy rates are declining because people are dying from suicide and drug abuse. Since this is happening mainly to people with low education and incomes, inequality in health is increasing.

To reverse the developments, the political system needs to be more transparent and less sensitive to rent seeking by large enterprises. But unless the Trumpian tendency to autocracy is reversed, it will be difficult to make the necessary changes.

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Real wage and labour share developments in Sweden.

Spoiler: Analysing inequality in Sweden by looking at developments of capital and labour shares 1960-2019 show that inequality is not a big issue. Labour’s share in GDP is closely related to the real wage. Growth of hourly real wages has not lagged labour productivity growth.

In the previous post, I showed that the wage share had increased in Sweden since 1993. That conclusion may be based on the initial point in the sample. In fact, it wasn’t. The wage share has been, as Kaldor suggested a long time ago, relatively constant over a long period of time. In this post, I will take a longer view on capital and wage shares in Sweden.

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