2016 has been a year of surprises. Who could have predicted the events which happened over the course of the year! In terms of the economic and financial system, here is my top 10 major events. Many of them are related and some are less serious than others! 1. The election of Donald Trump 2. Brexit 3. The strong US dollar 4. The Italian banking woes 5. The European Commission's Apple tax ruling 6. The Celtic Tiger on Angel Dust - the 26% growth in Ireland's GDP ! 7. The Bank of England reducing interest rates to 0.25% 8. Economists being dismissed in a post-truth and anti-expert world 9. 720% inflation in Venezuela 10. Demonetisation of 500 and 1,000 rupee notes in India No doubt many will disagree with this list, and I possibly have forgotten some other key events, but these 10 grabbed my attention. Anyhow, I wish all my blog readers a merry Christmas and every blessing for 2017! Below is my favourite Christmas economics song - Deck the Halls with Macro Foll...
Posts
Economics played a major role in the victory of Donald Trump. Rising income and wealth inequality has meant that median incomes in real terms in the U.S. have been stagnant for four decades and those in the middle income deciles of the income distribution have been squeezed. The causes of this inequality have been blamed on global trade agreements, immigration, and off-shoring. There has also been a hollowing out effect due to technological change – routine jobs such as bank clerks have been computerised – which has had a negative effect on middle class wages. Trump’s constituency is largely comprised of this squeezed middle. The big question about Trump’s economic policy is whether he will stay true to his constituency. If he does, we can expect the rolling back of trade deals, the introduction of tariffs, trade wars with China, and limits on immigration. However, before the world loses sleep over this, we need to remember that Trump is a businessman and his outlandish sugge...
History plays a very important role in society. It connects us to our ancestors and where we have come from. History also plays a very important role in helping us navigate the present and future. History helps us understand economics, national politics, and geopolitics. Political and business leaders need a thorough and rounded education in history. But it appears that they are not getting it. Niall Ferguson in the provocative video below explains why this is the case. In effect, he claims that university history departments are in the process of making themselves irrelevant because political, social and economic history are being squeezed out of the curriculum by anachronistic and politically correct history courses.
Election day has thankfully arrived and the months of hot air will hopefully come to an end. The U.S. Presidential race has been one of the most divisive and vitriolic campaigns ever. The rise of Trump has been very interesting to say the least. Here is a populist from outside the political establishment, who has a large following among those left behind by globalisation and deindustrialisation. The political elite in the UK underestimated the strength of feeling among those left behind by globalisation and we got Brexit. We should not underestimate Trump and the constituency he represents. Trump's personality flaws should be enough to mean that he should have no chance of winning, but such is the strength of anti-globalisation sentiment in the US that Trump, with his policies on immigration, trade and the Wall, will garner a substantial share of votes. Even if Hillary Clinton wins, the U.S. needs to implement policies that alleviate the pain felt by those left behind b...
Along with Christopher Coyle and Gareth Campbell , I've recently had a paper published in the Journal of Financial Stability entitled This Time is Different: Causes and Consequences of British Banking Instability over the Long Run . In this paper, we use bank share prices to measure British banking stability over two centuries. We find that over the long run interest rates, inflation, lending growth and equity prices are leading indicators of instability and that there is a long-run relationship between UK bank instability and the credit-risk premium. This paper is an extension of my Banking in Crisis book, where I look at the institutional and political causes of banking instability rather than their macroeconomic causes and consequences.
My former PhD student Will Quinn has a new QUCEH working paper entitled Squeezing the Bears: Cornering Risk and Limits on Arbitrage during the British Bicycle Mania . In this paper, Will argues that the risk of being cornered effectively resulted in constraints on short selling during during the British Bicycle Mania of the mid-1890s. These constraints on short selling made it very difficult for traders to correct overvalued shares in bicycle companies. Will's paper is one of the first to look at constraints on short selling during historical financial bubbles.
I'm passionate about economic history. I believe that if we want to understand today's world and economy, we need to know the evolution and trajectory of the economy. In addition, our economic past provides us with useful policy lessons for our economic present and future. Finally, economic history has an intrinsic value in and of itself - I'm constantly fascinated about how our ancestors approached economic issues and solved complex economic contracting issues. My passion for economic history is one of the reasons that I founded the Queen's University Centre for Economic History (QUCEH), which has in turn attracted amazing young academics to Queen's University Belfast . At QUCEH, we are continually thinking of ways of demonstrating the usefulness of economic history to wider society. This week two things demonstrated our commitment to this cause. First, QUCEH entered the Twitterverse - please follow us at @QUCEHBelfast . Second,...
One of the highlights of my job is to supervise and mentor PhD students. Two of my students have recently defended their dissertations - Meeghan Rogers and Will Quinn. Congratulations to them both! Meeghan's dissertation looks at corporate finance through the ages and looks at debt volatility, provincial stock exchanges and investment trusts. She has recently started as an assistant professor at Pfeiffer University in North Carolina. Will's dissertation looks at the British bicycle mania of the mid-1890s. Will starts as a postdoc on financial bubbles at Queen's University Belfast in October. You can read some working papers written by Will and Meeghan here and here .
The Magna Carta ("The Great Charter") is a fascinating constitutional document. You can find out more about it at the British Library website . Many view the Magna Carta as the cornerstone of common law legal systems and modern political constitutions. To celebrate the 800th anniversary of Magna Carta, the International Review of Law and Economics has published a special issue on the topic. This special issue attempts to answer the following questions: What did Magna Carta actually say? What economic problems was it solving? Is it a constitutional document or a myth? Why did it endure over eight centuries? What has been its influence? Is it relevant today?
It is a month since the UK's historic vote to exit the EU. The more that I reflect on Brexit, the more that I'm convinced that it is not one of the major economic headwinds facing the UK. There are at least five other major problems facing the UK economy which concern me - economic inequality, a dysfunctional financial system, declining labour productivity, a decline in growth-enhancing innovation, and China's ability to become a high-income economy. Brexit will impose an economic cost on the UK economy, but these five headwinds will ultimately determine the future of the UK economy. Indeed, several of these (particularly inequality) may even have contributed to the Brexit vote. Several of my colleagues at Queen's Management School have been doing some analysis of the result and vote. Alan Fernihough's piece can be found here , Chris Colvin's can be found here , and Sergey Popov's can be found here .
The latest review of my book Banking in Crisis has been published in Enterprise & Society . The review was written by Forrest Capie , an eminent economic historian based at Cass Business School and historian of the Bank of England (see his book here ). Capie writes the following: "John Turner has written a very good book. It is the product of some years of resarch. It is stimulating, thought provoking, and needs to be read by policy makers as well as bankers and historians".
I have been working with Qing Ye and Clive Walker on a paper which looks at the effect of the media on financial markets in nineteenth-century London. The main finding of our paper is that there is a media discount which appears after the emergence of arm's-length ownership and increased market participation. This suggests that diffuse ownership may be a prerequisite for the media effect. Our findings help explain why the media appears to have little effect on present-day developing country financial markets. The working paper is available at the QUCEH website.
Sir John Vickers has published a VoxEU piece which is highly critical of the Bank of England's recent 'tame' proposals regarding the amount of capital banks should be required to hold. He argues persuasively that banks need to hold much more capital than suggested by the Bank. He is not alone. Stanford's Anat Admati has recently argued that capital regulation is deeply flawed in terms of its design and the limited amount of capital banks are required to post - click here . In my book, Banking in Crisis , I make the argument that bankers need 'skin in the game' to make banking stable. How much skin should they have? Historically, bank shareholders stood to lose more than their investment in the bank due to extended shareholder liability regimes. In other words, they stood to lose much more than their skin in some cases! This, I argue, resulted in stable banks that acted conservatively, which in turn promoted banking stability.
The latest review of my book Banking in Crisis has recently appeared in Business History Review , which is published out of Harvard Business School . You can access the review here . The review describes Banking in Crisis as "an important contribution to financial history and contemporary policy debate". The reviewer laments that the radical reform which I call for in the book would require an even more catastrophic collapse than that of 2008.
What happens when a country's banking system shuts down? Ben Norman and Peter Zimmerman at Bank Underground (a blog written by Bank of England staff) answer this question by looking at the industrial dispute which hit the Irish banking system in May 1970 and lasted for about six months - click here to read their post. The closure of the banking system meant that cheques could not be cleared. So what happened? Irish people still wrote cheques and retailers (and publicans!) accepted cheques, playing a very important role in keeping the Irish economy going. There is little evidence that the strike had a detrimental effect on retail sales or the economy. However, when the strike ended, some cheques did bounce and retailers and publicans did suffer some losses. Subsequently, when there was a strike in 1976, retailers etc were more cautious about accepting cheques. One publican said that "when the banks start serving booze, we will start cashing cheques"! Maybe the publicans...
Secular stagnation is where economic growth is persistently negligible or very low. The first notable economist to talk about secular stagnation was Alvin Hansen , who argued in the late 1930s that economic growth in the US was low and would remain low due to declining population growth and declining technological innovation. The post-war baby and technological booms meant that people largely forgot about Hansen's theory. However, in the light of low economic growth and near-zero real interests which have persisted since 2008, Larry Summers and others have revived the secular stagnation hypothesis - click here and here . In the video below, Oxford's Kevin O'Rourke gives a lecture to the British Academy entitled "Economic Impossibilities For Our Grandchildren?" which addresses the secular stagnation hypothesis and prescribes various policies to address it. A working paper version of his lecture is available here .