#Weekly #Review - Financial Markets & Economics: Commentaries by Fabian Wintersberger

Because of the fact that markets are already in summer mode, I want to discuss a topic with a more philosophical and economic background today: Liberalism, respectively, the crisis of liberalism that we face these days. Whether we revert to fundamental liberal principles will definitely play a role in how our economies will perform in the future. However, the current zeitgeist suggests that politics, with democratic legitimacy, will take a different path or has already taken it. During its history, proponents of the liberal theory have always compromised by accepting social democrats and interventionists. While the intent is understandable, it has not convinced the general public that liberalism (economically and socially) is the right way to choose. Additionally, the liberal idea is not an idea that is inspiring young people. Most youths praise an interventionist, socialist economic model, whether one calls it Lifestyle-leftism (Sara Wagenknecht) or democratic socialism  (Alexandr...

Now that I have written about the theory and history of stagflation and inflation  for 2 weeks, this new weekly commentary is dealing with actual market events. Nevertheless this commentary could be linked to the last two. Within all the discussions about inflation and current all time highs in equities one could get the impression that the vast majority of analysts, economists and investors are anticipating higher inflation to come.  Contrawise, a recent global fund manager survey by Bank of America, whether the participants think that inflation is either transitory or permanent, shows a different picture. 72 % of the participants think - alike the Federal Reserve - that inflation will indeed be transitory and will diminish in the coming months. Inflation is transitory, the economy is growing at a high rate and equity markets will profit from this environment , so the majority thinks: According to the survey only 2 % expect a coming bear market in the S&P 500 within the ...

Since the Great Financial Crisis in 2008 and the 'temporary' expansive monetary policy that followed, more and more economists now warn about inflation. Despite high monetary inflation during the time, prices did only rise slightly for consumption goods. This encourages Keynesian economists to claim that more and more monetary and fiscal expansion is necessary, and they heavily demand it from the governments and central banks. The message is clear: ' inflation was not a problem in the past, and it will not be a problem now.' The latest pick up in inflation because of the reopening of the western economies is recognized by central banks, but they assume that it will be just 'transitory'. As soon as the economy would typically run again, inflation, therefore, will normalize, so they say. The biggest fear for sustainable higher inflation is, according to economists, the labor market. Their assumption is the trade-off between inflation and unemployment with steady i...

It was the year of 1958, when British economist and statistician Alban William Housegeo Phillips  published a paper in Economica , named The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861 - 1957 . Phillips observed that the data shows a relationship between unemployment and money wage growth. The data showed that wage growth was low whenever unemployment was high and vice versa.  Phillips, however, was not the first one how observed this. You can already find similar findings in the writings of David Hume in 1752, or 30 years prior to Phillips in an essay from Irving Fisher in 1926. Nevertheless, Phillips did not argue that higher wage growth rates will lead to lower unemployment, but Phillips argued that there is a stable relationship because in times of a tight labor market, it would be easy for workers to bargain for higher wages.  It was Paul Samuelson and Robert Solow, who developed Phillips model further and repl...