Recommended Weekend Reads
August 30 - September 1, 2024
Please find below our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a relaxing weekend. And let us know if you or someone you know wants to be added to our distribution list.
Geoeconomics & Markets
What is Driving China’s Long-Dated Bonds? Carnegie China
The People’s Bank of China (PBoC) is determined to rein in what it fears might be a government bond bubble because of its possible disruptive impact on Chinese banks. Yields on long-dated sovereign bonds have been falling since December of last year when, after a few fairly stable months during which China’s ten-year sovereign bond traded between 2.60 and 2.70 percent, bond prices rose sharply, causing yields to drop 10 basis points during the month. What is driving this frenzy?
The Downward Spiral: A Macroeconomic Analysis of the Opioid Crisis Federal Reserve Bank of Cleveland Working Paper
There have been more than 700,000 opioid overdose deaths since 2000. To analyze the opioid epidemic, a model is constructed where individuals choose whether to use opioids recreationally, knowing the probabilities of addiction and dying. These odds are functions of recreational opioid usage. The model is fit to estimated Markov chains from the US data that summarize the transitions into and out of opioid addiction as well as to a deadly overdose. The epidemic is broken down into two subperiods: 2000-2010 and 2010–2019. The opioid epidemic's drivers, their impact on employment, and the impact of medical interventions are examined. Lax prescribing practices and misinformation about the risk of addiction are important drivers of the first half of the epidemic. Falling prices for black-market opioids combined with an increase in their lethality are found to be important for the second half.
Work More, Make Much More? The Relationship between Lifetime Hours Worked and Lifetime Earnings Federal Reserve Bank of St. Louis
Earnings inequality in the U.S. and around the globe is a major topic of research among economists. A key objective of this research is to isolate the quantitatively important forces that shape inequality. In this post, we consider a factor that has been largely neglected so far by the literature, namely differences among individuals in hours worked. In particular, we investigate the relationship between lifetime earnings inequality and lifetime hours worked. In line with many empirical studies, lifetime here refers to ages 25 to 55, a person’s prime working years. In this blog post, we focus on male workers, who were more likely to have uninterrupted employment histories than female workers during the period we are examining. We are able to construct a sample of 3,006 male workers for whom we have observations of earnings, weeks worked and weekly hours worked for each age from 25 to 55 (either via a direct report or via a simple imputation procedure for missing observations). Since we are interested in lifetime earnings, our sample already conditions on having worked in at least one year between 25 and 55.
Mexico’s Judicial Reform Crisis
Last Crusade of Mexico’s President: A Drastic Redesign of the Judiciary New York Times
President Andrés Manuel López Obrador (AMLO) is scheduled to step down from power in October, succeeded by recently elected Claudia Sheinbaum. But before he leaves, AMLO is driving hard to push through a highly contentious legislative effort that would require all judges to be elected and no longer appointed. Foreign governments – including Canada and the US – and foreign investors have been openly critical of the effort as it will likely not only highly politicize the judiciary but also open it to significant interference by the drug cartels. The effort is already having a significant negative impact on the Mexican Peso.
Mexico Will Pay Dearly for AMLO’s Judicial Revenge Bloomberg Opinion
The ruling party’s huge constitutional overhaul sets the country on a volatile path, hurting investment potential and complicating the incoming political transition. Just how intense is the pressure Mexican President Andrés Manuel López Obrador (AMLO) putting on judges? Mexican Supreme Court judges have been told they can resign now and keep their pensions or risk competing in an election next year and then lose their benefits. Mexico is in uproar over the future of its justice system.
China’s Unemployment and the World Economy
China’s unemployment conundrum and its implication for global trade Hinrich Foundation
How bad exactly is unemployment in China? Consider these examples: An increasing number of fresh college graduates are joining the gig economy by taking low-skilled jobs such as delivering food as they struggle to find jobs commensurate with their degrees. The number of people under the age of 25 who applied for manual jobs in the first quarter of 2024 surged 165% compared with the same period in 2019. A memo from an airport in Wenzhou city indicated that the airport had hired architects and engineers as ground managers and bird controllers. Since December 2022, over 10 protests occurred at Carrefour stores across the country due to store closures and unpaid wages. Alibaba, China’s e-commerce giant, cut 20,000 jobs, or 12.8% of the total employment in the 2023 fiscal year, following a 7% cut in the previous year.
German State Elections
Putin’s Next Coup Politico EU
This coming Sunday, elections are being held in three eastern German states—Brandenberg, Saxony, and Thuringia—that are likely to usher in Russia-friendly parties, giving the Kremlin a foothold once again in Germany.
Germany’s far-left disruptor claims credit for limiting aid to Ukraine: Sahra Wagenknecht’s party rises in polls ahead of regional elections in Eastern German States Financial Times
Sahra Wagenknecht, Germany’s most prominent far-left politician, has taken credit for the government’s decision to limit military aid to Kyiv, saying her strong opposition to arming Ukraine was influencing Berlin’s policy on the war. Her political party, the Sahra Wagenknecht Alliance (BSW)—yes, she named the party after herself—has surged in the polls in the three eastern German states holding elections this coming Sunday.
German coalition unlikely to last until September 2025 Official Monetary and Financial Institutions Forum/David Marsh
The Chairman of OMFIF, David Marsh, who is also a noted scholar of German politics and economics, writes that a sense of foreboding is building in Germany about prospects for government stability. Under pressure from all sides, the fractious three-party coalition under Chancellor Olaf Scholz may not last the legislative period up to the scheduled general election in September 2025. Scholz is trying to keep his creaking administration intact given the high-tension international environment, but the forces leading to break-up could soon become overwhelming. And the ongoing and long-running public bickering among the coalition members over the 2025 budget is not helping.