Bond market fairy tales part 2

In part 1 I contrasted the way I think about how different speeds of deficit reduction in the UK or US today will influence interest rates on government debt with how at least some people in those markets say they think about the same issue. That was a particular example of a more general phenomenon. The macroeconomics coming from economists attached to financial institutions often seems to be rather different to the macroeconomics of academic economists. When it comes to an issue involving financial markets, then it seems obvious who mediamacro should believe. Those close to the markets surely must know more about how those markets work than some unworldly academic. This post will suggest a more nuanced view.

As is often the case in macroeconomics, it all depends on the time horizon. Are we talking about what may happen over the next few days or weeks, or are we talking about what will happen over the next few years?

In terms of very short term prediction, financial market economists beat academic economists hands down. The only thing most academic economists can usefully tell you is that it is unlikely you will outsmart market opinion. If you really want to try then you need lots of short term information and a good nose for how that short term information is interconnected. Most academics (there are exceptions) just do not have time to do that work. I always remember the reply an academic member of the Bank of England’s Monetary Policy Committee gave to some MP who asked him about the implications of some latest data. I must have been doing some marking (grading) at the time that came out, was the reply.

Perhaps more surprisingly, those working in the markets are not as concerned about the longer term (what might happen in three or five years time) as you might expect. That is because money is made in predicting short term movements, and knowledge of where things are going over the next few years is a relatively weak guide to what might happen over the next few days. When I first started doing work on ‘equilibrium exchange rates’, I got a lot of queries from those in the markets, but the interest largely disappeared when I told them that ‘equilibrium’ meant where rates might be in about five years time.

This may surprise you because economists attached to financial market institutions often tell longer term stories, and sometimes they even produce detailed numerical forecasts of the type produced by central banks or governments. (See the list that the UK Treasury compiles for example.) But as I have often said, macroeconomic forecasts are only slightly better than guesswork. So it is only really worth putting any significant resources into producing a macro forecast if you are taking or seriously influencing decisions - like setting interest rates - where the costs of getting things wrong are extremely large. My suspicion is that financial sector macro forecasts are mainly there to give the impression of expertise to the institution’s clients.

I also suspect that economists working for financial institutions spend rather more time talking to their institution’s clients than to market traders. They earn their money by telling stories that interest and impress their clients. To do that it helps if they have the same worldview as their clients. Getting things right over the longer term seems less important, as Paul Krugman keeps complaining about in the context of those who have been predicting rapid inflation as a result of Quantitative Easing. 

It is also useful if they leave their clients with the impression that they have some unique insight into how the markets work. So instead of suggesting - as an academic would - that markets are governed by basic principles, it is better to suggest that the market is like some capricious god, and they are one of a few high priests who can detect its mood. Now in the short term the market really can behave in volatile, unexpected and sometimes mysterious ways, but over the longer term there are some basic rules that markets obey.

The incentive system for academics is very different. They are judged by their peers. If they present stories to the media that differ greatly from conventional wisdom about theory or the empirical evidence, they will be given a hard time by their colleagues. They need to have an idea about how markets work to do good macroeconomics. They want to be more like scientists than high priests. (This has an unfortunate by-product. Most academics would rather not lose precious research time talking to journalists, particularly if the quotes they give may fail to contain the caveats normally demanded in academic work. In contrast talking to the media is part of a city economist’s job description.)   

So who should journalists trust on the economy? If you want to know about the latest retail sales numbers or where the economy might be heading over the next few months, with a few exceptions financial economists are better bets than academic economists. If you have a more long term question, like how alternative speeds of deficit reduction will influence interest rates, then perhaps surprisingly you may tend to get a more reliable answer from academics. Like most things in economics, this is a tendency: there are some seasoned city economists who I would trust over many academics.

There is an important implication about political bias as well. Academic economists are no saints on this, but I do not think there is a clear average bias among academic macroeconomists towards the left or right. However partly because financial economists need to be good at telling stories that their clients find sympathetic, their worldview tends to be one where a smaller state is good for the economy, higher taxes on top incomes are a bad idea, markets are generally efficient and regulation is harmful.

If you think this is just self-serving conjecture, look at this evidence. The question of whether, in the UK, the 2013 recovery vindicated 2010 austerity was a no-brainer. Anyone who thinks about the logic for a moment will realise the answer is no, even if they think austerity was a good idea. To suggest otherwise would be to argue that it was a good idea to close half the economy down for a year, because growth in the following year would be fantastic. To answer yes to this question probably indicates political bias rather than lack of thought. When the Financial Times asked this question, only two out of twelve academics gave the answer yes. About half the city economists who were asked said yes. 

Bond market fairy tales part 1

In a recent post I argued that the days when budget deficits mattered because of concerns about default are over. In 2010 it briefly looked as if deficits could be so large that default was a real possibility, but we now know that was never true for the US and UK, and within the Eurozone it was only true for Greece, and since then austerity has (unfortunately) brought deficits down substantially. In most countries deficits are now around sustainable levels, by which I mean that they can be financed and sustained at close to current tax rates and spending regimes. 

Which raises the question, why isn’t this common knowledge? Why in mediamacro do people act as if we were still in 2010? In this respect BBC journalist Robert Peston has an interesting post. Robert Peston is no fool, and his coverage of banking issues in particular is rightly famous in the UK. In his post, he notes correctly that there is a huge gap between the amount of austerity planned by Conservative and Labour after 2015. Let me quote what he says next.

“And here, of course, is where we need to ask Mr Market what he thinks of all this….The Tory view is that those [low] interest rates can only be locked in if the government continues in remorseless fashion to shrink the state and net debt. What Labour would point out is that countries in a bit of a fiscal and economic mess and currently refusing to wear the hairshirt that the European Commission thinks necessary, such as Italy and France, are also borrowing remarkably cheaply."

So what Mr. Market should tell Robert Peston at this point is that France can borrow more cheaply than the UK not because the French government is more credible and less likely to default - these are no longer important issues. The reason is that expected future short rates in France are lower as a result of the Eurozone recession. This means that because the Conservatives will cut back on spending more (than Labour), this will tend to reduce demand and output more, which in turn will mean expected future short rates will be a little lower under the Conservatives than Labour (as monetary policy tries to undo the impact of greater austerity). What Mr. Market actually told Robert Peston is as follows:

"And here is where Mr Market may be capricious, according to my pals in the bond market. They say the UK's creditors would probably be forgiving and tolerant of George Osborne borrowing more than he currently says he wishes to do, in that his record of reducing Whitehall spending by £35bn since taking office in 2010 has earned him his austerity proficiency badge. But Ed Balls has never been chancellor, although he was the power behind Gordon Brown when he ran the Treasury and much of the country, both in the lean years from 1997 to 2000 and the big spending Labour years thereafter.

So Mr Balls has yet to prove, investors say, that he can shrink as well as grow the apparatus of the state.”

What Robert Peston's pals in the bond market seem to be telling him (assuming that nothing was lost in translation) is that it is all about Labour's lack of credibility at being able to shrink the state. My immediate reaction: ?!?!? I have two problems.

1) Why the talk about credibility? Talking about credibility makes sense if we are worrying about default, but there is no chance Ed Balls is going to choose to default. You might worry that Labour will not cut the deficit by as much as they plan, which will intensify the mechanism working through monetary policy that I outlined earlier. If that is what his pals meant, why didn't they say this, and why does that involve the markets being capricious?

2) What is this about shrinking the apparatus of the state? Shrinking the deficit yes. But in what world does the return on bonds depend on the size of the state?

So it seems that my understanding of how the bond markets work is worlds apart from the understanding of Robert Peston's pals. I suspect that for mediamacro there really is no choice here: why would you believe an academic economist in their little old ivory tower rather than the guys who are directly in touch with the markets you are trying to understand. The fact the explanation they give you could have been drafted by someone in No.11 Downing Street (the UK Chancellor's residence) just suggests that George Osborne is in tune with financial realities.

Part 2 of this post will be why this logic is wrong.

Small states, economics and food banks

I often know I have hit a raw nerve with one of my posts when I get responses of the ‘surely an economics professor at Oxford should know’ type. As an example, here is Tim Worstall responding to this post, where I suggested that statements from small state people that the cuts that have already been made have been achieved at little cost seemed to fly in the face of evidence. I used welfare cuts and the increasing use of food banks as an example.

In fact I was quite careful about the point I wanted to make. I did not claim that the fact that half of those using food banks said they did so because of problems with benefit payments proved that welfare reform had not worked. All I needed to show was that assertions by small state people that the cuts had been achieved at little cost seemed to ignore this obvious evidence which appeared to suggest otherwise.

Tim Worstall says that evidence should be ignored, as anyone with any knowledge of economics would know. Food banks offer free food. The demand for a free good is potentially limitless. So lots of people taking advantage of free food proves nothing. He says “it’s odd for an economist (even a macroeconomist) to miss this”. Worstall is not alone in discovering the reason for the popularity of food banks in elementary economics. Here is Lord Freud, Work and Pensions minister, making the same point.

Now this idea raises a little puzzle. Why exactly are the people running these food banks spending time and effort obtaining food from supermarkets and members of the public only to give it away free to people who do not really need it? That is not a question Mr Worstall asks, but not to worry, economist Paul Ormerod is on hand to provide the answer. “Some of those who set up food banks are undoubtedly sincere, and think their efforts are needed. But an opportunity exists for others to show conspicuously their concern for the poor, and at the same time demonstrate opposition to austerity.”

Well perhaps it is because I’m an economist (even a macroeconomist) that I would never make such silly economic arguments. How many times has Mr Worstall been down to the food bank to get his free food? It costs nothing after all, so it would be pointless for him not to at least see what they had on offer. Actually for most food banks you cannot just turn up - you have to be referred by another charity or by a local job centre. But still, if it’s free, why doesn’t he get himself referred by some obliging charity? I’m sure he wouldn’t mind pretending to be hungry - after all he is suggesting lots of other people do just that.

The less important reason why most people do not go to such efforts to get free food is that it is not free - you have to spend time and effort to get it, and that is a cost. For most people this cost far outweighs any benefit. In fact it is quite possible that the only group where the cost does not outweigh the benefit is those who would go hungry otherwise. The more important reason is that most people are quite ashamed to get food from a food bank, or to pretend they are hungry when they are not just to get a few bags of free food. Economists are allowed to take account of such feelings, even if sometimes they fail to do so. That is why the Financial Times says:

“Multiple case studies show people only turn to a charity for food if they have no alternative. Such visits are often described as a humiliating experience undertaken as a last resort. It is neither a lifestyle choice nor a wheeze to save a few pounds on tins of soup.”

Once you understand this, there is no need for Paul Ormerod’s rather contrived explanation of why people run food banks. They run them because it helps people who would go hungry otherwise. [1]

You might think that these arguments are so poor that they are hardly worth addressing. But I think they are indicative, and there is a danger that they end up giving economics a bad name. Anyone can misuse economic ideas, and small state people like Tim Worstall are no exception. Yet ironically by pretending that the rapid growth in UK food banks over the last decade is not a problem, they only reinforce the conclusions of my earlier post. Small state people are in danger of living in an imaginary world, while in reality the policies they support do serious harm.        

[1] While his idea might be applicable to millionaires at American style charity events, as an explanation for those working in food banks it seems both unlikely and insulting. 

The imaginary world of small state people

“In the end, you are either a big-state person, or a small-state person, and what big-state people hate about austerity is that its primary purpose is to shrink the size of government spending.”

So said Jeremy Warner (assistant editor of the UK’s Daily Telegraph) last year. Jeremy is a small state person, and I think many other small state people think like this. But the statement is wrong. There are a large number of people - I suspect the vast majority - who do not have any prior view about the size of the state.

In many ways the bipolar view harks back to a bygone age, where - at least in Europe - there actually was a large constituency on the left that wanted a large state as a matter of principle. In the UK that constituency lost all its influence with Margaret Thatcher and New Labour, and it has also lost its influence in the rest of Europe. However this decline in the influence of big state people on the left was matched by a rise to power on the right of those who want a small state as a matter of principle. George Osborne’s plan for the UK over the next few years is the apotheosis of this neoliberal view.

I think I’m like the majority of people in not having any fixed ideological position about whether the state should be large or small. The state is clearly good at doing some things, and bad at doing others. In between there is a large and diverse set of activities which may or may not be better achieved through state direction or control, and they really need to be looked at item by item on their merits.

My first major problem with small state people is that they are not prepared to look at these items on their merits. Instead they have a blanket ideological distaste for all things to do with government. The evidence that government is ‘always the problem’ is just not there. The idea that private sector activity is always welfare enhancing and is best left alone was blown out of the water by the financial crisis. My second major difficulty with many small state people, like George Osborne, is that they are using fear of a debt crisis (a possibility which for the UK and US is non-existent) to achieve their ends. This is political deceit on a grand scale. My third major problem follows from the second: reducing government spending during a liquidity trap recession does real harm. It wastes resources on a huge scale.

For the UK, the OBR estimates - conservatively - that austerity reduced GDP by 1% in 2010/11, and by a further 1% in 2011/12, so GDP was 2% below what it could have been in 2011/12. As there has been no offsetting fiscal stimulus in later years, and because monetary policy has been constrained by the zero lower bound, this waste of resources will not necessarily be eliminated in subsequent years. So the cumulative cost of 2010 austerity could easily exceed 5% of GDP. That is a colossal sum to waste. The estimated numbers in the Eurozone, where the austerity squeeze continues, are even worse - nearer 10% territory and counting. As I argue in this new short piece for the Economist, the fact that Osborne risks doing the same thing again from 2015 onwards is a sufficient reason not to give him the chance.

Which brings me to a final problem I have with small state people, which is their disregard for the evidence. It is true that most people are bad at acknowledging counter evidence, but those with an ideological conviction are worse than most. A common theme among small state people following Osborne’s Autumn Statement is to ask what all the fuss is about. In his rant at the BBC, Osborne says “I would have thought the BBC would have learned from the last four years that its totally hyperbolic coverage of spending cuts has not been matched by what has actually happened. I had all that when I was interviewed four years ago and has the world fallen in? No it has not.” He remembers it well, because he tried to intimidate the BBC back then as well. The claim of hyperbole is nonsense of course, as Tony Yates sets out, but I want to focus on the ‘world fallen in’ point.

Here is Janan Ganesh in the FT making the same claim in spades:

“[Osborne] has also made the spending cuts he promised without the country turning into a medieval wasteland. This is a deeper intellectual wound to the left than we currently understand; it will change the terms of debate about the proper size of the state long after Mr Osborne has gone.”

With both Osborne and Ganesh the intended meaning is that cuts have been achieved at relatively little cost. They clearly hope this idea will become received wisdom in the media. But is it true? Take the one area that Osborne has earmarked for further cuts: welfare. [1] The argument that the cuts made so far to welfare have been achieved without significant costs flies in the face of the evidence. The number of food banks in the UK has grown massively over the last five years. The Trussell Trust estimate that more than half of their clients were receiving food because of benefit delays, sanctions, and financial difficulties relating to the bedroom tax and abolition of council tax relief. As James Harrison relates in this excellent long article, the government simply denies the evidence. The Economist notes: “Welfare reform was intended to be one of the big achievements of the coalition government. But almost all of the radical ideas promised are turning out to be duds.” These are duds that create real misery. Now maybe this is all just teething problems, but the prima facie evidence is hardly that cuts have been achieved at little cost.

So how can small state people have the audacity to claim otherwise? Perhaps it reflects the power of an ideology that its protagonists want to see no evil. Perhaps it is because those hurt by austerity somehow do not count. But the claim that Osborne’s cuts have been such a success that they will cause a “deeper intellectual wound to the left than we currently understand” is simply delusional. These are fantasy ideas from those living in an imaginary world, while in reality the policies they support do serious harm.

[1] I choose welfare only as an example. It does not appear to be an isolated one. Here is an account of Chris Grayling, prisons and the Howard League, or see Alex Marsh on the UK justice system more generally. Or think of those who suffered from flooding as the government cut back money for flood prevention, while the government still pretends there were no cuts.

Government debt, financial markets and dead parrots

Following the Autumn Statement, more commentators are noting the similarity between the macroeconomic choices facing electors next year to the choice they faced in 2010. Jeremy Warner even uses the phrase ‘déjà vu’ which I used in the title to this post in August. However what he neglects to mention is the big difference between 2010 and 2015 that I highlighted in that post, which is the absence today of any financing crisis for government debt. For Warner that is understandable - for him, and I suspect a few others, it was always about reducing the size of the state. However for most people in 2010 austerity was sold because of the fear that we would ‘become like Greece’.

This idea that the financial markets are hanging on every short term movement in the government’s budget deficit persists in much of macromedia. It is a myth. It is like the parrot in Monty Python’s famous sketch: it may have lived gloriously once, but now it is well and truly dead, and has been for some time.

You do not need to understand much about financial markets to see why. The market for UK government debt does not exist in isolation, but is instead connected to markets for a whole range of other financial assets. So a small change in the supply of government debt (because of a change in the budget deficit) will have a negligible impact on the interest rate required to sell that debt. [1] The most important determinate of interest rates on UK debt, which is a long term financial asset, is expectations about current and future short term UK interest rates. That is why UK rates on 10 year government bonds are currently around 2%, but for France just 1%: the ECB is expected to keep short rates lower for longer than the Bank of England.

This arbitrage between financial assets assumes that markets believe they will get their money back. The moment the market thinks this might not happen, they will demand a ‘default premium’: a higher interest rate to compensate them for the chance of default. This default premium is our parrot - it is what seemed to swoop up and down day after day during the Eurozone crisis from 2010 to 2012. But this parrot thrived in the Eurozone during that time for a very particular reason. The climate there has now changed, which means it is not what it once was, but it chances of living outside that region were always pretty small, and are today negligible. If anyone tries to sell you one, it will be dead.

If you are thinking about buying government debt and are concerned about possible default, you need to worry about two things. First, you need to ask whether the government will choose to default. It might do so if the political costs of raising taxes or cutting spending become too large compared to the costs of no longer being able to borrow money following default. Second, you need to worry about forced default, where the government is unable to ‘roll over’ (refinance) its existing debt, because the market will no longer lend to it. The two are related, but are not identical. The second risk admits the possibility of a self-fulfilling crisis: default occurs because the market believes default will happen, even if the government actually has no intention to default and can continue to pay the interest on its debt.

This is where your own central bank is very useful. It eliminates this second type of risk, because it acts like a lender of last resort, buying any debt the government cannot refinance through the markets. This is what the ECB refused to do until its OMT programme in September 2012. Until that point, markets were worried that governments in Ireland, Portugal and Spain would not be able to refinance their debt, and so would be forced to default. With OMT the ECB changed its mind, which brought the crisis to an end. The Eurozone parrot was not completely wiped out, because the ECB still made its support conditional, and because the possibility of voluntary default by some governments still remains, but it is not the bird it once was.

The parrot probably never flew in countries like the UK, US or Japan because these countries had their own central banks. Of course many people claim to have seen it, but it seemed to disappear as quickly as it came. The idea that it could survive in the UK or US today is just silly. In 2010 deficits in the UK and US were large, and debt was rising rapidly. It might just have been conceivable (although with a lot of imagination) that the UK or US governments might have chosen to default. Today deficits are near a sustainable level, which means that debt to GDP ratios are relatively stable. If someone tells you they have seen this parrot today, or that it is just resting and will wake if this or that policy is pursued, please respond as John Cleese did:

“'E's not pinin'! 'E's passed on! This parrot is no more! He has ceased to be! 'E's expired and gone to meet 'is maker! 'E's a stiff! Bereft of life, 'e rests in peace! If you hadn't nailed 'im to the perch 'e'd be pushing up the daisies! 'Is metabolic processes are now 'istory! 'E's off the twig! 'E's kicked the bucket, 'e's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-PARROT!!”

[1] There may at the margins be some market segmentation, and it is a margin that central banks have tried to exploit through Quantitative Easing (QE). However this involved buying huge quantities of government debt to influence it, and we are still not entirely sure that they succeeded in doing so. Besides that, a few billions on the deficit this year and next is a drop in the ocean.

The OBR confirm the dangers of Osborne's gamble

A point I have repeatedly made about George Osborne’s plans for a new wave of austerity, confirmed in his Autumn Statement today, is that they risk making the same mistake as 2010. Short term interest rates will be only just above their lower bound in 2015, at best. Large cuts in government spending from 2015 on will reduce aggregate demand. So if something goes wrong (and the list of possibilities is long), monetary policy will not be able to come to the rescue.

The OBR conservatively calculate that austerity reduced growth by 1% in financial year 2010/11, and by 1% in 2011/12. As a result, the recovery in those years faltered. Are we going to be saying the same thing in 2016 or 2017?

It is a pretty obvious point, even if it appears beyond most of mediamacro. So it was good to see the OBR hinting at much the same in their forecast that accompanies the autumn statement. First, in discussing why their forecast of medium term growth is subdued, with the output gap closing very slowly, they say this (para 1.19):

“the Government’s fiscal plans imply three successive years of cash reductions in government consumption of goods and services from 2016 onwards, the first since 1948. The corresponding real cuts directly reduce GDP. The economy should be able to adjust to such changes over time, but it is unlikely to be a simple process when monetary policy is already very loose and external demand subdued.”

The words may be a little obtuse (‘unlikely to be a simple process’), but the meaning is clear. Monetary policy will not be able to offset all of the demand implications of a second wave of austerity even in the base forecast.

But the real concern involves risks, just as it did in 2010. In para 1.25 they first note that government consumption of goods and services falls to its lowest share of GDP since 1938. Then they relate that their forecast implies a sharp rise in the real share of GDP accounted for by business investment and a rising household debt to income ratio following higher house prices. They also assume that the UK will partially arrest the decline in export market share that was a feature of the pre-crisis decade. In the following paragraph they say:

“While these assumptions are mutually consistent – private spending would be expected to rise as a share of GDP when the share of household income and corporate profits derived from government pay and procurement falls – they do illustrate the challenge facing the UK economy in adjusting to the further fiscal tightening that the Government is assuming.”

Politicians are fond of talking about the challenges facing the economy, but this is one that the government itself proposes to create. It is a challenge the UK economy could do without.

Secular stagnation and computers

For macroeconomists

Secular stagnation means different things to different people, but a common motivation is the steady decline in real interest rates since the 1980s. There have been many explanations for this (some of which I discuss here), and a common feature is that while some mechanisms are quite plausible (in particular a reduction in population growth will reduce real rates in most models) individually they do not seem quite enough. It therefore appears likely that we could be looking at something with multiple causes. So here is another possible mechanism that can be added to the list, which is the fall in the price of new investment goods.

Although this link between investment goods prices and secular stagnation has been suggested before, I want to focus on a new paper by Gregory Thwaites of the LSE and Bank of England [1], which explores this effect in a complete model. His paper has some similarities to the paper by Eggertsson and Mehrotra that I talked about in this post (for example it uses a three period OLG model), but it has much more of a focus on this investment goods price effect.

One of the very striking features of recent decades has been the relatively slow growth in the price of investment goods compared to the more familiar price of consumption goods. As Karabarbounis and Neiman (2014) [2] note, this is often attributed to advances in information technology and the computer age. Thwaites extends Karabarbounis and Neiman’s data across countries and time, and shows that this decline in the price of investment goods occurs across countries, and did appear to begin around 1980.

A key issue is how much firms react to the fact that capital is becoming cheaper by substituting capital for labour. In Karabarbounis and Neiman they react with an elasticity of substitution greater than one, and they use their analysis to explain a decline in the labour share. However, as Thwaites notes, there are many studies which suggest a less than unit elasticity of substitution.

To see the implications of this, consider a very simple OLG model with log consumption and where agents only work in the first period. This implies that the proportion of income saved is constant. So if the fall in the price of investment goods leads, ceteris paribus, to a fall in the value of capital required by firms, then to equate the demand and supply for savings real interest rates will fall. (You need an OLG framework here. In the benchmark representative agent model, the real interest rate equals the rate of time preference plus the growth rate.) This is a steady state result, and the paper explores the dynamics.

That is the key idea. For me, a really interesting aspect of the paper is that it integrates housing into this analysis. If real interest rates fall, and for whatever reason the supply of housing is fixed, house prices will rise (see these two posts). This leads to an increase in gross household debt, because agents borrow from the old to buy houses. Thwaites’s model shows that this dampens the fall in real interest rates, because this is an alternative destination besides capital for retirement savings.

I recognised the mechanism, because I had been playing around with the same effect when looking at steady state changes in government debt. A permanent reduction in the ratio of government debt to GDP would in an OLG model free up savings for capital, reducing real interest rates (as we explored in this paper for example). But lower real rates also raise the demand for housing, which can be an alternative way of saving for retirement. More generally, whatever the causes of this apparent trend decline in real interest rates, the implications for the housing market - and what we think of as ‘normal’ in that market - are likely to be profound. 

[1] Thwaites, G (2014) Why are real interest rates so low? Secular stagnation and the relative price of investment goods, Centre for Macroeconomics Discussion Paper No. CFM-DP2014-28

[2] Karabarbounis, L. and B. Neiman (2014). The global decline of the labor share. The Quarterly Journal of Economics 129 (1), 61–103.