Wrap
Nothing much happened. Commodities generally down, gold the exception. Lumber falling like timberrrrr. Bonds pretty much flat. DXY down 0.2%, matching EUR.USD. 10Y up 6bp. Most sectors down; exception is pharma (up 1.7%).
Smaller oil companies are now at an 80-90% discount to their ATH. This makes me salivate. $XOP (oil exploration ETF) was up 1% today, against a falling oil price.
Sharing the benefit equitably
Politicians have very short-term thinking, but that’s understandable. A case in point is trade policy: everyone (maybe even politicians) know that we are all better off if we drop tariffs to zero. But this is in the long term. Because factors of production like labour are not very mobile, when a country opens up to trade with China, it would be expected that production shifts to those sectors where we have a comparative advantage: e.g. insurance underwriting, or trade finance. But the people who worked in shoe factories in Northampton will not move to the City to work as quants. It takes time for labour markets to clear, and in the meantime, politicians lose their seats.
I’m reading Krugman & Obstfeld on International Economics. It’s actually a fairly easy read. It once again shows that our chronic inability to compensate losers, both short-term and long-term, has been absorbed by voters, who now are unwilling to allow any change. I cannot see how change can happen given the current institutional architecture we have. Classically, constitutions exist to protect minorities that might be oppressed by majority voting. We need something to unlock the mechanism for change.
Think of a valley which happens to be the obvious route for a new road. There are a hundred landowners along the length of the only practical route. None will sell, because every one wants to be the last hold-out seller, who can extract an economic rent of 100% of the net benefit of building the road. For this particular example, we have Eminent Domain, or Compulsory Purchase, but the problem is much more widespread than the variant relating to property rights.
Comments !