Consumer price and asset price inflation: Looking the wrong way

Recent readings of the harmonized index of consumer prices (HICP) suggest a nontrivial risk of dipping into deflation in the euro area. While ECB's Draghi sticks to his "subdued price pressures" line, the IMF's Madame Lagarde has already called central bankers to arms to fight the "ogre" of deflation.  This post argues that asset price inflation--in particular housing--is driving an overlooked wedge between the HICP and the cost of living, which ECB and commentators should take into account. As shown below, asset prices have risen markably throughout Europe and Germany, much more than harmonized consumer prices. Stock and bond prices...

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The $9 trillion sale: Keep dreaming!

In its current edition, The Economist calls once again for privatization to help fund the high deficits of many Western governments. At first glance, this sounds reasonable given governments own indeed a lot of  assets. But that's about it. While privatization has played a significant role in the transition of Eastern Europe, in the aftermath of the Asia crisis, and in World Bank/IMF programs generally, privatization programs in the euro crisis often lagged more ambitious plans. Most notably, Greece's privatization program of EUR50 billion by 2015 has been a complete illusion. Also, sales were canceled in Spain and Ireland. Why is that so? Key obstacles are: The price is too low. Buy low, sell high! Selling assets in a downturn is usually bad investment advice. It is when times are good that assets should be placed for sale. State companies enjoy...

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Why Germans should stop mowing their own lawn

Mowing the lawn appears to be a common pastime for Germans. Washing the car or ironing even makes it into a listing of ways to burn calories in a recent issue of the news magazine Focus. Does this make sense, economically? Home production, i.e. productive non-market activities, are not captured in the national accounts. Time use surveys, such as the one carried out in Germany in 2001/02, show that adult Germans spend 25 hours per week on "unpaid" work, more than paid work on average. Macroeconomic indicators may be reminiscent of the extent of home production in Germany. Labor participation, particularly among women, is low, possibly...

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