“We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the (redacted) century is over; that the rapid improvement in the standard of life is now going to slow down – at any rate in (redacted); that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us.”
Sound familiar? To all intents and purposes, this could be a description of the world as it is today, and the author could well be someone like Lawrence Summers, the prophet of secular stagnation. In fact, the quotation dates from 1930, the country being talked about was Great Britain, and the author was John Maynard Keynes.
However, the old master, free from concerns about ageing populations, came to a radically different conclusion from his Harvard disciple.
“I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.”
(Hat-tip to Berenberg Bank’s Kallum Pickering for digging up the reference, which he puts at the center of a very succinct summary of the case for optimism regarding technological progress, which he squares with the frustrating stagnation in productivity visible since the financial crisis. Productivity does indeed appear to progress in super-cycles rather than cycles, but the gains of technological advances are never felt until they’re properly dispersed and mastered.)
“History tell us to be very, very optimistic” Pickering concludes. “Looking back in 100 years’ time, we have every reason to believe that the history books will summarise our current period of frustration to a mere sentence on a page.”
Amen to that – even if the history books have a lot more to say about the 15 years that followed Keynes’s prediction than about the disruption he was celebrating.
• Hello! I Must Be Going…
The new White House Chief of Staff John Kelly fired Anthony Scaramucci as communications director in an effort to restore order to the West Wing. Kelly has reportedly been able to name his terms for accepting the job, and they include making sure that close confidantes of the president such as Steve Bannon and Jared Kushner report to him. Elsewhere, the president dropped further hints about suspending the subsidy payments to insurers that make Obamacare insurance plans affordable, a gamble on hastening the ACA’s demise (and thus the replacement process) without suffering consequences electorally. Fortune
• Wyman Tots up the Cost of Brexit
Consulting firm Oliver Wyman said the wholesale banking industry could need between $30 billion and $50 billion in extra capital to support new European entities if a ‘hard Brexit’ fragments a sector currently concentrated in London. That’s between 15% and 30% of the capital the sector currently attaches to Europe. OW is seen as one of the more authoritative voices in the sector, and the report adds credibility to the U.K. government’s self-interested arguments that cutting London’s access to EU markets would have costs for the whole EU economy. OW still points out that the U.K. would suffer most, with the loss of up to 40,000 high-paying jobs in finance. “Fortune”
• Up, Up and Away for Boeing and the Dow
Boeing said it will create a new avionics unit, another step towards increasing vertical integration and cutting dependence on external suppliers (in this case, Rockwell Collins and Honeywell, whose shares didn’t take the news well). Boeing’s shares have rocketed 14% since its second-quarter figures showed stronger-than-expected cash flow and a bulging order book. With the dollar appearing to have peaked (it hit new lows yesterday against the euro and sterling), it has yet another tailwind supporting it. Boeing’s gains have driven both the S&P 500 and DJIA to new records in recent days, amid a generally solid earnings season for industrials. WSJ, subscription required
• End of the Fission Vision
The likelihood of a nuclear power revival in the U.S. receded sharply as Scana Corp. said it would stop work on the partially-built V.C. Summer nuclear power plant in South Carolina. As with Flamanville in France and Hinkley Point in the U.K., the costs of developing new reactors have raced ahead of initial estimates. (Santee Cooper, a utility with a minority stake, estimates V.C. Summer will cost $25.7 billion rather than the $11.5 billion predicted in 2008.) At the same time, the price of renewable technologies is collapsing and the abundance of shale gas offers a reasonably clean alternative to the generation of nukes that still supply large amounts of baseload power. V.C. Summer is one of the two projects that drove reactor-builder Westinghouse into bankruptcy. Georgia Power is widely expected to pull the plug on the other one soon. WSJ, subscription required
Around the Water Cooler
• Spotify Eyes 'Direct Listing' on NYSE
Spotify’s preparations for going public are accelerating. The Financial Times reports that it is eyeing a ‘direct listing’ on the New York Stock Exchange, which would not involve raising new capital, but rather allow public investors to buy existing stock from current owners. The company said Monday that it has now passed 60 million paying subscribers, having added 10 million in the last five months alone. A new licensing deal with Warner Music, the world’s third-largest label, now appears to be the last obstacle before the owners get a chance to cash out. Fortune
• Beijing Reins in HNA, Anbang
China’s efforts to stem foreign acquisitions are making more and more waves. At least two of HNA Group's overseas deals have hit a hurdle, according to Reuters’ sources. The deals affected are the planned acquisition of Swedish hotel group Rezidor and the London-based International Currency Exchange (somewhat ironically, given the role played by capital account fears in Beijing’s recent crackdown on overseas M&A). The news comes only a day after Bloomberg reported that Beijing had ordered insurance group Anbang to unload its foreign assets, including its most prominent trophy purchase, the New York Waldorf Astoria hotel. Anbang denied the report, but the story seems too consistent with the recent behavior of the Chinese Banking Regulatory Commission and other regulators to be entirely without substance. Reuters
• BP Completes a Full House for Big Oil in 2Q
BP rounded off the global oil majors’ earning season with a swing to profit, as disaster-related payments tailed off. The shares rose 2.5% after CFO Brian Gilvary said the company had slashed its cash breakeven rate (the price at which it can cover its dividend and its spending commitments) to $50 a barrel. It’s been a good quarter for Big Oil, but BP appears to have one of the weakest positions after borrowing heavily to draw a line under Deepwater Horizon claims. Net debt rose by nearly one-third to $39.8 billion over the last year. Crude prices hit another two-month high overnight, not least because BP endorsed others’ forecasts of strong global demand for the rest of the year. Bloomberg
• Pentagon, State Aim to Raise Putin's Pain Level
The Pentagon and State Department are seeking White House approval to send high-performance weaponry to Ukraine, according to The Wall Street Journal. The move is clearly directed at raising the cost of intervention in the country by Russia. Escalating the conflict in Ukraine was a step that the Obama administration repeatedly avoided, partly because of pressure from the U.S.’s European allies. The perceived need to punish Russia for election hacking appears to have changed the calculus in some parts of D.C. Separately, the Washington Post reports that President Trump dictated the statement by his son Donald Jr. that alleged the latter’s meeting with a Russian lawyer was primarily about adoption policy. Trump Jr.’s own e-mails subsequently made clear that was untrue. WSJ, subscription required