Bernard's Top 10:The winners and the losers in the 'Gig' economy; Will the NZ$ hit 50 USc?; The link between US rates and mortgages rates

Here’s my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read is #1 on the ‘gig’ economy. Number 7 is exellent too on the three gluts that shape our world: money, savings and oil.

1. The gig economy – This FT piece on how the shift to contract, freelance and consulting type work is changing the the worlds of workers is well worth a read.

It paints a more balanced picture.

There are pros as well as cons.

I’m part of this world now and I can see how it works very well for some, and not for others.

I’m not sure it’s a good or a bad thing, but it’s certainly a thing we need to understand and plan for. Whether it can be stopped or mutated by any sort of policy is a tougher matter.

The gig economy is only part of a shift in employment over the past three decades, unleashed by technology and global trade. It has created many winners and losers, both by outsourcing jobs from the west to Asia and Africa, and by changing the terms on which most people work. Financial and contractual risk that used to be borne by companies has been transferred to employees.

Yet this world of insecurity and risk is also one that many people seem to appreciate. More self-employed people in Europe and the US report enjoying their jobs than those who are employed. Many entrepreneurs, even those who run a tiny business that amounts to self-employment, like their freedom and self-reliance and the possibility that they could become wealthy.

2. Where do mortgage rates come from? – Local monetary policy matters, but this piece suggests US monetary policy is just as important to UK mortgage rates as UK rates.

That begs the question: how much impact might next month’s long-fabled US rate hike have?

UK mortgage rates play an important role in the transmission mechanism of monetary policy, but are they home-grown? UK swap rates are a key component in determining UK mortgage rates. And UK swap rates are highly correlated with those in the US. Putting these pieces together, we show that UK mortgage rates increase by around 50bp on average in response to a 100bp increase in US swaps. This highlights one important channel through which global financial spillovers affect small open economies such as the UK.

3. What happens next with the New Zealand dollar? – Oppenheimer Funds says via this Bloomberg piece that the commodity currencies face a world of pain.

“Compared to the U.S. talk about raising rates and tightening policy, the commodity currencies are going in the exact opposite direction,” Alessio de Longis, a money manager in the Global Multi-Asset Group at OppenheimerFunds,  said from New York. “These currencies are not cheap by any means.”

De Longis, whose company manages $233 billion, projected the Canadian dollar will weaken 14 percent in the next one to three years. He estimated the Aussie will fall in the same timeframe to 60 cents per U.S. dollar and the kiwi to drop to 50 cents.

4. A wholesale run for the low carbon doors? – The New Yorker looks at what the smart money is being advised to do about climate change. The short answer is sell oil and coal and buy renewable energy. 

A perhaps counterintuitive finding of the analysis is that a two-degree Celsius rise over preindustrial times need not, according to the authors, “have negative return implications for long-term diversified investors at a total portfolio level.” This is not to say that assets wouldn’t need to be reallocated. Under such a scenario, the analysts expect gains in “infrastructure, emerging market equity, and low-carbon industry sectors,” which is another way of saying that limiting climate change to a two-degree Celsius rise would require such enormous investments in clean energy—Ceres has called for an annual investment of a “clean trillion”—that it would be hard not to profit as an intelligent first-mover in this market.

Losers like coal, the returns of which, according to the report, “could fall by anywhere between 18% and 74% over the next 35 years,” should be jettisoned to make room for new investments in renewables, which “could see average annual returns increase by between 6% and 54%” in the same period. Even if the world ends up exceeding the two-degree limit (a result that appears increasingly likely: according to the World Bank, we are already locked into a one-and-a-half-degree increase), the report’s authors expect, at some point, a wholesale run for the low-carbon doors, what Anthony Hobley, the C.E.O. of the nonprofit climate-and-finance think tank Carbon Tracker, described in an interview as an inevitable “come-to-Jesus moment.”

5. Delusions of competence – Paul Krugman has a good old spray here at politicians who assume that good economic times were due to their amazing decisions. China is his target.

Politicians who preside over economic booms often develop delusions of competence. You can see this domestically: Jeb Bush imagines that he knows the secrets of economic growth because he happened to be governor when Florida was experiencing a giant housing bubble, and he had the good luck to leave office just before it burst. We’ve seen it in many countries: I still remember the omniscience and omnipotence ascribed to Japanese bureaucrats in the 1980s, before the long stagnation set in.

This is the context in which you need to understand the strange goings-on in China’s stock market. In and of itself, the price of Chinese equities shouldn’t matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market — and are in the process of demonstrating that, China’s remarkable success over the past 25 years notwithstanding, the nation’s rulers have no idea what they’re doing.

6.Reliance on dairy – Michael Reddell has been blogging up an excellent storm over at Croaking Cassandra. Today he’s done a fantastic piece on long-run dairy prices and just how much extra real production has come from our farming sector. It has essentially stalled in real terms in recent years.

The chart is a cracker and he points to a reason why farmers might be increasing production despite the apparent weakness in prices.

In their paper “The intensification of the NZ Dairy Industry – Ferrari cows being run on two-stroke fuel on a road to nowhere?”, presented at an agricultural economics conference last year, Peter Fraser and two co-authors (Warren Anderson, an academic at Massey, and Barrie Ridler,a Principal at Grazing Systems Limited) argue that many New Zealand dairy farmers have been applying anything but the principle of producing until marginal revenue equals marginal cost.  I spent quite a bit of time working with Peter during the 2008/09 dairy price crash – I knew about debt but he (at MAF) knew, and taught me, a lot about dairy. I have a lot of time for his (often-trenchantly-expressed) views.

Fraser et al argue that most of the farm models used by farmers and their advisors in New Zealand take an average cost approach rather than a marginal cost approach, which is inducing increases in production beyond the point of profit maximisation.

7.Like Uber but for dairy – Eric Crampton has also been blogging over at Offsetting Behaviour about dairy, but from a different point of view. He suggests a solution to the problem with Canadian dairy producers not wanting to take the up-front pain of relaxing import restrictions. He has a curious idea. He suggests a new tax on dairy in Canada to pay for bonds to buy quota off farmers.

I love it when libertarians propose new taxes 😉 It’s a clever idea.

8. Three gluts to shape the global economy – Jonathan Shapiro over at SMH has a good piece on the three gluts that will rock our worlds. The comments on a savings glut are fascinating.

From the folks who brought you the “new normal” and the “new neutral”, welcome to the world of the “three gluts”. That’s the descriptive phrase of the global economy offered by global bond fund PIMCO and its newly appointed economic adviser Joachim Fels.

In his first missive since joining the US-based bond fund in February, Mr Fels said global macroeconomic forces would be defined by the “the three gluts” – of money, savings and oil.

Cheap money and energy would spur an economic recovery but an abundance of savings would keep global interest rates in check, Mr Fels said in a note to clients.

“While the global savings glut is likely the main secular force behind the global environment of low growth, ‘lowflation’ and low interest rates, both the oil and the money glut should help lift demand growth, inflation and thus interest rates from their current depressed levels over the cyclical horizon,” he said.

There were several reasons why the demand to save was greater than the demand to invest, Mr Fels said. They were: history, with consumers still scarred by the financial crisis; demography, with savers living longer; inequality, with the rich saving more than the poor; technology, with new companies able to expand with little investment; and necessity, with emerging market companies dealing with capital flight risks.

The savings glut had led to weak demand, which “for a long time slows potential growth and turns into permanent joblessness, while weak investment dents the growth of the capital stock”, Mr Fels wrote. 

He said if governments failed to fill the demand and if central banks could not force rates down enough, or into negative territory, “they have to resort to blowing pretty bubbles in the financial markets, in order to avoid worse outcomes”.

9. Totally John Oliver on the state of Washington DC. He’s always good for a laugh and some surprising knowledge.

10. Totally Clarke and Dawe are asking for a recount. Just plain funny.