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Is It Time to Short HSBC Stock?

Monday, 07 October 2013 04:24

That's what readers of an NYT column by Stephen D. King, the chief economist at HSBC, must be wondering. The piece, perversely titled "When Wealth Disappears," tries to construct a story of gloom and doom out of King's own confusion about economics.

The basic point seems to be that we have to adjust to a period of slower growth based on his claim that the growth of the period from the end of World War II until the end of the last century was an anomaly. To start with, the period of strong growth by most accounts is in fact much longer, going back well into the 19th century.

Furthermore, the accounting is more than a bit peculiar. Most of the slowdown in growth that troubles King is due to slower population growth. This means that countries might see slower overall growth, but little change in per capita GDP growth. Since it is the latter that affects living standards, why would anyone care if overall growth slows?

The same logic applies to one of the issues that troubles King. With most women now already taking part in the paid labor force, we cannot have the same gains to growth from more women entering the labor force as we did in the period from 1960 to 2000. While this is true, that growth was attributable to an increase in workers' hours, not an increase in output per worker. Certainly it is good that women have opportunities that they did not previously, but we usually think of society getting richer because we are getting more money per hour of work, not working longer hours. (On that point, if we want to adopt the Stephen King growth measure, Europe can see a 25 percent jump in output if European workers decided to put in the same number of hours each year as workers in the United States.)

If we have to fear a slowdown in productivity growth, as some economists have argued, this would imply a slower improvement in living standards. But King explicitly rejects this view:

"The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance."

So what do we have preventing the U.S. and other economies from growing more rapidly? King never really gives us a clear story. We know he doesn't like stimulus telling readers:

"Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.

Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire."

Actually this is a lie. (Sorry, I'm tired of people in high places making completely unfounded assertions.) The forecasts of the advocates of stimulus, like me, have been shown to be overwhelmingly correct, including the prediction that the housing bubble would collapse and lead to a severe recession. 

At the end of the day, I doubt any reader of King's piece can figure out whether he thinks the world's economic problems are too much or too little supply. After all, he disparages the idea of the Fed keeping interest rates below the rate of inflation not because it would be inflationary, but it would be unfair to foreign creditors. He makes the same argument against reducing the value of the dollar, apparently unaware of the fact that the dollar has already fallen 20-30 percent against the value of other currencies since its peaks at the beginning of the last decade. (As a practical matter, interest rates have often been below the rate of inflation. People who lend hundreds of billions of dollars to the United States are presumably smart enough to understand this risk and also that the dollar could fall in value against other currencies.)

Anyhow, the long and short of this piece is that like most bankers, Stephen King wants people to get lower Social Security and Medicare benefits and retire later in life. He doesn't have much of an argument for this view, but hey, the chief economist at HSBC is an important person.

Note: Spelling of "Stephen King" corrected.

Comments (13)Add Comment
It's Not About Inevitable Disappearance of Wealth - It's About Redistribution of Wealth
written by Last Mover, October 07, 2013 5:51

What has happened to the United States of America was a choice, not an inevitable consequence of one-off events that created a golden age of growth that will be no more. The commenter below on King's column sums it up nicely:
This entire article is an disingenuous piece of malarky written by someone with a vested interest in keeping the corporate elite gorging on cash that they have been hoarding since 2008.

This crisis was not inevitable, it was not unavoidable. It happened because vested interests at the top of the food chain wanted it to happen. Those at the top stopped INVESTING in the future in favor of the quick buck. They manufactured this crisis by making funny money trading paper, blowing up bubbles and cratering the middle class through their own rapacious greed.

Modern societies can choose to expand or contract. The elites want contraction because having a nearly indigent class of formerly middle class workers scratching for crumbs suits their agenda.

We would have expansion if people would INVEST in basic research, INVEST in R&D, INVEST in our crumbling infrastructure, INVEST in our educational system, INVEST in alternative energy sources...the list goes on and on. Instead the corporate elite are being allowed to sit on trillions in cash.

If we are to grow again, these corporate criminals are going to have to have a long soak in a tax tub.
The horror!
written by Squeezed Turnip, October 07, 2013 6:42
Steven King? Must be a Freudian slip, not just a typo. The title of King's horror story should be "Misery (for the middle and lower classes)
written by JDM, October 07, 2013 8:32
This is interesting in terms of Dean's frequent observation of media reports making either false or confusing statements because they use only gross numbers I'm their "analysis". Here it seems King is doing the same thing. It may we'll, be that they aren't trying to pull the wool over others' eyes but are simply to stupid to see that gross numbers don't tell the story. That telling the story is their profession, and one for which they ate highly paid, is fascinating, in the Spockian sense.
King also advocates for more immigration to increase the working age population
written by John Wright, October 07, 2013 8:58
There is a bias of business economists toward ever increasing the supply of labor, which inevitably leads to more demands to increase the population even more as this increased labor supply ages.

Why not leverage the productivity of the existing work force via capital investments, education and infrastructure improvements?

And this could help with climate change as an aged machine can be later idled without adding more to the CO2 burden, unlike a retired worker.

Judging from the always "increase immigration" tone of many media economists, economic departments must teach that increasing the working age population is always a good policy.

The cynic in me suggests these economists' employers prefer the lower wages of a surplus labor economy, so the working age population must never decrease or stabilize.

And the flat median wage over the 40 year period from 1968-2008 for working men in America argues there is no labor shortage to be concerned about.

But the business press continues to press for more increases in the US labor supply.
Rentiers like population growth
written by winstongator, October 07, 2013 9:52
Say you live in an area, and you are able to extract per-household rents, and that was your only source of income. As the number of households grows, you do not need to increase your per-household rent to increase your overall income. However, take out population growth, and the main engine of your income growth is gone.

One's concern with population growth says something about their motives.
Social Classes
written by Ellis, October 07, 2013 10:35
Banks and other big companies are literally choking with all the wealth they have accumulated. Yet they want more, and they are squeezing the working population and the poor for everything they got. That's how the profit motive works. It's a class war.

I know that we are not supposed to use the word social class among modern economists. But maybe, just maybe, the problem is capitalism, itself.
think globally folks
written by pete, October 07, 2013 10:59
Wealth and income are extremely unbalanced, but not so much on national scales as on global. We are paying folks on disability $15,000 a year. This is is astronomical in global terms. Minimum wage in Bangkok is $10 a day, about $3,000 a year. Do the math. As long as the global economy continues to become intertwined, instead of having world wars, there will be increasing returns to the scarce resource, which is capital. Returns to human capital, labor, which is hardly scarce, will be small. There is a long way to go, hold on to your seats. Global growth is what, about 5% per year. That's the critical number.
Consumer pool
written by Arne, October 07, 2013 11:10
It is much easier to run a successful business if your consumer base is growing. Absent more customers, that means wealthier customers, but since customers is just another name for workers that is a problem. Paying workers more creates a better consumer base, but it is no longer as easy to run the business.
HSBC column
written by Eclectic Obsvr, October 07, 2013 11:15
The piece was supposed to be from HSBC Chief Economist but was almost devoid of economic analysis. How strange. Why was this guy given newspaper space? Joe at my corner bar has as much back-up for his views. Very sad on NYT's part.
written by AlanInAZ, October 07, 2013 11:39
This means that countries might see slower overall growth, but little change in per capita GDP growth. Since it is the latter that affects living standards, why would anyone care if overall growth slows

I think the above statement is not completely correct. Per capita GDP does not reflect the scale necessary to provide the infrastructure for a thriving modern society. If GDP falls to much then I do believe quality of life could suffer even if per capita income is steady.
written by watermelonpunch, October 07, 2013 11:21
Let's forget about the horror novelist pun here, and consider that Stephen King's middle initial might stand for "Downer"... as in some relation to DEBBIE DOWNER.

Yes, and the Egyptian pharaohs who ordered the construction of things like pyramids or the sphinx, created anomalous economic booms apparently.
And we marvel over these structures thousands of years later.

Those ancient society leaders were apparently smarter than we have today.

As a species, we're still bound to our planet.
We only now have a craft that's left the solar system.
And we still haven't perfected the use of replacement parts for the human body.

The ancient Egyptians didn't even know what the parts were for, let alone think to replace them. And they didn't walk around staring into handheld devices which can communicate with someone on the other side of the planet or listen to 50+ hours of their favourite tunes from an object the size of matchbook. And their concern for the stars had more to do with seasonal time keeping.

It didn't really matter, did it...
Pyramid builders, I read, had the best food & medical care available at the time. Sounds not half bad for the ordinary folks of thousands of years ago.

Seems to me that my indoor cat is more optimistic & forward thinking than this King guy.
She got outside a couple of times, and now she keeps thinking she might make a break for it again, and see more, and maybe go farther.
Much to our annoyance, she certainly didn't think the episode of bounding around in the back yard was an anomaly.

Maybe someone needs to accidentally let Stephen D. King out for a little field trip.
Or at least put a bungee cord squirrel feeder outside his window, cause I hate to see him so sad.
written by sglover, October 08, 2013 10:12
A rising population means a growing market for the narcotics black marketeers who have been some of HSBC's most valued customers.
written by watermelonpunch, October 08, 2013 11:31
HSBC and its employees avoided criminal indictments, as the bank agreed instead to a deferred-prosecution deal that forces it to strengthen controls and accept a compliance monitor.

Ideology or self-interest?

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.