Finance

The two German lenders abandoned a merger plan in 2019, but concerns about bank profitability, and reports that the German government’s is considering selling some of its company stakes, have rekindled whispers about a possible tie-up in recent weeks.
“Obviously with regard to the sharply increased interest rates, you have to think about fair value gaps given the mortgage books of a lot of banks, so I don’t think it is a priority for this year,” Sewing said.

Christian Sewing, Chief Executive Officer of Deutsche Bank, has acknowledged that a recession in Germany is inevitable, and urged leaders to accelerate its decoupling from China.
Denis Balibouse | Reuters

Deutsche Bank CEO Christian Sewing on Thursday said that merger and acquisition activity is not a priority for his group, as speculation resurfaces over the future of domestic rival Commerzbank.
The two German lenders abandoned a merger plan in 2019, but concerns about bank profitability, and reports that the German government’s is considering selling some of its company stakes, have rekindled whispers about a possible tie-up in recent weeks.

The state still has a 15% stake in Commerzbank, but Reuters reported earlier this week that Finance Minister Christian Lindner is open to disposing of it.
The merger of Germany’s two biggest banks would create a combined entity with around $2 trillion in assets, although Deutsche Bank’s low valuation could complicate any such move. The bank trades at around 12 euros per share, a fraction of its book value, and a significant portion of assets would need to be marked down.

Speaking to CNBC on the sidelines of the World Economic Forum in Davos, Switzerland on Thursday, Sewing appeared to pour cold water on the rumors, at least for now.
“I wouldn’t say it’s on top of my priority, to be honest. I have always said for years that M&A in the banking industry, particularly in Europe, must come at some time, but most important for that is that certain preconditions are met — preconditions from a regulatory point of view, finalization of the banking union,” Sewing said.
“Obviously, with regard to the sharply increased interest rates, you have to think about fair value gaps given the mortgage books of a lot of banks, so I don’t think it is a priority for this year.”

The European Banking Union was created in 2014 and seeks to ensure the bloc’s banking and financial systems are stable.
In December, Italy’s lower house of parliament voted down reforms to the European Stability Mechanism, the euro zone’s bailout fund, which had been approved by all other euro zone countries.
This left the bloc unable to implement a portion of its banking union legislation described by Eurogroup President Paschal Donohoe as “a key element of our common safety net.”
“Therefore, we are focusing on our own business,” Sewing concluded. “If, in this own business, there are possibilities and options for doing the one or the other smaller add-ons, like we have done with Numis, then obviously we are looking at it.” More

Just over 100 days after Hamas’s brutal attack on Israel started a war in Gaza, the conflict is still escalating. On January 11th America and Britain started attacking Houthi strongholds in Yemen, after months of Houthi missile strikes on ships in the Red Sea. Five days later Israel fired its biggest targeted barrage yet into Lebanon. Its target is Hizbullah, a militant group backed by Iran.A full-blown regional war has so far been avoided, largely because neither Iran nor America wants one. Yet the conflict’s economic consequences are already vast. Trade routes are blocked, disrupting global shipping and devastating local economies. The Middle East’s most productive industries are being battered. And in Lebanon and the West Bank, growing hardship threatens to spark even more violence.Start with trade. Before Hamas’s attack, a fifth of the average Middle Eastern country’s total exports—from Israeli tech to oil from the Gulf—were sent somewhere else in the region. Geopolitical enemies were increasingly trading with each other. Now, the routes that transported more than half of all goods are blocked. Intra-regional trade has collapsed. At the same time, the cost of shipping goods out of the Middle East has risen. That will send many exporters, operating on razor-thin margins, out of business in the months to come.image: The EconomistThe Red Sea used to handle 10% of all goods moving around the world. But since the Houthis began launching missiles, its shipping volumes have dropped to just 30% of normal levels (see chart). On January 16th Shell, an oil and gas giant, became the latest multinational to say it would avoid the Sea.For some of the countries bordering the Red Sea, Houthi missile strikes have far worse consequences. Eritrea’s economy is propped up by fishing, farming and mining exports, all of which travel by sea owing to tense relations with its neighbours. For crisis-stricken Sudan, the Red Sea is the sole point of entry for aid, almost none of which has reached the 24.8m people in need of it since the attacks began.Further disruption could visit financial ruin on Egypt, one of the region’s biggest countries. For its population of 110m, the Red Sea is a vital source of dollars. Its government earned $9bn in the year to June from tolls on the Suez Canal, which links the Mediterranean to the Red Sea. Without the toll revenue, Egypt’s central bank would have run out of foreign exchange reserves, which stood at $16bn (or two months-worth of imports) at the start of 2023. The government would also have faced a yawning hole in its budget, which already relies on cash injections from Gulf states and the IMF.Both crises may materialise in 2024. Egypt’s year-to-date income from the Suez is 40% less that it was this time last year. That puts it at real risk of running out of dollars, which would push its government into default and its budget into disarray.Conflict has also hit the Middle East’s most promising industries. Before October 7th Israel’s tech sector was its brightest bright spot, contributing a fifth of the country’s GDP. Now it is struggling. Investors are pulling funding, customers are cancelling orders and much of its workforce has been called up to fight.Jordan, meanwhile, is suffering from forgone tourism, which would normally constitute 15% of its GDP. Its struggles are emblematic of those across the region: even Gulf states have seen tourist numbers dip. In the weeks after Hamas’s attacks, international arrivals to Jordan fell by 54%. Just like Egypt, the lost revenues leave it perilously close to default.Yet the most dangerous economic consequence of the war may be the hardship inflicted on populations in Lebanon and the West Bank, two powder kegs that could easily explode into more violence. As Israel and Hizbullah trade air strikes, they are destroying southern Lebanon. More than 50,000 people have already been displaced (as well as 96,000 in northern Israel). Repairs will be expensive, but there is no cash left for them: Lebanon has had a shell government since it defaulted in 2019. In recent months its economic freefall has accelerated as foreign tourists and banks, which together make up 70% of its GDP, have deserted the country on the advice of their governments.Things are no better in the West Bank. Of its 3.1m residents, 200,000 are factory workers who used to commute to Israel every day. They are out of work after Israel revoked their permits. Meanwhile, 160,000 civil servants have not been paid since the war began. The West Bank’s government now refuses to accept its tax revenues from Israel (which collects them) after Israel withheld funds that would usually be sent to Gaza. Public services are shutting down, and missed mortgage payments from civil servants risk triggering a banking crisis.The Middle East has long been full of economies on the brink. Israel’s war with Hamas may now tip them over. To make ends meet, their governments have built houses of cards, balancing bail-outs from Gulf states, handouts from America and expensive short-term loans. The risk of it all tumbling down is worryingly high.The rest of the world economy has so far faced few costs from the conflict. Oil prices have remained relatively calm, except for a spike in early January, and the effects on global growth and inflation are likely to be minimal. But if much of the Middle East slides into a debt crisis, all that could change, and fast. It would hit populations that are young, urban and increasingly unemployed. That is a recipe for even more extreme politics in a large group of strategically important, chronically volatile countries. The consequences would reverberate across the world. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

In Australia, as in most places, waterfront property comes at a premium. But to see the full effects of high-cost Australian housing, look beyond trophy homes on Sydney Harbour and beach pads in Bondi. In cities across the country, tents and other makeshift shelters are springing up by the water. They are the dark side of a housing market that has held firm despite rising interest rates. For households of all incomes, the share of homes that are affordable is at its lowest in 30 years.Australians are not alone. House prices are high relative to incomes across the rich world, and last year defied expectations by rebounding after only the briefest of blips. Rental markets are hot, too. Vacancies are at or near historic lows in many rich countries, while rents are climbing quickly. In previous decades, notes Peter Tulip, an economist, rising housing costs were offset by cheaper lending. Now mortgage rates have risen as well, meaning would-be buyers can afford to borrow less.What is behind the unexpected resilience in prices? It is partly down to global trends, such as people working from home more and so placing a higher value on their living space. But Australian policymakers are increasingly focusing their attention on three domestic factors, too.The first is that foreign demand for Australian housing is greater than ever. Net immigration was 500,000 in the year to June, more than twice the intake in 2019. At the same time some 650,000 international students call Australia home, and all need somewhere to stay. And even foreigners who do not live in Australia full-time seem keen on its housing market: such buyers snapped up 10% of newly built homes sold in the third quarter of 2023.The second factor is the cost of materials. The producer price index for construction has risen by 30% since the start of 2021. As well as making houses costlier to build, this has left Australia with fewer builders. More than 1,500 construction firms collapsed in the year to June, mostly owing to cost overruns. The result is a reduced supply of new homes and even more upward pressure on prices.But the biggest brake on home-building, says Mr Tulip—and the third factor driving house prices up—is local councils’ planning rules. A prime example is Sydney, where large numbers of homes face development restrictions. Meanwhile, zoning rules raise house prices well above the combined underlying cost. Mr Tulip’s research suggests that, again in Sydney, this increase is a whopping 73%.Might the government be able to ease the squeeze? It has promised to reduce immigration, to triple the fees paid by foreign purchasers of existing homes and increase taxes on properties left vacant. A national target to build 1m homes over the next five years has been raised to 1.2m. And there are some signs of planning restrictions being loosened. The New South Wales state government is rewriting its zoning rules to force local councils to accept higher density housing. Such efforts will inevitably provoke furious objections. But they will not come from the growing number of Australians who settle down for the night in a waterside tent. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Over the past two years The Economist has studied the economic fortunes of Hikelandia. This group of eight countries—Brazil, Chile, Hungary, New Zealand, Norway, Peru, Poland and South Korea—started to tighten monetary policy in 2021, many months ahead of the Federal Reserve and the European Central Bank (ECB). They also raised rates far more aggressively. Yet for much of 2022 and 2023 Hikelandia’s central bankers had little to show for their hawkish determination. Inflation just kept on climbing.image: The EconomistNow, though, that has decisively changed. Hikelandian inflation is still far too high, but it is falling fast (see chart). So fast, in fact, that the club’s central bankers are now getting ahead of the rest of the world in a new way: by cutting interest rates. Policymakers in Hikelandia have reduced borrowing costs by about a percentage point on average from the peak last year. Chile’s central bank has reduced its policy rate by three percentage points. Neither the Fed nor the ECB, meanwhile, has moved. Lower interest rates seem to be helping Hikelandia’s growth. A year ago economic output across the club was declining sharply. Now it is rising.Not everywhere in Hikelandia is enjoying sharply lower inflation. In Norway “core” prices, a measure that excludes those of food and energy, are still rising by 6% year on year. That is only a bit below a recent peak of 7%. The core-inflation slowdown in Peru is also modest. But elsewhere, price growth is easing fast. Core inflation in Hungary has fallen by an astonishing 15 percentage points since the beginning of last year, when huge rises in energy prices had raised the cost of producing practically everything.Other data show inflation becoming less entrenched. In late 2022 prices for every category of good and service in Poland’s inflation basket had risen by more than 2% year-on-year. By late 2023, only 90% of them had. The fall in “inflation breadth” in South Korea is even more impressive. Wage gains are moderating, limiting further increases in companies’ costs. In Chile in November nominal wages were 8.2% higher than a year previously, compared with well over 10% for much of 2022. Annual wage growth in New Zealand has fallen from about 5.5% to 5%. People across Hikelandia are no longer Googling “inflation” anything like as much as they were.Hikelandia’s central bankers are still keen to stress their inflation-fighting credentials. Hungary’s central bank boasts of its “careful approach to monetary policy”, pointing out that real interest rates are still restrictive. On January 9th Poland’s central bank declined to cut rates; South Korean policymakers reached the same decision on January 11th. But tumbling inflation is undoubtedly good news. And if Hikelandia’s hawkish central bankers are now cutting rates, others may soon follow. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Can you feel the chill? It is bone-deep, now. In 2021 capital markets were searing hot. On average, at least one new firm went public every working day. But financial districts today are icy. For two long years private companies have spurned public markets, as rising interest rates dashed lofty valuations and stock prices vacillated.All this has been bad news for Wall Street. In 2021 America’s five largest investment banks together earned an average of $13bn per quarter through their dealmaking and initial-public-offering (IPO) desks. Over the next two years they managed barely half of that.Could conditions soon thaw? Company bosses like to make their debut in a roaring bull market, when investors are cheery and liable to overpay. With markets now back near all time highs, that seems to be the case. And executives are encouraged by narrow credit spreads—the difference between the rates companies borrow at and risk-free rates on treasury bonds—which indicate investors do not expect financial trouble.A strong economy helps, too, because it boosts demand for capital. So do high real interest rates, since they make the capital provided by an IPO more attractive. Given the resilience of the American economy, a Federal Reserve policy rate of 5.5% and underlying inflation around 3%, both conditions are in place.Sure enough, there is some evidence of activity picking up. Total investment-banking revenues were better than expected in the fourth quarter of 2023, climbing by 15% compared with the previous three months. On earnings calls bank bosses sounded cautiously optimistic about 2024. There are rumours that all kinds of firms, from SKIMS, a pants purveyor founded by Kim Kardashian, to Stripe, a payments giant, are considering making their debut.Still, executives are easily put off by volatility—and it is hard to describe recent stockmarket moves as anything other than unpredictable. Given that a month or so often elapses between filing for an IPO and actually going public, a steady march higher is far preferable to a rollercoaster ride. Such circumstances tend to mean that those who can wait, do. In even moderately difficult times firms often put off ipos altogether, rather than accept a lower price, and a stockpile of those waiting to go public builds up.It still feels as if the economic mood could spin on a dime. This could hurt newly public firms. Shares in Cava, a fast-casual salad seller, doubled in price when it went public in June. Other firms got excited and started chewing over their options. In August Instacart, another firm which specialises in flogging vegetables to the idle, and Arm, a British chipmaker, filed to go public. Yet by the time they made it to market in late September, interest-rate expectations were climbing and share prices were falling. Instacart was valued at $39bn in 2021. It went public with a market capitalisation of $10bn, and is now worth just $7bn.So when might the IPO winter truly give way to spring? In an attempt to answer this, Gregory Brown and William Volckmann of the University of North Carolina have built a mathematical model. It takes in variables including stockmarket returns, credit spreads and real interest rates, and uses these to try to predict ipo volumes.Their first find is that today’s market really is extraordinarily chilly. They define the ipo market as “cold” when the average of the number of ipos over the last three months is lower than it was three-quarters of the time between 1975 and 2020 (an average of 5.3 or fewer ipos per month). On that measure, this is the longest cold spell for American ipos since 1980. It is also much cooler than the model would anticipate. It says some 20 firms a month should have been going public by the end of 2023. Yet only one firm went public in December.Messrs Brown and Volckman suspect the market is suffering from a hangover. Far more firms went public in 2021 than their model implied should have done. The stockpile, in other words, was depleted. So despite the recent pause, followed by improved conditions, there are still not many firms ready to list.A true thaw, then, would take more than a few quarters of rising markets and economic resilience. It needs not only heat, but time as well. That is time in which unexpected developments—such as interest rates resuming their upward climb—could easily spook bosses all over again. So perhaps it is unwise to predict a heatwave. But some green shoots may eventually poke through the ice.■Read more from Buttonwood, our columnist on financial markets: Bill Ackman provides a lesson in activist investing (Jan 11th)Why bitcoin is up by almost 150% this year (Dec 18th)The mystery of Britain’s dirt-cheap stockmarket (Dec 14th)Also: How the Buttonwood column got its name More

The U.K. is set to hold a General Election later this year, and the latest polling consistently suggests a landslide Labour victory, bringing to an end fourteen years of Conservative rule.
Labour’s Shadow Finance Minister Rachel Reeves has been at the World Economic Forum in Davos this week making the party’s case for overseas business investment into the U.K.

LIVERPOOL, U.K. – Oct. 11, 2023: Britain’s main opposition Labour Party leader Keir Starmer applauds a speaker the final day of the annual Labour Party conference in Liverpool, northwest England, on October 11, 2023.
Paul Ellis | Afp | Getty Images

Political risk in the U.K. is “far less than it’s ever been” as the difference between the ruling Conservative Party and main opposition Labour on economic policy is “fairly minimal,” Barclays CEO C.S. Venkatakrishnan said Thursday.
The U.K. is set to hold a General Election later this year, and the latest polling consistently suggests a landslide Labour victory, bringing an end to fourteen years of Conservative rule.

Since current Labour leader Keir Starmer took the reins in April 2020, the party has transformed itself from the hard-left offering that suffered a crushing election defeat in 2019 to a centrist, pro-business alternative to Prime Minister Rishi Sunak’s Conservatives.
Labour’s Shadow Finance Minister Rachel Reeves has been at the World Economic Forum in Davos, Switzerland this week, making the party’s case for overseas business investment into the U.K.

She told CNBC Wednesday that the party’s focus was on powering improvement in living standards through economic growth, not raising taxes on business or high earners.
“I think the political risk in the U.K. is far less than it’s ever been,” Venkatakrishnan told CNBC at WEF.
“This election, whenever it comes, is not Margaret Thatcher with James Callaghan. The difference in economic policies between the two, and they’re both striving to say so, are fairly minimal,” he said, referencing two former British leaders.

Labour’s “five point plan for growth” includes a new fiscal lock to restore economic stability, mass reforms to planning laws to build 1.5 million new homes, and a new industrial strategy to generate investment in the life sciences, digital, creative, financial, clean power and automotive industries.
Despite the U.K.’s well-documented economic sluggishness and inflation still running at 4%, the Barclays boss also said he is “very optimistic” about the outlook for the British economy, and that the U.K. consumer is in “very decent shape.”

“These pent up savings have been getting eroded. On the other hand, it’s a floating rate mortgage market and a lot of the mortgage adjustment has happened, because the average term is about three years fixed and we’ve had three years of rising rates. Energy prices have calmed down, so the two things that hit the pocket book are calming down, and I will say that I’m very optimistic on the U.K.,” he said.
“I think that growth is not great, but growth is fine. It’s not as strong as the United States, but there are so many institutional advantages in the U.K., and it’s the home of so much innovation, so much technology.”
U.K. gross domestic product fell by 0.1% between July and September, after flatlining in the prior three months, but has proven more resilient than many forecasters expected in the face of a sharp rise in interest rates over the last two years.
The next round of quarterly data due in February will show whether the economy has entered a technical recession, defined as two consecutive quarters of GDP shrinkage. More

JPMorgan Chase CEO Jamie Dimon praised former President Donald Trump’s positions on the economy, taxes and immigration.
Dimon admonished Democrats to be “more respectful” toward Trump’s supporters, or else risk hurting President Joe Biden’s reelection bid.
Dimon had previously heaped praise on one of Trump’s GOP primary challengers, former United Nations Ambassador Nikki Haley.

JPMorgan Chase CEO Jamie Dimon on Wednesday praised former President Donald Trump’s record and admonished Democrats to be “more respectful” of Trump’s supporters, or else risk hurting President Joe Biden’s reelection bid.
“I wish the Democrats would think a little more carefully when they talk about MAGA,” Dimon said on CNBC’s “Squawk Box,” referencing Trump’s supporters by the acronym of his “Make America Great Again” campaign slogan.

Biden has warned that Trump and “MAGA Republicans” pose an existential threat to American democracy. But he has also tried to distinguish between Trump’s most hardline supporters and “mainstream Republicans,” who Biden says make up a majority of the party.
“I think this negative talk about MAGA is going to hurt Biden’s election campaign,” Dimon said from the World Economic Forum annual meeting in Davos, Switzerland.
Dimon argued that using the phrase “MAGA” incorrectly links Trump’s supporters to the former president’s personality and character.
Democrats “are basically scapegoating them, [saying] that you are like him,” Dimon said. “I don’t think they’re voting for Trump because of his family values,” he said.
The remarks by Dimon, who has donated to Democratic candidates but previously described himself as “barely a Democrat,” came two days after the former president trounced his few remaining Republican rivals in the Iowa caucuses.

In November, Dimon heaped praise on one of Trump’s challengers, former United Nations Ambassador Nikki Haley, who finished third in Iowa on Monday.

Read more CNBC politics coverage

Dimon also gave Trump credit for his policy record.
“Take a step back, be honest. He was kind of right about NATO, kind of right on immigration. He grew the economy quite well. Trade tax reform worked. He was right about some of China.”
“He wasn’t wrong about some of these critical issues, and that’s why they voted for him,” Dimon said.
Asked which candidate would be better for his business, Dimon said, “I have to be prepared for both. I will be prepared for both. We will deal with both.”
“And I hope whoever it is will be respectful of other people,” he added.
The White House did not immediately respond to CNBC’s request for comment on Dimon’s remarks.Don’t miss these stories from CNBC PRO: More

Science advances one funeral at a time, to paraphrase Max Planck. The Nobel prize-winning physicist was arguing that new ideas in his field would only catch on once the advocates of older ones died off. With a little adaptation he could have been describing the dismal science, too: economics advances one crisis at a time. The Depression provided fertile soil in which John Maynard Keynes’s theories could grow; the Great Inflation of the 1970s spread Milton Friedman’s monetarist ideas; the global financial crisis of 2007-09 spurred interest in credit and banking.Sure enough, the recovery from the covid-19 pandemic has given economists another chance to learn from their mistakes. Papers presented at the recent conference of the American Economic Association (AEA) offer clues as to the theories that might eventually become the received wisdom of the next generation.One such paper takes a harder look at the Phillips curve, which describes a theoretical trade-off between unemployment and inflation. When unemployment is low, the logic goes, inflation should be higher as competition for workers exerts upward pressure on wages. This ought to raise consumer prices. Yet during the 2010s the curve had seemed to vanish. Unemployment kept falling but inflation stayed quiescent. Then, after the pandemic, the relationship suddenly seemed to re-exert itself: inflation rose as swiftly as unemployment fell.At the AEA conference, Gauti Eggertsson of Brown University suggested that adding a kink to the (previously smooth) Phillips curve might rescue the concept. The idea is that, at a certain point—as the last available worker is employed—the relationship between inflation and unemployment suddenly becomes non-linear. “As you hire all the people you hit the maximum level of employment…there is only one way to go,” he told the conference. Beyond that point, inflation no longer rises smoothly as unemployment falls, but instead shoots up.Mr Eggertsson’s kink could explain both inflation’s absence in the 2010s and its sudden resurgence in 2021. To understand how inflation has recently faded without a rise in unemployment, he suggests examining how a tight labour market interacts with supply disruptions. A scarcity of materials and components exacerbates labour shortages; a scarcity of workers prevents businesses from both ramping up production and using labour as a substitute for other inputs. As supply shortages eased, this process went into reverse. And so the inflationary effect of a tight labour market abated without leading to a rise in unemployment.Part of the confusion over the Phillips curve, suggested another paper presented by Stephanie Schmitt-Grohé, of Columbia University, arose because the Great Inflation looms too large in economists’ minds. Friedman’s work emphasised the role of inflation expectations during that episode. Workers and businesses lost faith in central bankers’ willingness to fight rising prices. Then came a vicious cycle in which soaring inflation fuelled expectations of future price rises, which then became self-fulfilling.But the experience of the 1970s was far from typical, suggests Ms Schmitt-Grohé. Peering further back, she points to frequent instances of American inflation suddenly rising, then falling just as suddenly. One such episode took place amid the Spanish flu pandemic, starting in 1918. That year annual inflation rocketed to 17%. But by 1921 it had turned to deflation, with prices falling by 11%. Consider data from the whole 20th century, and not just its second half, and the fading of the most recent bout of inflation is much less surprising. Ms Schmitt-Grohé suggests that the shocks now hitting the economy—such as climate change, conflicts and a pandemic—mean a return to the greater volatility of earlier ages.Meanwhile, others are trying to refine models for the overall economy. These have traditionally represented production as taking place in a single sector—employing workers, renting capital and producing output—that is hit by shocks to demand and supply. Iván Werning, of the Massachusetts Institute of Technology, suggests instead considering a set of different sectors, each hit by such shocks in its own way. The challenge for monetary policy is then to control inflation without inhibiting the necessary reallocation of labour between sectors.Mr Werning’s model is a good fit for the post-pandemic economy. It adjusted not just to a shift in demand from services to goods, but to supply-chain disruption, energy shocks and employees in some sectors working from home. As such, inflation moved through the economy in waves, starting in select goods then spreading out. That is not to say that monetary and fiscal stimulus did not also contribute to rising prices, says Mr Werning. It is more that the rejigging of the economy acted like a supply shock, raising inflation for any given level of aggregate demand.New ideas in old booksMany of these ideas are not exactly new. Mr Eggertsson, for instance, said that the experience of the past few years led him back to an “old Keynesian fairytale”, and that his version of the Phillips curve is similar to the original. Mr Werning points to a speech by James Tobin, a Keynesian economist, in 1972. Like Mr Werning, Tobin suggested that inflationary pressure can arise from sectors growing and shrinking at different rates. Combine that with a non-linear Phillips curve, Tobin argued, and you can envisage inflation taking off even without a hot labour market.That crises spur a search through the archives is itself nothing new. To make sense of the Depression, Keynes looked to Thomas Malthus, a 19th-century economist. Friedman’s take on the causes of the Great Inflation owes much to the quantity theory of money, which was first mentioned in ancient Chinese texts and popularised in Europe by Nicholas Copernicus, a 16th-century astronomer. Science may indeed proceed one funeral at a time. Economics, however, has resurrections. ■ More