Charlie Brooker’s Weekly Wipe is a British TV show, more or less like The Daily Show. Here they’ve put together a faux news report containing all the features that usually go into one of these things … with just about as much actual economic content as usually go into these things:
You shouldn’t always take these things you see on TV too seriously. There often isn’t very much to them.
Via Alex Tabarrok from Marginal Revolution.
[This conclusion is] called into question by the simple observation that the remarkable record of East Asian growth has been matched by input growth so rapid that Asian economic growth, incredibly, ceases to be a mystery. [quote corrected after class]Essentially, Krugman is saying that other countries don't match the growth in East Asia because they do not have societies or governments that are capable of marshalling capital as readily.
... There were no severe distortions towards poor or low-income people in the way banks allocated capital at loan origination.Instead, what we see is rich people borrowing too much because the bubble looked too good to pass up:
... Lenders and borrowers bought into high house price expectations and ignored potential equilibrium effects from a large fraction of borrowers being levered to their maximum ...The paper includes a chart showing that the portion of mortgage delinquencies among the rich increased from 7% to 32% from 2003 to 2006.
In particular, the data do not seem to support the view that the social safety net is discouraging participation ...Note that these numbers are over the course of a generation, so we're not seeing business cycle effects (in fact it's pretty hard to see the two recessions in this chart). Further, this is participation. That includes people who are unemployed: so this isn't about a lack of jobs but rather a lack of interest in working at all.
International Monetary Fund officials told their euro-area colleagues that Greece is the most unhelpful country the organization has dealt with in its 70-year history, according to two people familiar with the talks.
In a short and bad-tempered conference call on Tuesday, officials from the IMF, the European Central Bank and the European Commission complained that Greek officials aren’t adhering to a bailout extension deal reached in February or cooperating with creditors ...This kind of points towards a conclusion that Syriza's worldview is that because they've chosen to wear white hats that this makes the other guys bad. There's a lot of window dressing on it, but at the core that may be what's going on here.
"... Given four alternative ways of describing how much the War on Poverty reduced poverty, 20 percent chose “a major difference,” 41 percent chose “a minor difference,” 13 percent chose “no difference,” and 23 percent chose “made things worse.”Broadly, those views are supported by official data showing that the poverty rate now stands at about the same point (14%) that it did in 1967. Do note that business cycle expansions are capable of making that rate fall by up to 4%, and recessions can run it up by that much too.
... When I tell my friends or my students that “there is still a lot of poverty, but less than there used to be,” they have trouble remembering both halves of the sentence. Some remember that there is still a lot of poverty. Others remember that there is less than there used to be. Few remember both.****************************************************
... In adults, we find no evidence that wealth impacts mortality or health care utilization ...
... We find that wealth increases children's health care utilization .. and may also reduce obesity risk.The effects on most other child outcomes ... can usually be bounded to a tight interval around zero. Overall, our findings suggest that correlations observed in affluent, developed countries between (i) wealth and health or (ii) parental income and children's outcomes do not reflect a causal effect of wealth.This is not a direct test, but it is suggestive that causality goes the other way: that people make lifestyle choices that are jointly beneficial to health, wealth and income, or jointly non-beneficial. So this research points in the direction that policies to redistribute income and wealth punish better choices and reward worse choices.
Many people (outside of economics) seem to take as a given the oft-repeated idea that there’s been no real improvement in the standard of living of most Americans since the 1970’s.
I think this is ridiculous, but there’s a lot of people that believe vaccines cause autism too.
Anyway, Scott Sumner, writing at EconLog, has documented how some of the support for that idea comes from people improperly deflating nominal consumption (from GDP) with the CPI (not based on GDP). He even links to a Nobel Prize winner who does this.
I don’t make this mistake, and I didn’t incorporate it into your handbook. But it seems plausible that other people have done this.
But, of course, I did stress that the CPI — because of the method of its construction — is biased towards finding inflation rates higher than they really are and real values smaller than they really are.
Read this Jared Dillian piece entitled “The Anthropology of Finance”. It’s about how, if you’re an investor looking for new opportunities to earn returns, you need to look at the local culture.
What I’m trying to say is that the people of Norwich have no aptitude for making money. I’m not saying they are dumb. I’m not saying they are anti-business. Norwich leans left, like the rest of Connecticut, but there are many left-leaning places that are thriving economically. I’m saying that commerce is not in their culture …
In measuring why economic growth occurs, we subtract out population growth, yielding a residual: what’s left over. Then we subtract out capital growth, yielding a smaller, finer, residual. At simple levels we stop there, but at higher levels we go on with whatever data we can get our hands on.
And what we’re left with is residuals that vary from place to place. And those variations are positively correlated with well-being. We don’t know how to measure it yet, but macroeconomists are working very hard on quantifying what it is about culture that leads to improvements in well-being.
America seems to have a lot of it though. Contemporary Utahns are very sanguine about their own culture. Unfortunately, the data suggest that Utah is merely average when compared with other states.
Cato Unbound is running a series of 4 op-eds about how the standard of living has changed in the U.S. over the last several decades.
They let the conservatives go first, so go and read Megan McArdle and Brink Lindsey.
Here’s Megan:
We should never pooh-pooh economic progress. As P.J. O’Rourke once remarked, I have one word for people who think that we live in a degenerate era fallen from a blessed past full of bounty and ease, and that word is “dentistry.”
…
… Changes in job and family structure that have made the lives of people who are indisputably vastly materially richer than my young grandparents were, nonetheless feel much more precarious. We look into the numbers and think we’re seeing hard facts. But in fact, like someone reading tea leaves, we are projecting our intangible impressions onto an ambiguous picture.
Here’s Brink:
As the comedian Louis C. K. put it, “Everything’s amazing and nobody’s happy.” …
…
In contemporary society, paid employment along with marriage and childrearing are far and away the most important social relationships we have. They ground our personal identities and imbue our lives with meaning and purpose. Yet these vital interpersonal connections are now fraying badly.
Remind me in a few weeks if I don’t post what the two liberals have to say.
FWIW: Both Megan McArdle and Brink Lindsey would probably object to my label of conservative. I think they both would like classical-liberal, but few know what that means. I think Lindsey probably votes Republican, but would call himself a libertarian. McArdle is much more eclectic.
I am not sure which of Robert Heinlein’s works this came from, but it speaks to the improvement of well-being in human history:
Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as "bad luck”.
Blame Glenn Harlan Reynolds for the lack of a better citation. I drew this from his USAToday piece entitled “France’s Demographic Bad Luck” which discusses the skyrocketing rates of emmigration of French Jews to Israel.
More generally, outside of macroeconomics, people tend to view economic growth as an entitlement provided for them by society: living standards have always improved in my lifetime, therefore there’s no threat that they won’t continue to improve.
If you believe that, go talk to Argentinians.
If you don’t believe that, begin to recognize that economic growth derives from a set of institutions that aren’t permanent, and weren’t planned by politicians and bureaucrats. But politicians and bureaucrats are quite willing to pull those institutions down if they think it will get them votes or perquisites. And then they’ll blame bad people (e.g., it’s Bush’s fault), or bad luck (e.g., our current expansion being weak), or bad influences (e.g., China’s crackdown on western influences just as Chinese women engage in birth tourism), bad foreigners (e.g., the current Germans are bad because some Germans used to be Nazis but current Greeks are good because some Greeks used to be major western philosophers), or bad hypothetical bogeymen (e.g., we need to enforce net neutrality now because it hasn’t been violated yet).
Via Newmark’s Door.
As part of my continuing meme that people don’t get the importance of economic growth because we don’t tell people often enough how recently life was lousier, I bring you this chart from Mark Perry at Carpe Diem (he has links to the data there too):
What do you like to do: eat at home, or eat out at a restaurant/bar? I think that’s a no-brainer. So, what we’re showing here is a dramatic improvement in well-being, on a small and unimportant data set, albeit one that’s familiar to all of us on a weekly basis.
There are those that say that the standard of living has not improved in the U.S. over the last two generations (or the single one shown here). Charts like this are easy to come by, and they shout out that those people are simply lying, or repeating the lies of others.
Now, this chart says nothing about the distribution of spending. I’ll discuss that below.
A few notes first:
Now, inequality: I’m not going to say that maybe that hasn’t gotten worse (although I really don’t think so). But let’s take seriously the idea that it has. Most discussions of inequality focus on the top 1%, the top 10% or the top 20%. If all of that spending at restaurants and bars was done by the top 20%, how much would their spending have had to increase? Spending at restaurants and bars tripled, so if one fifth of the population made that happen, their share must have gone up by 15 times. Halve that to account for inflation and population growth, and you’re saying that a generation ago the top fifth went out one day a week and now they go out all seven. That’s ridiculous. But, if you do it for the top 10%, the story becomes that they used to go out one day a week, and now they go out 14 days each week. That’s not even possible. There isn’t much point in even calculating what would need to have happened to the top 1%. One could make the argument that this is all celebrities getting bottle service in Las Vegas and Miami, and that this has gone up a lot over the last generation. But in order to believe that you’d need to think that the rich never spent gobs of money foolishly. Yeah … right. If anything, when most of “the rich” people in the country live in places like, say, St. George, it’s hard to argue that they even have extravagant tastes.
In the end, this simple graph tells a story of sustained economic growth improving the lives (in a minor way) of a very large fraction of the population.
Deirdre McCloskey is an economist who is one of the best writers about economics. You should get in the habit of looking over just about everything you come across that she wrote.
This is actually a book review. But it’s an extended and informed one about corruption, and whether it’s a significant problem or not.
I’m not a native, but in living in Utah for two stints covering a bare majority of my adult life, we tend to focus way too much on the corruption of outsiders and way too little on the fairly ample corruption here.*
McCloskey offers some perspective on that; maybe a corrupt system is better than a busybody:
As Will Rogers used to put it, “Be thankful we’re not getting all the government we pay for.”
In macroeconomics, there’s a small-ish line of research looking at government as a stationary bandit:
Both these books are page-turners, if you can handle some 540 pages registering the crimes, follies and misfortunes of humankind. Anyone interested in good government (and bad) would do well to read both. Yet an economist might be inclined to draw a different conclusion from their reporting (and Murray Rothbard and Robert Higgs did so for decades): “Government is a band of robbers into whose clutches we have fallen”—not “thieves of state,” in Ms. Chayes’s way of putting it, but a state of thieves.
But even that is something we need to have perspective about:
Ms. Chayes and Mr. Cost want us to know that corruption matters, that the hour is late and we must do something. But is corruption so important in the grand scheme of things? Mr. Cost, for instance, reckons that his much-reviled pork-barrel projects, Medicare expenses and corporate welfare payout total up to “some extremely large figures, approaching $100 billion per year.” Wait a minute. That’s only half of 1 percent of national income. Americans spend about that much each year on recreational boating.
It’s all about growth, and for the better of us all, corruption isn’t much of a growth industry:
Beyond injustice and inefficiency, is corruption bad for growth? Growth, after all, not equality of distribution or exact efficiency in allocation, is what we seek if we really want to help the poor, rather than simply feeling good as we drink our second cappuccino while perusing the New Yorker. The astounding enrichment out of trade-tested betterment since 1800 has raised the absolute standard of living of ordinary people not by the 5 percent or even, say, the 25 percent achievable one-time by eliminating inefficiency or inequity—as studies of trade unions and governmental transfers show—but by fully 3,000 percent. Until 1800, humans staggered along at $3 a day in present-day prices. Afghans to this day earn less. Yet by now a Japanese or American makes, earns and consumes anything from $90 to $130 a day.
* I’d like to think my perspective is better than most, having spent close to the other half of my adult life in two of the most corrupt states in the Union: Louisiana and New York.
Tyler Cowen thinks most people have it backwards:
… That out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism is one of the greatest (and most unfortunate) public relations triumphs of modern times.
Ponder that one carefully.
The post that came from links to this article entitled “Austerity Is Not Greece’s Problem” by Ricardo Hausmann (Cornell Ph.D., Harvard professor, cabinet official in Venezuela when it was still the richest country in Latin America). I knew the situation was bad, but not that bad:
… The truth is that the recession in Greece has little to do with an excessive debt burden. Until 2014, the country did not pay, in net terms, a single euro in interest: it borrowed enough from official sources at subsidized rates to pay 100% of its interest bill and then some.
His diagnosis of the problem is earthier than mine, but fairly similar:
Fiscal deficits, like unwanted pregnancies, are the unintended consequence of actions taken by more than one person who had other objectives in mind.
The numbers sound like the spending problems of a dysfunctional family:
… From 1998 to 2007, Greece's annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.
But by 2007, Greece was spending more than 14% of GDP in excess of what it was producing …
And Greece is not in a good position to work off its debts:
… The way to minimize the pain is to cut spending without cutting output, which requires selling to others what residents can no longer afford. …
The problem is that Greece produces very little of what the world wants to consume. Its exports of goods comprise mainly fruits, olive oil, raw cotton, tobacco, and some refined petroleum products. … The country produces no machines, electronics, or chemicals.
SF sent in a link to this article entitled “Greece Stirs Doubt On Debt Owed to the IMF” from the February 27 issue of The Wall Street Journal.
SF remarked that Greece’s grandmother may be looking peaked again. It had been less than a week since Greece worked out this year’s deal to fend off its creditors.
Here’s a podcast from NPR’s Morning Edition from 3 years ago, discussing how Greece will find a way to pay back the IMF first.
No matter what Greece says now, it will probably find a way to pay back the IMF. Think about it this way: even Argentina paid back the IMF (even if they did it 3 years too late). Basically, member countries treat the IMF like a charity: you don’t steal from them, and you make sure they get paid.
I have nothing against China specifically.
But, I do know generally that the real GDP values and growth rates of countries that don’t have open political and media systems should not be taken at face values.
So, in 2014 IV, China reported growth over the previous 4 quarters of 7.3%. That’s very high: it will lead to doubling in size every 10 years, and this is for a country with a very low population growth rate, so almost all of it could be viewed as improving real GDP per capita.
Unless …
Here’s an example of what Chinese academics are allowed to say about China’s economy from inside China:
… The consumer price index dropped to 0.8%; the producer price index fell by 4.3%; exports contracted by 3.3%; imports were down by 19.9%; and growth of broad money (M2) slowed by 1.4%.
Moreover, the renminbi has come under downward pressure, owing partly to economic recovery in the United States, which has fueled capital outflows. Given huge declines in industrial profit growth (from 12.2% in 2013 to 3.3% last year) and in local-government revenues from land sales (which fell by 37% in 2014) …
I suggest there’s some dissonance between what the more granular numbers say, and what the government announces for the consumption of incredulous western legacy media.
None of this changes viewpoints I’ve been clear on before: thinking China’s economy is larger than that of the U.S. right now is foolish, and thinking that China’s economy won’t be bigger than that of the U.S. in 30 years is also foolish.
Via Marginal Revolution.
