Brexit

Continuing with the topics mentioned in that opening post, the Brexit transition was big news a month ago.

And a month later ... it's a big fat nothingburger. Why is that so? Here's some context in multiple parts; ultimately I have no better answer than this is a vastly overrated issue.

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This would be a good time to browse the discussion in the Handbook in VI.A. It's about what a country is, what a nation is, and what a state is. This has also been covered here as part of older posts about sovereign defaults, trusting GDP measurements, and gullibility about international situations. 

Further, VI.A.4. in the Handbook discusses nationalism, and a related topic that arose in the 19th century and is still hanging around. This is the idea that if a nation isn't "big enough" that it won't be viable.

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Then there's a notion, floating around for a long time, that the arc of history points towards regions with different interests uniting into larger countries. Basically, the idea of the Star Trek mythos, which features planetary governments, and a "united federation" that sounds a lot like our federal system of government.

Here's the thing: there really aren't many successful examples of that happening with actual countries here on the real earth. Separate but similar colonies, like those that make up the U.S., Canada, Australia, and South Africa have been able to pull this off. India was able to make it work without many colonists, but with some colonial institutions to build upon. On the other hand, the Spanish-speaking New World broke up into a couple of dozen countries.

So the dream in Europe has been that if they can pull competing nations together into one big entity, that the size advantage will outweigh interest in nationalism.

But any proponent of this is going to have to explain Switzerland to me. If size is important, the threshold where its costs are overcome doesn't require a country to be very large at all. And the UK is about 10 times the size of Switzerland.

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And there's the rub: people in the UK aren't feeling that the size of the European Union is doing much for them. 

All the rest is window dressing. If people in the UK felt that being part of the EU was beneficial on net, most of the other issues would go away. They don't. And this part of the story is underappreciated. 

And ... Switzerland makes me think they are probably right.

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So why do we have an EU at all? A more united Europe has been  in the works for over 200 years. Recall that the French Revolution followed, and borrowed some, from the American Revolution 15 years earlier. Out of the French Revolution came Napoleonic France: a short-lived continental superpower. 

You have to get deeper into European history than most people do to get to the part about how part of the Napoleonic program was dissolving some existing countries and reorganizing them into bigger ones along ethnic, cultural, social, religious, legal, and political lines.† Agglomerating some German states, and some Italian states didn't last. But it planted a seed for further (mostly failed) revolutions in 1830, and 1848, and discussions of how Germans as a nation should be united in a country later called Germany (Italy went through something similar).

Of course, Germany and France then fought 3 wars in 75 years. After that came the talk that maybe if Germany and France were united in the same country, a fourth war could be avoided. Work on this started in 1951 with a common market (no trade barriers) for coal and steel called the ECSC. This actually included 4 more countries, including the 3rd big one on the continent, Italy. This evolved into the EEC, with integration across more part of life, in 1957. Other countries joined, including the UK in 1961 (where the colloquial name for the EEC was the "common market"). More integration led ultimately to the EU forming in 1993. It now has 27 members, well, 26 now that the UK has left.‡

Organizationally, the EU is federal, like the U.S. But, it's central government in Brussels is more powerful on some aspects, and but less powerful on most. This has led to domination of its politics by the (most populous) Germans, with fairly strong backing from the French.  In addition, it's kind of an object lesson that the little known 10th amendment to the U.S. Constitution is more important than had been previously guessed (it states a principal for drawing the line between what powers go to the top level of government, and what go to the second level). This sort of dividing line is missing in the EU.

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An imperfect analogy can be drawn to the U.S. The 4 big countries in the EU (Germany, the UK, France, and Italy) are analogous to the U.S. states of California, Texas, New York, and Florida. In the U.S., the # 2 state is growing faster, and asserting itself as perhaps the best state.

The UK is in a similar position, in that, its economy has done pretty well for the last 35 years, and there has been a feeling that they are being held back by the rest of the EU. This comes out in complaints about many issues, but the core is that it has not been clear to the UK that they are better off in the EU for quite some time. 

Ultimately, this led to a political movement, and a referendum where a majority voted to leave the EU, the portmanteau of "Britain" and "exit", and 4 years of negotiations. It is important to note that elected officials in the UK were following the will expressed in the vote, even though they may not have personally been in favor of Brexit. 

Officially, the separation took place last January 31st. But, there was a transition period, and that ended formally on last December 31st. That was why it was in the news so much a month ago.

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A not so small point in all of this, which is underappreciated in the U.S., is that the UK does not share a legal system (or even a predisposition towards how the legal system should look and act). Systems on the continent are similar because they are all tied back to the Napoleonic reorganization of the continent. On the other hand, the system in the UK is like that in the U.S. (with the partial exception of Louisiana). This historical accident has not made incorporating the UK into the EU easy.

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Personally and professionally, I'm a believer in making immigration as open as practical. Having said that, it bugs a lot of people, and it's my job to not be dismissive of that. And a lot of people in the UK feel that they have an immigration problem.

Now, there's a folk theorem in economics that asserts that all benefits and costs eventually accrue to the holders of fixed resources. And in immigration, the fixed resources that are important are the ones that attract immigrants.

And a lot of people think that the UK has a problem with immigration because being a member of the EU has made the UK's border (for immigration purposes) the borders of the EU. So if an immigrant could get inside the EU, they would be drawn to the desirable institutions in the UK. If the net benefits of those immigrants are not positive, then the UK has a problem.

From this perspective, the choices that the English (mostly) face is either to get rid of their desirable institutions, or pull their borders back to those of the UK. They chose the latter.

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So where does all this backstory put us macroeconomically?

The UK got no special economic benefit from being in the EU, and vice versa. It's hard for me to say how Brexit could then be anything other than a neutral move. Certainly that should probably be our null hypothesis. In turn, this makes me think that a lot of people worried about the split excessively. 

There are some who do make claims of great benefits to EU membership through trade. Yet, fundamentally, people/countries/regions trade with two groups: those who are nearby, and those who are socioeconomically similar. The UK has thus always traded the most with continental Europe. And while Brexit might make that a little tougher, it won't change those two underlying facts. So again, I think our null hypothesis on this one should be neutral.

As to immigration, I don't think in the long-run that the UK will benefit from restricting immigration through Brexit. Having said this, reasonable people could disagree about this one. So rather than neutral, my view is that this issue may best be described by "be careful what you wish for".

Lastly, there has also been some talk of the future axes of the world economy. By your late middle age,  I suspect the world will have settled into the equilibrium for the next few centuries, with four loci of economic activity: India, China, the U.S., and the EU. The facts on the ground are that continental Europe looked pretty good as it recovered from World War II. But it has faded the last few decades, and has started to fall behind the U.S. rather significantly. In this world, Japan and Russia are the big free agents ... and the UK may have just jumped teams with their last and best opportunity.

† Americans don't tend to know that much about this. But most have heard in history class about the use of Hessian troops in the Revolutionary War. A few of them even ask what the heck was a Hessian anyway? Turns out, Hesse (in a couple of different version) was one of those smaller countries that was effectively eliminated by Napoleon's reorganizations. 

‡ This is as good a time as any to note that the tables in Chapter VI are a bit sketchy about the size of the EU's economy. This is because it was not always clear whether they included or excluded the UK. This was made worse by the fact that with COVID-19, many countries delayed announcing their GDP data, so it was never clear whether the sources I had were pre-Brexit or post-Brexit.

ADDENDUM: A possible post about this has been on my mind, but it slipped my mind as I wrote this one up and posted it. Anyway, anyone who doubts that Brexit would allow the UK to do things differently, and perhaps better, needs to explain vaccine policy in Europe. As of about 2 weeks ago, the UK had vaccinated more people than all of the EU combined. The UK also developed one of the earliest vaccines, which they've been using for several weeks; it was just approved by the EU the other day. And individual countries in Europe, in particular France, are having trouble figuring out a workable vaccine policy at all. The situation in the EU is so bad that Hungary (admittedly not a poster child for cooperative behavior) has given up on the EU and contracted with China for a supply of the vaccine developed there. This all is in spite of the UK having epidemic rates high enough to cause systemic troubles in other countries on the continent. At some point one had to relax: if they say they can do better on their own, and then they do, concede that they were right.

Infrastructure (Biden, and the Keystone XL Project)

With a new administration, you're likely to hear a lot about infrastructure. Politicians love infrastructure spending.

Except when they don't.

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Infrastructure is the big stuff that makes developed economies rich. Think: construction projects. 

Infrastructure is sometimes funded and built by private firms, particularly when they regard it as a private good. 

When infrastructure is a public good, private firms are unlikely to invest in it because its returns will be lower than other projects they might undertake. In this case, it's often funded by the government, but typically still built by the private sector under contract.

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Why do politicians like infrastructure projects? Well ... if you're job is to spend other peoples' money, these projects are a way to go big. And jobs ... politicians are obsessed with jobs, although few realize they are making the basic accounting mistake of counting a cost as a benefit.†

They also leave behind an obvious, tangible, legacy of the actions you took.

And, politicians and the media tend to ignore this subtlety, but Keynesian macroeconomic theory does not say that any old government spending is beneficial. It's actually pretty specific to spending on things that are independent of income. Since most household spending is tightly linked to income, this means that government should choose to spend on stuff that people like you and I will never get around to. Clearly that also includes projects that are too big for individuals, households, and most firms. So infrastructure spending is part of the small fraction of government spending that we should really focus more on if we think government can and should help.‡

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So what the heck is infrastructure anyway? This has been covered on the blog before, and since I have upgraded search  capabilities this year, here's some links:

• "Infrastructure Investment" discusses the motivations towards the top of this post. Pay particular attention to the part in bold in the original: this is more or less exactly what we are doing in 2020-21 when the government sends out "COVID checks" to people.
  
• "Infrastructure" discusses the six main kinds of national infrastructure. Definitely click through the link and check out the interactive graphics. 
• "More Infrastructure" focuses more on power generation and transmission. Again, click through for great interactive graphics.
• "More On What Government Actually Does" discusses that in spite of the complaints of many that the government spends too much, it's actually doing less actual stuff than in a couple of generations ago.
  
• Of course, a big problem in the U.S. with infrastructure projects is that they always seem to be really expensive for what we get. In "Infrastructure: Why Does America Pay So Much for Stuff That's So Lousy" I explore this with reference to research on the costs of subway projects. It's not pretty.
  

Do note that our pipeline network, for water, sewer, storm runoff, oil, and gas is part of infrastructure.

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Which brings me to one of Biden's first executive orders: cancelling the permit to build the Keystone XL pipeline (running from the Canadian border in Montana southeastwards to Nebraska). 

Democrats hate this pipeline. I mean, really hate it. Like irrationally hate it.

Which is weird.  

• We have tons of pipelines already (as noted in the posts above), so why is one more a problem? If you're curious, all the gas you buy in Cedar City and St. George is delivered most of the way by pipeline.
• It's an infrastructure project. Near as I can figure, every politician loves every infrastructure project ... except this one. 
• It is the only infrastructure project picked on by the Biden White House on day one.
  
• The Keystone Pipeline is already complete from Alberta to the Gulf Coast. The XL pipeline is one additional part of it that should improve efficiency by "cutting a corner". The oil is already flowing.
  
• Canada is our friend and neighbor, and they're kinda' counting on this one. And Canada has been run for a while by a party that's politically simpatico with our Democrats.
• Five separate times career bureaucrats reported to the Obama administration that the pipeline was beneficial for climate policy. They killed it anyway.

Having said all that, there's a lot of interest group politics involved, so they're definitely trying to make their voting base happy. Fair enough.

The motivation for this project is worth knowing, because macroeconomically it's a win-win. 

Canada has lots of oil reserves. As prices rose, it became economical to put in the big fixed costs to start extracting from a huge pool of low quality tar sands in northeastern Alberta. Now that the hump of those fixed costs have been overcome, the marginal costs of getting that oil produced are economical. But the oil is lousy.

The U.S. has a well-developed oil refinery industry. This is dotted around the country, but has big concentrations in Texas. Further, while a lot of high quality crude oil comes out of the ground in Texas, those refineries down there are designed to handle low quality crude oil, mostly coming from Venezuela. But their exports of oil have plummeted over the last 20 years. So we have refiners that specialize in making dirty oil cleaner, with capacity to spare.

So, the Canadians improve their ability to export their production to their neighbor and friend. And the U.S. gets a feedstock for part of its refinery industry that's more politically stable. Win-win.

Lastly, let me note that most peoples' understanding of the end results if deeply flawed. Most stories about the pipeline present it as a binary: if there's no pipeline there's no risk from that oil. This is actually not the choice being made.

This is a good time for you to practice thinking like an economist. Oil is a legal product; the Canadian producers will sell it where they can, and American refiners will buy it where they can.. It is legal to transport it. And there are alternative ways to transport it. This means:

• The choice is not pipeline vs. no pipeline.
• The choice is pipeline vs. oil in tanker trucks (you know, in your rearview mirror on the interstate) and on tanker trains following essentially the same route. Here's a link to a page on a pro-environmental site explaining why pipelines are preferable.

The likely alternative from Biden's move is ten 100 tanker car trains arriving in Texas each day, taking 3 days to travel down from Alberta (so probably 30 spaced out on the tracks at all times), with a transportation cost that's at least double, and just under 5 times the risk of a spill. Oh ... and pipelines have stations with "off switches" when they start to spill, train derailments do not.

† I do think, at some level, that politicians actually get that they are mislabeling jobs as a benefit rather than a cost. I suspect they do this because they typical person consuming political rhetoric is making that mistake, and the politicians are just pandering to them. My reasoning is that if politicians really were interested in increasing jobs, they'd promote less efficient methods that shift work from capital and technology over to labor. Since they don't do this, I suggest that all their talk about jobs should get zero interest from you.

‡ It's been my unfortunate experience that people who are more interested in arguing that the government can help with the economy tend to also be more likely to ignore the inconvenience that the Keynesian theory they rely on is very clear that it isn't all government spending that helps, and in fact it's rather less than half.

Well-Being for Most of Human History (and Fogel's "Escape from Hunger and Premature Death ...")4

It's hard to convince students about the improvements in well-being over the last 300 years. I joke that most students impression of the pre-industrial society was that it was like The Shire in the movies. (Heck, many literary theorists have argued that this is the view that Tolkien had a century ago when he was beginning to imagine an idyllic world where humans were less important). 

Yeah ... not so much. 

A more informed analysis is in Nobel-prize winner Robert Fogel's book The Escape from Hunger and Premature Death, 1700-2100: Europe, American and the Third World (not required, but yes, the SUU library has a copy). The book is based on lectures given in the late 90's.

This is a fascinating look at how the quality of human health has changed over the past 300 years, and is likely to change in the future. We have gone from being stunted and disease prone to being larger, more robust, and relatively disease free. Fogel argues that the primary reason for this is not improved medical or public health care, but rather improved nutrition brought about by economic growth. He sees health care as the growth industry of the 21st century - now that we have enough to eat we can afford the luxury of medicine.

The whole book is really an in depth analysis of the thesis of:

Thomas McKeown (1911-1988) received his Ph.D. from Cambridge University and from 1950 to 1978 was Professor of Social Medicine at the University of Birmingham Medical School.  He was a major historian of medicine and put forth the influential and controversial McKeown Thesis, which argued that the growth in world population after 1700 was not due primarily to the increase in lifesaving medicine or public health policies, but rather to improvements in overall standards of living resulting from better economic conditions, especially nutrition. [pg. 152]

McKeown attacked the consensus view of declining mortality rates:

Between the late 1930s and the end of the 1960s a consensus emerged on the explanation for the secular trend.  A United Nations study published in 1953 attributed the trend in mortality to four categories of advances: (1) public health reforms, (2) advances in medical knowledge and practices, (3) improved personal hygiene, and (4) rising income and standards of living.  A United Nations study published in 1973 added “natural factors,” such as the decline in the virulence of pathogens, as an additional explanatory category.

A new phase in the effort to explain the secular decline in mortality was ushered in by Thomas McKeown, who, in a series of papers and books published between 1955 and the mid-1980s, challenged the importance of most of the factors that previously had been advanced for the first wave of the mortality decline.  He was particularly skeptical of those aspects of the consensus explanation that focused primarily on changes in medical technology and public health reforms.  In their place he substituted improved nutrition, but he neglected the synergism between infection and nutrition and so failed to distinguish between diet and nutrients available for cellular growth.  McKeown did not make his case for nutrition directly but largely through a residual argument after having rejected other principal explanations.  The debate over the McKeown thesis continued through the beginning of the 1980s.  However, during the 1970s and 1980s, in was overtaken by the growing debate over whether the elimination of mortality crises was the principal reason for the first wave of the mortality decline, which extended from roughly 1725 to 1825. [pp. 4-5]

Analysis of the data showed that mortality crises - like famines - were far more unimportant than thought previously.

Mortality was far more variable before 1750 than afterward.  They also revealed that the elimination of crisis mortality, whether related to famines or not, accounted for only a small fraction of the secular decline in mortality rates.  About 90 percent of the drop was due to the reduction of “normal” mortality. [pg. 6]

Rather, nutrition was appallingly poor prior to the modern period of economic growth:

…The energy value of the typical diet in France at the start of the eighteenth century was as low as that of Rwanda in 1965, the most malnourished nation for that year in the tables of the World Bank.  England’s supply of food per capita exceeded that of France by several hundred calories but was still exceedingly low by current standards.  Indeed, as late as 1850, the English availability of calories hardly matched the current Indian level. [pg. 8]

The supply of food available to ordinary French and English families between 1700 and 1850 was not only meager in amount but also relatively poor in quality.  …  One implication of these low-level diets needs to be stressed: Even prime-age males had only a meager amount of energy available for work. [pg. 9]

During the eighteenth century, France produced less than one-fifth of the current U.S. amount of energy available for work.  Once again, eighteenth-century England was more prolific, providing more than a quarter of current levels, a shortfall of well over 1,000 calories per day. Only the United States provided energy for work equal to or greater than current levels during the eighteenth and early nineteenth centuries. [pg. 11]

Food was so abundant compared to France that even the English paupers and vagrants, who accounted for about 20 percent of the population c.1800, had about three times as much energy for begging and other activities beyond maintenance as did their French counterparts. [pg. 15]

It also seems that the adage that what doesn't kill you makes you stronger is nothing more than words:

Young adults born between 1822 and 1845 who survived the deadly infectious diseases of childhood and adolescence were not freer of degenerative diseases than persons of the same ages today, as some have suggested, but were more afflicted. … The provisional findings thus suggest that chronic conditions were far more prevalent throughout the life cycle for those who reached age 65 before World War I than is suggested by the theory of the epidemiological transition.  Reliance on cause-of-death information to characterize the epidemiology of the past has lead to a significant misrepresentation of the distribution of health conditions among the living. [pg. 32]

Our quality of life is much higher as well. Our intentional exclusion of leisure from the national income and product accounts (because its value isn't easy to measure) leads to:

Of the roughly 25-hour reduction in the work week between 1860 and 1990, perhaps 5 or 6 hours were eliminated before 1890. … Kuznets, who was the leading designer of the U.S. national income accounts, recognized the large underestimate of economic growth occasioned by the omission of leisure from these accounts.  Valuing the increased daily hours of leisure of workers at the average wage, he pointed out, would raise per capita income in the late 1940s by about 40 percent.  Today, the figure would be closer to 120 percent. [pg. 38]

As a macroeconomist I know the following roll call, but it is always nice to see it reiterated:

Not only has productive technology changed dramatically, but the diffusion of modern technology has also accelerated greatly over the past two centuries.  Modern economic growth began first in Great Britain early in the eighteenth century.  It did not begin in the United States until the late eighteenth century.  France joined them after the Napoleonic era.  By the middle of the nineteenth century, the circle had expanded to include the Netherlands, Germany, Switzerland, Denmark, Norway, Sweden, Canada, and Australia.  Japan, Russia, and Argentina did not embark on the path of modern economic growth until the end of the nineteenth century.  For Italy and other West European nations, modern economic growth was delayed until the beginning of the twentieth century.  Except for Japan, modern economic growth did not extend to Asia until after World War II. [pg. 50]

Not only that, but we are better off in other ways as well:

Over the past century, technophysio evolution has permitted the average length of retirement to increase by five-fold, the proportion of a cohort that lives to retire to increase by seven-fold, and the amount of leisure time available to those still in the labor force to increase by nearly four-fold. [pg. 67]

Hence, leisure is not a synonym for indolence but a reference to desirable forms of effort or work (“work” is to be understood here in the physiological rather than the economic sense).  As George Bernard Shaw put it, “labor is doing what we must; leisure is doing what we like, and the rest is doing nothing whilst our bodies and our minds are recovering from their fatigue.”  To some extent presently, and more so in the future as the average work week declines toward 28 hours and retirement normally begins at age 55, these terms will lose their pejorative connotation. Work will increasingly mean activity under the compulsion of earning income, regardless of whether the effort is manual or mental.  And leisure will mean purely voluntary activity. [pp. 69-70]

Fogel then makes a jump that I'm not sure I can agree with; that we are moving out of an age dominated by the acquisition of things because:

In the case of television, there are 0.8 more sets per person (2.2 per household).  In some items such as radios, we seem to have reached supersaturation, since there is now more than one radio per ear (5.6 per household).  The level of saturation for many consumer durables is so high that even the poorest fifth of households are well endowed with them. [pg. 71]

Even though I am one of the folks who did the following:

A poll conducted in late 1995 reported that 48 percent of U.S. adult earnworkers had either cut back on hours of work, declined a promotion, reduced their commitments, lowered their material expectations, or moved to a place with a quieter life during the preceding 5 years.  What is at issue for such employees is time -- time to enjoy the things they have, time to spend with their families, time to figure out what life is all about, and time to discover the spiritual side of life. [pg. 72]

Of course, another one that economists know but that many others are in denial about is that:

Although the average annual hours of earnwork performed by household heads has continued to decline over the past quarter century, the combined hours of earnwork performed by households with husbands and wives present has increased by 24 percent since 1969.  These extra hours are concentrated in prime working ages, and they are one of the main ways that couples are financing early retirement. [pg. 73]

In the United States a century ago, it took about 1,700 hours of work to purchase the annual food supply for a family. Today it requires 260 hours.  If agricultural productivity grows at just two-thirds of its recent rates, then by 2040 a family’s annual food supply may be purchases with about 160 hours of labor. [pg. 90]

This has an interesting implication for the next century:

The point is that leisure-time activities (including lifelong learning) – volwork – and health care are the growth industries of the twenty-first century.  They will spark economic expansion during our age, just as agriculture did in the eighteenth and early nineteenth centuries and as manufacturing, transportation, and utilities did in the late nineteenth and much of the twentieth centuries. [pg. 73]

Generally I cross-post from my classroom blogs to my personal one, but in this case I mostly went the other way, re-using the long quotes I'd assiduously typed over there.

Brand New GDP Data from China

The accuracy of data coming out of China came up in class last Thursday.

China released its GDP data for 2020 at the end of last week (see "China Is the Only Major Economy to Report Economic Growth for 2020" in the Wall Street Journal).

It reported growth over the whole year of 2.3%. This is faster than any other large economy this year (see "China Still Grew and Fueled Its Rise as Covid-19 Shook the Global Economy" in the Wall Street Journal).

A somewhat more realistic report is available from the article entitled "China takes victory lap over economic recovery to pre-coronavirus pandemic growth rates" in the South China Morning Post.

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Put simply, these numbers are not credible.

• As is typical, China has produced GDP numbers measuring the flow of net economic activity for the entire year less than 3 weeks after the end of the calendar year. Initial estimates for the U.S. take about twice as long.
• Things may change in the future, but China does not have a history of revising or updating GDP numbers. In the U.S., for example, GDP numbers for each quarter are revised twice before being "finalized" about 3 months after the quarter's end. Those are then revised again at the end of the calendar year. Then those are periodically sharpened up every few years to account for more and better measurements.
• In the U.S., we have some experience with the economic dislocations caused by lockdowns. Yet the lockdowns in the U.S. (and other western countries) were far less severe than those in China.
• China's GDP data is hugely driven by exports to richer developed countries. Those countries are mostly reporting import declines in 2020.
• China's internal numbers on things like retail sales do not match up with an economy expanding at the reported rate.
• Hong Kong is part of China. But as a Special Administrative Region it collects it's data separately. Hong Kong is far smaller and more compact than China, but richer. All of which should make it able to collect its data more quickly. They have yet to report their 4th quarter numbers or their figures for all of 2020.
  

Revisiting Some Past Posts On Chinese Data

In class on 1/14 some of the discussion about the estimated costs of the "green new deal" proposal moved in the direction of questioning the accuracy of data coming out of China.

I noted that I put in better search capabilities into SUU Macroblog this past summer. It should now be easier to find past posts related to interests of current students. Accuracy of Chinese data has been something I've been touching on in this class for several years now.

First off, now that you have the Handbook, given this classroom discussion, it wouldn't hurt to read pp. 110-117 first. It's not the order I prefer, but I don't think there's much background in the first 110 pages to prevent us from moving that up (and BTW, that section was developed out of one of the older blog posts linked below).

I got most of these just by putting "china gdp" into the the search bar in SUU Macroblog. I've pulled the posts from the top of that search that seemed most apropos.

• From 2019 there's "China Minus a Japan and a Germany and a France, Give or Take" is speculative. It argues that the two big mismeasurements of China's economy that are in the literature probably don't cancel each other out, but rather should probably be compounded. This suggests that China's economy might be less than half the size of the official numbers.

Of course, there may be entities in other countries and the U.S. with a vested interest in overstating the size of China:

• From 2011 there's "China is # 2",  from 2016 there's "What Should We Be Worrying About in China (and India Too)?", and from 2012 there's "China's Data Problems". I'm not advocating that we throw out the numbers entirely, but rather that we need to be thinking early and often about how big a cushion seems reasonable. China is definitely a big economy: if their estimates are too high by even 10%, we're talking about a discrepancy the size of Russia's entire economy.
• It's worthwhile noting in passing that employees of statistical agencies in many less developed countries have been subject to criminal penalties and even exile for not producing numbers more to politicians liking.

There is a consulting group that measures accuracy of national income data. It's called World Economics, and they publish a Data Quality Index (they also reserve China for special discussion above and beyond the general discussion applied to many countries. 

• From 2018 there's "Problems with Other Countries' GDP Data" (the basis for pp. 111-2 in the Handbook), from 2015 there's "China's Real GDP Growth Rate", and also "How Worried Should We Be About China", all of which paint a picture of the Chinese economy that is not particularly good.

None of this should be construed as "picking on" China on my part. If China is big (or claims to be) it should get proportionally more media attention. The increased attention has turned up a lot of issues over the last 10 years.

 

A Primer On the "Green New Deal"

I'm picking on the "Green New Deal" first, not because I think it's the most important thing to cover, but because it's the start of the semester and I can link to a lot of stuff on it that's already done ;-)

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The "Green New Deal" is a proposed package of policy proposals that has some popularity amongst voters, mostly for Democrats.

The name is a sort'of portmanteau of "green policies" and the "New Deal" policies of President Roosevelt that many Democrats aspire to (since it put them in control of both houses of Congress for most the next 2 generations). The New Deal is widely credited by non-economists with lifting the U.S. out of the Great Depression. Actual economists are way, way, more guarded about that conclusion.

Th "Green New Deal" is has been covered in this class in earlier years, so this post mostly links to older ones.

I will freely admit that it proposes nice/admirable things.

And, for those of you who had me for principles know, I push the idea that we should judge government programs on what they do, rather than what they cost. If they are worth it, it should not matter what they cost. If they are not worth it, we shouldn't pay for them.

Except in this case ...

My thinking about all this is that the costs should at least be feasible for that position of "if it's worth it, find a way to pay for it" to make sense.

For example, if I say I should spend $10K to buy a used car, and I have $10K to do so, then it's feasible. But if I say I should buy a used car, and I have $10K around, and I say only a Lamborghini Aventador will do, then reasonable people should be able to agree that I'm a kook and should probably be ignored.

Getting back to the Green New Deal, low ball, Democratic-friendly estimates of its cost are in the range of: 

• 450 times higher than the entire real cost of the 14 year Apollo Project to land on the Moon.
• 2,400 times higher than the entire real cost of the Manhattan Project to build the first atomic bomb.

OK. Those are scare numbers. But they are accurate.

A more realistic measure would be to compare broad collections of social programs put in place under other administrations, since the Green New Deal is not all about buying shiny new stuff (like Apollo and Manhattan were). Here goes:

• 80 times higher than the entire real cost of the whole New Deal program through 1945.
• 60 times higher than the entire real cost of the Obama stimulus package of 2009 (some of which is still not online, or paid for).

The word that is used in policy analysis circles for policy proposals that require magical thinking is "unicorn". Debates over how to tweak the policy proposal are usually referred to as something flippant, like deciding on its color. The point is, it doesn't matter how nice a unicorn you can imagine, you're never going to get one. And I do note that many people feel that it's OK to be unrealistic when you're being aspirational, but I happen to think there's a limit on how far you can go.

I run a continuing series of posts entitled "Why Is Macro So Hard?" (some on this blog, and some over on this one I don't use for class). If you had me for principles, you may recall that I cover an abridged form of that in the last month of class. A recent edition to this set is idea of an Overton Window. The Green New Deal currently appears to be entering an Overton Window, and it seems like stuff like ... counting ... isn't in there with it.

Some Discussion of PPP

 The Conversable Economist, written by Timothy Taylor, has the goal of providing a dive with a little bit of depth for people with some exposure to the economics: basically upper level undergraduates. Here he covers the point behind PPP, with some links, and also some of the pitfalls.

What the Heck Is Going On Out There?

I don't normally have an opening post for the semester, but I will for Spring 2021.

I always post to this blog year round, and have students cover what I've done since the end of the semester the last time the class was taught. 

These past 9 months, I've been blogging almost exclusively about COVID-19. Introducing students to time series analysis is a third of what I do in this course, and the COVID-19 data we mostly hear about is all time series. I'm going to try and do less of that going forward.

Also, COVID-19 is a phenomenon with ridiculously huge macroeconomic consequences. Honestly, I was primed to cover it in this class. This is an excerpt from the Quodlibet for Spring 2003:

How will the fear of exposure to the Severe Acute Respiratory Syndrome (SARS) affect trade with other countries and the U.S. economy?

Gosh ... I wish I had an answer for this one too. Let's think about this in terms of polar cases. The worst case scenario is that this is a contagious disease, for which we have no immunity, which has a 4% death rate. So, we're talking 250 million deaths worldwide. In the best case, a vaccine can be developed quickly with few side effects, and the whole scary situation fizzles out.

I think that its pretty obvious that people are worried about that worst case scenario. Expectations of that scenario could have enormous effects on the world economy without it ever even taking place. Already we are seeing drops in travel to East Asia, recommendations that people avoid travel to Toronto, Beijing, and Hong Kong, empty hotels, closed universities, hospitals and schools, and so on. How much damage is that doing - I don't know, I've heard no estimates. Here's a ballpark figure: big natural disasters in developed countries do $20-100B in damage. The U.S. can shake that off, but Hong Kong, and other small but wealthy countries would be devastated. This probably bears a lot more attention than the Iraq war. On the other hand, don't blow it out of proportion. Only a few thousand people have had SARS so far.

The earliest estimates of damage to China only from COVID-19, posted here on January 30th were for $150B. That was back when we thought COVID-19 would be more like SARS (less contagious, but a higher death rate). We're now almost a year into this, and there are no really solid estimates of global GDP losses due to COVID-19, but they are clearly in the trillions.

Speaking of being primed for this, I was not on top of COVID-19 when it first started out — but I was probably ahead of everyone else you know. I do recall seeing the January 8th article in The Wall Street Journal that broke the news broadly. I mentally filed that away as a possible topic for ECON 3020, but it didn't seem that important to work on right away. On Thursday, January 24th, China took the unprecedented step of locking down otherwise healthy people in a city of 11 million people. Over the weekend of January 25-26 I was actively collecting items to share with the class that originally appeared in this post on January 28th. 

The bottom line is we'll still do some COVID-19 this semester, but this blog won't look like the last 11 months of posts.

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So what else is going on that might interest a class like this? I'll be posting more on these topics in the next few days:

Brexit is finally an agreement and not just a referendum.

We have new Democratic control of the levers of power in D.C. There's a lot of policies we need to start talking about: raising the minimum wage, raising taxes, undoing tax reform (including shifting back towards favoring coastal blue states), handing out checks, and so on.

Also, social perceptions go in waves, and a problematic one that still does not seem to have crested is that billionaires (in wealth) need to be singled out for punitive taxation (in income).

Nationalized health care will be back on the table. Lots of people rationalize this possibility away, but elimination of private health insurance is written into Democratic documents that have circulated for the last two years.

A lot of people don't seem to get that the Green New Deal is a fairy tale that should not be subject to serious discussion. Most debates about this are about the color of one's unicorn, and not about what is possible or likely.

And then, of course, there's lockdowns and the pandemic/lockdown recession.

This should keep us busy for a while!