Assorted links

by on September 11, 2012 at 12:19 pm in Uncategorized | Permalink

1. Arbitrage.

2. Why the Asian economies should be worried.

3. Did rising inequality cause the financial crisis?

4. The excellent Garett Jones is now at EconLog.

5. Toronto Globe and Mail interview with me.

6. David Tufte on Chinese succession.

anon September 11, 2012 at 12:28 pm

I’ve been heavily in cash for some time, and paying down debt. I thought stocks were overvalued in the early part of the last decade. I was right too early, but I did not suffer in the financial crisis.

Putting your money where your mouth is. I like that.

Brock September 11, 2012 at 12:42 pm

#2. I think China has a chance of transitioning to a middle-income or high-income country despite the “setback” of distributed manufacturing undermining their advantage in that department. The wealthy coastal cities are very wealthy (and can serve as drivers of a consumption and creativity economy). Also, there’s a good cultural emphasis on building up human capital (through education). Cheap technology will allow a hundred million Chinese students to have access to the best education the world has to offer.

My premise is based on the idea that China has already reached a sufficient level of wealth creation (at least in Shanghai, Beijing, Guangzhou, and Honk Kong) to reach “escape velocity” from the low-income trap.

The real problem with the new manufacturing paradigm will be in Indonesia, India and Africa. They aren’t nearly as wealthy as China, and really could use the same sort of manufacturing-driven growth that took Japan, South Korea, Taiwan and (hopefully) China into the ranks of developed nations. Without manufacturing the only real play is resources, which is a “curse”, usually. Only Finland has used their resources to build a Tier I education system; most countries just end up as kleptocracies.

prior_approval September 11, 2012 at 12:43 pm

So, if I understand the point of 2 well enough, no one need fear China, because the Chinese simply aren’t adaptable due to their political system/culture.

Almost makes one wonder how they went from Asian poorhouse to the world’s workshop in less than a generation. (Apple would fail without its Chinese factory suppliers and assemblers, for example.)

Sure, the Chinese are hobbled – just imagine where they would be if that wasn’t true. And let’s see if I remember – who has the trade deficit with who, and who is unable to manufacture most modern electronic components which its citizens use at this time? This isn’t exactly a puzzle, actually – the data is quite public, after all.

An older part of me is still hearing echoes the belief that the Japanese are only able to make cheap transistor radios, a comforting myth from 1960s America, before the U.S. based television manufacturing industry met its demise in less than a generation.

Cliff September 11, 2012 at 1:43 pm

Okay, protectionist. Please stop making up outrageous lies like “America is UNABLE to manufacture most modern electronic components”. And who has the capital account surplus? Who designs the electronics?

somaguy September 11, 2012 at 2:05 pm

With the exception of a few companies (the big A) China/Taiwan designs the electronics, as well as manufactures them.

prior_approval September 11, 2012 at 2:15 pm

Please – apart from IBM’s specialty foundries, and a few Intel fabs, along with some Motorala assets, which major American manfacturers of semiconductors can you name? And do note that Apple, to give one example, uses no American manufacturers of semiconductors at all, excepting the essentially global Intel. So, ‘America is UNABLE to manufacture most modern electronic components’ is a very accurate statement – who designs them is not exactly the most relevant point when talking about actually having them roll of an assembly line, as America pretty much has decided that actually manufacturing things is for chumps who don’t understand where the real margins are.

You may also want to look into who actually builds motors and transmissions for American cars – neitther Japanese, nor German, nor Korean auto companies feel the need to create such high value and demanding products in their American assembly facilities, preferring to keep that higher value production in plants which benefit the places where the actual owners live.

Anon September 11, 2012 at 2:23 pm

I believe the point was about UNABLE vs. DOESN’T

You could build a factory in the US to produce them relatively easily, it just wouldn’t be as cost effective as having them made in China. Compare that to Angola, where you COULD NOT actually build the factory and have a workforce able to construct the tech.

Cliff September 11, 2012 at 2:36 pm

Exactly

Tony September 11, 2012 at 3:06 pm

I believe some iPhone parts are manufactured by Samsung at a plant in Texas, for what it’s worth.

derek September 11, 2012 at 10:29 pm

A comforting fiction that Americans tell themselves.

Doing it cost effectively is what doing it is called. If the US can’t do it cost effectively, they can’t do it.

Cliff September 11, 2012 at 11:55 pm

Derek,

You obviously do not understand either the English language or economics. Would you also say people in California “can’t build cars” because auto companies choose to locate their plants in the South where wages and taxes are lower?

JWatts September 11, 2012 at 3:36 pm

“Please – apart from IBM’s specialty foundries, and a few Intel fabs, along with some Motorala assets, which major American manfacturers of semiconductors can you name?”

So apart from those three, can you name? Doesn’t the question strike you as a little silly? That you have to ask for a fourth? But even so, AMD and Texas Instruments comes to mind as two more.

kiwi dave September 11, 2012 at 6:08 pm

But apart from the sanitation, the medicine, education, viniculture, public order, irrigation, roads, the fresh-water system, and public health, what have the Romans ever done for us?

Bender Bending Rodriguez September 11, 2012 at 7:59 pm

I used to work for OnSemi. They’re a global company, with fabs both in the US (Phoenix, AZ; Gresham, OR) and outside it. They sell mostly commodity parts, although there has been some work in creating
specialized ICs. Apple sources a couple dollars worth of parts from them, and has since the original iPhone*. The last I heard, Apple has only certified ONSemi’s US fabs for supplying parts.

*We actually knew about the iPhone before release as they’d shared (under NDA) info about it with us.

Bret September 12, 2012 at 6:35 pm

I can name a lot of manufactures and even some pure-play semiconductor foundries in the United States. GlobalFoundries is an american company. They also happen to be the world’s 2nd largest independent foundry. They also happen to be opening a foundry in New York state. Cypress, Linear Technology, and the old National Semi (now owned by TI) all do significant manufacturing in the USA. This is just a preliminary list made from the parts on my latest custom board.

If you want to make the argument that China manufactures more semiconductors by numbers then you’re right, but most (if not all) of the more difficult designs are manufactured here. In other words, China is UNABLE to manufacture some electronic components, not the other way around.

Jared September 11, 2012 at 2:50 pm

” who has the trade deficit with who, and who is unable to manufacture most modern electronic components which its citizens use at this time?”

I’m in the Dani Rodrik camp on this one. That trade surplus means that China forgoes (although forbidden as well in some ways, see “dual-use tech”) importing lots of useful things that could help development there. They’ve gotten much better about closing the overall surplus, though the bi-later US-China imbalance remains.

As has been pointed out elsewhere, America could produce all the semi-conductors in the world if it so chose to. It would have to give up a lot of things to do so. China pays costs as well. It’s costs are less. See how that works?

If you’re old enough to remember the 60′s when developing Japan was underestimated, then you’re also old enough to remember the hysteria of the 80′s when everyone thought the future belonged to the Japanese. The upshot being, the path of development is not a linear path. Moreover you’re just the flipside of the anti-China bias. If you think international pissing contests based on nothing more than where factories are located are full of fluff, don’t start them where none existed previously.

Corey September 11, 2012 at 12:46 pm

That interview you did with the Globe and Mail mentioned that you will deliver a lecture Tuesday evening at Toronto’s Isabel Bader Theatre. Any chance it could be recorded?

Tyler Cowen September 11, 2012 at 10:26 pm

It will be on Canadian TV at some point, some kind of “Big Ideas” program…

prior_approval September 11, 2012 at 1:06 pm

A bold prediction considering the history of the EU and the eurozone – ‘Italy might be the first to go.’

Having just been there, I doubt that even more than before enjoying three weeks there. You could drop northern Italy into Germany, and it would be unnoticeable. It is fairly obvious that northern Italy has benefitted as much as southern Germany from the euro – and southern Germany has no interest in leaving the eurozone as long as it profitable. I doubt the nothern Italian industrialists are any different – and they are at least as influential in Italian politics as their southern German counterparts are in German politics. Mainly because politics has a tendency to follow the money, especially when the questions concern money.

Thor September 11, 2012 at 2:11 pm

You make a good point about Northern Italy and Germany.

It strikes me that Southern Italy is to Northern Italy what East Germany is to the Western part. Only more so. Once corruption, mistrust of government and authority etc., become endemic, to say nothing of organized crime, you’ve get a tough job improving things in the short or medium term. And even to improve them in the long term takes ingenuity, money, clout, persistence and luck.

I can’t think of another first world country that is split this way. Some Canadians tell me that Atlantic Canada is somewhat akin to Southern Italy (without the corruption), but I wouldn’t know.

prior_approval September 11, 2012 at 2:18 pm

Actually, comparing the Maritimes (without the corruption, as noted) to southern Italy is an interesting thought.

Hoover September 11, 2012 at 4:37 pm

They used to talk about the European banana (I jest not).

It was a crescent taking in northern Italy, Switzerland, the Ruhr and most of Belgium and Holland, plus south east England, marked by very low unemployment and high productivity.

I think it still exists, mostly.

On the topic of Italy, I’m often distressed to note the lack of acknowledgement for its industrial might (again I jest not). When you look at its trade figures, it turns out to be an export powerhouse almost equivalent to Germany. Of course, when you factor in Italy’s energy imports, the figures collapse and it runs a terrible deficit.

But it makes you think. If it magicked a dozen nuclear plants today, plus some electric cars, it would have as much clout as France, if not more.

JWatts September 12, 2012 at 9:49 am

“But it makes you think. If it magicked a dozen nuclear plants today, plus some electric cars, it would have as much clout as France, if not more.”

Exactly, but of course if Germany were building additional nuclear plants instead of closing the ones they have then they could save billions in natural gas payments to the Russians and significantly reduce their carbon output.

Ronald Brak September 13, 2012 at 7:25 am

It’s not magic, but for many Italians point of use solar is now cheaper than grid electricity and so it is taking off in a big way and effectively lowering energy costs in Italy. At the start of the year they had the largest solar capacity per capita in the world. Currently they get about three and a half percent of their electricity from solar and as Italy’s peak electricity use is on hot, cloudless, summer days its output matches demand well.

Bill Stepp September 11, 2012 at 2:37 pm

Any thoughts about the passing of Thomas Szasz?

Mark Thorson September 11, 2012 at 3:55 pm

HIs campaign against mental health will continue without him.

http://www.suppressiveperson.org/sp/archives/1371

Bill Steoo September 11, 2012 at 5:27 pm

Campaign against mental health? He didn’t believe in “mental health,” as he rightly viewed the brain as a physical organ, not a mental construction. Illness and health must both have a physcal basis. A diseased or injured brain must be painful or have an infection, lesion, etc.A healthy brain is one that is free of disease or injury, and which therefore has none of these symptoms.

Adrian Ratnapala September 11, 2012 at 2:45 pm

#1

“They also seized six Persian cats, three poisonous tarantula spiders”

So did those also go in the underpants?

Brian Donohue September 11, 2012 at 3:48 pm

Is that a 17 inch monkey in your pants, or are you just happy to see me?

Jared September 11, 2012 at 2:52 pm

#2: That seems to fetishize trade much too much. We’re afraid of a looming industrial revolution when it comes to development? Has any previous industrial leap made the prospects of development harder?

JWatts September 11, 2012 at 3:40 pm

#5) “Does Obama get enough credit for saving the global economy from collapse?

George Bush doesn’t get enough credit. He basically said, ‘This is over my head, but I’m going to back [then-U.S. Treasury Secretary Henry] Paulson and [U.S. Federal Reserve Board chairman Ben] Bernanke to the hilt,’ and he did.”

Sorry Tyler, but that’s the wrong response. Obama = Good, Bush = Bad, there are no nuances allowed in modern academia. Turn your PhD in at the door on the way out.

;)

The Original D September 11, 2012 at 5:27 pm

I’m confused why the rising inequality piece looks at the delta rather than the multiple. We’re talking about percentages, not absolute values.

Willitts September 12, 2012 at 5:01 am

Without the benefit of all the income data, Sumner is taking a shortcut with the Gini coefficient. He’s assuming that if the income of the top 10% rises faster than the income of the bottom 10%, then any ordinary measure of income inequality will get worse.

A person earning $1 million per year gets a 2% increase in his income. It is now $1,020,000.
A person earning $10,000 per year gets a 0.5% increase in his income. It is now $10,050.

The delta is 1.5%, but the richer person gains 400 times the income increase of the poor person. So what? If marginal utility of income is diminishing, that extra $20,000 might be less utility enhancing to the rich person than the $50 is to the poor person.

Even if you reversed the 2% and the 0.5%, the richer person would make an additional $5000 and the poorer person would earn an additional $200 – a multiple of 25. The delta is -1.5%. What information does this add? Has income inequality gotten better because of this? It’s not clear. The purchasing power of the rich person isn’t really any different than with a 2% gain. The poorer people are probably much better off, but it’s not likely to be associated with or without a financial crisis.

One of the problems with a Gini coefficient is when there is a minimum income through redistribution. There can also be a different Gini for income and wealth. Two countries can have the same Gini, but very different per capita incomes. There is also differences in the efficiency of income utilization.

The only point was to show that growing income inequality does not seem to be associated with financial crises. Don’t get too wrapped up in the math. Ragu Rajan made the case that rising income inequality or slow real income growth in the US caused politicians to use housing policies as a political palliative. It’s quite clear that housing policy was part of the problem, but the connection between income inequality/growth and the policies are conclusory at best.

IMO, emphasis on income inequality is envy and class warfare talking. I’m in the top 10% of income earners in the US, and I don’t live like a king. I’ve got financial concerns like everyone else. I can’t complain that my family doesn’t have life essentials, but by no means is our future completely shock proof. I won’t be able to retire at 62 which isn’t that far away when I think about it. My living standards are rather modest, but cost of living is high. And, we just had a huge personal income tax increase because our political leaders made more promises than they could deliver. Part of the reason they can’t deliver is because they placed the same wagers on the housing and stock market booms as everyone else.

The Original D September 12, 2012 at 11:07 am

So what? If marginal utility of income is diminishing, that extra $20,000 might be less utility enhancing to the rich person than the $50 is to the poor person.

That’s kind of the point. That $20k could be life-changing for the poor person. At some point the difference becomes so great that rioting starts to look like a good alternative to wage slavery. Alternatively, borrowing too much to buy a house you can’t afford. Using the delta makes the relative impact on life decisions look trivial.

The Original D September 12, 2012 at 11:11 am

Put another way: if the “difference” in inequality is expressed as a a mere change in growth rate across classes, then we’re only talking about moving adding plus or minus $10 to that $50 the poor person gets. It makes inequality seem like nothing more than a couple lattes here and there. Absolute inequality at a given point in time is more relevant. The differences in rate just shows that it’s a systemic trend: compound interest writ large.

shrikanthk September 11, 2012 at 10:11 pm

Regarding the trade surplus debate…
I agree US has a trade deficit by choice.
The US-China relationship today reminds me of UK-US relationship in the 19th century.
UK opened up its borders, removed tariffs, adopted the Cobdenite free market orthodoxy thus giving a huge market for US goods in the British empire.

A protectionist British empire would’ve probably meant a flatter growth trajectory for the developing country that US was back then. Same goes for US and China today.

Ronald Brak September 11, 2012 at 10:33 pm

#2 3D printers need gloop. My understanding is that currently gloop costs a lot more than normal plastic mold injection. So while I look forward to printing out plastic model rip offs of the latest Pixar movie characters, I think would still go down to the shops to buy most physical items to save on gloop. At least until gloop costs come down.

JWatts September 12, 2012 at 10:03 am

The price of gloop (polymer filament) is indeed much higher than the normal plastics used for high pressure mold injection. It’s roughly $10-20 per pound, available in spools from 1 to 5 pound spools. But for many small items that’s not a substantial portion of the cost. At those prices you won’t see anybody cost effectively making large plastic tubs out of ‘gloop’, but you can certainly make a whole lot of small plastic items for much cheaper than the current retail cost. Think cell phone casings or broken car handles or plastic paper clips, etc.

And in any case, the current high costs has more to do with small use quantities than the underlying cost of the material. If demand for the raw stock goes up enough that a large retailer started carrying it (say Walmart) the retail price would probably collapse.

3 D printer resin costs: http://reprap.org/wiki/Printing_Material_Suppliers

buddyglass September 12, 2012 at 6:29 pm

“The excellent Garett Jones is now at EconLog.”

Now if only he could learn to hit lefties…

Comments on this entry are closed.

Previous post:

Next post: