Current Affairs

In principle, almost everyone agrees that investing more in education makes sense as it could help build human capital and see Chile advance out of “middle income status” and into the ranks of the developed world.

However, banning students from using vouchers to attend for-profit schools and prohibiting schools that receive public subsidies from receiving top-up payments from parents, also goes against the market-based system. That has startled Chile’s close-knit and conservative business class, which fears the return of statist policies once endorsed by socialist president Salvador Allende in the 1970s.

…Compounding the uncertainty is that the reform drive coincides with the end of a commodity boom that has seen the price of copper, which makes up half of Chilean exports, shrink 12 per cent this year. In the third quarter, economic growth collapsed to 0.8 per cent, from almost 5 per cent a year ago, while investment contracted 10 per cent.

Amid the abrupt slowdown, critics joke that Ms Bachelet’s unwieldy coalition, “The New Majority”, is much like Christine Lagarde’s “New Mediocre”, as the head of the International Monetary Fund recently described the world economy. Certainly, business confidence has fallen in the gloomy atmosphere, while Ms Bachelet’s popularity has plummeted to 42 per cent from 58 per cent in June.

The FT article has other points of interest.  Perhaps Chile soon will no longer be so overrated.

Africa fact of the day

by on December 6, 2014 at 12:32 pm in Current Affairs, Political Science | Permalink

For now, the advance of democracy in Africa appears to have stalled. In 1990, just three of Africa’s 48 countries were electoral democracies, according to Freedom House, a Washington-based pro-democracy advocacy group. By 1994, that number had leapt to 18. Two decades later, only 19 qualify.

That is from Drew Hinshaw and Patrick McGroarty at The Wall Street Journal, the article is interesting throughout.

Indian industries have often complained that convoluted environmental regulations are choking off economic growth. As a candidate, Mr. Modi promised to open the floodgates, and he has been true to his word. The new government is moving with remarkable speed to clear away regulatory burdens for industry, the armed forces, mining and power projects.

More permanent changes may be coming. In a report made public last week, a high-level committee assigned to rewrite India’s environmental laws assailed the existing regulatory system, saying it has “served only the purpose of a venal administration” seeking to extract bribes.

To speed up project approvals, the committee recommended scrapping a layer of government inspections; instead, it said, India should rely on business owners to voluntarily disclose the pollution that their projects will generate and then monitor their own compliance, an approach the committee described as “the concept of utmost good faith.”

That is from Ellen Barry and Neha Thirani Bagri.  I am a fan of Michael Greenstone’s work, but I did not find this recent piece on Indian pollution sufficiently penetrating.

The number of women in the United States who gave birth dropped last year, according to federal statistics released Thursday, extending the decline for a sixth year.

The National Center for Health Statistics reported Thursday that there were 3.93 million births in the United States in 2013, down slightly from 3.95 million in 2012, but 9 percent below the high in 2007.

According to the report, the general fertility rate in the United States — the average number of babies women from 15 to 44 bear over their lifetime — dropped to a record low last year, to 1.86 babies, well below the 2.1 needed for a stable population. For every 1,000 women ages 15 to 44, there were 62.5 births in 2013, compared with 63 the previous year.

From Tamar Lewin, there is more here.  Here is Clive Crook on the importance of demography.

The mainland – which has long been criticised by international human rights groups for using organs harvested from executed prisoners as its main source of organ transplants – will completely ban the practice from next year.

All organs used in future transplants must be from donors, the Southern Metropolis News quoted Dr Huang Jiefu as saying. Huang is former deputy director of the health ministry and director of the China Organ Donation and Transplant Committee.

Major transplant centres had already stopped using executed prisoners’ organs, said Huang, who chaired an industry forum in Kunming on Wednesday.

There is more here, via Mark Thorson.  The article notes China has one of the lowest voluntary organ donation rates in the world.  0.6 individuals out of a million sign up to donate their organs after they die, and that means the number of actual donors is lower yet.  If you google around, you will find some ambiguity as to whether the donation rate or the “register to donate rate” is that low, but as far as I can tell (try this Chinese source) it is the actual register to donate rate, in part because they just aren’t many ways to register right now.  Please let us know if you have additional information on this point.

Wikipedia by the way reports:

The wait times for organ transplants for organ recipients in China are much lower than elsewhere in the world, and there is evidence that the execution of prisoners for their organs is “timed for the convenience of the waiting recipient.

Here are some of Alex’s earlier posts on a market for transplanted organs.

This paper is from Laura Birg and Anna Goeddeke:

Do you believe that at Christmas time the gas prices, the economy and the number of suicides peak? Do you think that the value of presents you are giving to your beloved is of importance? We show in this paper that conventional wisdom about Christmas is often doubtful. Furthermore, we give an idea of how Santa Claus — and maybe you — is able to finance Christmas celebrations, why emergency departments are a place to especially avoid during this time of the year and why Christmas tree growers might care to explain the differences across species to you this year. We cannot clearly establish whether Christmas entails a welfare loss or gain, however, we give you an idea as to which institutional settings might reduce a potential welfare loss. Also, we give advice about which behaviours might get you more Christmas presents from Santa this year. Finally, we find that more research is needed to give conclusive reasons why Santa Claus actually brings presents to (nearly) everyone.

Here is Alex on whether Santa Claus reduces the rating of saving.

Chilean inequality has been going down lately, pre-transfer that is, but this is not in every way reassuring news:

“In this case, the fall of inequality would be bad news over the long term,” Mr. de la Torre told me. “We would be specializing in sectors that require less knowledge.”

That is from a very good column on Chile by Eduardo Porter.  In my view, although Chile of course has done very well, it is one of the most overrated countries in the world today, economically speaking that is.  They have not overcome their educational problems or their class problems, the glorious run of copper is over, they will have a hard time continuing to move up the quality ladder, and their policies are moving in a more redistributive but not growth-enhancing direction.

Way back when, Alex and I used to select the most underrated and most overrated countries, in the sense of which country-specific mutual funds you might short or buy.  My pick this year for the most overrated country is, I am afraid to say, a country I love dearly and that is Chile.

What is your pick?

I enjoyed this LRB piece, here is one excerpt:

All Jerusalemites pay taxes, but the proportion of the municipal budget allocated to the roughly 300,000 Palestinian residents of a city with a population of 815,000 doesn’t exceed 10 per cent. Service provision is grossly unequal. In the East, there are five benefit offices compared to the West’s 18; four health centres for mothers and babies compared to the West’s 25; and 11 mail carriers compared to the West’s 133. Roads are mostly in disrepair and often too narrow to accommodate garbage trucks, forcing Palestinians to burn rubbish outside their homes. A shortage of sewage pipes means that Palestinian residents have to use septic tanks which often overflow. Students are stuffed into overcrowded schools or converted apartments; 2200 additional classrooms are needed. More than three-quarters of the city’s Palestinians live below the poverty line.

Since 1967 no new Palestinian neighbourhoods have been established in the city, while Jewish settlements surrounding existing Palestinian areas have mushroomed. Restrictive zoning prevents Palestinians from building legally. Israel has designated 52 per cent of land in East Jerusalem as unavailable for development and 35 per cent for Jewish settlements, leaving the Palestinian population with only 13 per cent, most of which is already built on. Those with growing families are forced to choose between building illegally and leaving the city. Roughly a third of them decide to build, meaning that 93,000 residents are under constant threat of their homes being demolished.

And this:

The crucial difference between the mid-1980s and today is that Palestinian civil society is now much weaker, and so, too, is the likelihood of coherent political organisation of the kind that emerged soon after the First Intifada began. The groups that then channelled political activity have been supplanted, either by the institutions of a technocratic PA whose existence is premised on close co-operation with Israel, or by NGOs whose foreign funders make assistance conditional on the pursuit of apolitical development projects or vague peace-building strategies that explicitly rule out non-violent confrontation with Israel and any initiative likely to drive up the costs of military occupation. Palestinian society is afflicted with dependency, and it is dependent on forces that wish to preserve the status quo.

It is interesting (and controversial) throughout.

CapX

by on December 1, 2014 at 2:11 pm in Current Affairs, Economics, Weblogs | Permalink

A new website, for popular capitalism.  It looks nice, otherwise I am not well informed about it.

Cato is holding a conference this Thursday (Dec. 4) on The Future of US Economic Growth. Speakers include Nobelist Edmund Phelps, Ed Glaeser, Dale Jorgenson, John Haltiwanger and Erik Brynjolfsson. I will speak in the afternoon on the topic of entrepreneurship and whether economic dynamism is in decline. I will have some surprising things to say about dynamism and regulation. More information at the link.

From an interesting 2003 review article by Jones, Leiby, and Paik (pdf):

The energy economics literature has noted the asymmetric responses of petroleum product prices to price changes for well over a decade, as observed by Balke, Brown, and Yücel (1998) in a review of previous studies.  Product prices rise more quickly in response to crude price increases than they decline in response to crude price reductions.  Using weekly data on crude prices and a variety of spot and whole gasoline prices, BBY (1998) find considerable support for asymmetry in the time pattern of downstream price changes to changes in upstream prices, although they find that different specifications of asymmetry yield different results.

Applied to the crude-product relationship, asymmetry has a different meaning than it does in the oil price-GDP relationship. In the crude-product relationship, the asymmetry is in the speed of the response, while in the oil price-GDP relationship, it is in the magnitude of the response. Competition will ensure that the magnitudes of the response of product prices to crude price changes are eventually equal. Otherwise profits in refining and distribution would grow without bound.

Here is a JSTOR link to a somewhat later Balke, Brown, and Yücel paper.  Here is their 2008 paper (pdf) on why the oil price/gdp link has weakened in the United States.  Here is a related 2010 paper (pdf).  Here is a recent James Hamilton blog post on oil gluts.  Here is Scott: “Focus on Q, not P.”

Sergei Guriev, a former ­adviser to Prime Minister Dmitry Medvedev and a former board member of Russia’s largest state bank, said: “If nothing changes, if sanctions aren’t removed and the price of oil does not go up, then in two years the Russian government will have a major problem — it will lack cash and it will not be able to borrow it.”

The luxury goods market may contract up to eighteen percent this year in Russia.  There is more here, via www.macrodigest.com.

A Colorado man, from Fruitvale (I am not making this up), was arrested for pointing a banana at the police. What makes this actually scary is the language of the police report:

The officers wrote in the police report they feared for their safety despite observing the supposed weapon was yellow.

“I immediately ducked in my patrol car and accelerated continuing northbound, fearing that it was a weapon,” Officer Joshua Bunch wrote in the report, according to the newspaper. “Based on training and experience, I have seen handguns in many shapes and colors and perceived this to be a handgun.”

The man was fortunate that he was only arrested. Had he been wielding a pointed stick he would surely have been shot.

Is this information about the work week good news or bad news?

But in reality, France’s 35-hour week has become largely symbolic, as employees across the country pull longer hours and work more intensely, with productivity per hour about 13 percent higher than the eurozone average. And a welter of loopholes lets many French employers outmaneuver the law.

All told, French workers put in an average of 39.5 hours a week, just under the eurozone average of 40.9 hours a week, according to the Organization for Economic Cooperation and Development.

That is from Liz Alderman.

“Ghost cities” lined with empty apartment blocks, abandoned highways and mothballed steel mills sprawl across China’s landscape – the outcome of government stimulus measures and hyperactive construction that have generated $6.8tn in wasted investment since 2009, according to a report by government researchers.

In 2009 and 2013 alone, “ineffective investment” came to nearly half the total invested in the Chinese economy in those years, according to research by Xu Ce of the National Development and Reform Commission, the state planning agency, and Wang Yuan from the Academy of Macroeconomic Research, a former arm of the NDRC.

…The bulk of wasted investment went directly into industries such as steel and automobile production that received the most support from the government following the 2008 global crisis, according to the report.

Mr Xu and Ms Wang said ultra-loose monetary policy, little or no oversight over government investment plans and distorted incentive structures for officials were largely to blame for the waste.

Don’t forget this part:

Misallocation of capital and poor investment decisions are not the only explanation for the enormous waste in China’s economy. A significant portion of China’s post-crisis stimulus binge was simply stolen by Communist Party officials with direct responsibility for boosting growth through investment, according to separate estimates by Chinese and overseas economists.

There is more here, from the excellent Jamil Anderlini.  As Arnold Kling would say, 祝你今天愉快…

Addendum: Here is a criticism of how that estimate was made.