David Smith sets us straight on this one:

One of the most enduring claims about the British economy in recent years is that the then coalition government abandoned austerity in 2012. It is a claim that gives comfort to those who see everything that has happened to the economy through the lens of fiscal policy. Only when austerity was abandoned in 2012, some argue, did the economy begin to recover. Unfortunately it does not fit the facts. It is a myth.

There are two elements to this. The first is the question of whether, in response to slower growth in the economy, or other factors, George Osborne abandoned his programme of fiscal consolidation.

The two foremost authorities on fiscal policy in Britain are the Institute for Fiscal Studies and the Office for Budget Responsibility. The IFS set out the position clearly after each budget and autumn statement during the last parliament. Chart 1.6 on p26 in its latest green budget, here, sets out the broad position. As it shows, consolidation continues through the parliament.

The IFS’s updated figures, published as part of its Election 2015 coverage, has the following sequence of numbers for the fiscal consolidation: 2010-11, 1.5% of GDP, 2011-12 2.3%, 2012-13 1.1%, 2013-14 1.5%, 2014-15 0.7%, 2015-16 0.6%, adding up to a cumulative fiscal tightening between 2009-10 and 2015-16 of 7.7% of GDP.

The OBR also addressed this, in its paper, Crisis and Consolidation in the Public Finances, here. Chapter 3 is the relevant chapter which, like the iFS, shows a programme of fiscal consolidation extending through the parliament. There was no abandonment of austerity.

There is more here, with other points of interest, hat tip goes to Chris Giles.

Adding the ‘errors and omissions’ deficit to recorded net hot money outflows gives an aggregate estimate of overall hot outflows or capital flight from the mainland. By construction, this slumped to a record $209.5bn ($838bn annualised) or an eye-watering 9¼% of GDP (Chart 2). Overall, in the year to Q1, China has seen capital flight of $584bn or 5.6% of GDP.

That is from Richard Iley, cited by David Keohane at the FT.

By the way, here is the response of the Chinese government:

China has again ruled out the possibility of massive capital outflow, saying an overwhelming majority of foreign companies that pulled out their investments in the country were shell firms, The Beijing News reported on Wednesday.

The average investment scale of those firms is relatively small, and 20 percent of them entered China less than five years ago, said the newspaper citing Tang Wenhong, head of the Department of Foreign Investment Administration of the Commerce Ministry.

Judge for yourself…a better response would have been “this outflow is a natural process of investment diversification, as China liberalizes its capital markets gradually over time.”  That doesn’t account for everything that is going on, but at least it makes potential sense.

By the way, if you ask some Chinese about India, they will mention Buddhism and people riding on the top of trains.

Friday assorted links

by on May 15, 2015 at 11:57 am in Uncategorized | Permalink

1. Here is an interactive name calculator.  Here is the history of Tyler, there are few Tylers my age.

2. The Growth Economics Blog has written a children’s book, mostly 3rd-7th graders, no knowledge of the Solow model required.

3. A Curanto in Ancud.

4. Wasabi-based fire alarms for the deaf

5. How strong is the demand for eugenics?

6. Scott Sumner and his wife on China.  And is there low-hanging fruit in the fight against inequality?  If so, how many people are urging us to grab it?

7. Is it possible that within-firm wage inequality has not gone up (pdf)?

The Grasping Hand, written by our GMU-law colleague, Ilya Somin, is an excellent read and the definitive treatment of eminent domain and the Kelo case. As you might expect, Somin discusses the legal issues with aplomb. So much so that the book is endorsed by both of Kelo’s opposing counsel! In addition to the law and economics, Somin offers what for me was an eye-opening investigation of the history behind many of the major cases.

graspingIn the famous Poletown case, for example, GM and the cities of Detroit and Hamtramck used eminent domain to forcibly remove 4,200 people, 1300-1,400 homes, 140-600 businesses, 6 churches and one hospital in order to build a factory. The primary argument for the expropriation was the economic benefits that GM and the mayor promised would flow from the creation of at least 6,000 GM jobs.

Even though the entire case hung on the number of jobs to be created this number was simply cheap talk. In the marketplace, if GM says that this 100 tons of aluminium is worth more building cars than it is building airplanes they have to demonstrate their belief by outbidding Boeing and all the other users of aluminium. In politics GM need only voice an assertion and with the right lobbying the political system will make the transfer for them. Neither GM nor the city were under any requirement to guarantee new jobs but the majority judges simply accepted the numbers as given to them.

…many judges may have an unjustified faith in the efficacy of the political process and thus may be willing to allow the executive and legislative branches of government to control oversight of development projects. For example, the Poletown majority emphasized that courts should defer to legislative judgments of “public purpose.” Whatever the general merits of such confidence in the political process, it is misplaced in situations in which politically powerful interest groups can employ the powers of government at the expense of the relatively weak.

So what happened?

The GM plant opened two years late; and by 1988— seven years after the Poletown condemnations— it employed no more than 2,500 workers.

Moreover, as Somin continues, it gets much worse because not only were the benefits overstated the costs weren’t stated at all.

An especially striking aspect of the Poletown decision was the majority’s failure to even mention the costs imposed by condemnation on the people of Poletown or the city of Detroit as a whole.

According to estimates prepared at the time, “public cost of preparing a site agreeable to . . . General Motors [was] over $200 million,” yet GM paid the city only $8 million to acquire the property. Eventually, public expenditures on the condemnation rose to some $250 million. In addition, we must add to the costs borne by the city’s taxpayers, the economic damage inflicted by the destruction of up to six hundred businesses and fourteen hundred residential properties. Although we have no reliable statistics on the number of people employed by the businesses destroyed as a result of the Poletown condemnation, it is quite possible
that more workers lost than gained jobs as a result of the decision.

Declan Butler reports:

Giving some of the world’s poorest people a two-year aid package — including cash, food, health-care services, skills training and advice — improves their livelihoods for at least a year after the support is cut off, according to the results of an experiment involving more than 10,000 households in six countries.

The poverty intervention had already been trialled successfully in Bangladesh, and the study’s researchers say it shows the approach works in other cultures too. “We finally have truly credible evidence that a programme for the poorest of the poor can really help them meaningfully reduce their poverty,” says Dean Karlan, an economist at Yale University in New Haven, Connecticut, and a co-author of the study, reported today in Science. “Until now, we haven’t really been able to go to a government outside Bangladesh and say, we’re confident this works.”

Ethiopia, one of the countries that was in the trial, is planning to continue and scale up the intervention to cover around 3 million people, says Karlan, and Pakistan and India are considering scaling up interventions, too.

Banerjee and Duflo are involved in the work as well, and this is sometimes called the “graduation model,” because the aim is to graduate people out of poverty.  Note this:

The intervention is not cheap. Costs per household ranged from $1,455 in India to $5,962 in Pakistan, although they were offset by positive returns on investment ranging from 133% in Ghana to 433% in India. The researchers hope to cut costs in future by scaling back the experiment’s more expensive components, such as training.

And while the model worked in many places, it failed in rural southern India and Honduras, in part due to…problems with chickens.  Nonetheless this is big, big news.  The link to the original research is here.

For pointers I thank Kevin Lewis and Michelle Dawson.

Yes, it is a good idea to patronize the small restaurants on the outskirts of the hutong, but here is another tip.  Go to the very fanciest restaurant possible, in a fancy five-star hotel.  Then order the cheapest items on the menu.  That likely will involve some vegetables (pumpkin in egg, anyone?), tofu, and fried rice.  It will be an amazing meal, quite possibly better, at least to a Western palate, than if you had ordered the most expensive delicacies of that restaurant.  Many of these courses will not exceed $10 per shot, which is still about at American prices or even slightly below, and that’s not adjusting for massive differences in quality.  If you feel you can afford more than that, fine, but the low budget constraint actually directs your attention to some pretty fine items, and to items which are never truly good in American Chinese restaurants.

I’ve had good street food in Beijing, but in my view it is neither your first nor even your second preferred option.

 Truckmaker Freightliner’s newest commercial big rig can steer and drive itself, while the driver relaxes and enjoys the ride. No, I’m not talking about Autobot Ultra Magnus. It’s the Freightliner Inspiration Truck, the first ever self-driving commercial truck to receive a road license plate for autonomous operation on public highways.

The system, called Highway Pilot, operates like the autopilot on a commercial airliner. Once set and underway the system can maintain a cruise without the driver’s intervention. Highway Pilot uses stereoscopic cameras located at the front end of the truck that watch the road ahead for roadside signage, lane markers and other vehicles.

This 3D imagery is fed into the Inspiration Truck’s electronic brain, which then affects the electric steering rack, the drive-by-wire throttle and the automated manual transmission to keep the truck between the lines and a safe distance behind a leading vehicle.

It is not yet a fully autonomous vehicle:

Speaking of the human element, the Inspiration Truck still requires that a driver be in its driver’s seat. A person needs to get the truck moving from a stop, handle complex low-speed maneuvers and to monitor autonomous drive.

Freightliner tells us that the system will notify the driver with visual and audible cues in the event that conditions won’t allow confident autonomy (such as snow, rain or on roads with poorly defined lane markers) and a human is needed to take over. When driving conditions are optimal, however, and the road stretches out ahead, the Inspiration Truck’s driver can set the Highway Pilot and tend to other parts of the business of logistics.

There is more here.

Thursday assorted links

by on May 14, 2015 at 2:02 pm in Uncategorized | Permalink

1. What if Canada can’t become a major tech cluster?  And what does the Canadian trade balance look like without oil?

2. Broken windows theory tests.

3. “Austerity evidently killed GDP, but not the labor market. That’s a very interesting hypothesis, but I’m wondering which textbook theory is consistent with it?”  That’s the UK, folks.

4. Does hiking cigarette taxes drive poor people to enroll in food stamps (pdf)?  And which colleges have the best food?

5. Not a surprise, but a clarification: the U.S. won’t give up what is in effect its IMF veto.

6. Olivier Blanchard is leaving the IMF for the Peterson Institute.  And Piketty will be joining LSE, it seems.

7. UberCopter, pretty cheap, considering…

What if, circa 2007, the Fed had figured out what was going on and wanted to take some concentrated steps to save the day?  Well, that is the position China is in today, and they are acting fairly decisively:

China is imposing a $160bn municipal bonds for debt swap on banks in an effort to shift some of the financing costs of cash-strapped local governments back to lenders…

Banks are supposed to swap out higher-yielding business loans in return for more municipal bonds, noting that banks owned about 63 percent of the outstanding municipal bonds to begin with.  As a form of compensation, the central bank will accept these municipal securities as collateral for some of its special lending facilities.  The policy is a mix of jawboning and inducement, in which exact proportions we shall see; there is further coverage here.

You can think of it as “we may expect you banks to share in some of the losses on this paper, but if push comes to shove we’ll just monetize the municipal debt and bail you out too.”

You may recall:

Rating agency Standard & Poor’s late last year estimated that half of all Chinese provinces would merit junk ratings…

These (non-transparent) municipal debts may exceed $3 trillion. And Christopher Balding, in his excellent post on all this, makes a very good point:

Especially with land revenue falling by more than 30% annually when it typically constitutes more than 50% of government revenue, the provinces’ ability to repay is highly suspect.

Some goals of the bailout are to keep the local governments up and running, and also building infrastructure, so that urbanization does not slow down.  This is all being done in conjunction with a series of interest rate cuts, and there is likely yet more to come.

Balding adds this as well:

…the banks, after getting cash for the bonds as collateral from the PBOC, are being encouraged to lend out this cash to firms in favored industries.  Given the drop in risk weighted capital from holding government as an additional benefit, this means that banks will have significant new capital to lend.  The rapid rise in Chinese debt, which has even officially surpassed most developed countries, seems bound to rise even more.  I can’t [help but] think that this seems like trying to sober up an alcoholic by buying him a beer.

…Here is hoping that deposit insurance will never be needed.

It will be very interesting to see how this goes, and so far these events remain a dramatically undercovered story.  My net takeaway, to date, is that the finances of the provincial governments must be worse than most observers had thought.

My research convinced me that bounty hunters were an effective part of the American justice system so I have long favored using large bounties to find international terrorists. In 2008 the Washington Post argued that Bounties were a Bust in Hunt for Al-Qaeda:

So far, however, Rewards for Justice has failed to put a dent in al-Qaeda’s central command. Offers of $25 million each for al-Qaeda founders Osama bin Laden and Ayman al-Zawahiri have attracted hundreds of anonymous calls but no reliable leads, officials familiar with the program say. For a time, the program was generating so little useful information that in Pakistan, where most al-Qaeda chiefs are believed to be hiding, it was largely abandoned.

“It’s certainly been ineffective,” said Robert L. Grenier, a former CIA station chief in Pakistan and former director of the agency’s counterterrorism center. “It hasn’t produced results, and it hasn’t particularly produced leads.”

I wasn’t impressed with that argument at the time and now Seymour Hersh says it wasn’t torture or the billions spent spying on the world that led to bin Laden’s discovery but a bounty:

…the CIA did not learn of bin Laden’s whereabouts by tracking his couriers, as the White House has claimed since May 2011, but from a former senior Pakistani intelligence officer who betrayed the secret in return for much of the $25 million reward offered by the US…

I can’t evaluate Hersh’s larger claims but I find this part of the story plausible.

 Addendum: The time I went bounty hunting in Baltimore.

Kyle York came up with a few, here is one of them:

There’s an out of control trolley speeding towards Immanuel Kant. You have the ability to pull a lever and change the trolley’s path so it hits Jeremy Bentham instead. Jeremy Bentham clutches the only existing copy of Kant’s Groundwork of the Metaphysic of Morals. Kant holds the only existing copy of Bentham’s The Principles of Morals and Legislation. Both of them are shouting at you that they have recently started to reconsider their ethical stances.

For the pointer I thank Dennis Boyle.

That is the new and very interesting piece by Tori Telfer, here is one bit:

The multiplicity community insists on being seen as healthy—even normal. This is our reality, they argue. Why are you imposing your reality onto us? Dissociative Identity Disorder (DID)—and its controversial precursor, Multiple Personality Disorder—are terms roundly rejected by the community, and most of them don’t feel that they belong in the Diagnostic and Statistical Manual (DSM) at all. It’s not that they don’t believe people can suffer from DID (or, more broadly, Dissociative Disorder Not Otherwise Specified [DDNOS]). They just don’t accept that they suffer from it. To them, all those with DID/DDNOS are multiple, but not all multiples are DID/DDNOS. Contrary to what a DID/DDNOS diagnosis implies, multiples want everyone in their system to be seen as people. Not fragments, alters, or personalities, but distinct individuals who happen to be inhabiting the same physical body.

About a year ago, Falah and Lark were joined by Steven and Rain; a few months later, Marcus, Santria, and Alyenor came along. “We are not openly multiple,” she says. “All of us disguise our behavior under one mask, one public persona, in essence appearing non-multiple to the outside eye and to most people we interact with. We’re able to share memories and communicate among ourselves internally, so it’s easy for us. We wear the mask well and look like your standard non-multiple STEM student, but it can be tiring to wear the mask.”

The piece is interesting throughout.  “Hey, Buddy — are you trying to nudge all of us?”

Via Jasper Plan, Jonathan K. Pedde has a new paper on this:

Standard zero-lower-bound New Keynesian models generate large fiscal multipliers and expansionary negative supply shocks. Thus, according to these models, a political party that implements fiscal contraction coupled with policies to increase aggregate supply should unambiguously cause economic contraction, compared to a party that implements the opposite policies. I test this prediction using high-frequency prediction- and financial-market data from the night of the 2015 U.K. election, which featured two such parties. By analysing financial-market movements caused by clearly exogenous changes in expectations about the election winner, I find that market participants expected higher equity prices and a stronger exchange rate under a Conservative Prime Minister than under a Labour P.M. There were little to no partisan differences in interest rates, expected inflation, or commodity prices. These results cast doubt on the empirical validity of zero-lower-bound New Keynesian models.

And here is Noah on the UK, he is right, and I call this one pretty much settled.

Nanjing bleg

by on May 13, 2015 at 2:35 pm in Uncategorized | Permalink

I’ll be there — what to do, what to eat?

Have any of you been to the Rising Sun Anger Release Bar?  (For a fee, you can beat up and abuse the staff.)  How about The Crying Bar?  Lots of markets in Nanjing.

The U.S. classical music market

by on May 13, 2015 at 2:12 pm in Data Source, Music | Permalink

The classical sales situation in the US has hit the pits. Aside from Andrea Bocelli, who trundles on at around 400 a week – cds and downloads combined – the best performer on Nielsen Soundscan was the Anonymous 4, chirping sweetly on a farewell tour with just 189 registered sales.

Sales are so bad that Hilary Hahn, at number 10, failed to clear 100.

There is more here, and for the pointer I thank Samir Varma.