Month: August 2012

The other Malthusian problem

After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.

…The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

…Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.

“Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.

Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales had dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.

…The Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of full capacity — far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.

…“Inventory used to flow in and out,” said Mr. Wu, the faucet and sink sales manager. “Now, it just sits there, and there’s more of it.”

Here is more.

Very good sentences the culture that is Iceland

Seven-year-old Jón Haukur Vignisson unexpectedly won the highest score among non-professionals in the annual national ram groping tournament organized by the Sheep Farming Museum in Hólmavík, the Strandir region in the West Fjords, last weekend.

The article is short but interesting throughout, every line a gem and the site has a puffin ad too.  Perhaps the hat tip should remain anonymous but I can assure you the person is excellent.

Here is a photo of Hólmavík.

In defense of the Wittfogel thesis

There is a new paper (pdf), “Irrigation and Autocracy,” by Jeanet Sinding Bentzen, Nicolai Kaarsen, and Asger Moll Wingender.  Here is the abstract:

We show that societies with a history of irrigation-based agriculture have been less likely to adopt democracy than societies with a history of rainfed agriculture. Rather than actual irrigation, the empirical analysis is based on how much irrigation potentially can increase yields. Irrigation potential is derived from a range of exogenous geographic factors, and reverse causality is therefore ruled out. Our results hold both at the cross-country level, and at the subnational level in premodern societies surveyed by ethnographers.

Assorted links

1. The economics of Spanish football clubs.

2. William Thurston, On Proof and Progress in Mathematics, and his obituary is here.  He seems to have been a special thinker.

3. “Studies in pre-commitmentphobia,” best article title I’ve seen in a long time.

4. New statistics for predicting (U.S.) football outcomes.

5. Speculative claims about the possible abduction of Boris Spassky.

6. The psychological dispositions of self-identified libertarians (a research paper).

On the Origin of Specie

An article in The Economist (from which I have nabbed the title of this post) argues that money, particularly coins, had to have “developed not as a private-sector attempt to minimise the costs of trading, but as a government operation.” In fact, there are many examples of private coinage. In an earlier post on George Selgin’s excellent book Good Money I wrote about private coinage in Britain:

At the dawn of the industrial revolution as workers left the fields and moved to industrial employment the demand for a means of payment increased dramatically. Workers, once paid in kind, needed to be paid in a medium they could use to buy the necessities of life. Small-tender bank notes, however, were illegal and in Great Britain the production of coin was monopolized by the Royal Mint which failed to provide enough high quality coin to meet the demands of workers and business.

The Royal Mint had neither the will nor the technology to meet demand. In a story reminiscent of the Soviet nail factory one historian explained the incentives of the Royal Mint:

The public coiner, the Royal Mint, was charged with providing a stipulated amount of coinage each year rather than a stipulated number of coins. It did not take the eighteenth-century equivalent of rocket science to figure out that it was far easier to strike, say, a thousand golden guineas than 504,000 copper halfpence (24 x 21 x 1,000). The less-than-overworked denizens of Tower Hill cheered the discovery… But even had the Royal Mint been more co-operative, more inclined to rise to the challenge presented by the new wage earners, it would have been hard-put to assist. It still relied on antiquated machinery inherited from an earlier epoch….

The private sector responded, if the public sector would not.

To meet this shortage, Birmingham button makers started to coin tokens which circulated widely as money. Counterfeits and forgeries were common, however. Frustrated with the shortage of good money, Matthew Boulton, James Watt’s business partner, hit on the idea of using Watt’s steam engine to create steam presses. The new presses could apply more force thereby creating precise edging that would be difficult to forge or clip and they could do so on a mass scale. You can read the fascinating story in Selgin’s Good Money but suffice it to say that Boulton was eventually successful in producing the best coinage the world had ever seen not only for Great Britain but also for India, Singapore, Bermuda and elsewhere. Nor was Boulton’s the only example of private coinage. See Selgin’s post at Free Banking for U.S., Japanese and other examples.

Here are some of the coins from Boulton’s Soho Mint.

Mexico’s investment in the United States

No, I am not referring to immigration.  The net flow of immigrants is negative, but capital investment is rising:

Cemex, the Mexican cement and building materials manufacturer, is now the largest producer in its segment in the US – commanding 10.5 per cent of a highly fragmented market.

In 2010, Grupo Bimbo, the Mexican baker, announced the purchase of Sara Lee, the US baker, in a deal initially estimated at US$959m. The acquisition, which received approval from the US Department of Justice late last year on condition of some divestitures, consolidated Bimbo as America’s biggest breadmaker.

Televisa, the Mexican broadcaster, significantly deepened its exposure to the US market in 2010, investing $1.2bn in Univision, the US’s largest Spanish-language network. It took an initial 5 per cent stake and debentures convertible into an additional 30 per cent equity stake in the future.

Probably the most recognised Mexican brand in the US in the past 20 years is Corona Extra, the beer in the clear glass bottle served, in the US at least, with a wedge of lime in the neck. Corona is now the best-selling imported beer in the US – a title it has held every year since 1997.

Even Alfa, the Mexican conglomerate with interests stretching from petrochemicals to food processing, has started to drill for natural gas – not in Mexico, where the country’s constitution restricts private investment, but in Texas in a partnership with Pioneer Natural Resources and Reliance.

Between 2006 and 2011, the US received US$8.4bn in direct investment from Mexico, according to data from the US Department of Commerce’s Bureau of Economic Analysis. The figure is higher than that for any previous six-year period (though 2000 was the highest year on record with US$5bn).

The article gives further good economic news about Mexico, a country which is oddly understudied in the United States.

The fiscal clifflet

From Greg Ip:

Here’s the real threat. Even if the Bush tax cuts are extended and the sequester delayed, a huge amount of fiscal drag remains in place. They include the expiration of the payroll tax cut, the expiration of extended unemployment insurance benefits, imposition of a new 3.8% Medicare investment tax on the wealthy, and the bite to discretionary spending embedded in the Budget Control Act and prior continuing resolutions. ISI Group projects $220 billion of fiscal tightening in 2013, or 1.4% of GDP. JPMorgan, noting that many Recovery Act programmes are rolling off at the same time, puts the hit at a slightly higher $266 billion, or 1.7% of GDP. The IMF reckons fiscal policy will tighten more in America next year than in Spain, Italy or Portugal. Though smaller than the full fiscal cliff, the fiscal clifflet still poses a significant headwind to the economy. If enough other bad stuff is going on, it could push the economy back into recession.

Here is more, and John Cochrane comments.

Garbage landfills around the world

In Germany zero percent of the garbage goes into landfills, and two-thirds goes for recycling/composting.  The same figure is one percent in the Netherlands and Austria, with sixty and seventy percent respectively going to recycling/composting.

In Spain it is 52 percent to landfills, and in the United States it is 68 percent, with 24 percent going for recycling/composting.

That is from the recent book by Edward Humes, Garbology: Our Dirty Love Affair with Trash.

Are the conservative books winning out?

Amazon has introduced a heat map of the political books sold in the U.S. An overwhelming lean toward red hues suggests that conservative-themed books are outselling left leaning ones coast to coast.

Amazon is quick to point out that the system isn’t scientific. The map presents a rolling 30-day average of book-buying data and classifies them as red or blue depending on promotional materials and customer classifications. And there’s no sliding scale. A book is either red or blue, so there’s no nuance for centrists. “Just remember, books aren’t votes,” Amazon says on the heat map site. “So a map of book purchases may reflect curiosity as much as commitment.”

Still, there’s no getting around the fact that even reliably blue states like California come out in shades of red in the Amazon map. According to publishing-industry analyst Michael Norris, of Simba Information, that might be due to the right’s ability to connect with its readers. “I can tell you that there are conservative imprints and conservative publishers that are just brilliant at figuring out what kind of books their audience wants to read,” Norris told Wired. “There just aren’t aggressively left-leaning imprints like that.”

Caveat emptor, but an interesting perspective.  The full article, with some visuals, is hereAddendum: Ezra Klein comments.

*Restless Empire*

The author is Odd Arne Westad and the subtitle is China and the World Since 1750.  Excerpt:

…the Chinese on Cuba joined others in rebellion.  Two thousand fought in the Cuban forces in the first war of independence in the 1870s.  Some of the Chinese soldiers must have had battle experience, probably from the Taiping Rebellion, and they played a substantial role in the struggle for Cuban freedom up to 1902.  A monument to the fallen Chinese in Havana has the following inscription: “There was not one Cuban Chinese deserter, not one Cuban Chinese traitor.”

I found this to be an excellent book and a very good starting place for unraveling the current foreign policy crises in Asia. It does a very good job explaining the sore spots from the past.

As you may know, one of my views is that most people underrate the chance of a (non-trivial) war in Asia in the next twenty years.  I regard this chance as at least p = .05, and I do not think it is priced into securities markets at nearly that high a level.  Historically, wars are not always easily predicted in advance.  They tend to be correlated with the rise of major powers and with regional disruptions.  In many countries nationalism and regional rivalries run rampant.  It is not obvious to me that the United States is in a position to hold the whole region together.

In any case, this book will make my “one of the best of the year” list.

Ciudad Juarez fact of the day

In 2010, the peak, there were at least 3,115 aggravated homicides, with many months posting more than 300 deaths, according to the newspaper El Diario.

But the fever seems to have broken.

In July, there were just 48 homicides — 33 by gun, seven by beatings, six by strangulation and two by knife. Of these, 40 are considered by authorities to be related to the drug trade or criminal rivalries.

And why?:

Authorities attribute the decrease in homicides to their own efforts — patrols by the army, arrests by police, new schools to keep young men out of gangs and in the classroom.

Yet ordinary Mexicans suspect there is another, more credible reason for the decrease in extreme violence: The most-wanted drug lord in the world, Joaquin “El Chapo” Guzman, and his Sinaloa cartel have won control of the local drug trade and smuggling routes north.

The full story is here.