Month: September 2014
Assorted links
1. What people cured of blindness see.
2. Shoes that show you the way.
3. Which states are in the Midwest? I say no to all the marginal cases, including Kentucky. And how can it be that not everyone thinks Iowa is in the Midwest?
4. China insurance markets in everything.
5. Who is the gun salesman of the year?
6. Maids are no longer servants.
7. Interest rates.
Is China seeing a great stagnation?
China’s 1% average annual growth in total factor productivity between 1978 and 2012 – a period when average per capita annual incomes rose from $2,000 to $8,000 — compares with 4% annual gains for Japan during its comparable 1950-1970 high-growth period, 3% for Taiwan from 1966-1990 and 2% for South Korea from 1966-1990, he said, when purchasing power in the relative economies is taken into account.
“Our study shows that China’s spectacular growth in the reform period has been mainly investment-driven and quite inefficient,” Mr. Wu wrote.
A big problem, which often complicates efforts to assess the health of China’s economy, is the reliability of Chinese data. Using three measures of productivity, J.P. Morgan economist Haibin Zhu concludes in a research note that China’s total factor productivity grew 1.1% in 2013 from a 3.2% expansion in 2008. Mr. Wu draws on different methodology to argue that total factor productivity turned negative from 2007 to 2012.
“Correctly measuring China’s productivity has, not surprisingly, been obstructed by severe data problems that have resulted in widely contradictory productivity performance estimates,” Mr. Wu said.
I would classify this as highly speculative. TFP is hard enough to measure in the first place, but in a rapidly growing economy productivity boosts are especially likely to be embodied in (and measured as) rising capital expenditures. Still, it is an interesting perspective on what is the number one economic problem in the world today.
Why I am a relative optimist about Bolivia
1. Bolivia became a semi-stable democracy in the early 1980s and it has stayed that way.
2. For all the rhetoric to the contrary, the current regime is a mix of 1990s-era market-oriented reforms and Evo Morales. Probably you like one of these, though perhaps not both.
3. Many more Bolivian children go to school than before, and the incidence of malnutrition has been plummeting, with longer-run benefits for IQ. You will read many fabricated or non-causally-backed claims about the connection between inequality and growth, but for Bolivia I believe these arguments.
4. Bolivia has done so many things wrong in the past, there is a lot of low-hanging fruit through purely internal improvements. For instance the country is a fantastic tourist destination, but would not at this moment be experienced that way by mainstream American tourists, due to language, hotel, and infrastructure shortcomings. Eventually those problems can be and will be solved. Eventually.
5. Bolivia does not have much export exposure to China, and does not face much geopolitical risk.
6. Of all commodities, hydrocarbons may be relatively protected in price through the forthcoming global turmoil, because the Middle East implosion will make Bolivia’s current main resource more valuable.
7. Bolivia’s fiscal situation is surprisingly sound.
The three main reasons to be pessimistic about Bolivia are:
1. Most of their economic policy is quite bad, especially when it concerns the nationalization of foreign direct investment. The FDI future of Bolivia will be extremely unfavorable. The rhetoric and indeed the behavior of the government sometimes is like a villain from an Ayn Rand novel.
2. Their main trading partner is Brazil, a country which will have gone from eight percent growth to near-zero growth in but a few years time. Argentina is either the number two or number three trade partner, along with the U.S., depending on the year in question.
3. Bolivia hasn’t done that well in the past.
Of those three reasons, #1 probably matters a bit less than you might think, and #3 a bit more.
It is much debated in Bolivia whether corruption is going up or down. I believe it is going up, but partially for good reasons. For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.). That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.
Right now Bolivia is growing at a rate of above six percent.