Category: Current Affairs

By contrast, Greek households own more foreign assets than they owe in liabilities to foreigners. Exiting the euro area would immediately make them wealthier, although, perversely, the stimulus would be most potent the longer the government waits for citizens to pull their savings out of the banks.

That is from Matthew C. Klein at the FT.

It is far from clear whether Europe can act as an engine of world recovery.

You will find more pessimism here, by Ambrose Evans-Pritchard.

Chris Giles and Sam Fleming at the FT report:

Output per worker grew last year at its slowest rate since the millennium, with a slowdown evident in almost all regions, underscoring how the problem of lower productivity growth is now taking on global proportions.

The Conference Board, a think-tank, said that based on official data on output and employment from most countries, only India and sub-Saharan Africa enjoyed faster labour productivity growth last year.

Globally, the rate of growth decelerated to 2.1 per cent in 2014, compared with an annual average of 2.6 per cent between 1999 and 2006, it said.

…Bart van Ark, the Conference Board’s chief economist, said total factor productivity, which takes account of skill levels and investment as well as the number of workers, fell 0.2 per cent in 2014. “This is a global phenomenon and so we have to take it very seriously,” he said.

Economists are increasingly identifying the problem of low global productivity as one of the greatest threats to improved living standards, in rich and poor countries alike.

As you may know, I am on record as predicting that the great stagnation will end, but so far it doesn’t seem like it is happening.

John Nash and his wife died yesterday in a car accident.

CNN: Nash, who won the Nobel Prize for Economics in 1994, was known for his work in game theory, and his personal struggle with paranoid schizophrenia. His life story inspired the 2001 Oscar-winning film “A Beautiful Mind” starring Russell Crowe and Jennifer Connelly as the Nashes.

Nash’s 27 page dissertation would eventually win him a Nobel prize in economics. Nash’s dissertation extended von Neumann and Morgenstern’s theory of games from cooperative, bargaining-type solutions to non-cooperative solutions in which each player is assumed to act in their self-interest and in so doing made the theory tremendously more relevant to economics, business, political science, and even theories of animal behavior and evolution.

Here is further background on Nash’s work in game theory. Here is the PBS documentary A Beautiful Madness with lots of links to interviews and further explanations of his work and influence.

The recent terror attack in Karachi won’t help any, but still the news is looking up, from The FT:

The IMF has acknowledged that Pakistan averted a balance of payments crisis in 2013 and managed to stabilise its foreign reserves. This week Standard & Poor’s, the credit rating agency, raised the outlook for its B minus rating from stable to positive, while Moody’s last month raised its outlook to stable from negative — albeit for a Caa1 rating, which puts it one notch above Greece.

With liquid foreign reserves having grown almost fourfold in the past year to $12.5bn, a figure equivalent to about three months of imports, Mr Wathra has less cause for concern about the stability of the rupee than some of his predecessors.

The recent plunge in the price of crude has seen the cost of oil imports fall to $9.7bn in the nine months to March, down from just over $11.2bn a year earlier, according to central bank figures.

Falling oil prices have also helped lower the fiscal deficit to an expected 5 per cent of gross domestic product in the year to June, down from above 8 per cent just over two years ago. And the country’s GDP is forecast to grow by about 4 per cent this year, following a similar rise last year.

You may recall my earlier post on Pakistan being an undervalued economy, more here too.  It still is.

Since I’ve been in China, a number of you have written me and asked me how “conditions on the ground” are looking for a Chinese hard or soft landing.  But in fact visual inspection of the country does not answer this question in any simple way.

I recall being in Madrid in 2011 with Yana and seeing everything slow and all the people looking depressed; it was obvious that the country was in a deep recession.  But a comparable inference cannot be made from looking around China.

There is a visual feature of China which is incontestable, namely the country has a lot more buildings and structures than it is currently using.  If you take the train through the countryside, or out West, this is especially noticeable.  But does it have to be bad or fatal news?  Well, no.

At the very least it is possible that migration from the countryside will fill and validate those structures and other apparent over-extensions of capital investment.  Under both the optimistic and pessimistic views, China today evidences some extreme in-the-moment overcapacity.  That is what you would expect from a rapidly growing economy — “build for the glorious future!”, but it is also what you would expect from a rapidly malinvesting economy.

(By the way, those who have never visited often think that China is “crowded.”  But relative to facilities, the country is quite undercrowded; for instance it is easy enough to dispense with dinner reservations most of the time.)

How long will this excess capacity last?  How much time will the Chinese future need to “catch up” to this infrastructure?  Will that validation come too late?  We all may have opinions (or not), but the visuals themselves do not tell any specific tale.

So to a China pessimist and a China optimist, the world looks more or less the same.  For now.