Category: Current Affairs

Scotiabank vs. Tyler Cowen?

Maybe not:

Recently, in a movie theatre in downtown Toronto, the audience was suffering through the pre-movie ads when a familiar message from Scotiabank flashed on the screen: “You’re richer than you think.” That’s when one heckler loudly offered, “Not anymore!” and the theatre erupted in laughter. It turns out that was one of the tamer responses to the ad, which is playing to mocking audiences in Cineplex theatres across the country. In Vancouver, where condo prices are crashing, the ad has been met by obscenities and even the hurling of soft drinks.

And yet a shift is upon us:

In its latest batch of ads, the line appears buried underneath a much bigger block of text, featuring a brand new message that’s a little more recession-friendly: “Make the most of what you have.”

The full story is here, and for the pointer I thank Bill Wilcox.

The balanced budget multiplier?

A Spanish mayor who became a cult hero for staging robberies at supermarkets and giving stolen groceries to the poor sets off this week on a three-week march that could embarrass the government and energise anti-austerity campaigners.

Juan Manuel Sanchez Gordillo, regional lawmaker and mayor of the town of Marinaleda – population 2,645 – in the southern region of Andalusia, said food stolen last week in the robberies went to families hit hardest by Spain’s economic crisis.

Seven people have been arrested for participating in the two raids, in which labour unionists, cheered on by supporters, piled food into supermarket carts and walked out without paying while Mr Sanchez Gordillo (59) stood outside.

He has political immunity as an elected member of Andalusia’s regional parliament, but says he would be happy to renounce it and be arrested himself.

Here is more.

Facts about Medicare

I’ve got a modest proposal: You’re not allowed to demand a “serious conversation” over Medicare unless you can answer these three questions:

1) Mitt Romney says that “unlike the current president who has cut Medicare funding by $700 billion. We will preserve and protect Medicare.” What happens to those cuts in the Ryan budget?

2) What is the growth rate of Medicare under the Ryan budget?

3) What is the growth rate of Medicare under the Obama budget?

The answers to these questions are, in order, “it keeps them,” “GDP+0.5%,” and “GDP+0.5%.”

Let’s be very clear on what that means: Ryan’s budget — which Romney has endorsed — keeps Obama’s cuts to Medicare, and both Ryan and Obama envision the same long-term spending path for Medicare. The difference between the two campaigns is not in how much they cut Medicare, but in how they cut Medicare.

That is from Ezra Klein, and here is further comment.

Old Lady Opposition to Driverless Cars

I think driverless cars will change the design of cities, revolutionize retailing, and greatly change our driving culture, soon for example you will need a license to drive…well, you know what I mean. The scale effects on this technology are tremendous, once it works for one car it works for all. The technology won’t be expensive and it will get better every year. The technology will also get better the more driverless cars their are. Once these cars become common, for example, I expect speed limits for driverless vehicles to be substantially increased.

I do worry about lawsuits in the early years. I am not worried, however, about the following attack on driverless cars which appears to be real although it seems like something from the Onion:

One of the reasons I don’t think this will work is that the technology will be offered first as an option, like cruise control, which will appeal most to the safety conscious. The elderly in danger of losing their license, for example, may appreciate a driverless car. Personally, I would like the driverless option for night driving and I would be much happier lending my teenager the car if I could say “but only if you use the Google option!” At first when there is an accident people will ask, “did he have the driverless option on?” But soon they will start to say “if only he had the driverless option on.”

I do think, however, that technologists should change the name to the electronically chauffeured vehicle. Electronically chauffeured vehicles will appeal to the affluent, the influential and the productive.

The ubiquitous Daniel Lippman gets the hat tip.

The Great Unraveling continues

The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone.

Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.

Here is more, “Property markets in Spain and Italy close to collapse,” from the FT.

The wisdom of Miles Kimball

Don’t have a health care entitlement with no defined amount of money attached. Choose a $ figure and see what we can do with it.

As long as we precommit to lower health care spending by the government, it’s great to hope that comes from pushing prices down.

Those are both from Twitter, and here is a concordance of more of the tweets.  I have myself toyed with this idea from Miles:

How about a new model: free clinics for all we can afford. People on their own for the rest. No employer insurance deduction.

Two prisms for looking at China’s problems

Here is my latest NYT column, which contrasts Keynesian and Austrian (or neo-Austrian, if you prefer) ways of thinking about the Chinese economy.  Excerpt:

Keynesians would argue that Beijing has the tools to stoke aggregate demand. It could, for example, adjust interest rates and bank reserve requirements, instruct state-owned banks to maintain lending, or deploy some of its $3 trillion in foreign exchange reserves. The government also appears to have many shovel-ready construction and infrastructure projects that could help the economy glide to a soft landing and then bounce back.

The Austrian perspective introduces some scarier considerations. China has been investing 40 percent to 50 percent of its national income. But it is hard to invest so much money wisely, particularly in an environment of economic favoritism. And this rate of investment is artificially high to begin with.

Beijing is often accused of manipulating the value of its currency, the renminbi, to subsidize its manufacturing. The government also funnels domestic savings into the national banking system and grants subsidies to politically favored businesses, and it seems obsessed with building infrastructure. All of this tips the economy in very particular directions.

The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup — not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services.

To keep its investments in business, the Chinese government will almost certainly continue to use political means, like propping up ailing companies with credit from state-owned banks. But whether or not those companies survive, the investments themselves have been wasteful, and that will eventually damage the economy. In the Austrian perspective, the government has less ability to set things right than in Keynesian theories.

Read the whole thing.

My dual review of Michael Casey and Daniel Gross

It is from The New York Times Book Review, and it covers Michael J. Casey’s The Unfair Trade: How Our Broken Global Financial System destroys the Middle Class, and Daniel Gross’s Better, Stronger, Faster: The Myth of American Decline…and the Rise of a New Economy.  My bottom line:

Each of these books illuminates one particular economic story very well, but fails to see the larger and more complex picture.

One excerpt on the Casey book:

But does China deserve so much attention (5 chapters out of the book’s 10)? Casey writes that China “provided the cheap goods needed to sustain the American way of life, as well as the finance to pay for it.” Yet the numbers tell a less dramatic story. Currently, imports from China are measured at about 2.7 percent of consumer spending in America. Furthermore, for each dollar of imports from China, a lot of that money was spent in the United States preparing the import; imagine an iPad designed and marketed from Cupertino, Calif., but counted as an import from China. That leaves Chinese imports, measured in terms of true net impact, at about 1.2 percent of American consumer spending.

One excerpt on the Gross book:

The most probable American economic future is a lot of export success, fantastic wealth for the owners of thriving businesses and persistent productivity problems, and thus high prices, for some major items in consumer budgets. That means more stagnation of real wages at the middle of the income distribution.

Both books are already on the market.

The continuing growth in U.S. exports

And this is from a time of economic turmoil:

The U.S. trade deficit with other countries narrowed to $42.9 billion in June from $48 billion a month earlier, the Commerce Department said Thursday, as imports fell and exports grew. Exports, which have been a pivotal contributor to the economic recovery, were strong almost everywhere except to Europe…

In June, the U.S. notched increases in exports of a variety of goods including pharmaceuticals, cars and industrial engines. Exports increased $1.7 billion to $185 billion, the highest monthly tally ever. Imports declined $3.5 billion to $227.9 billion, driven largely by a drop in oil prices that reduced the value of petroleum imports. Total U.S. exports are up 6% in the first six months of 2012 from the same period a year ago. In the first half of 2011, they were up 16% from the year-earlier period.

Here is more.  Here is my earlier American Interest piece on U.S. exporting trends, “What Export-Oriented America Means.”

Now that’s what I call fiscal policy

If Changsha gets its way, the 100 day battle will just be a start. The city made headlines late last month when it unveiled plans for Rmb829bn ($130bn) in spending on projects ranging from airport expansion to road building, waste treatment and sprucing up the city.

The investment target was jaw-dropping, nearly 150 per cent the size of the city’s GDP last year.

Here is more, Simon Rabinovitch in the FT, “Changsha plan at the heart of China stimulus.”  Obviously not all of China will see a comparably large program.

Really uncertain business cycles

There is more to macroeconomics than blogosphere debates often reflect.  From Nicholas Bloom, Max Floetotto, Nir Jaimovich, Itay Saporta-Eksten, and Stephen J. Terry (ungated versions here):

We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.

There is no need to think of this as a competitor to Keynesian or market monetarist theory, rather it is a complement.  It suggests that the economy needs “repair of trust” in addition to stronger aggregate demand.  It suggests that policy weakness and uncertainty may follow from more general uncertainties, rather than being the primary problem.

This result also addresses some of Evan Soltas’s questions here.  As of 2006-2007, it was not commonly understood how volatile the economic environment was, and how broken U.S. finance was.  The ongoing problems in the eurozone, even if their effects on U.S. exports are small, are a nagging reminder that “Toto, we don’t live in Kansas any more.”

This is Competition

Roger Cheng at CNet writes:

Apple pointed to an internal Samsung document highlighting the weakness of the Galaxy S1 vs. the iPhone as further evidence that Samsung has copied its work.

The document, a “relative evaluation report” on the Galaxy S1 and iPhone published in March 2010, highlights where Samsung’s flagship phone fell short of the iPhone. The report looked at several different features, from the call screen to the browsing experience and even the difference in the calculator.

Here is one of the comparisons:

Apple’s layout is clearly more pleasing but patentable? Please. Imitation is also called learning, evolving, improving and it is an important part of the capitalist process.

Raghu Rajan update

Finance minister P Chidambaram is learnt to have cleared the appointment of noted economist Raghuram G Rajan as the chief economic advisor.

The approval from the finance minister will pave the way for the government to complete the appointment process although Rajan, who is a professor at the Chicago University Booth School of Business, is unlikely to take up the assignment for the next few months given his academic commitments.

Here is more, hat tip goes to James Crabtree.  Here is further detail.