Category: Current Affairs
Facts about Panama
…from 2005 to 2010 its economy expanded by more than 8% a year, the fastest rate in the Americas. The IMF expects it to grow by over 6% a year during the next five years. Panama will soon overtake Costa Rica and Venezuela in GDP per head. Accounting for purchasing power, it is one of the five richest countries in mainland Latin America.
Here is more.
Sentence fragments to ponder
The Brussels summit – the 10th time in 18 months that European leaders will have tried to save the euro and Greece from collapse…
Do you need to read further? In my view, taxing the banks is not close to enough and the market will realize this quickly.
The Toilet Challenge
In our textbook, Modern Principles, Tyler and I write:
In the United States, diarrhea is a pain, an annoyance, and of course an embarrassment. In much of the developing world, diarrhea is a killer, especially of children. Every year 1.8 million children die from diarrhea. To prevent the deaths of these children we do not need any scientific breakthroughs, nor do we need new drugs or fancy medical devices. What these children need most is one thing: economic growth.
Economic growth brings piped water and flush toilets, which together cut infant mortality from diarrhea by 70 percent or more.
Bill Gates and the Gates Foundation think that some scientific breakthroughs are needed and they are putting millions into the Toilet Challenge a new project to build a better toilet.
“No innovation in the past 200 years has done more to save lives and improve health than the sanitation revolution triggered by invention of the toilet,” Sylvia Mathews Burwell, president of the foundation’s global development program, said in a statement. “But it did not go far enough. It only reached one-third of the world. What we need are new approaches. New ideas. In short, we need to reinvent the toilet.”
So what is wrong with the current commode?
It’s too expensive for people in the developing world; it requires water and a sewer-system hook-up, which aren’t always available; and it does nothing to actually treat human waste, said Frank Rijsberman, the foundation’s director of water sanitation and hygiene.
Gates is to be credited with taking on an important and unsung task. Some of the ideas he has spent money on, however, seem to be highly unrealistic. Consider:
Professor Georgios Stefanidis and his team at Delft University of Technology propose to develop a toilet system that will apply microwave technology to transform human waste into electricity. The waste will be gasified using plasma, which is created by microwaves in tailor-made equipment. This process will yield syngas, a mixture of carbon monoxide (CO) and hydrogen (H2). The syngas will then be fed to a solid oxide fuel cell stack for electricity generation. This toilet system will be able to serve single households or groups of households.
My rule is that any society capable of managing and maintaining such a system will already have flush toilets (either that or they live on the space station).
The Benefits of Fiscal Illusion
David Wessel does a good job explaining how the Gang of Six plan is both a tax cut and a tax increase:
The Gang of Six, a bipartisan group of senators, threw its deficit-reduction package into the arena Tuesday and it is variously described as increasing tax revenues by $1 trillion over 10 years and also decreasing them by $1.5 trillion over 10 years. Huh?
Measured against current law, the Gang of Six plan is a tax cut. The law currently says that the Bush tax cuts expire at the end of 2012 for everyone and that the pesky Alternative Minimum Tax will reach deeper into the middle class (because it doesn’t automatically adjust its thresholds for inflation).
The Gang of Six, among other things, would eliminate the Alternative Minimum Tax—that alone would cost the Treasury about $1.7 trillion versus current law. Altogether, the various tax changes in the Gang of Six plan would reduce tax revenues by $1.5 trillion.
But no one expects current law to prevail. Congress every year, for instance, puts a patch on the Alternative Minimum Tax so it won’t hit more families. And both the White House and many Republicans want to extend the Bush tax cuts for taxpayers with incomes under $250,000 a year. (The argument is over expending them for taxpayers with higher incomes.)
So budget wonks have developed “alternative” or “realistic” baselines. The Bowles-Simpson fiscal commission used such a baseline, borrowing one developed by the Obama White House. Among other things, that yardstick assumes the AMT is patched year after year, and assumes the tax cuts for the under $250,000 crowd are extended. Against that baseline, the Gang of Six raises about $1 trillion revenue over 10 years, roughly the same sum that the Bowles-Simpson plan did. That’s how it’s also a tax increase.
Thus, if the Republican base reads it as a tax cut and the Democrat base reads it as a tax increase, we just might get a deal.
Ella and Louis offer relevant advice.
A realistic portrait of Argentina
…beyond the stellar growth numbers, the picture is mixed. To start with, the boom owes much to global factors. Amid a surge in global prices, Argentina is a leading food commodities producer, with agriculture making up 35 per cent of foreign sales. Furthermore, not only is China clamouring for Argentina’s natural resources, but the middle class in neighbouring Brazil – its main trading partner – are also avidly buying cars, its biggest manufacturing export.
“The terms of trade are now at a historic high. This is the best possible world for Argentina,” says Lucio Castro of Cippec, a Buenos Aires-based think-tank. “But take out the natural-resource intensive sectors and productivity in the rest of the economy is bad and informality extremely high.”
Unemployment, at 7.4 per cent in the first quarter, is low, but investment is lacklustre – 19.4 cent of gross domestic product. Meanwhile, productivity is “not bad, it’s dismal”, says Mr Castro.
Moreover, following years of underfunding, the country’s once admired education system is a shadow of its former self.
Repeat after me three times: real shocks really, really matter. That adds up to six “reallys.” The link is here.
From which country do these doggie sentences come?
He opened the car door to let the dog escape but an officer jumped out and pulled a gun on the dog, he says. “I threw myself on my dog and said, ‘You have to shoot me before you kill him,'” Milad says.
The article is interesting throughout. And here is some arbitrage:
The flight from Ukraine to Tehran has been nicknamed “the puppy flight” because many of its passengers, mostly university students, are carrying puppies for sale, according to several pet website owners who import from Ukraine.
When airport authorities caught on last year, they increased the tax on importing pets from $50 to $800, according to sellers. Some dog vendors diverted their operation so dogs are transported from Ukraine to Armenia and Turkey and from there smuggled in the cargo section of tour buses and trucks returning to Iran, vendors say.
“We have a large and very capable network expanding from Iran to Europe and beyond to help unite Iranians with dogs,” says the 30-year-old owner of Petpars, who asked that his name not be published.
…The Petpars website promises a puppy equipped with a faux international passport hand-carried from Ukraine via a flight passenger.
For the pointer I thank Ian Robinson.
Carmageddon substitutes
JetBlue offered $4 flights between Burbank and Long Beach airports. A local cycling club decided to give JetBlue a run for its money, saying its six best riders could beat the 150-seat Airbus A320’s travel time. As cars stayed off the roads, cyclists rode along the Los Angeles River, beating the Airbus and finishing the race in one and a half hours.
The link is here (also here), and:
Tom White, a helicopter co-pilot, marveled at the emptiness of the 405 as he shuttled passengers from Van Nuys to LAX. The 14-minute trip cost $150.
Will a debt ceiling deal save America’s AAA credit rating?
I have not been following the political ins and outs of the debt ceiling debate, but I did run across the following. I am not endorsing it, but if anyone has good reason to believe it is false, I would like to hear the response:
Keeping America’s gold-plated credit rating may take both a deal to raise the debt ceiling (which will happen) and a meaningful deficit reduction plan of around $4 trillion (which is not happening). Moody’s says it wants a ”deficit trajectory that leads to stabilization and then decline in the ratios of federal government to GDP and debt to revenue beginning within the next few years.” And here is Standard & Poor’s in a report released last night:
“If a debt ceiling agreement does not include a plan that seems likely to us to credibly stabilize the U.S.’ medium-term debt dynamics but the result of the debt ceiling negotiations leads us to believe that such a plan could be negotiated within a few months, all other things unchanged, we expect to affirm both the long- and short-term ratings and assign a negative outlook, If such an agreement is reached, but we do not believe that it likely will stabilize the U.S.’ debt dynamics, we, again all other things unchanged, would expect to lower the long-term ‘AAA rating, affirm the ‘A-1+’ short-term rating, and assign a negative outlook on the long-term rating.”
There is much more at the link. And so what is the view of the “gun up the fiscal policy stimulus” people? Is it:
1. This is simply a lie and they will stick at AAA for the foreseeable future. It is a strategic and pre-emptive move from the ratings agencies but they don’t mean it.
2. The U.S. government, and all those municipalities, can do just fine with a downgrade.
3. A downgrade is coming anyway, so we might as well do the correct Keynesian fiscal policy, because with austerity we’ll get an even worse downgrade over time, due to falling output and employment.
I genuinely wish to know. I seem to be reading claims which rule out #2. Is the Keynesian response a mix of #1 and #3? If so, how come I don’t see the Keynesian advocates putting that on the table up front?
No, it’s not the bond market vigilantes, it is the credit rating agency vigilantes.
Five deals to bind them?
Ezra Klein sums up; he still has by far the best coverage of the debt ceiling extension issue.
The fruits of immigration
A tough new law cracking down on illegal immigrants and those who hire or “harbor” them has created a severe shortage of agricultural labor in Georgia right at harvest time.
The head of a farmer’s group estimates that the state’s $1.1 billion fruit-and-vegetable industry could suffer a loss of $300 million.
Gary Paulk, a blackberry farmer interviewed by PRI’s the World, says he has lost $200,00-250,00 this season, as unpicked berries rot. “Having a fake ID, a first-time offense can be up to 10 years, and a $100,000 fine,” Paulk said. “I mean that’s, that’s like a felony. A felony to use a fake ID to get a job to support your family.”
To combat the shortage, Governor Nathan Deal has authorized using criminal offenders out on probation to replace the mostly Latino migrant workers. It’s not working out so well:
The first batch of probationers started work last week at a farm owned by Dick Minor…So far, the experiment at Minor’s farm is yielding mixed results. On the first two days, all the probationers quit by mid-afternoon, said Mendez, one of two crew leaders at Minor’s farm.
“Those guys out here weren’t out there 30 minutes and they got the bucket and just threw them in the air and say, ‘Bonk this, I ain’t with this, I can’t do this,'” said Jermond Powell, a 33-year-old probationer. “They just left, took off across the field walking.”…
By law, each worker must earn minimum wage, or $7.25 an hour. But there’s an incentive system. Harvesters get a green ticket worth 50 cents every time they dump a bucket of cucumbers. If they collect more than 15 tickets an hour, they can beat minimum wage.
The Latino workers moved furiously Thursday for the extra pay.
Jose Ranye, 37, bragged he’s the best picker in Americus, the largest community near the farm. His whirling hands filled one bucket in 25 seconds. He said he dumped about 200 buckets of cucumbers before lunch, meaning he earned roughly $20 an hour. He expected to double his tickets before the end of the day.
None of the probationers could keep pace. Pay records showed the best filled only 134 buckets a day, and some as little as 20. They lingered at the water cooler behind the truck, sat on overturned red buckets for smoke breaks and stopped working to take cell phone calls.
In short, we have turned good workers into criminals and turned criminals into bad workers, losing on both ends of the deal. Incredible.
Simple numbers about Italy
European banks have total claims and potential exposures of €998.7 billion to Italy, more than six times the 162.4 billion euro exposure they have to Greece, according to Barclays Capital. European banks have €774 billion of exposure to Spain and €534 billion of exposure to Ireland.
In the United States, banks are also more exposed to Italy than to any other euro zone country, to the tune of €269 billion, according to Barclays. American banks’ next biggest exposure is to Spain, with total claims estimated at €179 billion.
But at the end of the day, “if Italy goes, it’s no longer a domino,” said Mr. Gros, the analyst in Brussels. “It’s a brick.”
The link is here.
The Great Fiction
Catherine Rampell, Bruce Bartlett, and Matt Yglesias are all pushing the chart below from a paper by Suzanne Mettler. According to this gang, people who use, for example, the mortgage interest deduction or who have a 529 college savings program are willfully ignorant about how they benefit from government (Rampell’s terminology).
As Bastiat said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” What Rampell et al. want to do is to make people believe in this great fiction. But there are always taxpayers and taxeaters, even though government has so wormed its way into every organ of the body politic that it is sometimes difficult to tell which are which. (Indeed, part of Mettler’s point is that the government shell game of ‘hide the subsidy, hide the tax’ is often designed to obscure taxpayers and taxeaters.)
Nevertheless, there are dividing lines. In a laissez-faire world we don’t get rid of 529 programs, instead all savings, not just savings for college, become tax-free. A 529 program is not a government program like food stamps, it is the absence of a government tax. (N.B. I am not taking a position here on the best tax structure.)
People who use 529 programs and who think that they have not used a government social program are not willfully ignorant, they are demonstrating a healthy if fading appreciation of the distinction between civil society and government. What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.
And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.
This is the attitude of a serf not an American.
What will happen with Greece?
Here is my latest NYT column, excerpt:
If you are a euro optimist, you might believe that the day of reckoning for Greece will be stalled long enough for Portugal, Ireland, Spain and possibly Italy and Belgium to recapitalize their banks and trim their government budgets. You might believe that of the Greeks will eventually default, but that by the time the contagion effects are checked, the Greeks will have pulled in some aid, and the global impact will be a mere hiccup instead of a new financial crisis. But that still will leave Greece with no clear economic path forward. For a best-case scenario, that’s not very good.
If you are a pessimist, you might see such a response as an unworkable plan of naïve technocrats. Here’s your line of reasoning: At some point along the way, democracy is likely to intervene: either Greek voters will refuse further austerity and foreign domination, or voters from northern Europe will send a clear electoral message that they don’t support bailouts. And there’s a good chance one or both of those events will happen before a broader European bank recapitalization can be achieved. In the meantime, who wants to put extra capital into those ailing Irish, Portuguese, and Spanish banks anyway?
In an even bleaker scenario, bank recapitalization won’t be realized anytime soon and those same economies will show few signs of growing out of their debts. A broader financial crash will result, and it won’t be contained by an easily affordable bailout.
In case you don’t know by now, I see the pessimistic scenario as more likely.
Brazilian consumer debt
The average rate of interest on consumer lending has jumped from 41 per cent in 2010 to 47 per cent most recently in May 2011. This rise from an already elevated level reflects the cumulative effect of tightening by the Brazilian central bank in order to contain inflation.
The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011.
This compares with 16 per cent for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
In short, the cash flow burden is astronomical and rising.
We calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income…
Read more here. Loan delinquencies, by the way, are rising, and that is in a rapidly growing economy. Is it a good or bad thing that their real interest rates are twelve percentage points higher than in some of the wealthier nations?
Abramowicz on the Constitution and the Debt Limit
Section 4 of the 14th Amendment says “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
“Questioned” is pretty vague but there is certainly an argument (more here) to be made that the president could constitutionally disregard the debt limit. But disregarding the limit is only one way not to question the validity of the debt. Alternatively, one could argue that the way to keep with the constitution and the debt limit law is to cut spending or raise taxes.
Michael Abramowicz who wrote an article on the debt clause (from 1997, recently posted on SSRN) has a good suggestion to split the difference:
…a modest approach for the President to take would be not to conclude that the debt limit is facially unconstitutional, but rather that it would be unconstitutional as applied, to the extent that it would prevent payment of interest on the debt. If the President took that position, the Administration would in effect continue to raise the debt limit as necessary to make payments on the debt. But when other bills came due, if there were insufficient funds to pay them, that would not justify the issuance of additional debt. The consequences of such nonpayment are sufficiently severe that the President and Congress could continue to play their game of chicken, but the worst case scenario would be a government shutdown, rather than a default. Perhaps the President can accomplish this even without invoking the Public Debt Clause, simply by prioritizing payments on the debt over other payments that come due, but his ability to do that depends in part on the timing of revenues and expenditures, and an announcement that the President will make payments on the debt despite the debt limit statute no matter what would calm the markets.
Have a Happy July 4.