Category: Current Affairs
Update on Austro-Chinese business cycle theory
Here is David Ignatius:
My favorite analyst of bubble economies is David M. Smick, who predicted the U.S. financial mess in his book "The World Is Curved." He notes some worrying statistics: Until the global financial crisis, Chinese exports represented 43 percent of its gross domestic product. To make up for collapsing foreign demand once the recession hit in 2009, China launched a $1.8 trillion stimulus and lending program — amounting to about 38 percent of its GDP. This money was supposed to reach consumers, but Smick estimates that 85 percent of the subsidized loans went to state-run companies and banks — pumping the investment bubble even larger.
Here is from the FT:
Prices of commercial and residential property in China’s 70 largest cities rose by 10.7 per cent in February from the same period a year earlier, a marked increase from the 9.5 per cent year-on-year gain in January, according to China’s statistics bureau.
I believe that in a time when the U.S. fiscal stimulus is under political fire, many American economists have been reluctant to criticize the Chinese program and send a potentially mixed message.
On a separate but related note, here is a piece on forthcoming rural migration in China.
Sentences to ponder
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
There is much more here. I would be surprised if the proposed incentive of $1,500 made a noticeable difference. If I understand the program correctly, the servicing bank also gets $1,000, plus $1,000 toward a new loan.
Problems with Haitian land rights: nowhere to call home
This article is excellent on one of the mounting problems in Port-au-Prince, namely the sudden absence of well-functioning land rights (which were hardly ideal in the first place). The earthquake destroyed a lot of homes, stores, and plots and now many of the owners cannot be located. So it's hard to determine what can be done with the property. Ideally it should be razed, rebuilt, and dedicated to some new uses but as it stands a lot of activity is simply frozen.
Or maye it is known that the owner is now dead and the estate has not been settled and won't be settled anytime soon.
Here is one quotation:
“We have the stocks to shelter a lot of people. We do not have the land to put them on. I cannot invent land,' Gregg McDonald, lead coordinator for the U.N. shelter cluster said. “There are lots of discussions going on around land, and land issues. Nothing is resolved.''
Even if all the owners were identified, present, and in a position to deal, there is then the famous Grossman-Hart 1980 free-rider problem. "Urban renewal" can bring big increases in value, but the individual incentive is to be a hold-out on the sales front and capture those value increases, rather than sell out at the earliest possible moment.
Haiti right now has a massive scarcity of land — in the legally usable sense — and is facing a massive recalculation problem as a result. Keep in mind that in relative terms, land is a more important part of the Haitian economy than almost anywhere else. After food, land is arguably the most important market in the Haitian economy and that has ceased to work.
This disaster-related problem is frequently overlooked and kudos to The Miami Herald for publishing an intelligent article on it.
Addendum: Here is an update on Haitian education.
Counterintuitive stories
This one is from Canada:
Muslim group moves to ban burka
"Considering the fact that women are in fact forbidden from wearing burkas in the grand mosque in Mecca, Islam's holiest site, it hardly makes sense that the practice should be permitted in Canada, she said."
The proposed ban comes on the heels of reports that Sheikh Mohamed Tantawi, dean of Egypt's al-Azhar university and the country's highest Muslim authority, is poised to issue a fatwa, or religious edict, against the garments.
Sentences to ponder
The insurance commissioners in 11 states are elected. Under the Supreme Court’s Citizens United decision, insurers will now be able to finance the election campaigns of those who will be their regulators. Among other powers these state insurance regulators have authority over rates and policy forms.
That's a letter to The New York Times.
Addendum: See the comment by Michael Yuri.
Predictions about Yemen
Most experts predict Sana'a, the fastest-growing capital in the world at 7% a year, will run out of economically viable water supplies by 2017. That is the same year the World Bank says Yemen will cease earning income from its oil, which currently accounts for three-quarters of the state's revenues.
Here is the full article. The Yemeni government, by the way, is still subsidizing water usage.
This is Chile, not Haiti
"There is a certain lawlessness in this country that the government enabled," he said in Spanish. "They don't protect people and people don't respect them and criminal elements get out of control. People also have a high sense of entitlement. They expected the government to have water and power and things under control."
There is much more at the link or try this tweet: "The situation in Concepción is deteriorating. Citizens have taken up arms to defend themselves and their stores. 8 PM to 12 PM Army curfew." By no means is it just a bunch of people trying to feed themselves: "…many residents in the most damaged areas have not only taken food from supermarkets, but also robbed banks, set fires and engaged in other forms of lawlessness."
Haiti, on the other hand, remains fairly orderly and there have been reports that police corruption has gone down significantly.
One implication here is that I fundamentally distrust the use of "social trust" or "social capital" indicators in cross-country growth regressions. Repeat three times after me: context-dependence, context-dependence, context-dependence. The lessons for social science run deep.
My deeper worry is that this event will change Chile and set it back more than the damage alone would indicate. It will alter their self-image and national unity could decline. An alternative story is that Chile will become more progressive, as there will be greater common knowledge of income divisions and it will be harder to pretend everything is just fine.
Maybe it is a sign of social health to have some looting after an earthquake. In this part of blogland we do not dismiss the counterintuitive conclusion out of hand. For instance perhaps Haiti is so orderly because a) looters would be killed on the spot, and b) the entire fate of the nation is at stake and thus every small event is taken very seriously. Neither factor is exactly good news.
African poverty is falling
Xavier Sala-i-Martin and Maxim Pinkovskiy report:
The conventional wisdom that Africa is not reducing poverty is wrong. Using the methodology of Pinkovskiy and Sala-i-Martin (2009), we estimate income distributions, poverty rates, and inequality and welfare indices for African countries for the period 1970-2006. We show that: (1) African poverty is falling and is falling rapidly; (2) if present trends continue, the poverty Millennium Development Goal of halving the proportion of people with incomes less than one dollar a day will be achieved on time; (3) the growth spurt that began in 1995 decreased African income inequality instead of increasing it; (4) African poverty reduction is remarkably general: it cannot be explained by a large country, or even by a single set of countries possessing some beneficial geographical or historical characteristic. All classes of countries, including those with disadvantageous geography and history, experience reductions in poverty. In particular, poverty fell for both landlocked as well as coastal countries; for mineral-rich as well as mineral-poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below- or above-median slave exports per capita during the African slave trade.
Not only has poverty fallen in Africa as a whole, but this decline has been remarkably general across types of countries that the literature suggests should have different growth performances. In particular, poverty fell for both landlocked as well as coastal countries; for mineral rich as well as mineral poor countries; for countries with favorable or with unfavorable agriculture; for countries regardless of colonial origin; and for countries with below or above median slave exports per capita during the African slave trade. Hence, the substantial decline in poverty is not driven by any particular country or set of countries.
Sentences to ponder
This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean.
That's from Joshua Aizanman and Gurnain Kaur Pasricha. I don't currently see an ungated copy.
A reader’s question
Which earthquake killed more people today?
That's from Jim Ward and I was wondering the same. Keep in mind that Haiti has been having some heavy rains. Aux Cayes has waist-high water; what do you think that does for the spread of disease?
Concepción, Chile
I haven't been to Concepción since December 1989, yet I will never forget my trip there. It was the first time I learned what was for me to become an important truth. If you set off to a mid-sized city in South America — especially in the Southern Cone — your chance of finding an idyllic spot are high. There may be, in a way, nothing to do there, at least not in the sense that your guidebook can report. But it will feel so fresh, so undiscovered, so representative of the vitality of everyday life, that you will at times think you have stumbled upon paradise. Everyone there will seem so apart from the world you know and there is a sudden (and quite silly) shock at seeing how seriously they take the world they know. Plus they have superb vanilla ice cream and strawberries for dessert.
Here is the Cathedral, which was destroyed in 1939 by an earthquake.
The elasticity of natural disaster deaths with respect to income
Matt Kahn has a good paper (and here) on this topic:
Using a new data set on annual deaths from disasters in 57 nations from 1980 to 2002, this paper tests several hypotheses concerning natural disaster mitigation. While richer nations do not experience fewer natural disaster events than poorer nations, richer nations do suffer less death from disaster. Economic development provides implicit insurance against nature’s shocks. Democracies and nations with higher quality institutions suffer less death from natural disaster. The results are relevant for judging the incidence of a Global Warming induced increase in the count of natural disaster shocks.
Haiti fact of the day
Between 25% and 30% of postearthquake surgeries will need to be done again to avoid problems, says Dr. Jean "William" Pape, an infectious disease authority who is founder of Gheskio, an HIV/AIDS clinic next door to a field hospital set up by the U.S. Department of Health and Human Services.
The title of the article is "Emergency Doctors Leave Haiti."
Germany and Greece
…the Greek Finance Ministry had warned of "complete collapse" if the whole system…was not rethought…"Prices and value move in an atmosphere of imminent catastrophe," he wrote. "In Greece for a while now all the foundations of a healthy economy have been overturned. There can be no stability, neither in economic equilibrium nor in monetary or financial affairs."
…While the Italians…were genuinely worried by Greece's financial crisis, it was the Germans who needed to be persuaded. Initially, Altenburg's advocacy of the Greek position was not well received even in his own Ministry. But then the political stakes were suddenly raised…
…In Athens people expected the Finance Minister to win substantial concessions from the Germans. In actual fact he was in a very weak position.
…It was not that the Greek financial crisis could be ignored; nor that the Greek Finance Minister lacked the wit or intelligence to present his case. It was simply that no Greek politician carried enough weight to be heard seriously in Berlin.
That's from yesterday's Financial Times, no…whoops, sorry! That's from Mark Mazower's Inside Hitler's Greece: The Experience of Occupation, 1941-44. It's a good book.
Haiti vignette markets in everything The Ricardo Effect
Haiti, a nation of 10 million, does not have a single sewage treatment plant. Trucks often simply take the waste to the Troutier trash dump near the slums of Cité Soleil on this city’s edge.
The trucks empty into pits filled with medical waste like intravenous bags and garbage. Smoke billows from burning piles of trash. One truck from a private company, Sanco, with its motto “Fighting for a Clean Environment” emblazoned on its side, did not bother to go to a pit, dumping its cargo of human waste on the open ground.
A squatter community of a dozen families, including some new arrivals whose homes were destroyed in the earthquake, tries to eke out its survival by scavenging in this setting.
…The human waste problem was daunting even before the earthquake. Lacking a municipal sewage system, many families here employ a socially scorned class of nocturnal latrine cleaners known in Creole as the “bayakou.” They descend into latrines to clean excrement with their hands, before transporting it in carts to improvised disposal sites.
The story is here.