Category: Current Affairs
A defense of Hungarian economic policies and prospects
It seems that Hungary has climbed out of its slump and it is now growing at 2.5 percent a year, at least during the last quarter. This interesting but self-serving editorial serves up a few reasons why:
We are increasing small- and medium-size businesses’ access to capital through grants and loan programs for product development, and reducing corporate-income taxes for these firms to 10% from 19%—among the lowest in Europe. These businesses are vital to Hungary’s export-driven recovery. As they continue to grow, so will private-sector employment, which in turn will reduce the heavy burden on our welfare system.
We would rather receive the same total tax revenues from a larger number of employers—each paying less tax—and have more employed Hungarians spending their wages and driving consumption. We’ve significantly lifted the tax burden off consumers by slashing the personal income-tax levy to a flat rate of 16%, from a tiered system where the highest rate was 32%.
We are also tackling welfare reform. Our government-run system has been plagued by spiralling costs, systemic abuse and inefficiencies that were exposed by the deteriorating economic conditions after the financial crisis. We believe that any welfare cuts should aim to boost employment and embed a work ethic among Hungarians. So we have reduced unemployment and disability benefits and pharmaceutical subsidies, and are in the process of reducing back the red tape that makes employing workers complicated and expensive.
I would stress caution is interpreting these arguments and note they are from a member of the current government. Luck, positive real shocks (agriculture), and mean reversion are also at work. Still, it is interesting to see that the Hungarian recovery is far outpacing that of the PIIGS countries; Hungary of course is not on the euro and it has avoided wrenching deflation, instead experiencing mild inflation. Furthermore the Hungarians seem to be putting a spending freeze into operation and they are addressing pension liability problems. It is unlikely that is the cause of their recent turnaround, but it hasn’t hindered it either.
All this is true:
Our economy has grown for six consecutive quarters, unemployment levels are falling and the Hungarian forint is one of the world’s strongest-performing currencies this year.
Budapest is now an expensive city, and it no longer makes for a good cheap vacation.
Uh-oh
According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks.
There is more detail here; fortunately, not all of them have heavy exposure to Greece. You will recall also that “runs on money market funds” were one problem which regulators have yet to address in a satisfactory manner. Here is another claim, with an uncertain degree of verification:
It will be American banks and insurance companies that will have to make the lion’s share of default insurance payments to European institutions if Greece fails…if one includes credit default exposure, American exposure to Greece increases from $7.3 billion to $41.4 billion.
It still remains the case that without contagion effects these losses can be handled.
Surprising Beach Reading
When I ask who she reads on the subject, she responds that she admires the late Milton Friedman as well as Thomas Sowell and Walter Williams. “I’m also an Art Laffer fiend—we’re very close,” she adds. “And [Ludwig] von Mises. I love von Mises,” getting excited and rattling off some of his classics like “Human Action” and “Bureaucracy.” “When I go on vacation and I lay on the beach, I bring von Mises.”
So who said it? I was surprised.
Austro-Afghanistan business cycle theory
The World Bank found that a whopping 97 percent of the gross domestic product in Afghanistan is linked to spending by the international military and donor community.
That is via Matt Yglesias, original source here. Nor was the boom that great either.
Antibiotic resistance
The E coli strain that is killing people in Europe is both new and resistant to at least a dozen antibiotics in eight classes. It’s clear, therefore, that this strain picked up resistance via gene transfer from previous strains that evolved resistance over a longer time frame. Thus, antibiotic resistance can spread very quickly, probably more quickly than we can develop new antibiotics. One of the places that resistance develops is in farm animals where antibiotics are used as growth promoters, not just as therapeutics. Since there is a significant externality from antibiotic use, there is a good case to be made for regulating antibiotic use. As Glenn Reynolds once put it:
I think you can make a better case for regulating antibiotics than heroin: Misusing antibiotics can endanger countless others, while misusing heroin mostly endangers oneself.
(FYI, Tyler and I use antibiotic use as an important example of externalities in Modern Principles).
Denmark progressively regulated and reduced antibiotics for sub-therapeutic use in pigs, poultry and other livestock beginning around 1995. After some experimentation, pig production was not adversely affected and resistance in the wild declined. It’s less clear whether human health increased due to the regulation of antibiotics in farm animals (although there is less resistance in countries that use fewer antibiotics). It may be that Denmark is simply too small and connected with the rest of the world to see a large effect. Nevertheless, Denmark shows us that the costs of reducing antibiotic use in farm animals is not excessive, especially if phased-in, and the benefits of maintaining the effectiveness of our stock of antibiotics is so high that I see more intelligent but reduced use as an important goal.
See also Megan McArdle’s very good talk on this topic.
Which is the more important headline?
US solar power nears competing on price (“US solar power will compete on price with conventional generation within three years without subsidy thanks to plummeting costs, industry leaders say.”)
Or:
Oil leaps as Opec descends into acrimony
Is a falling oil price a necessary concomitant of viable solar power on a large scale? Or not? Is the price of natural gas falling through the floor? I missed that headline.
I thank Jim Olds for a relevant pointer.
Austan Goolsbee is leaving the CEA
Link and report here.
Peter Diamond withdraws his name
His statement is here. There should be no doubt about Diamond’s qualifications as an economist, but oddly his parting statement makes him sound less qualified as a Fed candidate rather than more qualified. It is not so much the case that further analytical expertise is needed, which is what Diamond seems to suggest. What is needed is someone who can help push some fairly simple and already well-understood ideas through Congress. Was Diamond that person? From a distance it’s hard to say, and of course “parting shots” are strategic in their own right. Still, the piece seems overly focused on technocratic issues and it is not obvious that he is the ideal ambassador to, say, Ron Paul. In other words, there is a reasonable chance that this not unexpected development is a blessing in disguise.
For the pointer I thank Jeffrey Deutsch.
China at the frontier
Following previous efforts (http://www.genomics.cn/en/news_show.php?type=show&id=644 and http://www.genomics.cn/en/news_show.php?type=show&id=647), BGI, based in Shenzhen, China, and its collaborators at the University Medical Centre Hamburg-Eppendorf, as well as a growing number of researchers around the world “crowdsourcing” this data, are exploring in-depth the European disease outbreak helping trace the origin and spread of the lethal E. coli strain. Different sources have reported that two strains, 01-09591 from Germany isolated in 2001 and 55989 from Central Africa in 2002, are highly similar to the 2011 outbreak strain. Based on the most recently curated assembly publically released by BGI yesterday (ftp://ftp.genomics.org.cn/pub/Ecoli_TY-2482), these strains have an identical Multi Locus Sequence Typing (ST678) based on analysis of seven important “housekeeping” genes*.
BGI (formerly known as Beijing Genomics Institute) was founded in 1999 and has become the largest genomic organization in the world. With a focus on research and applications in the healthcare, agriculture, conservation and bio-energy fields, BGI has a proven track record of innovative, high-profile research which has generated over 178 publications in top-tier journals such as Nature and Science.
The Global War on Drugs has Failed
The global war on drugs has failed, with devastating consequences for individuals and societies around the world.
…End the criminalization, marginalization and stigmatization of people who use drugs but who do no harm to others. Challenge rather than reinforce common misconceptions about drug markets, drug use and drug dependence.
…This recommendation applies especially to cannabis, but we also encourage other experiments in decriminalization and legal regulation that can accomplish these objectives and provide models for others.
…Break the taboo on debate and reform. The time for action is now.
- Asma Jahangir, human rights activist, former UN Special Rapporteur on Arbitrary, Extrajudicial and Summary Executions, Pakistan
- Carlos Fuentes, writer and public intellectual, Mexico
- César Gaviria, former President of Colombia
- Ernesto Zedillo, former President of Mexico
- Fernando Henrique Cardoso, former President of Brazil (chair)
- George Papandreou, Prime Minister of Greece
- George P. Shultz, former Secretary of State, United States (honorary chair)
- Javier Solana, former European Union High Representative for the Common Foreign and Security Policy, Spain
- John Whitehead, banker and civil servant, chair of the World Trade Center Memorial Foundation, United States
- Kofi Annan, former Secretary General of the United Nations, Ghana
- Louise Arbour, former UN High Commissioner for Human Rights, President of the International Crisis Group, Canada
- Maria Cattaui, Petroplus Holdings Board member, former Secretary-General of the International Chamber of Commerce, Switzerland
- Mario Vargas Llosa, writer and public intellectual, Peru
- Marion Caspers-Merk, former State Secretary at the German Federal Ministry of Health
- Michel Kazatchkine, executive director of the Global Fund to Fight AIDS, Tuberculosis and Malaria, France
- Paul Volcker, former Chairman of the United States Federal Reserve and of the Economic Recovery Board
- Richard Branson, entrepreneur, advocate for social causes, founder of the Virgin Group, co-founder of The Elders, United Kingdom
- Ruth Dreifuss, former President of Switzerland and Minister of Home Affairs
- Thorvald Stoltenberg, former Minister of Foreign Affairs and UN High Commissioner for Refugees, Norway
The report of The Global Commission on Drug Policy is very strongly worded and the commissioners are so stellar it will be difficult to ignore.
Zero Marginal Product (ZMP) workers
Via Annie Lowrey, from Neil Irwin:
People unemployed over 6 months rose by a whopping 361k, 44% of all unemployed.
Life, Liberty and the Pursuit of Happiness
Perhaps you think this is a minor thing but when you see what can happen when people dance, you can better understand how the police can break into someone’s home, shoot the owner, and then watch as he dies (more here) while preventing paramedics from helping.
As long as we are on medieval topics…
Science magazine reports that Enzo Boschi, the president of Italy’s National Institute of Geophysics and Volcanology, and his fellow seismologists have been charged with manslaughter after they allegedly didn’t alert the residents of L’Aquila in Central Italy before a quake hit that town and killed 308 residents.
This might seem insanely harsh. Seismologists do work hard at trying to discover when and where a quake might hit.
However, in this case, it seems that these seven, all of whom sit on Italy’s major risks committee, reportedly offered certain words of reassurance that caused some residents of L’Aquila not to abandon their homes, but to stay in an area that had previously experienced some smaller quakes.
Judge Giuseppe Romano Gargarella reportedly offered that the seven had held a televised press conference six days before the quake and offered “imprecise, incomplete, and contradictory information.”
Some might wonder whether this is what scientists regularly do, however certain their words might sometimes seem. However, Garagarella reportedly further accuses Franco Barberi, the vice chairman of the committee, of specifically stating that no quake was to be immediately expected in the area.
This reassurance, Gargarella reportedly claimed to Corriere Della Serra, “thwarted the activities designed to protect the public.”
John Delaney passes away
He was 42, climbing Mount Everest (more here), and he was best known for his role in running InTrade.com. He was also an MR reader and sometimes he wrote to me. He will be missed.
The very sad pointer is from Chris F. Masse.
Crime is falling, still
The number of violent crimes in the United States dropped significantly last year, to what appeared to be the lowest rate in nearly 40 years, a development that was considered puzzling partly because it ran counter to the prevailing expectation that crime would increase during a recession.
In all regions, the country appears to be safer. The odds of being murdered or robbed are now less than half of what they were in the early 1990s, when violent crime peaked in the United States. Small towns, especially, are seeing far fewer murders: In cities with populations under 10,000, the number plunged by more than 25 percent last year.
This development reminds me of a fallacy committed by (some) intellectuals. Occasionally you will read it insinuated that if inequality continues, or continues to rise, “the public will take matters into its own hands,” or something like that. Apart from being potentially factually false, such an outcome is neither endorsed nor condemned by the intellectual. The writer is hinting that the losers from such a rebellion would deserve what is coming to them, without having to say so. Least of all is the writer willing to throw his or her efforts behind dissuading or criticizing such a public response (is it so hard to write “don’t bring out the guillotine”?). The ostensibly “positive” description of what the public will do is used as a veiled threat, to be enacted if the warnings of the supposedly smarter intellectual are not heeded, yet without the intellectual having to make the threat himself.
A similar issue comes up in some discussions of free trade. It is sometimes hinted that if more is not done to help victims of free trade, the public will turn against free trade and force through extreme populist anti-trade measures. Again, the writer is playing on mood affiliation rather than analyzing such an outcome dispassionately and then evaluating the behavior of the public and trying to prevent it by framing the issue in a different manner.
The reality is that the public does not respond to most events, or most changes in the income distribution, as the intelligentsia likes to think it should, or will.
Maybe I will call this “the public as billy club” fallacy. I have a low opinion of sentences in which this fallacy is committed.