Results for “china”

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Chinese workers save a lot, maybe forty to fifty percent of their incomes.  There are some demographic reasons for that but it also suggests fear and foreboding.  They wonder if the Chinese economic miracle can continue.  There aren't full contingent claims markets in China but this quantity (of savings) is reflecting an implicit price for transferring wealth into possible bad world-states.  That implicit price suggests a fair amount of worry.

In the U.S. T-Bill market, in contrast, there is relative optimism and froth.  Lots of securities can be sold at rates close to zero.  That explicit price suggests not so much worry about the creditworthiness of the U.S. government and not so much worry about China.

The two prices contradict each other and they continue to do so because explicit arbitrage is not possible.  (Ideally, at least in neoclassical fantasy land, the U.S. government should be borrowing money from the Chinese and selling them back insurance at a higher price.)

From this portrait you can see why it is so hard to unwind the imbalances.  (Many expositions of imbalances focus on quantities and thus may obscure this point somewhat.)  If the Chinese workers are dealing with the correct price (implicit price), that means the worries are real and rates in the T-Bill market have to spike.  Ouch.  If the auction market for T-Bills is showing the correct price, that means the worries are false and at some point Chinese workers won't save nearly so much.  Again, rates in the T-Bill market have to spike.  Ouch.

Either way it ends in ouch.  There's a reason why, rhetoric aside, no one wants to end these imbalances.

So who has the right price?  The Chinese workers or the T-Bill bidders?  As usual, the truth probably lies somewhere in between.

It was great having him in residence for a few days and we discussed everything from Denmark to the financial crisis to the downturn of 1920-21 to the future of China. 

I won't detail Scott's account of the crisis (see Scott here, or my pared down summary here), but in sum Scott believes that easier money at the critical turning point would have made a big difference.  I have a few observations:

1. Scott's recommendation of higher price inflation, or higher nominal gdp growth, would have eased the crisis, in my very rough guesstimate by one-third and in absolute terms that is a lot.  It's the best free lunch I've seen in years.  Listen to Scott!  Yet, in my view, easier money would not have eliminated most of the crisis, given the partial or total insolvency of many financial institutions, the negative AD shock from the collapse of the housing bubble, and the need to halt and reverse the ongoing accumulation of debt, among other factors.  Scott disagrees.

2. Scott's account does not deny (but does not emphasize) that the initial downturn was accompanied by a fall in monetary velocity.  This opens up room for real shocks, resource reallocations and recalculations, and animal spirits to be driving the broader story. 

3. The relevant real shocks behind the downturn are plausibly: the decline of debt-financed consumption, mis-estimation of permissible leverage, the collapse of the real estate bubble, the revaluation of the risk premium, sectors hit by that revaluation, such as the non-profit sector suffering from tumbling equity prices, the required shrinkage of finance, sluggish behavior in the energy, health care, biotech, and educational sectors in terms of real productivity and job creation, and the collapse of non-Google advertising.   I see the revaluation of the risk premium as the most important of those.  And please note, when I refer to real shocks I don't mean technological forgetting or the Minnesota RBC theories.

4. Which empirical test would separate out the employment effects of the real shocks from the employment effects of the drop in nominal gdp?  I observe that many of the ailing sectors have relatively flexible nominal wages (real estate agents and journalists are two such cases), which leads me to think the real shocks were more important.  It would be good if we had a more formal test.  If the nominal and real theories are observationally equivalent, my gut suggests that favors the real theories but I don't have a clear argument on that point.

5. I observe that the Eurozone (plus pegging Estonia) has a single monetary policy yet some fairly divergent outcomes.  Estonian gdp has fallen off a cliff — about negative seventeen percent — while German gdp has fallen in the four to five percent range and now seems to have bottomed out.  Note that Estonia probably has more flexible wages and prices than does Germany.  Those facts also point to real shocks as being more important for the crisis, namely which economy was more bubbly in the first place and which required a greater revaluation of the risk premium.  The ailing Spain is another example.

6. Many of the AD shocks in the crisis, such as resulted from the decline in housing wealth, come from shocks to real wealth or income, not shocks to nominal wealth or income. 

7. Scott in his talk admitted and indeed emphasized that monetary and real shocks come bundled together.  What methodological or empirical view would properly lead us to call one primary and the other secondary?  Which came first?  Which has a higher marginal product of destruction without the other?  Which explains more pieces of data?  Something else?  I am inclined to call the real shocks primary and the secondary deflation…well…secondary.  Scott portrays the deflation (he doesn't call it the "secondary deflation," as I do) as the primary problem.

Arnold Kling posts on these questions here and here.  In Arnold's terminology I see the Fed as controlling nominal gdp but not always real gdp.

If you are looking to have in a visitor or a speaker, you cannot do better than to try Scott Sumner.  Maybe someday Scott will tell you about his favorite movie director, or his views on India, either of which may count as his most absurd belief.

Addendum: The Cato debate with Scott continues.  And do read Scott's response in the comments.

As I had expected, I could do the whole walk on little more than one street, Clarendon Blvd. (it is called Wilson going the other way), with but a bend at Fairfax Drive.  I never had to cross a major road, run across a road, come near a major highway, or circumnavigate a major shopping center.  The main artery was straight enough to be followed by a single line Metro line throughout.  I was never more than seven or eight minutes from a Metro stop, if that.  And if I had done this walk thirty years ago, while the buildings and shops would have been very different, and many fewer, the physical geography of the walk would have been the same.

In contrast look at Tysons Corner (you have to type in "Tysons Corner" yourself).  The whole area is carved up by major roads, including three significant highways, one of which could be called massive.  Try crossing Rt. 123 at Tysons Corner or try crossing Rt.7.  Even some of the "small" roads on this map are harder to cross than is the main Clarendon/Wilson thruway in Arlington.  It's not just the roads and the overpasses; crossing or circumventing either major shopping center is a daunting experience.  Furthermore very little is laid out in a line and thus the presence of Metro stops (right now there aren't any) would not cover the area nearly as well as they do in central Arlington.  Tysons is more like a large box with distant extremities protruding, all laid on top of some multi-level and impassable thick bones.  Overall there is plenty of this, except it's usually much busier.  There's also plenty of this.  Making Tysons denser in residential terms, whatever its virtues, won't eliminate those barriers and in some ways the current plan will make them worse.

In contrast here's what Google images pulls up on Clarendon Boulevard.

Now let's turn to the debate.  When Ryan Avent writes: "Tyler seems to approve of the fact that a local planning board will dictate the size of buildings which can be built [at Tysons]" I would offer a different narrative of what I believe, also citing my comment on Matt's blog.

"We made past mistakes, we won't institute congestion pricing or other congestion ameliorations, local government is a cesspool of rent-seekers and homeowners, and so we're stuck for the foreseeable future, on top of which the public choice critique means that even apparently sensible deregulatory pro-density plans will in practice be turned into additional subsidies for suburban growth, the latter observation in fact being derived from a broader point frequently offered up by Matt Yglesias in a variety of other contexts.

Believing the above paragraph is not well described as "favoring regulation and subsidy."  I think it is also a deeper understanding than:

"Let us build more densely in the most congested areas and it will work out for the better, even though road policy is terrible and lobbyists will de facto control all plans."

For many years privatizers and deregulators have been criticized for moving too quickly, before the right conditions for reform are in place.  China has been praised over Russia, etc.  Some privatization and deregulations have indeed backfired and maybe this one would too, unless it is done properly and that means done in conjunction with good roads policies.

That all said, I do in fact favor denser development at Tysons, even without road reform, though not without limits.  In the big proposed plan, I'm most of all opposed to broader roads (I'll explain why this is a coherent position some other time but the "average cost equalization" property of transport equilibria can generate such apparently counterintuitive recommendations.)

Random points: Crystal City tried residential density and it didn't work nearly as well as Arlington.  It's a dead zone.  The earlier attempted dense development of Skyline Drive also stalled and was beaten out by Tysons.  Or look at the new (and failing?) complexes on Rt.29 and Gallows Rd. and Strawberry.  In 1989 I moved into a tall apartment building, right at Tysons, which had stores on the ground floor so residents would not have to drive to shop.  I was delighted but within six months all those shops had closed for lack of interest.  At the risk of sounding like Gustav Schmoller, each case really is different, just as Tysons is different from Arlington.

Matt Yglesias wrote:

…why on earth isn’t the libertarian take on this that we should permit high density construction and let the market decide what happens?

When it comes to the current Tysons plan, it is not "the market deciding."  It is a mega-plan with road widening, the bane of progressive pro-environment, pro-urban advocates, and also massive subsidies for growth and not just density of growth.  More generally, when road policy is so politicized, it is never the market deciding in any case. 

Call me odd, but I'm not opposed to urban (or suburban) planning and in fact anyone who recognizes the ongoing existence of public roads has to end up in the same place.  I might add that postwar Germany did a good job of such planning.  Tysons Corner is not, right now, doing a good job of it.  You can believe that whether or not you're a libertarian.

Addendum: In closing, let me toss out a random, radical idea.  How about putting up some high-density housing in the vastly underused, nearby residential section of Pimmit Hills and putting in shops and office buildings and the like as well?  Why obsess over reforming Tysons per se?  Might the answer be to, in some way, work around the Tysons mess and along some margins outcompete it?  After all, that's what they ended up doing with Seven Corners.

I may soon consider a few other of my favorite parts of NoVa.

Addendum: Here is a reply from Ryan Avent.