Tag Archives: economics

the mini-recession of 2015-16

Leave a reply

The New York Times has a nice piece of economics reporting on a downturn that affected the U.S. manufacturing, farming and energy industries in 2015 and 2016. I’ll see if I can summarize it, but really we have to admit to ourselves that spinning these narratives after the fact doesn’t mean we have the ability to predict the future.

  • China tried to slow down lending because it was worried about a bubble. The article doesn’t say how, but maybe they raised interest rates or put other requirements on banks.
  • This affected developing countries that export to China.
  • The U.S. Federal Reserve was also starting to raise interest rates because it thought growth and inflation were both starting to pick up.
  • Europe and Japan were decreasing interest rates due to low growth at time.
  • The disparity in interest rates caused a rise in the dollar, because investors pulled money out of other countries/currencies to invest in the U.S.
  • China’s currency is (partially?) pegged to the dollar, so this caused its currency to rise and hurt its exports.
  • China reduced its peg to the dollar in response to allow its currency to depreciate and help its exports. However, this caused more investors to shift money out of China and reduced growth even more.
  • Governments and companies in emerging markets had a lot of dollar-denominated debt, which was now more expensive to repay in their local currencies.
  • The slowdown in emerging markets reduced demand for oil, minerals and agricultural goods, which caused prices to drop and hurt those sectors in the U.S., along with manufacturing that serves those sectors. Some emerging countries are also active in energy, mining, and agriculture so they were also hurt.
  • This may have had political consequences both in terms of disgruntled voters in key states during the 2016 election, and the perception of increased growth following the election.

It’s pretty interesting how it is all connected, and even though it seems complex the reality is probably much more complex than the way I have tried to puzzle it out above. The lesson going forward seems to be that a slow down in China, coupled with a disparity in growth between the U.S., China, and other developed countries in Europe and Asia, can lead to recession conditions in the U.S., even if the U.S. economy is healthy at the beginning of the process. Put another way, global growth is clearly not a zero sum game as some politicians would like to try to convince us. The U.S. Federal Reserve is trying to gradually raise rates to give it some ability to respond to an event like this in the future, but it is clearly a balancing act.

bullshit jobs

Leave a reply

In David Graeber’s 2013 essay On the Phenomenon of Bullshit Jobs, a bullshit job is one where the person doing it doesn’t think it is necessary or important. The paradox is that many high-paying corporate jobs seem to fit this mold.

Why did Keynes’ promised utopia—still being eagerly awaited in the ’60s—never materialise? The standard line today is that he didn’t figure in the massive increase in consumerism. Given the choice between less hours and more toys and pleasures, we’ve collectively chosen the latter. This presents a nice morality tale, but even a moment’s reflection shows it can’t really be true. Yes, we have witnessed the creation of an endless variety of new jobs and industries since the ’20s, but very few have anything to do with the production and distribution of sushi, iPhones, or fancy sneakers…

But rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions, and ideas, we have seen the ballooning of not even so much of the ‘service’ sector as of the administrative sector, up to and including the creation of whole new industries like financial services or telemarketing, or the unprecedented expansion of sectors like corporate law, academic and health administration, human resources, and public relations. And these numbers do not even reflect on all those people whose job is to provide administrative, technical, or security support for these industries, or for that matter the whole host of ancillary industries (dog-washers, all-night pizza delivery) that only exist because everyone else is spending so much of their time working in all the other ones…

This is a profound psychological violence here. How can one even begin to speak of dignity in labour when one secretly feels one’s job should not exist? How can it not create a sense of deep rage and resentment. Yet it is the peculiar genius of our society that its rulers have figured out a way, as in the case of the fish-fryers, to ensure that rage is directed precisely against those who actually do get to do meaningful work. For instance: in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid for it. Again, an objective measure is hard to find, but one easy way to get a sense is to ask: what would happen were this entire class of people to simply disappear? Say what you like about nurses, garbage collectors, or mechanics, it’s obvious that were they to vanish in a puff of smoke, the results would be immediate and catastrophic. A world without teachers or dock-workers would soon be in trouble, and even one without science fiction writers or ska musicians would clearly be a lesser place. It’s not entirely clear how humanity would suffer were all private equity CEOs, lobbyists, PR researchers, actuaries, telemarketers, bailiffs or legal consultants to similarly vanish. (Many suspect it might markedly improve.) Yet apart from a handful of well-touted exceptions (doctors), the rule holds surprisingly well.

I’m not quite so sure. I think that as we have become wealthier, things our grandparents would have thought of us “wants” are now classified as “needs”. I think air conditioning is one good example. My grandparents would have considered it an unimaginable luxury, but I consider it somewhat of a necessity that improves my life and my family’s life, and I am willing to work a little extra to have it. I can think of a lot more examples that don’t fit this though, starting and ending with all the junk in my house. I would gladly give up most of it in exchange for working a little less. So what is stopping me? That’s actually a hard question to answer. My life style is calibrated to my income and vice versa in an endless cycle that is hard to break, kind of like popping a balloon with your bare hands – how do you get a grip so you can apply pressure? The cable bill might be a start – in fact, I just bought a digital antenna and cancelled my cable. I kept my internet connection though, and somehow Verizon figured out a reason that saves me only a little money (some “discount for bundled services” that no longer applies). So now I could theoretically work maybe 5 minutes less a week, but that would be a weird conversation to have with my employer, and is not going to happen. And of course I am not giving up my internet, because that is a necessity for me and my family, which my grandparents could not even have conceived of existing, but which I am willing to work a little extra to pay for…

best performing urban economies

Leave a reply

Here are the world’s 10 best-performing urban economies according to Brookings.

  1. Dublin, Ireland
  2. San Jose, USA
  3. Chengdu, China
  4. San Francisco, USA
  5. Beijing, China
  6. Delhi, India
  7. Manila, Philippines
  8. Fuzhou, China
  9. Tianjin, China
  10. Xiamen, China

Here is a brief explanation of the methodology:

This Global Metro Monitor employs several key variables to assess the economic performance of metropolitan areas: gross domestic product (GDP), employment, population, and GDP per capita, all from 2000 to 2016. For static analysis and cross-border comparison, this study employs nominal GDP at purchasing power parity rates. For trends analysis, it uses GDP data at 2009 prices and expressed in U.S. dollars. Data availability and comparability at metropolitan level precluded expanding the economic analysis to other indicators of interest, such as housing prices, employment rates, unemployment rates, and income distributions.

Clearly, there is no consideration of health, ecosystem services, or sustainability here.

U.S. housing bubble starting to deflate?

Leave a reply

This Reuters article suggests the current U.S. housing bubble may be starting to deflate, if not pop. I don’t quite follow the logic, because it seems to suggest at the same time that the rate of housing starts is not sufficient to meet demand, and that the cost of construction is rising due to rising material, land, and labor costs. In basic economics 101 class, if there is an unmet demand, prices are supposed to rise until supply equals demand. But maybe people are just not willing or able to buy houses they want at the current market prices. What do they do instead? Again in textbook economics land, they should move to less expensive locales, buy smaller houses, live with roommates, rent extra rooms on AirBnB, etc. I guess there are all sorts of legal and cultural reasons these things don’t happen enough or fast enough for the market to equilibrate. Still, even knowing that the real world is not the textbook economic world, it’s hard to buy the argument that developers aren’t building houses because there aren’t as many houses for sale as people who want to buy houses.

Trumponomics – just plain made up

Leave a reply

Trump claims recent economic growth is unprecedented. The claim is demonstrably false and just plain made up. According to Politifact:

Trump said, “Watch those GDP numbers. We started off at a very low number, and right now we hit a 3.2 (percent). Nobody thought that was possible.”

This is inaccurate two ways. First, the most recent saw GDP growth of 2.0 percent, not 3.2 percent. And second, exceeding 3 percent GDP growth in a quarter is not an unusual achievement — Obama accomplished it eight times. The real achievement would be a full year at 3 percent, which hasn’t happened under Trump yet.

We rate the statement False.

Much more interesting is that the U.S. has not managed a full year of 3% growth since 2005. Politifact has a much more interesting article here that explains why most economists think a sustained 3% will not be achievable in the foreseeable future.  In summary:

  • Growth in the working-age population is much lower than it was (political response: prevent willing workers from entering the country, oppose measures to provide childcare to working age adults…)
  • Productivity growth has also slowed significantly (political solution: underfund infrastructure, education, research and development; although to be fair, some of the recent changes to corporate tax policy might help if companies choose to invest the savings in plants, equipment, research and development rather than just letting executives pocket them)

 

Who’s really crossing the U.S. border?

Leave a reply

This article is from Lawfare, and the answer is interesting.

First off, while the current administration has tried to tie Central American migrants to MS-13, government data reveals that gang members crossing irregularly are the rare exceptions. Since the Trump administration took office, the Border Patrol has detected fewer gang members crossing irregularly than during the Obama administration. In FY2017, these detections amounted to 0.075 percent of the total number of migrants (228 MS-13 members out of 303,916 total migrants). When combined with MS-13’s rival, the Barrio 18 gang, the number rises only slightly to 0.095 percent. This is far from the “infestation” of violent gang members described by the president…

The face of migration has also changed. Back in 2000, Mexican nationals made up 98 percent of the total migrants and Central Americans (referring to Honduran, Guatemalan, and Salvadoran migrants) only one percent. Today, Central Americans make up closer to 50 percent.

A declining Mexican birth rate, a stable economy, and the U.S. border buildup have all contributed to the decrease in migration from Mexico. But as Mexican irregular migration has plummeted, Central American migration has simultaneously picked up. Until 2011, Central Americans constituted less than ten percent of total U.S.-Mexico border apprehensions, but by 2012 they constituted 25 percent, and by 2014 they numbered half of all illicit border crossers. While migration from each country within the Northern Triangle (El Salvador, Guatemala, and Honduras) has fluctuated over time, each country has sent roughly similar numbers of people in the aggregate. From FY1995 to FY2016, the U.S. Border Patrol apprehended around 500,000 citizens from each country. In other words, it’s not a coincidence that most recent news stories about migrant parents separated from their children feature families from Honduras, Guatemala, and El Salvador.

People from Honduras and El Salvador are often fleeing urban gang violence, while those from Guatemala are often fleeing rural poverty.

 

more on the downward spiral of nuclear power economics

Leave a reply

This one is from Five Thirty Eight:

The age of the nuclear fleet is partly to blame. That’s not because America’s nuclear reactors are falling apart — they’re regularly inspected, and almost all of them have now gone through the process of renewing their original 40-year operating licenses for 20 more years…

Instead, it’s the cost of upkeep that’s prohibitive. Things do fall apart — especially things exposed to radiation on a daily basis. Maintenance and repair, upgrades and rejuvenation all take a lot of capital investment. And right now, that means spending lots of money on power plants that aren’t especially profitable. Historically, nuclear power plants were expensive to build but could produce electricity more cheaply than fossil fuels, making them a favored source of low-cost electricity. That changed with the fracking boom, Morgan told me. “Natural gas from fracking has gotten so cheap, [nuclear plants] aren’t as high up in the dispatch stack,” he said, referring to the order of resources utilities choose to buy electricity from. “So many of them are now not very attractive economically…”

Morgan and other researchers are studying the economic feasibility of investment in newer kinds of nuclear power plants — including different ways of designing the mechanical systems of a reactor and building reactors that are smaller and could be put together on an assembly line. Currently, reactors must be custom-built to each site. Their research showed that new designs are unlikely to be commercially viable in time to seriously address climate change. And in a new study that has not yet been published, they found that the domestic U.S. market for nuclear power isn’t robust enough to justify the investments necessary to build a modular reactor industry.

May 2018 in Review

Leave a reply

Most frightening stories:

Most hopeful stories:

  • There are some new ideas for detecting the potential for rapid ecological change or collapse of ecosystems.
  • Psychedelics might produce similar benefits to meditation.
  • Microgrids, renewables combined with the latest generation of batteries, are being tested in Puerto Rico.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

value of learning curves in climate change planning

Leave a reply

This article gives an example of how to put an economic value on climate change adaptation incorporated in a larger planning framework.

The Economic Value of Climate Information in Adaptation Decisions: Learning in the Sea-level Rise and Coastal Infrastructure Context

Traditional methods of investment appraisal have been criticized in the context of climate change adaptation. Economic assessment of adaptation options needs to explicitly incorporate the uncertainty of future climate conditions and should recognise that uncertainties may diminish over time as a result of improved understanding and learning. Real options analysis (ROA) is an appraisal tool developed to incorporate concepts of flexibility and learning that relies on probabilistic data to characterise uncertainties. It is also a relatively resource-intensive decision support tool. We test whether, and to what extent, learning can result from the use of successive generations of real life climate scenarios, and how non-probabilistic uncertainties can be handled through adapting the principles of ROA in coastal economic adaptation decisions. Using a relatively simple form of ROA on a vulnerable piece of coastal rail infrastructure in the United Kingdom, and two successive UK climate assessments, we estimate the values associated with utilising up-dated information on sea-level rise. The value of learning can be compared to the capital cost of adaptation investment, and may be used to illustrate the potential scale of the value of learning in coastal protection, and other adaptation contexts.

March 2018 in Review

Leave a reply

Most frightening stories:

Most hopeful stories:

  • One large sprawling city could be roughly the economic equivalent of several small high-density cities. This could potentially be good news for the planet if you choose in favor of the latter, and preserve the spaces in between as some combination of natural land and farm land.
  • The problems with free parking, and solutions to the problems, are well known. This could potentially be good news if anything were to be actually done about it. Self-parking cars could be really fantastic for cities.
  • The coal industry continues to collapse, and even the other fossil fuels are saying they are a bunch of whining losers. And yes, I consider this positive. I hope there aren’t too many old ladies whose pensions depend on coal at this point.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both: