Tag Archives: economics

Belarus

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This might seem like a random topic, but Peter Turchin got me interested in Belarus. By his telling, sure, Lukashenko is a thug who has tortured and disappeared his political rivals, but he is a thug who has delivered some economic success and quality of life for his people. He has blocked potential oligarchs and maintained something along the lines of the original vision of Soviet state-owned means of production. In Russia (again by Turchin’s telling), the oligarchs got the upper hand in the 1990s and early 2000s, after which Putin crushed them and at least partially restored economic and political power to the bureaucratic government. In Ukraine, the oligarchs completely got the upper hand after the fall of the Soviet Union, took over the country and the political revolutions and counter-revolutions since then are oligarchs fighting amongst each other.

Numbers below are from the CIA World Fact Book and rounded by me. It’s a little unfair to look at the numbers for Ukraine right now, but we can compare Belarus to Poland, Russia, and Germany. Belarus is the poorest among these, but the distribution of wealth is significantly more equal (similar to a Scandinavian country in fact). Life expectancy is significantly higher than Russia and similar to Poland. So you might say yes, Belarus appears to be the closest thing to a Soviet workers paradise where nobody is rich but people have jobs, put food on the table, and get medical care. Russia is richer but strikingly unequal, and some combination of poor nutrition, poor mental and/or physical health, substance abuse, violence and/or poor health care holds down life expectancy. Germany is wealthy and healthy, although fairly unequal.

BelarusUkraineRussiaPolandGermany
GDP per capita at PPP$20,000$9,000 ($12,000 pre-war)$28,000$35,000$54,000
Ginni Index2427363032
Unemployment Rate5%9%5%3%4%
Average Life Expectancy (years)7570727682
CIA World Fact Book

December 2023 in Review

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Most frightening and/or depressing story: Migration pressure and right wing politics create a toxic feedback loop practically everywhere in the world.

Most hopeful story: I mused about ways to create an early warning system that things in the world or a given country are about to go seriously wrong: “an analysis of government budgets, financial markets, and some demographic/migration data to see where various governments’ priorities lie relative to what their priorities probably should be to successfully address long-term challenges, and their likely ability to bounce back from various types and magnitudes of shock. You could probably develop some kind of risk index at the national and global levels based on this.” Not all that hopeful, you say? Well, I say it fits the mood as we end a sour year.

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both: Did an AI named “Q Star” wake up and become super-intelligent this month?

November 2023 in Review

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Most frightening and/or depressing story: An economic model that underlies a lot of climate policy may be too conservative. I don’t think this matters much because the world is doing too little, too late even according to the conservative model. Meanwhile, the ice shelves holding back Greenland are in worse shape than previously thought.

Most hopeful story: Small modular nuclear reactors have been permitted for the first time in the United States, although it looks like the specific project that was permitted will not go through. Meanwhile construction of new nuclear weapons is accelerating (sorry, not hopeful, but I couldn’t help pointing out the contrast…)

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both: India somehow manages to maintain diplomatic relations with Palestine (which they recognize as a state along with 138 other UN members), Israel, and Iran at the same time.

The inflation numbers from 2022

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FiveThirtyEight has a simple rundown of the inflation and interest rate numbers from 2022:

One of the most important numbers of 2022 was 9.1 percent. That was the inflation rate in June — the highest yearly increase since 1981…

Inflation has since cooled a bit, but as of November, consumer prices were still 7.1 percent higher than they were at the same time last year. And that’s affected the way families are celebrating the holidays. In a poll from before Christmas, 57 percent of those surveyed said that it was harder to afford the gifts they wanted to buy, up from 40 percent the year before. And 11 percent of respondents in another poll said they anticipated taking on some amount of debt for their holiday shopping…

To control this high inflation, the Federal Reserve raised its benchmark interest rate more than 4 percentage points over the course of the year, to the highest point in 15 years. Most observers agree that’s likely to cause a recession. What’s less clear is how bad it will be, and whether it curbs inflation as it’s intended to do. These are the unknown questions 2023 is poised to answer, and why the inflation rate is one of the most important numbers of the past year.

FiveThirtyEight

I found myself dipping into what are supposed to be emergency funds to cover my family’s normal living expenses toward the end of 2022, so yes I can understand that people who were barely making ends meet at the beginning of the year might be in trouble at the end of it. The good news is that almost anyone who wants a job should be able to find one, at least for now, and maybe not at the level of pay they prefer. The real pain comes if unemployment spikes while inflation is still high. The hope for 2023 would be that inflation continues to tick down toward a “normal” level of say 2-3%, while unemployment stays in its low range of say 3-5%. If that is where we are a year from now, our economy and society will feel more stable although of course we will still have serious inequality and social problems to work on.

And by the way, does “growth” really matter if people are employed and are able to buy the things they need and a reasonable amount of the things they want? I don’t see why, it seems like a very indirect measure.

a ship being built

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It’s fun to watch construction cameras in fast forward. This is a ship being built at Philly Shipyard Inc. (and by way, you can argue whether it is lazy to use the abbreviation for Philadelphia and whether “ship yard” should be one word or two, but this is the actual name of the company.

Youtube

I learned from this (paywalled) Philadelphia Inquirer article that U.S. shipyards are not competitive in the market for international oceangoing cargo vessels. However, there is something called the Jones Act that requires domestic trade to be done on U.S.-built and U.S.-crewed ships. So this includes trade between the U.S. mainland, Hawaii, and Guam for example. This seems a bit inefficient to me, but I can also see an argument to maintain the ability to build technology domestically with obvious military use. The shipyard also has military and government contracts which, and so sorry I just can’t resist the terrible pun, keep it afloat. I am a dad after all, and I have to keep my dad jokes at the ready.

eeney miney mini max

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This article talks about using “mini max regret” in climate planning. Basically this sounds like a form of cost-benefit analysis incorporating uncertainty of key inputs including the discount rate. They conclude that 2% is a reasonable intergenerational discount rate.

Note that discounting is one way of handling that issue of the needs of the present population vs. all the teeming trillions who might exist in the future. It doesn’t quite work for existential risks though, because if no humans are around there are by definition no costs or benefits until the cockroaches develop economics.

measuring inflation is hard

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Measuring inflation is hard for a variety of reasons, and it gets even harder when you try to compare across countries and regions. Some of the reasons include methodological choices in averaging, weighting, how housing and transportation are accounted for, how urban and rural consumers are included, and many others. There is a measure called the Harmonized Index of Consumer Prices (HICP) that is used to try to compare across countries and regions. This differs from the U.S. CPI in a variety of ways.

mathy inflation hand waving headlines

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Breitbart headline: Wholesale Inventories Rose More Than Expected, Pointing to Even More Inflation Ahead

Okay Breitbart, but couldn’t an increase in inventories indicate that supply is starting to catch up with demand, which would put downward pressure on inflation? Or it could indicate a sudden drop in demand, which would also hopefully put downward pressure on inflation, although maybe not right away, which could lead to the dreaded “stagflation”. Either way, this headline is either stupid or intentionally misleading. Either the logical relationship is the opposite of what they are suggesting, or there is no relationship at all.

In the actual article,

Economists had expected many businesses to go into liquidation mode to rid themselves of unwanted inventories in the first quarter of this year. Indeed, declining or decelerating inventories were widely expected to be a drag on GDP as well as a moderating factor on inflation. Instead, inventories have been building faster than expected, which will likely force GDP expectations and inflation to rise.

Wholesalers act as middlemen between producers of goods and retailers. The business requires speculation about future demand. A rising wholesale inventory generally indicates expectations for robust demand from consumers for goods. It can go awry, however, if consumer spending is weaker than expected and wholesalers are left with unwanted stockpiles of goods. For this reason, economists watch the inventory to sales ratio, which remains at a historically low level that indicates wholesalers have not built up big piles of goods in compared to consumer activity.

Breitbart

Let’s try to follow this convoluted logic. I don’t see why declining inventories would put downward pressure on inflation, unless businesses are expecting a big slowdown in demand in the near future so they preemptively stop ordering goods. We hear speculation that inflation and interest rate hikes could trigger a recession, but businesses tend to react to economic fluctuations rather than gamble on what they think might happen. At the moment, both supply and demand are picking up, but demand is picking up faster and causing inflation.

Inventory to sales ratio is at a historic low – this again would suggest demand is picking up and supply is still struggling, triggering inflation. This is logical – and the exact opposite of the headline, which is completely illogical! People who read only the headline or only skim the text (probably most people) are going to get the exact opposite of the right idea. I am going to stamp this as naked propaganda and shame on Breitbart.

U.S. labor market growth

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Axios has a brief piece on the demographics of the labor force in the U.S. A tight labor market is not just a short-term phenomenon during the pandemic recovery.

In the 2010s, the massive millennial generation was entering the workforce, the massive baby bo0m generation was still hard at work, and there was a multi-year hangover from the deep recession caused by the global financial crisis. But now, boomers are retiring, millennials are approaching middle age, and the Gen Z that follows them is comparatively small.

Axios

So combine this trend with anti-immigrant politics, and we may have a problem. It could lead to the double-edged sword of higher wages and inflation, a trend toward toward greater automation and technological innovation, a general drag on economic growth (which could ultimately lead to deflation), left wing politics, right wing politics, business pressure for more globalization/offshoring, or some combination of any of these (other than inflation and deflation, but maybe it is possible to have a sudden reversal between these and hard for policy to react quickly even if we knew what to do). It is hard to know what to do, but rational immigration policies based on skills and education to fill jobs available would be a start.

supply, demand, and prices do not really exist

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This statement by James Galbraith makes my head spin a bit.

Just as Einstein had erased Euclid’s axiom of parallels, Keynes’s General Theory had long since obliterated the supply curves for labor and saving, thereby eliminating the supposed markets for labor and capital.

It followed that the prices of production were set by costs (mostly labor costs and interest rates), while quantities were determined by effective demand. Markets were not treated as if they were magical. It was obvious that most resources and components did not move under the influence of an invisible hand. Rather, they moved according to contracts between companies on terms set by negotiation, as had been the case for more than a hundred years. Technology was managed by organizations – mostly by large corporations – in what was sometimes called “the new industrial state.”

Project Syndicate

This is in a review of a book arguing that prices are really important. It’s a bit disturbing to me to think that there might not be a consensus among economists about how the economy actually works. We ordinary people can grasp theories like prices equilibrating supply and demand, and even how interest rates are related to the money supply and inflation, if we try really hard. But we assume the experts understand this stuff on a much deeper level, and that it is fundamentally science. If our understanding of civilization turns out to be based on pseudoscience, we might be in trouble.