Quotulatiousness

July 13, 2012

Questioning the accuracy of official Chinese economic figures

Filed under: Business, China, Economics, Government — Tags: , , , — Nicholas @ 09:50

Yes, we’ve heard this several times before, and for good reason:

China’s relatively mild slowdown in the second quarter has reignited a controversy about whether its official statistics can be trusted.

Chinese growth edged down to 7.6 per cent in the second quarter from 8.1 per cent in the first quarter, and analysts said the momentum in June, from stronger bank lending to rising investment, pointed to a rebound in the second half of the year.

But rather than delivering reassurance, the numbers instead provoked questions about whether the reality is worse than the government is letting on.

Economists with Barclays noted that a deceleration in industrial production was consistent with 7.0-7.3 per cent growth. Analysts at Capital Economics said that the true figure was probably closer to 7.0 per cent.

[. . .]

Doubts about Chinese data have a fine pedigree. Li Keqiang, who is widely expected to succeed Wen Jiabao later this year as premier, confided to U.S. officials in 2007 that gross domestic product was “man made” and “for reference only”, according to a diplomatic cable published by WikiLeaks.

Earlier posts on the Chinese economy are here.

The only long-term answer to road congestion: real-time tolls

Filed under: Cancon, Economics, Politics, Technology, USA — Tags: , , — Nicholas @ 00:04

I know, I know … I hate paying road tolls as much as the next driver. But the current road pricing scheme is broken and getting broken-er. Andrew Coyne points out the unpleasant realities:

… the demand for road use — traffic — is not a fixed quantity. Like anything else, it fluctuates with the price. And the price to use the roads, under present policies, is denominated in time: that is, by how long people are prepared to stew in traffic. This is, when you think about it, perverse. The people who get first claim on the roads are the ones who put the lowest value on their time. Or in other words, the people who need them the least.

That’s why analysts have long recommended pricing roads in more conventional terms, i.e. dollars and cents. But there are lots of ways of getting even this wrong, so we need to eliminate a couple more alternatives, such as:

More taxes. Many people’s first response to the notion of pricing roads is to say “but I already pay a gas tax.” The more knowledgeable will point to statistics showing that revenues from gas taxes more than pay for the cost of building and maintaining the roads.

But these are far from the only costs at issue, or even the most important. As far as congestion is concerned the cost that matters is not the cost of building the road, but the cost of using it. Every time you use the road, you impose a cost on other drivers, so far as you make the roads that much more crowded — as they, of course, do you. Add up those costs over millions of drivers every day — costs measured not only in delays, but in more collisions, more wear and tear, more pollution, and so on — and we are well into the billions, according to several estimates.

[. . .]

What’s really needed, then, is a more comprehensive approach. With modern technology, there’s no reason to toll only some roads and not others. Using GPS-style in-car transponders and satellites, it’s now possible to charge drivers to use the roads generally, with the highest charges applying in downtown centres and at rush-hour — just as you pay a higher charge to use your cellphone depending on the location and time of day. You’d even get a monthly bill in the mail.

Far-fetched? Britain and the Netherlands have each been on the verge of adopting similar schemes in recent years. That each backed down in the end tells you something of the political sensitivities involved: It’s always hard to get people to pay for things they are used to getting for free. But the roads aren’t free. We’re paying more and more to use them every year.

Pay in congestion, in time and noise and aggravation — or pay by credit card. Once you think of it that way, the choice should be easy.

July 10, 2012

Tim Harford on Iceland’s economic recovery

Filed under: Economics, Government — Tags: , , — Nicholas @ 09:20

From his weekend column:

Iceland managed to create three massive global banks. The economy itself is tiny: Iceland has the same population as Coventry, although arguably the scenery is better. That’s really not big enough to support a lot of globally competitive export industries. Iceland had three: fish, aluminium smelting and tourism. Four if you count Björk. Can you blame them if they fancied dabbling in something a bit sexier, such as investment banking?

Investment banking is sexier than Björk?

I don’t think investment banking even manages to be sexier than aluminium smelting these days, but eight or nine years ago it must have seemed like a great gig. So these Icelandic banks borrowed loads of cash and used it to buy pretty much anything they wanted. In particular, they bought from each other at rather ebullient levels, which made for substantial profits on paper. The whole thing was a classic bubble.

And when the flow of loans dried up?

The banks crashed and there was clearly nothing the government could do to save them – they were far too big. And the party came to a grinding halt.

It doesn’t make a lot of sense.

No. It’s hard to understand why anyone wanted to lend them the money, and just as hard to understand why they thought they could instantly learn the craft of global investment banking.

July 9, 2012

The constipated British housing market

Filed under: Britain, Bureaucracy, Business, Economics, Government — Tags: , , — Nicholas @ 09:33

Tim Harford’s weekend column on the state of Britain’s housing market and a possible solution to the disconnect between supply and demand:

The chief obstacle to house building in the UK is the planning system, which, 65 years ago, did away with the idea that if you owned land, you could build on it, and replaced it with a system where planning permission was required. Permission to build houses is severely rationed, and such rationing can be seen clearly in the gap between the value of agricultural land without planning permission (a few thousand pounds a hectare) and the value of such land once permission has been granted (a few million).

The difficulty is that local authorities have the ability to grant planning permission but have little incentive to do so, because it tends to be unpopular with existing voters. The huge windfall from winning planning permission falls to whoever has managed to speculate on land and navigate the tangle of planning rules. These serve as nice barriers to entry for existing developers, while driving up the price of building land and so driving down the size of new homes.

Tim Leunig, chief economist at CentreForum, a think-tank, has proposed a two-part system of land auctions to get around this problem. Local authorities would buy land at auction, grant planning permission on it and then sell the land on to developers — with some strings attached, if they so choose. The profits would be enormous, and enjoyed by existing residents in the form of lower taxes or better public services. This isn’t the only way to liberalise planning, but it retains local control and democratic accountability — while dramatically increasing the incentive to develop.

Restoring a free market right to build on property you own would also be a fast solution to the diminished housing supply, but when have governments at any level willingly given up power?

US recovery from the recession still more theory than reality

Filed under: Economics, USA — Tags: , — Nicholas @ 07:54

Greg Mankiw has a graphical refutation of any claim that the United States has actually seen any recovery from the Great Recession of 2008:

At best, you’d have to call that a “stabilization”, but not a “recovery”.

July 8, 2012

Economic land mines laid by Blair and Brown’s governments exploding now

Filed under: Britain, Economics, Government — Tags: , , , , , — Nicholas @ 10:34

At The Commentator, John Phelan wonders if it’s now time for “an economic Nuremburg” for the 1997-2010 British governments of Tony Blair and Gordon Brown:

Like an iceberg, the extent of the damage wrought by the last Labour government is still becoming apparent.

One of the wheezes Labour used to camouflage its vast spending spree was the Private Finance Initiative. These had been brought in by John Major’s Conservatives (to criticism from the then Labour opposition) and involved a private sector entity building something and then selling it or leasing back to the government over a number of years, usually decades.

Upon winning the election in 1997 however, Labour performed a volte face and embraced PFIs. They appealed to Gordon Brown because the liabilities taken on under PFIs would not show up on the government’s balance sheet. In other words, they wouldn’t be included in the national debt figure.

Labour signed up to an estimated £229 billion of PFI projects. That’s almost two and a half times the entire projected budget deficit for 2012 – 2013, or 16 percent of GDP.

[. . .]

Indeed, like the cat who leaves little ‘presents’ around the house for you to discover when you return from holiday, the Labour government of 1997 to 2010 is the gift that keeps on crapping on your carpet. We will be discovering fiscal turds left by Labour for literally decades to come.

If you were being charitable you would ascribe the fiscal incontinence of the Blair/Brown governments to some sort of Keynesian economic theory, though that fails to explain why they applied fiscal ‘stimulus’ for seven years to an already growing economy.

If you were being slightly less charitable you might ascribe it to incompetence of a quite staggering degree. The last Labour government, after all, were probably the biggest set of mediocre idiots ever to govern this country.

And, if you were being even less charitable, you might ascribe it to something more sinister – Brown poisoning the wells when he heard opposition tanks at the end of his strasse.

Argentina to force domestic banks to loan money at a loss

Filed under: Americas, Economics — Tags: , — Nicholas @ 10:21

As the financial situation in Argentina gets more dire, the government is stepping in to make things even worse:

[President Cristina] Fernandez, a center-leftist, is embracing increasingly unorthodox economic policies as she seeks to sustain activity, which analysts say is vulnerable to insufficient credit.

“We’re going to tell the 20 principal banks… they have the obligation to lend for production and for investment,” Fernandez said in a televised speech.

“The central bank’s going to establish the conditions,” she said, adding that state-run banks should not have to shoulder the entire responsibility for business loans.

She said the loans would carry a maximum interest rate of the Badlar reference rate, which was 11.9pc per year for private banks in June, plus 400 basis points. The minimum loan period would be three years.

Officially, inflation in Argentina is running around 25%, so forcing banks to loan money out at half the rate of inflation seems like asking them to dig their own economic graves.

H/T to Tim Worstall for the link.

July 7, 2012

Deregulating a “natural monopoly”

Filed under: Economics, USA — Tags: , , — Nicholas @ 09:44

Arnold Kling is a Pepco customer. Pepco is one of the regulated electricity providers in Washington DC and surrounding area. He suggests that there may be a better way to deliver electricity to customers:

A recent storm in the Washington, D.C. area left many households without power for days. Customers served by one company, Pepco, appeared to suffer the worst. Pepco had the slowest rate of power restoration of all the area’s electricity suppliers.

As an economist and a Pepco customer, I am concerned by two factors that insulate Pepco from facing market discipline concerning reliability. The first is that Pepco is a regulated monopoly. The second is that there is no price indicating the benefits of reliability.

The fact that Pepco is a monopoly means that its incentive to improve its operations is limited. Regulators may cajole and threaten, but ultimately Pepco is like an employee with tenure — no matter how badly it performs, it can never be fired.

The fact that there is no market price for reliability makes matters even worse. The amount that Pepco invests in ensuring reliable provision of electricity does not have to bear any relationship whatsoever to the value that consumers place on reliability.

Update: Oops, forgot the hat-tip:

July 4, 2012

British banks are “a cossetted, subsidised industry with captive consumers”

Filed under: Britain, Economics, Government — Tags: , , , — Nicholas @ 08:46

If any industry has more than its fair share of “too big to fail” wards of the state, it’s the banking sector. Allister Heath in the Telegraph:

There is a horrendous problem, certainly, and urgent reform is required. But the ailment has been fundamentally misdiagnosed: banking has become a ward of the state, a cossetted, subsidised industry with captive consumers, and it is that which has crippled it. We have been there before, in other sectors, and the medicine is always the same. This may come as a shock, but we need more capitalism in banking, not less.

Banks need to be allowed to go bust, like every other private company. It was a disgrace that taxpayers were called upon to bail out some of the City’s grandest names. This must never happen again. The reason capitalism works so well, whenever it is tried properly, is that the principle at its heart — profit and loss — is the toughest of disciplines and the best of motivators. It is more ruthless than anything regulators, however clever, could ever dream up. It allows two conflicting emotions, greed and fear, to balance one another out. Shareholders, creditors and bosses want to make money — but they know that a step too far might entail ruin.

That, at least, is how it works for much of UK Plc — but no longer in banking, where profits have been privatised and losses nationalised. It is an obscene perversion of capitalism. Forget the nonsense about “light touch” regulation: the problem is that the fear of failure ceased to exist. Market discipline was replaced by extreme laxity.

There was no longer much need for prudence, proper capital buffers or strict internal controls: the taxpayer was ready to pick up the bill if anything went wrong, while incompetent regulators signed everything off. The Labour government which introduced this mad system wasn’t deliberately seeking to subsidise risk: it merely made a terrible mistake, though with the politically useful side effect of reducing the cost of credit and increasing its availability. The real blunder was that the Financial Services Authority had no plan to cope with a bank going bust. It simply assumed failure would never happen. After all, how could it? Gordon Brown had abolished booms and busts.

US military pay has more than kept up with civilian payscales

Filed under: Economics, Government, Military — Tags: — Nicholas @ 00:07

Mike Riggs has the details:

In other words, it’s not *just* teachers, cops, firefighters, and the bulk of civil federal employees who are riding high on the hog. Tom Philpott at Military.com reports:

    As private sector salaries flattened over the last decade, military pay climbed steadily, enough so that by 2009 pay and allowances for enlisted members exceeded the pay of 90 percent of private sector workers of similar age and education level.

    That’s one of the more significant findings of the 11th Quadrennial Review of Military Compensation report released last week, given its potential to impact compensation decisions by the Department of Defense and Congress as they struggle to control military personnel costs.

Unlike previous generations, for whom military pay was almost a joke compared to civilian payroll, modern western military pay has been catching up to (or even exceeding) equivalent civilian jobs. When I joined the reserves in the mid-1970’s, the pay was actually quite good: better than minimum wage — the drawback was that the Canadian Forces’ budget was so tight that we were strictly limited to the number of paid training days. While that was a drawback for enlisted troops, it was worse for our senior NCOs and officers: they were working without pay for months at a time.

July 3, 2012

“The longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture”

Filed under: Economics, Europe — Tags: , , , , , — Nicholas @ 08:47

The Economist on the long-drawn-out European financial mess:

THE longer the euro area’s debt crisis drags on, the more it resembles an instrument of economic torture. Like the medieval rack, every turn of the crisis tears Europe further apart. This week Cyprus announced it would seek a bail-out. Spain formally asked for money to recapitalise its banks. The Greek limb is close to being ripped off. How long can the Italian one hold?

Monetary union was meant to be a blessing. The euro’s founders dreamed that it would end chronic and divisive currency crises, promote growth and multiply Europe’s economic power. After the creation of the single market, the euro was the next step toward political union.

[. . .]

Now, after first blaming speculators, then profligate states, then, more broadly Europe’s lack of competitiveness, the cardinals of monetary union have belatedly come to understand that the main problem is the euro itself. A new report by a group of prominent economists — sponsored by Jacques Delors, the former president of the European Commission, and Helmut Schmidt, the former German chancellor — describes in telling detail how the euro is destroying itself.

Start with the European Central Bank’s “one size fits all” interest rate, which the report’s leading author, Henrik Enderlein of the Hertie School of Governance in Berlin, relabels a “one size fits none” rate. Differences in inflation are magnified: in countries with higher-than-average inflation (eg, Italy), the real interest is too low, fuelling more inflation; the opposite is true in countries where inflation is low (eg, Germany). Another problem is that the single market is far from complete, so that competition does not even out price differences across the EU. The market in services, which represents the biggest share of economic output, is still fragmented. Moreover, European workers are less likely to move in search of jobs than, say, American ones. A further curse is that countries of the euro zone do not independently control their own money. Because each lacks its own central bank to act as a lender of last resort, troubled countries can more easily be pushed into default as markets panic. Lastly, cross-border financial integration has spread far enough to channel contagion from one country to another, but not so far as to break the cycle of weak banks and weak sovereigns bringing each other down.

Bad news (for panicmongers, anyway)

Filed under: Economics, Environment — Tags: , , , , — Nicholas @ 08:32

In the Guardian, George Monbiot (known to his detractors as “The Great Moonbat”) admits the terrible truth. He was wrong, again:

The facts have changed, now we must change too. For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil — the decline of global supplies — is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike.

Among environmentalists it was never clear, even to ourselves, whether or not we wanted it to happen. It had the potential both to shock the world into economic transformation, averting future catastrophes, and to generate catastrophes of its own, including a shift into even more damaging technologies, such as biofuels and petrol made from coal. Even so, peak oil was a powerful lever. Governments, businesses and voters who seemed impervious to the moral case for cutting the use of fossil fuels might, we hoped, respond to the economic case.

[. . .]

Peak oil hasn’t happened, and it’s unlikely to happen for a very long time.

A report by the oil executive Leonardo Maugeri, published by Harvard University, provides compelling evidence that a new oil boom has begun. The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that.

July 2, 2012

Alex Tabarrok on the slow rail and infrastructure bottleneck

Filed under: Bureaucracy, Economics, Government, Railways, USA — Tags: , , , , , , — Nicholas @ 10:58

Writing at Marginal Revolution, Alex Tabarrok wonders “Why haven’t the $500 bills been picked up?”:

High speed rail, especially California’s project, looks to me to be monorail economics, a costly boondoggle whose appeal lies not in rational calculation […] but in the desire of some politicians (and voters) to feel visionary and sexy. In theory, CA HSR might work but the inevitable reviews, delays, lawsuits and special interest payoffs make the prospects of a beneficial project look dim, demosclerosis kills.

Slow speed rail, however, i.e. freight transport, isn’t sexy but Warren Buffett is investing in rail and maybe we should as well. In particular, there are basic infrastructure projects with potentially high payoffs. Congestion in Chicago, for example, is so bad that freight passing through Chicago often slows down to less than the pace of an electric wheel chair. Improvements are sometimes as simple as replacing 19th century technology with 20th century (not even 21st century!) technology. Even today, for example:

    …engineers at some points have to get out of their cabins, walk the length of the train back to the switch — a mile or more — operate the switch, and then trudge back to their place at the head of the train before setting out again.

In a useful article Phillip Longman points out that there are choke points on the Eastern Seaboard which severely reduce the potential for rail:

    …railroads can capture only 2 percent of the container traffic traveling up and down the eastern seaboard because of obscure choke points, such as the Howard Street Tunnel in downtown Baltimore. The tunnel is too small to allow double-stack container trains through, and so antiquated it’s been listed on the National Register of Historic Places since 1973. When it shut down in 2001 due to a fire, trains had to divert as far as Cincinnati to get around it. Owner CSX has big plans for capturing more truck traffic from I-95, and for creating room for more passenger trains as well, but can’t do any of this until it finds the financing to fix or bypass this tunnel and make other infrastructure improvements down the line.

What value do speculators offer?

Filed under: Economics, Food, Liberty, Media — Tags: , , , — Nicholas @ 10:17

In most newspapers, you don’t need to wait long to read some journalist beating up on evil speculators for the “damage” they do and the claimed “uselessness” of their activities. Tim Worstall points out that speculators are actually essential to smooth operation of free markets:

What is it that the speculator in food manages to achieve? They move prices through time. At the moment, there’s a drought, and so we think there will be less corn available for consumption next year, so its price goes up.

What would we like to happen? Should prices stay stable? We would all carry on using the amount of corn that we originally thought we’d get. And we’d run out — there may even be a famine. People tend to die in famines.

So what we’d actually like to happen is for people to prepare by consuming a bit less corn this year.

Some of this should come from substitution: farmers will feed wheat to animals not corn. Consumers might move from grits to weetabix for breakfast. Perhaps the fools putting corn into cars will move over to sugar cane to make ethanol from.

We would also like a supply effect: those who are currently growing corn might add a bit more fertiliser, take more care in harvesting, make sure less gets spoiled or lost in transport.

Rising prices causes both of those pretty neatly. Put up the price and people will use less, while suppliers will make more. And what is it that the speculators on the futures markets have done in response to this report of drought? They have raised prices.

July 1, 2012

“Canada was born in debt”

Filed under: Cancon, Economics, Government, History, Railways — Tags: , , — Nicholas @ 11:08

At the Worthwhile Canadian Initiative blog, Livio Di Matteo explains one of the less mentioned but urgent reasons behind confederation in 1867:

The trials and tribulations of the European Union, its debt crisis and the Euro and the suggestion that part of the solution lies in a stronger fiscal union reminds me of the forces behind the drive for Canadian confederation in the mid-nineteenth century. Canadians are usually taught in school that major forces driving Confederation were the potential threat of territorial aggrandizement by the United States in the wake of the Civil War or the need for a larger market given Britain’s move to free trade and the end of Reciprocity with the Americans or the desire to generate the economic resources to build a railway to the west so that it could serve as an investment frontier.

One factor that receives very little mention is the fact that the prior to 1867 the colonies of British North America were heavily in debt and faced a fiscal crisis of their own. The solution to the colonial debt crisis that Confederation allowed was the creation of the federal government that was given strong revenue raising powers and assumed provincial debts and thereby stabilized the public credit. Public debt charges in 1867 already accounted for 29 percent of federal budgetary expenditure and by 1880 had only been whittled down to about 24 percent. Canada was born in debt.

Canada was created with a large debt as the provincial and local levels of government had invested heavily in transportation infrastructure — canals and railways in particular. In 1850, there were only about 66 miles of track in operation but by 1860 about 2000 miles of track had been built in eastern Canada. The total cost of building these railways in British North America up to 1867 was 145.8 million dollars the bulk of which was for the Province of Canada — Ontario and Quebec. By way of comparison, Canada’s GDP in 1870 has been estimated at about 383 million dollars.

[. . .]

Confederation was designed to fix a massive debt problem. Creation of a new political entity — the dominion government — would allow for the current debt burden to be serviced and for more credit to be obtained on foreign markets to fund the railway projects of the late 19th century — the CPR, Canadian Northern, etc… Confederation was a solution to the debt crisis but required a form of government that reduced sovereignty for the member units in order to stabilize the public credit. In the Canadian case, as acrimonious as the discussions were, the process was facilitated by the fact that the member units were all British colonies with similar institutions.

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