Thursday, August 31, 2006

Barack Obama Certainly No Hero For Kenya

Illinois Senator Barack Obama is considered a rising star in American despite having a last name similar to a certain infamous Saudi Arabian expatriate. The main reason for this seems to be that he is black-or actually half-black with a father from Kenya. Noting that he is the only African-American in the Senate, quota-minded people go out of their way to praise him, not on account of the content of his character -which as far as I know don't seem to be either better or worse than the average U.S. Senator- but on account of the color of his skin.

He was also greeted as a hero when he visited his father's country of origin, Kenya.

But as conservative black columnist Larry Elder points out, Barack Obama certainly don't deserve to be celebrated in Kenya as he is a defender of the destructive U.S. farm subsidy policies that not only hurts American consumers and taxpayers but also hurts farmers in Kenya:

"But a reporter raised an issue about which Obama possesses more influence -- dealing with American protectionism that hurts Kenyan farmers. Why, asked the reporter, do Americans retain farm subsidies and tariffs that prevent Kenyan farmers from competing in the world's biggest market?

Obama's response? He talked about the soybean farmers in Illinois, and said, "It's important to me to be sure I'm looking out for their interests. It's part of my job." Absolutely incredible.

For, in July, the European Union and five nations, including the United States and Japan, met in Geneva, Switzerland, to discuss the elimination of farm subsidies and agricultural tariffs. After all, in 2002, the World Bank estimated that African exports would increase by almost $2.5 billion if the U.S., Europe, Japan and Canada eliminated their agricultural tariffs. This is especially true as to peanuts and tobacco. African farmers run up against farmers in wealthy nations whose laws ensure their success at the expense of Third World farmers.

What should Obama have said? "You're right. America is a rich nation. You are a poor one. Poor nations generally turn into rich ones by starting out with agriculture. So when I get back to Washington, I'm going to tell my colleagues about the devastating real-world effect American protectionism has on poor nations."

Later in his column, Elder makes more good arguments agsinst farm subsidies, so read the whole thing.

Hemmamammor arbetar

Den borgerliga alliansen har beslutat om en familjepolitisk kompromiss. Det blev ett ganska förvirrat hopkok av åtgärder eftersom det ska jämka viljorna från frikyrkliga kristdemokrater och rabiata folkpartifeminister som visserligen är eniga om att skinna skattebetalarna i biståndsfrågan men som är djupt oeniga i denna fråga.

Den för feminister i och utanför folkpartiet mest kontroversiella biten handlar om vårdnadsbidraget. Det ska ju i och för sig sägas att ur ett klassiskt liberalt/libertarianskt perspektiv så är ett vårdnadsbidrag inte bra-men inte värre än dagissubventioner just eftersom både vårdnadsbidrag och dagissubventioner innebär statliga utgifter. Men poängen är att vårdnadsbidrag är alltså på intet sätt värre än dagissubventioner. Och de argument som framförs emot det är alltför ofta ogiltiga.

Just hur förvirrat den borgerliga kompromissen är illustrerades av följande uttalande från Lars Leijonborg:

"Folkpartiet har varit emot ett kommunalt vårdnadsbidrag. Partiledaren Lars Leijonborg var ändå nöjd.

- Hur stor feminist man än är måste de enskilda själva få bestämma, sade han. Nivån är för låg för att vara någon kvinnofälla, ansåg han."

"Kvinnofälla" är ju som bekant feministiskt nyspråk för att beteckna möjligheten för kvinnor att göra ickefeministiska val, så det Leijonborg i klartext säger är att kvinnor ska få välja själva men att de inte kan välja ickefeministiska alternativ eftersom nivån är för låg.

Du får välja vad du vill bara du väljer det vi vill. Typiskt politiker.....

Nåja, det kanske mest förvirrade argumentet mot vårdnadsbidrag är dock att det skulle hota alliansens jobblinje. En kritik som till synes förvånande nog Svenska Dagbladets ledarsidas vikarie Kristian Karlsson ställde sig bakom:

"När programmet lanserades betonade alla de fyra Alliansledarna arbetslinjen; ett viktigt syfte med reformerna är att ordna barnomsorgen så att fler kan återgå till sina arbeten. Gott så. Men hur får de in vårdnadsbidraget i det resonemanget? Det handlar ju om raka motsatsen - att ge människor möjlighet att stanna hemma i stället för att arbeta. Det blir motsägelsefullt."

Men vad tror SvD:s Kristian Karlsson egentligen att kvinnor som stannar hemma med sina barn gör egentligen? De är ju där för att utföra barnomsorg åt sina egna barn, dvs utföra exakt samma slags tjänst som dagispersonal gör. Att det handlar om deras egen avkomma och inte andras ändrar inte tjänstens karaktär.

"Men det är ju inte förvärvsarbete eftersom de inte får betalt för det" kanske någon invänder. Men för det första så bortser ju detta från den grundläggande ekonomiska principen om alternativkostnad. Det är ju i praktiken föräldrarna själva som "köper" barnomsorgtjänsten av sig själva med den uteblivna lönen som betalning. Och för det andra, med hjälp av vårdnadsbidraget så får de ju faktiskt betalning för det. "Vårdnadsbidrag" är ju således en missvisande beteckning eftersom det ju är betalning för utförd barnomsorgstjänst. Subvention är det helt klart, men det är inte mer av ett "bidrag" än de statliga subventionerna till den kollektiva barnomsorgen. Att pengarna kommer från staten förändrar ju inte det hela, särskilt då inte eftersom ju dagispersonalens lön till största delen betalas av staten.

Wednesday, August 30, 2006

German Emigration Increases

Interesting article about how Germany's socialist policies (now implemented by "right-winger" Angela Merkel) drives more and more German to emigrate.

Some excerpts:

"Koerber is one of 145,000 Germans who fled the fatherland last year amid record postwar unemployment, pushing emigration to its highest level since 1954, Federal Statistics Office figures show. Last year was also the first since the late 1960s that emigrants outnumbered Germans returning home from living abroad, the statistics office said.

Even more troubling to German officials and business leaders, many were skilled workers like Koerber. The loss of such people, they say, may threaten Germany's economic competitiveness in the future......

...That's reflected by the 630 postings recorded since Aug. 10 on an Internet forum on emigration hosted by Germany's Spiegel magazine. Germany doesn't have much of a future, a 40 year-old German teacher who moved to France said Aug. 26 in a typical posting. The teacher, writing under the alias ``Kritischer Leser,'' meaning Critical Reader, said he's working fewer hours and making more money than his sister, a doctor in Germany.

For Koerber, the decision to leave was largely one of taxes. In Germany, where the highest tax bracket starts at 52,152 euros ($66,600), he would have to pay 42 percent of every euro above that level. In addition, the German value-added tax -- a kind of national sales levy -- is 16 percent, which is scheduled to rise three percentage points next year.

``I only get 25 percent deducted from my salary and that includes everything,'' said Koerber of his pay packet in Canada. ``And I'm in the highest tax bracket!'' The goods and services tax in Alberta is 6 percent, cut from 7 percent in July, he said.


Other German expatriates cite what they say is the over- regimentation of the labor force. ``Life in Germany is totally over-regulated,'' said Christian Kaestner, 38, an attorney who moved from Munich to Cape Town, South Africa, in 1997. ``There are hardly any freedoms left, and you keep bumping into regulations and prohibitions....

...Taking into account gross pay, taxes, insurance and the cost of living, doctors make more money in Switzerland, said Matthias Dettmer, 31, an assistant pathologist in Zurich from the southern German city of Tuebingen. He makes more than double his former colleagues in Germany, who earn what he calls a ``cleaner's pay.''''

Swedish Real Wage Gains Weak

One reason why most people was surprised by the very strong second quarter GDP growth report for Sweden and in some cases even expressed disbelief about the accuracy of the number was that it was inconsistent with other reports showing only weak employment growth and weak real wage increases.

That could be the case, but it does not necessarily have to imply that, as it is possible for the discrepancy to be the result of a rising share of national income going to corporate profits or capital consumption or that it is the real wage/employment numbers which are too low.

Assuming however that the data is correct, we saw now again how weak real wages is increasing in Sweden. For "blue collar" workers in the private sector, nominal wages increased a mere 2.8%, whereas pay for "white collar" workers were 3.1%. Pay in the government sector increased even less at about 2.5%. If you deflate this with the 1.9% increase in the harmonized consumer price index, this means that real earnings rose just 1.2% for "white collar" workers, 0.9% for "blue collar" workers and 0.6% for government sector workers.

Compare this with Estonia, where nominal hourly wages increased a full 17%. Even after deflating for Estonia's 4.4% inflation rate, this still leaves a real wage gain of more than 12%!

Thus, using a standard which "the worker's party" should like, real wage gains, free market Estonia have been far, far more successful than social democratic Sweden.

Monday, August 28, 2006

Den ena handen vet inte vad den andra gör

Jag såg nyss på Rapport. Där visades först ett inslag där Göran Persson i SVT:s utfrågning bekräftade vad jag påpekade i en tidigare post om elpriserna: nämligen att socialdemokraterna eftersträvar höga elpriser trots att de hycklande låtsas vara bekymrad över detta fenomen. Han sa nämligen då klart att det inte var tal om att försöka pressa priset eftersom då skulle det sända en signal att folk inte skulle spara el.

Sen visades ett inslag där Perssons ansvarige minister Mona Sahlin fördömde elbolagen (inklusive då statligt ägda Vattenfall) för att ta ut för höga priser och sa att hon tänkte vidta ett antal åtgärder för att se till att priset pressas dvs just det hennes chef just sa var oacceptabelt.

Ytterligare en illustration av ologiken och hyckleriet i den socialdemokratiska världsbilden.

Sunday, August 27, 2006

Affirmative Action Hurt Blacks in South Africa

I have discussed the damage from and injustice of affirmative action here extensively before, both in general terms as well as in practice in the specific examples of America and Malaysia.

Here is a interesting article from Rhoda Kadalie, a coloured South African woman basically in favor of the principle of affirmative action, who tells how the zealous application of affirmative action in South Africa may have benefited the few blacks who have been hired on that basis, but how it have meant not only increasing waste and inefficency, but have also damaged the poor blacks who have seen the quality of services deteriorate as a result of that policy.

You Don't Say? Fed Creates Inflation?

Glenn Hubbard, former top economic advicer to Bush turned Dean of Columbia University's Graduate School of Business, says that the Fed is responsible for its current problems with high inflation (consumer price inflation in America is over 4%, the highest of all rich countries) by keeping interest rates far too low in 2002-2004 and then raising them far too slowly.

He's right, of course, but the fact that this is not seen as much of a statement of the obvious as say, the fact that Congress and the White House is responsible for the higher level of government spending, tells you just how much the Fed have managed to deceive people into believing that inflation is the result of some external forces independent of the Fed and that the Fed is in fact fighting inflation.

Saturday, August 26, 2006

About Time They Figured That Out

BBC News report about a new study from the Chatham House think tank that the primary beneficiary of the "war on terror" as pursued by the Bush administration is ironically the primary sponsor of Islamic terrorism-Iran.

This is for reasons that readers of this blogs was informed here about weeks ago before this report. Namely that the U.S. destroyed Iran's arch-rival, Saddam Hussein's regime in Iraq and then held elections which -quite predictably given the fact that Shiites is a majority in Iraq and given the clan mentality prevalent in Iraq- resulted in the rise of pro-Iranian parties whose leaders were trained in exile in Iran during the Saddam era and then were elected by popular vote as a result of the Iraq war. Iraq has now turned from being a regional rival to being a ally for Iran, as a result of the Iraq war.

Another example of news and analysis that you'll be reading here before the mainstream media finally picks it up.

Don Boudreaux on Minimum Wages

Don Boudreaux have a good reply to those who send him angry e-mails after he argues against raising the minimum wage, asking him "How would YOU like to live on a job paying just $5.15 [per hour]?":

"Well, obviously I wouldn't like to make less than I earn now, which is substantially more per hour than $5.15. But this fact is utterly irrelevant to the argument...

...Suppose a witch doctor insists that he can cure cancer merely by doing a dance. If someone who is skeptical of this claim expresses his or her skepticism, does the skeptic lose credibility if he or she isn't a cancer victim? Would a believer in the witch-doctor's supernatural powers score intellectual points by rhetorically asking the skeptic "How would YOU like to have cancer?!" Does the obvious benefit, the great goodness, of curing cancer patients of their disease increase the likelihood that the witch-doctor's dance will actually cure these patients of their cancers?"

Similarly, if you believe that raising minimum wages will not in fact help the poor, then the question of the unpleasantness of living on a job that pays just $5.15 is just as irrelavant as the unpleasantness of having cancer is to the question of whether it will cure cancer.

Lite Smått och Gott om Valet

Den ena mätningen visar på fortsatt klar ledning för de borgerliga, medan den andra visar på att den helt plötsligt utraderats. Den ena visar på att Sverigedemokraterna fallit ner till 1.1%, den andra att de stigit till 2.3%. Den ena visar att kristdemokraterna och folkpartiet gått klart framåt, medan centern fallit, den andra visar att kristdemokraterna och folkpartiet backar medan centern går kraftigt framåt.

Om folk glömt vad de borde ha lärt sig från förra valet (där mätningarna skilde sig ganska mycket från det slutgiltiga resultatet) att man bör vara mycket skeptisk mot resultaten i opinionsmätningar så torde detta påminna dem.

Sossarna spelar jätteupprörda över den så kallade Kd-spionen Louise Axelsson och ropar skandal och till och med "Watergate". Vad hade hon då gjort? Brutit sig in i deras högkvarter (vilket skedde i Watergate)? Nej, hon hade ringt och ljugit om att hon är sosse i syfte om att få information om när SSU tänkte sätta upp några sketna affischer. Det är allt. Jag kan faktiskt inte förmå mig att bli sådär superupprörd över detta.

En synnerligen ohelig allians av frikyrklige Alf Svensson och den rabiat feministiska veganen Birgitta Ohlsson går till angrepp mot moderaterna för att de vad gäller bistånd fortfarande är relativt vettigare än övriga riksdagspartier. Dick Erixon tycks inte särskilt upprörd över det sakliga innehållet i Svenssons och Ohlssons artikel där vi alltså åter ser borgerliga som försöker överträffa sossarna i utgifter, utan han är bara upprörd över att artikeln skadar den värdelösa borgerliga alliansen. Det har han i och för sig rätt i att utspelet skadar alliansen, men det blir ju svårare och svårare att se varför någon frihetsvän skulle bry sig om de borgerliga sossarna eller original sossarna vinner när de borgerliga inom många områden (som anslag till kommuner och bistånd) föreslår större utgifter och när de totalt sett knappt mer än ytterst marginellt under.

Jag hade tänkt skriva mer om varför biståndet bör helt avskaffas , men Carl Svanberg har redan skrivit en väldigt bra post om det som rekommenderas.

Friday, August 25, 2006

Revised Data Shows Deflation Remains in Japan

Japanese consumer price inflation have been downwardly revised, pushing down the 12-month increase near zero again, with the number excluding energy prices being below zero.

According to official wisdom, price deflation is the worst disaster that can hit an economy. But in reality, price deflation only have negative effects if it is driven by monetary contraction. Price deflation driven by a higher supply of goods and services will on the contrary help lift real incomes for the people.

This revision could however stop further Japanese rate hikes, something which caused the yen to tumble today. That would be ill-adviced however,as rates are probably too low now to prevent the creation of an unsound credit voom.

Japan is in contrast to most of the world but particularly in America
in the best stage of the business cycle, now that the private sector have done away with their malinvestments and payed off much of its debts. Apart from the excessive budget deficit, Japan's macroeconomic conditions are thus very good. In order for things to stay that way, the Bank of Japan should continue to normalize interest rates.

Planned German VAT Hike Already Showing Negative Effects

The key gauge of German business sentiment known as the Ifo fell in August from 105.6 to 105. What's interesting is the details of the survey. The current conditions index was unchanged at 108.6, close to a multiyear high. But the future expectations index fell sharply, with the planned VAT hike being cited as the biggest worry.

Thursday, August 24, 2006

U.S. Housing Bubble Bursting?

There are increasing signs that this is in fact happening right now. First the existing home sales numbers yesterday, which showed falling sales, increasing inventories and falling prices and now the new home sales numbers today, which show exactly the same three trends of falling sales, increasing inventories and falling prices.

As Nouriel Roubini points out, this is likely to lead to an economy-wide slump in America already by next year as the construction sector is likely to contract, and as the end of home equity withdrawals will hit consumption as well. Roubini thinks this will lead to a much sharper recession than in 2001, and he is likely right about that. The 2001 recession was mildened by the blowing-up of the housing bubble through the swift Fed interest rate cuts, but this is likely to be more difficult to repeat, because for one thing, interest rates are much lower now than then and for another because it is difficult to see any sector where a new bubble could be created. America is now in the least favorable stage of the business cycle as Bernanke will have to deal with the mess Greenspan left.

Pluto No Longer a Planet

Pluto will no longer be considered a planet, a group of leading astronomers now say. Of course he isn't a planet, he's a cartoon dog!:-)

Wednesday, August 23, 2006

Robert Samuelsson Goes semi-Austrian

I don't know whether it was from reading my criticism of him or not, but Washington Post columnist Robert "Not related to Paul" Samuelsson have now realized that the origin of the U.S. housing bubble (which might now be on the verge of bursting) was indeed the Fed's artifical suppression of interest rates, something which can only be achieved by inflating the money supply. By contrast, in the article I criticized, he claimed that the root cause was that the Fed had not created enough inflation.

Tuesday, August 22, 2006

Wal-Mart-The World's Greatest Poverty Fighter

Good article at TCS Daily about how Wal-Mart are the world's greatest poverty fighter, through its massive purchases of goods from China and other third world countries. Apart from this, it also provides great savings for U.S. consumers.

I made similar arguments last month for why free trade in general -and not foreign aid- is how poverty should be fought, not only because it is far more effective, but also because it is mutually beneficial, unlike foreign aid.

Monday, August 21, 2006

Policy Change

This is a policy change which I have been considering for some time now, but it was only today that I finally decided to do it.There are two languages which I can speak and write fluently, English (as you may notice) and my native language, svenska (Swedish). So far I have chosen to write exclusively in English for the simple reason that whereas almost none of my non-Swedish readers understand Swedish, almost all Swedes understand English at least fairly well. But ,nevertheless, as some Swedes find English language texts to be somewhat less accessible than Swedish language texts, there is a case for writing texts which are of almost no interest for non-Swedes in Swedish. And with a upcoming election campaign in Sweden, there will be an increasing number of news which will primarily be of interest to Swedes during the coming month.

So, henceforth, I will write posts which I deem to be of almost no interest for non-Swedes and/or which is of particular interest for Swedes in Swedish. I will likw two other Swedish libertarians famous both in Sweden and internationally, Johan Norberg and Johnny Munkhammar have a mixed English/Swedish blogging. However, most of my posts will continue to be in English.

Unfortunately, You're About to Ruin This Recovery, Mrs. Merkel

Angela Merkel notes that Germany seems to have recovered from more than a decade of stagnation.

It is true that although Germany's growth is still slow by the standards of most of the world, it have picked up in pace significantly the recent year.

But there is a significant risk that Mrs. Merkel's unwise decision to raise the VAT by 3%:points will kill this fragile recovery, just like the Japanese VAT hike in 1997 killed their recovery. At best, it could merely slow it, but at any rate, her policies will make Germany's economy a lot worse than otherwise.

Friday, August 18, 2006

Today's Joke

From Jay Leno regarding the new absurd airport security rules:

"I guess you heard by now, the airlines are saying no more hair gels, shampoos, makeup or hair spray allowed in carry-on bags. Who's attacking us, drag queens?"

That's Supposed to be Impressive?

French statistics bureau Insee reports that French employment rose 0.3% during the second quarter compared to the first, or 0.7% compared to the second quarter of 2005. The 0.3% quarterly increase was, as Bloomberg news points out, the fastest increase since 2001.

So, when France , like the rest of continental Europe and Scandinavia, have entered a cyclical upswing, they still only manage a 0.3% quarterly increase and 0.7% yearly increase. Even if the quartely increase of the second quarter could be sustained for a whole year that would only imply a 1.2% yearly employment increase. That is anything but impressive.

Compare this to employment numbers for the period May to July 2006 from the world's freest economy, Hong Kong. During the latest year, unemployment have dipped from 5.7% to 4.9% and underemployment from 2.8% to 2.6%, despite an increase in the labor force of 1.5% (mainly driven by immigration from mainland China). This implies a 2.3% employment growth and 2.5% increase in the number of full-time jobs. This is despite having a lot tighter labor market than France to begin with.

A Good Form of "Drunk Driving"

The number of alcohol(ethanol)-driven cars increases sharply in Brazil.
Brazil produces cheap ethanol that are stopped by tariffs in the U.S. and Europe, but in Brazil ethanol sales aren't stopped by that, of course. With the sharp increase in oil prices, these cars are becoming increasingly popular. Which is good not just for Brazil but for the world as a whole given that high oil prices damages the world economy and empowers governments like Saudi Arabia and Iran.

Tuesday, August 15, 2006

Good For Her She Wasn't a Feminist

A 24-year old Israeli woman is saved by her breast implant as sharpnel from Hezbollah rocket gets stuck in her breast implant rather than in her heart.

Monday, August 14, 2006

Euro-zone Growth Accelerates

Euro-zone GDP grew 0.9% compared to the previous quarter, the highest in 6 years. This is the first time since 2001 that the Euro-zone had higher growth than America, who grew 0.6%. That is rather telling of the dismal structural growth rate in most of the Euro-zone.

Euro-zone growth is really basically the same story as Sweden's: weak structural growth in both and a cyclical upswing now. The cyclical upswing is however currently stronger in Sweden as the Riksbank's policies are even more inflationary than that of the ECB.

Sunday, August 13, 2006

Politician Admit: We'll Waste Your Money

In his speech in Stockholm suburb Vaxholm, Fredrik Reinfeldt, leader of the conservative Moderate Party, promised that he'll spend whatever the Social Democrats promises to spend on the government sector and more.

That's right: he openly admits that he have no objective criteria for spending on these areas, but will simply spend for the sake of being able to say that he'll spend more than the Social Democrats on these areas. A truly amazing and despicable statement, as this means that he openly admit that he'll spend the hard earned money forcibly confiscated from the people for no valid reason at all.

In a way, though, it is good that he openly admits this. I've always thought this was their principle as they in the past year or so have kept making a big deal of the fact that they want to spend more than the Social Democrats on these areas. Now it's made explicit, and that is really a good thing since there can be no doubt now about how politicians want to literally waste money earned by tax payers.

Perhaps some would think that I am unfair to Reinfeldt since he after all wants to spend a lot less than the Social Democrats on government transfer payment programs and that overall government spending and taxing would still be lower than for the Social Democrats. That is to some extent a valid point, but that does not take away the deplorable nature of his principles on spending on the government sector.

Saturday, August 12, 2006

Central Banking is Based on Deception

As usual, Peter Schiff of Euro Pacific Capital is right on the mark in his latest weekly analysis of the Fed's decision to pause:

"This week, as the Fed came through with its highly anticipated pause, it conspicuously left the door open to future rate hikes. Apparently the rhetorical vigilance took most currency traders by surprise, sending many scrambling to buy dollars. However, given that any weaker statement would have caused a stampede out of the dollar, how surprising should the tough talk have been? Any indication that this was not a "wait and see" pause would have sent both long-term interest rates and consumer prices up, undermining the “benefits” of the pause. So in an apparent attempt to have its cake and eat it too, the Fed “paused” while pretending that it really had not done so.

The Fed’s claim that it is concerned about inflation, and that it will act decisively to contain it, is just a bluff. Any real commitment would have prompted the Fed to have already raised rates much higher. For the Fed to suggest that it stands ready to raise rates in the future, if the data warrants it, completely misses the point that the data warrants it right now!

The flawed CPI is nonetheless a lagging indicator of inflation. There is so much inflation already in the pipeline that its effect on consumer prices will be seen for years to come. For now, the Fed’s private concern is to keep the markets from understanding just how bad inflation already is, and how little resolve it actually has to do anything to contain it....

...My guess is that the Fed will continue to ignore evidence of worsening inflation, using growing signs of a weakening economy as cover for its complacency. All the while it will continue to brag about its “vigilance” and commitment to hiking rates further should inflation become a threat."

In other words, the Fed is certainly not serious about "fighting inflation", but it wishes to fool everyone that it is, as the benefits for the central bank is the highest when inflationary expectations are low.

In The Economist's analysis of the Fed decision in its latest issue (not available online for non-subscribers) a similar point was made. Namely that all leading indicators for consumer price inflation in the short and medium term points to continued high or even higher inflation than today, with the exception of one indicator, namely inflationary expectations which remains strangely low considering the Fed's dismal track record in "fighting inflation". This indicates that the Fed have been successful in its deception. How long will the Fed be able to fool the public with its fake "inflation fighting"? Maybe not forever, but the fact that the ECB is widely considered to be hawkish despite consistently letting consumer price inflation stay above 2% they may just get away with fooling the public for some time longer.

Friday, August 11, 2006

Japan's GDP Not as Bad as it First Appears

At first glance, today's Japanese GDP report was really ugly. Only 0.2% volume growth (0.8% at an annualized rate) from the previous quarter and only 0.1% (0.4% at an annual rate) after adjusting for terms of trade. This caused year over year growth to decline from 3.2% to 2% in volume terms and from 2% to 1.1% in terms of trade adjusted terms.

But if you look at the specifics, things aren't fully as bad.

First, as before, national income grew somewhat more than GDP due to a rising investment income surplus, although that increase slowed too.

Secondly, the components of demand are developing in a good way. Business investments soars and private consumption increases fairly strongly too, while inventories are being reduced (something which is likely to be reversed) and residential investments is falling and so is government demand.

Falling government spending will help Japan to reduce its massive budget deficit without destructive tax increases and thus help make growth more sustainable.

Because of the strong details, the weak headline number is not as troubling as it seems as it will mean a strong bounce back in the third quarter is a near certainty. And because last year's third quarterv was so weak, the year over year growth number will likely bounce back even more strongly than the number for quartely change.

Thursday, August 10, 2006

China to Significantly Revalue?

According to Financial Times, China have now started to hint that it might revalue the yuan ( aka the renminbi) by saying such a move could be part of the solution to China's rising trade- and current account surplus and excessive build-up of foreign exchange reserves. In the past, Chinese officials have been saying that it should play essentially no part, so this could signal a policy change by either a on-off revaluation and/or by accelerating the pace of gradual appreciation.

Let's hope this interpretation is right, as it would be in the best interest of both China and the rest of the world to see a significant increase in the foreign exchange value of the yuan.

Alan Reynolds' Defence of the Fed

New blog post at the Mises blog.

Wednesday, August 09, 2006

Different Countries' Position in the Business Cycle

One of the most important distinctions when it comes to discussing growth differentials between different countries is differences in structural growth and cyclical growth. Structural growth is the long-term sustainable growth rate while cyclical growth is growth or contraction related to business cycle fluctuations. The distinctions are not always as razor sharp as one can imagine, as some growth spurts can be temporary but not really cyclical in the traditional sense, such as the higher growth usually enjoyed by initially poor countries, a "catch-up" effect occurs which will ebate as the income gap closes. But nevertheless, the distinction is very real and very meaningful for understanding economic trends.

When comparing growth rates between countries to evaluate differences in the effect of various microeconomic policies (taxes, regulation etc. ) it is for this reason important to take into account the different positions different countries have in the business cycle.

We can now for example see how Sweden have higher growth than not only most of Western Europe, but also compared to the U.S. and (probably) Japan. Swedish socialists can and do claim this is vindication of the superiority of the Swedish model, yet there is good reason to believe, based on the higher money supply growth and the discretionary rate cut measures in 2004-05 and the fact that growth in the preceding years was below that of most other advanced countries that this is wholly a cyclical upswing, not a structural one.

As this distinction have unfortunately gone lost in the Swedish economic debate, and for that matter the economic debate in many other countries as well, this bodes ill for free market advocates in the short-term.

Just how long the current strong cyclical upswing in Sweden will last is as always in economics uncertain, but I only expect a moderate slowdown (which is to say, a repeat of the 5.5% number or anything close to or above it is highly unlikely, but 4% or at least close to 4% looks likely). Meanwhile, a cyclical downturn looks imminent in America, as the imbalances created by Alan Greenspan starts to unfold.

So, with the cyclical upswing likely to continue for a while in Sweden while a cyclical downturn in America is on the way, and with America being perceived in Sweden by both most socialists and most free market advocates as a symbol of capitalism and with most free market advocates clueless on business cycle theory, this means that socialists will likely get the upper hand in the economic debate for the coming year.

In a few years, the roles will likely be reversed as the imbalances created by the Riksbank starts to unfold and as America, provided the Fed and the Washington politicians don't mess things up too much during the coming recession starts to recover. But as I've argued in two previous posts ( here and here ), unless free market advocates starts learning Austrian business cycle theory, they're gonna be toast in the public debate for the coming year or so.

What about other countries then? In what stage of the business cycle are they? Most of continental Europe are roughly in the same stage of the business cycle as Sweden, only their cyclical component aren't fully as big as the ECB, while having pursued a too inflationary monetary policy haven't been fully as bad as the Swedish Riksbank.

Britain on its hand appeared to be at the same stage as America (i.e. on the verge of a recession), but have now seen its economy re-accelerate as it benefits from the cyclical upswing in the rest of Europe. This is fairly similar to Australia who a year ago seemed ready to fall into a recession, but who saw its economy re-accelerate as it benefited from higher commodity prices.

China is at a later stage of the cyclical boom than Europe, and will arguably see its economy slow down significantly soon as a result of the downtrun in its most important export market America and various tightening measures in America. But as China's structural growth rate is so extremely high, growth will even during the cyclical downturn be very high by Western standards.

Japan is in some sense in the most admirable cyclical stage. It have gone through a more than decade long stagnation during which households and companies have slowly but steadily liquidated the malinvestments and payed off most of their debts. Japan can therefore enjoy a long period of cyclical upswing before they risk developing significant imbalances. But Japan will of course suffer if its two biggest export markets, China and America, enters a cyclical downturn. And Japan's structural growth rate is steadily falling because of the accelarating decline in its working age population.

Tuesday, August 08, 2006

Swedish Centre-Right Ignore Sound Monetary Theory at Their Own Peril

On the same day that my article about Sweden was published, the Swedish statistical bureau released an advance estimate of second quarter GDP (as usual, more details can be found in the Swedish language version of this release) which at 5.5% came in far above all analyst's expectations . Most analysts (including me ) had expected something roughly similar to the first quarter i.e. 4-4.5%.

Many reacted with disbelief and as can be seen by this comment thread at Swedish business news paper Dagens Industri, they believe the number was manipulated in order to help the Social Democrats win the elections next month . But while I admit that the numbers are strangely high given what one could have expected from various indirect indicators such as employment and wage growth, it is nevertheless not impossible to have GDP growth of this magnitude combined with weak employment and wage growth, nor is it impossible that the labor statistics is misleading and underestimate growth. And even if these numbers overestimate growth, we need a lot more conclusive evidence before I am willing to accuse the statistics bureau of intentional manipulation. So, for now, we should accept these numbers for what they are.

Social Democratic commentators reacted unsurprisingly by claiming this is a vindication for "the Swedish model", whereas most centre-right commentators either didn't comment it all or explained it with unsatisfactory explanations. The editorial page at Expressen for example explained it with the modest free market reforms implemented in Sweden in the late 1980s and early 1990s. But while these reforms have indeed raised structural growth since they were implemented, they can hardly explain the recent growth spurt. Blogger Dick Erixon came with an even worse explanation, that it was a temporary consumption boom driven by higher transfer payments from the government, which is misleading since for one thing consumption increased slower than investments (Erixon cites a quarterly decline in investments in some industries, yet this is more than offset by increases in others) and for another these hand-outs can only explain a small part of the consumption increase.

Instead, the real explanation for this temporary growth spurt is the one I have repeatedly explained on this blog and also in my article: namely that it is a classic Austrian business cycle theory case of a cyclical boom driven by inflationary monetary policy. Unfortunately, since so few commentators in Sweden are familiar with that theory, the Social Democrats can in effect get away with claiming that the current growth spurt is a vindication of their policies, as free market commentators can offer no or only obviously unsatisfactory/false explanations. The Swedish centre-right could pay a heavy price for ignoring sound business cycle theory.

Monday, August 07, 2006

The Sweden Myth

New article on the Ludwig von Mises Institute web page.

Sunday, August 06, 2006

Welfare Kings on Tractors

Jonah Goldberg have a good column about the insane farm subsidy programs in America, which just about everyone except a few agribusiness owners loses from, arguments which of course applies to farm subsidies in the EU as well.

Some excerpts:

"There are few issues for which the political consensus is so distant from both common sense and expert opinion. Right-wing economists, left-wing environmentalists and almost anybody in between who doesn't receive a check from the Department of Agriculture or depend on a political donation from said recipients understand that Americans are spending billions to prop up the last of the horse-and-buggy industries....

....Our system is so complicated - i.e. rigged - that it's almost impossible to know how much agricultural subsidies cost U.S. taxpayers. But we know from the Washington Post's recent reporting that since 2000, the U.S. government paid out $1.3 billion to "farmers" who don't farm. They were simply compensated for owning land previously used for farming. A Houston surgeon received nearly $500,000 for, literally, nothing. Cash payments have cost $172 billion over the last decade, and $25 billion in 2005 alone, nearly 50 percent more than what was paid to families receiving welfare.

But those sorts of numbers barely tell the story of our appallingly immoral agricultural corporatism. Subsidies combined with trade barriers (another term for subsidy) prop up the price of agricultural commodities for consumers at home while hurting farmers abroad. This is repugnant because agriculture is a keystone industry for developing nations and a luxury for developed ones. Hence we keep Third World nations impoverished, economically dependent and politically unstable. Our farm subsidies alone - forget trade barriers - cost developing countries $24 billion every year, according to the National Center for Policy Analysis. Letting poor nations prosper would be worth a lot more than the equivalent amount in foreign aid. But Big Agriculture likes foreign aid because it allows for the dumping of wheat and other crops on the world market, perpetuating the cycle of dependency.

Then, of course, there's the environment. Subsidies savage the ecosystem. One example: There's a 6,000-square-mile dead zone in the Gulf of Mexico, larger than Connecticut. It's so depleted of oxygen from algae blooms caused by fertilizer runoff that the shrimp and crabs at the Louisiana shore literally try to leap from the water to breathe, imperiling the profitable Gulf fishing industry. Most of the fertilizer comes from a few Midwestern counties that receive billions in subsidies (more than $30 billion from 1997 to 2002, according to the Environmental Working Group)."

Friday, August 04, 2006

The Fed Will Likely Foolishly Choose to Pause

The monthly employment number have for a long time been one of the most important statistics published in America, but never have it been more important than this time. With several Fed board members saying earlier this week that the odds for another rate hike at next week's meeting is about 50-50, and with no other important statistics available before then, today's employment number was likely to determine whether there will be another hike or a pause.

Yet the report turned out to be somewhat inconclusive, meaning that it will not definetly settle the case of whether there will be a hike or a pause. But on balance, it looked weak enough to make it more likely (but not certain) that there will be a pauce.

The weak elements included primarily a slight fall in household survey employment, a rise in the unemployment rate from 4.6% to 4.8% and a relatively low increase in payroll survey employment. But on the other hand, average hourly earnings rose a higher than expected 7 cents to $16.76, following a 7 cent increse (previously reported as 8 cents) the previous month too.

Given that focus is usually on mainly the payroll survey employment number and secondarily on the unemployment rate, this looks likely to tip over the balance to the pause option.

Yet that is likely to be a mistake. Because while growth is slowing, there is no indication this will translate into lower price inflation . Instead, the economic numbers more clearly than for a long time reflects stagflation. In the latest 4 months, the PCE deflator have increased more than 5% at an annual rate and even the core PCE deflator have now accelerated and increases more than 3% at an annual rate. And everything indicates that these inflationary pressures remain strong.

Prices paid indexes for both the Manufacturing and non-manufacturing ISM rose to new near record highs, and commodity price indexes rose to new records. Rent increases are also accelerating. Meanwhile wage increases are accelerating even as productivity is decelerating. With growth being only 2.5% at an annual rate during the second quarter and with the hours worked index in this report rising at an annual rate of 2.8%, productivity was flat or slightly falling. And with wages rising at a 5% rate or so this indicates 5% unit labor cost increases.

For all of these reasons, consumer price inflation looks more likely to accelerate than decelerate, which in turn means that any pause now will only force Bernanke to raise even more later.

See also Peter Schiff's analysis of the subject.

Thursday, August 03, 2006

European Interest Rates On the Rise

Today, most of Europe saw interest rates rise. As widely expected, ECB raised short-term interest rates from 2.75% to 3%. This implied higher interest rates not only for the 12 countries where the euro is used, but also for Denmark and the many Eastern European countries that pegs their currencies to the euro.

As it was two months since the last rate hike, this means an acceleration of the pace of rate increase from one quarter percentage point every quarter. Still, with money supply growth running as fast as it does now, the ECB is still behind the curve. Expect more interest rate hikes as the rapid monetary inflation eventually starts to express itself in higher consumer price inflation, after having so far mainly expressed itself in rising asset prices.

Somewhat more surprising was the British rate hike from 4.50% to 4.75%. Still, it was hardly an unjustified move given how the U.K. economy have unexpectedly picked up pace again after the temporary slowdown late last year. With consumer price inflation running at 2.5%, well above the 2% target and with house price increases once again accelerating, there was little else for the Bank of England to do.

Sweden was one of the few countries where interest rates did not rise today , but given that the monetary imbalances is in fact worse here, this means that interest rates are eventually going to have to rise even more in Sweden than in the rest of Europe.

Wednesday, August 02, 2006

Toyota Drives Past Ford in American Market

July 2006 was another bad month for Detroit car makers. It is rather telling that GM had the best performance as their sales fell by "only" 19.5% compared to July 2005 sales. Ford fell 35.2% and Chrysler 37%.

Now, to be fair, these numbers are not as dreadful as they seem as sales in July 2005 was temporarily boosted by huge and unsustainable (They were in fact selling below cost) discounts. Even so, the trend for Detroit car makers are not good.

Even while Detroit car makers saw their sales decline, Japanese Toyota saw their sales rise 16%. Another Japanese car company, Honda saw its sales rise 10% while Korean car manufacturer Hyundai saw its sales rise 6%. Nissan (who is 44% owned by French Renault)however saw its sales fall 19.5%.

Toyota are now not only several times bigger than Detroit car makers combined in terms of stock market value (something which is related to the fact that Toyota makes hugh profits, while Detroit companies are suffering losses), and bigger than all but GM in terms of cars sold, they have now surpassed Ford in terms of cars sold not only in global sales but also even in sales in the U.S market.

While there are many other deeper problems for Detroit car makers (many of which can be traced to UAW ), a factor which is accelerating the decline of Detroit car makers and the success of Toyota and other Japanese and Korean car companies is rising gasoline prices. The Asians are much better in fuel economy, something which is getting increasingly important for consumers as gas prices rise. Something which is illustrated by the fact that while Ford saw sales of its most gas guzzling models fall by 45%, sales of is more fuel efficient models rose .