Sunday, February 24, 2013

How Easily Polls Are Manipulated

When asked if they want to cut government spending in generic terms, most Americans say yes. But when you get to specific spending programmes, only foreign aid has a plurality for reducing it (and even that with only a small margin . This reflects in part perhaps the belief that useless bureaucrats comprise a significant portion of government spending, but also that polls are easily manipulated depending on how you ask a certain question.

This great scene from "Yes, Prime Minister" about how easily you can get a specific person to both support and oppose the reintroduction of national service (military conscription).

BTW, you gotta love his example of how things don't happen just because prime ministers are keen on them "Neville Chamberlain was very keen on peace".

Hollywood: Tax Relief For Us: Tax Increases For Other Rich Guys

Surprise, surprise, the same rich liberals that rule Hollywood and argue for tax increases on the rich benefit themselves from various tax breaks and subsidies

As the article points out, it is BTW a very bad idea for states to grant such priviligies, not just because it benefit hypocrites, but because whatever jobs are created from them are nearly all filled by people living in other states

Saturday, February 23, 2013

Long Overdue British Rating Cut

With falling productivity and rising budget- and current account deficits, a cut of Britain's AAA-rating was long overdue. Not because formal default is likely, that is in fact extremely unlikely given the fact that U.K. debt is denominated in pounds and because of the Bank of England's printing press. But because those same printing presses will be used to try to inflate away the real value of that debt, making losses for those dumb enough to buy such bonds certain.

Friday, February 22, 2013

Oil Production Increases To New Record-"Peak Oil" Dives

Global oil production reached a new all time high last year-contradicting the predictions of the "peak oil" theory.

Wednesday, February 20, 2013

British Inflation Target Is A Joke

Japan is not the only country taking unprecedented measures to push down the value of its currency. Even as inflation at 2.7% remains above its official target, and is in fact expected to rise above 3% in the coming months, and even as the Bank of England itself forecast that it won't fall down to 2% until 2016, the Bank of England will continue its "quantitative easing" and several leading members of its committee now favor increasing it.

As a result, the pound, which has already dropped by 7% against the euro and almost as much against the dollar this year, fell to new lows. That drop will of course, by raising import prices and increasing nominal export revenue, help push price inflation up further, perhaps closer to 3.5-4% than 3%.

If you push for further inflationary measures when inflation is above the target, and according to your own forecasts will remain so, how can the Bank of England still even pretend to be committed to the 2% target it is supposed to follow?

Here in Sweden, the central bank has also tended to deviate from the inflation target, partly deliberately as in Britain but in the other direction with inflation being below the target (it's currently 0.7%) to discourage households from increasing their debts. The Bank of England seems by contrast hell-bent to make Britons even more indebted than they are today.

Saturday, February 16, 2013

Would Raising U.S. Minimum Wage Destroy Jobs?

Since President Obama proposed an increase in the federal minimum wage in the U.S., from $7.25 per hour to $9 per hour and then index it to inflation, the debate has been raging about whether or not this would make low wage workers better paid or not paid at all (or in other words if they would get unemployed).

The short answer is that it would be a little bit of both, but with emphasis on little. To understand why we must first examine the issue theoretically and then look at current U.S. conditions.

Starting with theory, when a worker's pay is set on the free market, it will be no higher than the worker's (expected) marginal productivity and no lower than what the worker could get paid elsewhere or what the worker would feel is so low that not having any job is better (the latter is of course influenced by the extent to which the workers could live on for example unemployment benefits or welfare). The latter could be refered to as a worker's personal minimum wage.

For unemployed workers their personal minimum wage is higher than the marginal productivity employers think they might have for them, while for employed workers, the marginal productivity is equal to or higher.

When marginal productivity is higher than the personal minimum wage, the actual pay will be the result of a bargaining process and will usually come in somewhere in between. What then happens if the government steps in and legislates a legal minimum wage?

That depends. If the legal minimum wage is lower or equal to the current pay level, nothing happens at all. If it is higher than current pay but lower than marginal productivity then workers get higher pay. If it is higher than marginal productivity, workers lose their jobs.

Since minimum wages are usually far below median pay, for most workers nothing happens. For the small numbers that are affected some will receive a raise, while others will lose their jobs. The exact proportion of workers who are unaffacted, of workers who receive higher pay and of workers who lose their jobs depend on the specific conditions in each specific country (or state or city) and each specific period of time and will therefore differ between different locations and different periods of time

With average hourly earnings currently at $23.78 per hour and with average pay even in the lowest paid sector, "leisure and hospitality" at $13.37, it is obvious that raising the minimum wage would only cause minor job losses. But it is also obvious that would only raise take home pay for a very small number of workers.

Friday, February 15, 2013

Alternative Divisions Of North America

With the resentment that Republicans feel over Obama's re-election, some believe that it would be best to make the United States less united, and divide it, and Canada, up in two countries, one consisting of conservative "Red states" and one of liberal "Blue states". In one version the conservative part is called "Jesusland" and the liberal part "United States of Canada".
Hawaii isn't showed, but as it is the most left-leaning state in America (apart from the District of Columbia which technically isn't a state) it would obviously be part of "United States of Canada". One could of course also argue that Jesusland is too big, as it includes several states won by Obama not just in 2008 but in 2012 as well, including Iowa, Virginia, Ohio, Florida, Colorado, Nevada and New Mexico. It seems that the map is based on the 2004 elections when those states were won by Bush. One could of course also question calling the liberal country "United States of Canada" as not all of Canada is left-leaning, and having the conservative country called Jesusland, would make objectivists and atheist libertarians feel unconfortable in both countries.

Regarding the fact that not all of Canada is liberal, an alternative version has the most right leaning Canadian provinces, Alberta, Saskatchewan and Manitoba, be made part of Jesusland. In this version, the liberal part is renamed to "Snobberia" (it is obviously a Republican who has made it) while Quebec is made independent and renamed "Surrenderville" (presumably because it is French-speaking and the French are regarded by many Republicans as "cheese eating surrender monkeys"),

The funniest part was designating Nunavut as "too cold to care", a reference to the fact that the temperature tends to be -40 degrees (both fahrenheit and celsius) in the winters there, rising to only 5-10 degrees celsius (41-50 degrees fahrenheit) in their "summers".  That is the explanation for why despite having an area of 1.88 million square kilometers (725,000 square miles) it has only about 32,000 people (most of whom are eskimoes/inuits).

It is somewhat strange to include Yukon and Northwest territories in "Jesusland". Considering the majority support for left leaning parties (the Liberals, the New Democratic Party and Greens), it would make more sense to include them in "Snobberia". Or alternatively, given the fact that these provinces are nearly as cold as Nunavut, one could also include them in "too cold to care".

Tuesday, February 12, 2013

Strong Baltic Recovery Continues

Despite weak or negative growth in the rest of Europe, the Baltic countries recovery continues to be robust.

In Estonia, growth was 0.9% (3.6% annualized) compared to the previous quarter and 3.4% compared to Q4 2011.

In Lithuania growth was even higher than in Estonia, 1% (4% annualized) compared to the pervious quarter and 4% compared to Q4 2011.

But while Lithuania had somewhat higher growth than Estonia, it had weaker growth than Latvia, whose GDP grew by 1.3% (5.3% at an annualized rate)  compared to the previous quarter and by 5.1% compared to Q4 2011.

The baltic countries have now had cumulative recoveries of about 15% since late 2009, a lot faster than any other country in the EU/EEA area. Krugman and others would no doubt have attributed the super-strong recovery to devaluation, except that no devaluation has been made....

Monday, February 11, 2013

Two Symbolic Milestones For China's Growth Reached

For years, both China and Germany have had larger goods exports than the United States. However, as these two countries have had large trade surpluses while the U.S. has had a large deficit, the U.S. has had, and still has a lot larger imports. And until last year, U.S. imports exceeded Chinese imports more than what Chinese exports exceeded U.S. exports. But faster growth in both imports and exports last year meant that China now for the first time has a larger total foreign trade in goods than the U.S. If you include trade in services, the U.S. might still be bigger, but it will probably not be long until China become bigger by that measurement as well.

At the same time, China's GDP grew to 51,93 trillion yuan, roughly $8,3 trillion. This means that for the first time (or at least the first time since the 19th century), China's GDP at current exchange rate is more than half of America's, as its GDP was roughly $15.7 trillion. This means that for China to surpass America in economic might, its relative growth plus real appreciation of the yuan need only be 9.5% per year, a lot less than in the latest 7 years.

Saturday, February 09, 2013

Today's Quote

Peter Schiff is right on regarding the case for prosecuting Standard & Poors for its overly optimistic assessment of mortgage backed securities during the housing bubble:

Given the nature of the U.S. economy during the housing mania of the last decade, charging S&P with fraud is like handing out a speeding ticket at the Indy 500.

Read the rest of the column here where he makes several other good points.

Friday, February 08, 2013

German Trade Statistics Indicates Euro Area Rebalancing

Today's trade numbers from Germany shows that its external surpluses continues to rise, with its trade surplus in goods rising from €159 billion in 2011 to €188 billion in 2012 and its overall current account surplus rising from €147 billion to €167 billion.

However, even as its overall trade surplus rose by €29 billion, its trade surplus with other euro area countries fell by €12 billion, from €19 billion to just €7 billion. In the last few months of 2012, Germany actually had a deficit with the rest of the euro area.  No subdivision of euro area countries is available, at least not yet, but it seems safe to say that the bulk of this drop was with Southern European countries, while net exports to for example Holland, Austria and Finland probably didn't fall much, if anything at all.

Wednesday, February 06, 2013

Just How Much Has The Argentine Peso Been Debased?

Exchange rates are usually not a good way to estimate underlying inflation in a country, simply because real exchange rates often flucuate for various reasons, usually related to asset market developments. That was for example why the euro dropped so much against most currencies in the first half of 2012, only to recover against most currencies since July 2012. The first drop was related to increasing worries about  the debts of Southern European countries, with the recovery being related to those worries easing. And the yen's recent dramatic drop hardly reflects high Japanese inflation, though it will no doubt cause inflation to rise in Japan.

However, in a country like Argentina where the inflation statistics are obviously cooked, exchange rate movements might in fact provide a hint of how high inflation is. And as you can see the currency has just kept falling and falling against the U.S. dollar (the chart shows how many Argentine peso is required to buy a U.S. dollar so a rising number indicates a weaker peso).

It gets a lot worse in a longer term perspective. As you can see on the chart, it now takes 5 peso to buy a U.S. dollar, up from 4 in 2011. But remember that before the devaluation, it had a 1:1 exchange rate to the U.S. dollar, so its value is now only a fifth of what it was then.

And that's relative to the U.S. dollar, whose value have dropped significantly against most currencies during that time. For example back in 2001, it was more than 10% higher valued than the euro, now the euro is 35% higher valued. So while the peso has dropped 80% against the dollar, it has dropped some 86% against the euro.

Tuesday, February 05, 2013

The Great Inflationary Role Model Breaks Down

Argentina has for years served as a role model for inflationists, with the tale being that it devalued in 2002 and after that recovered. But as I've pointed out before, what needs to be noted is that much of its alleged boom is a pure hoax. Argentina's official statistics is perhaps the world's most unreliable, as unreliable or more than what Greek budget data used to be. They are in fact so unreliable that the IMF has formally censured Argentina for putting out inaccurate data, and is threatening to expel Argentina if they don't improve. In particular, the inflation data published is the laughing stock of all Argentinians (and us non-Argentinians as well) as it is far below what they experience. And since real growth is a function of nominal growth deflated by inflation, a too low estimate of inflation implies a too high estimate of real growth, so besides underestimating inflation, Argentina has also vastly overestimated its real growth rate.

And secondly, to the limited extent that the Argentinian boom actually happened, it wasn't related to devaluation, but rather the fact that the prices of the commodities it exports soared even in U.S. dollar terms for reasons causally unrelated to the devaluation in the years after it happened.

Because the government numbers are so unreliable, we can't really say if the economy is growing or contracting. However we can see signs of a breakdown as, despite official assurances that inflation is contained, Argentinian officials have now decided to implement Hugo Chavez-style price controls. As in Venezuela, and everywhere else where such policies have been tried, this will of course only lead to shortages.

Sunday, February 03, 2013

Damn Israel For Ruining That Great Syrian Stability

While most regional powers have taken stands in the civil war in Syria, with the Sunni Arab Gulf countries (most notably Saudi Arabia and Qatar) and Turkey supporting the rebels and with Iran and Hezbollah supporting the Assad regime, Israel has stayed neutral. And for good reasons. 

On the one hand, the Assad regime is the most important Arab ally of Israel's arch-enemy (since the Shi'ite Islamic revolution in 1979) Iran, and the pathway by which weapons from Iran reach Hezbollah. The possible downfall of the Assad regime would therefore significantly weaken Iran and Hezbollah. 

On the other hand, the Sunni Islamist rebels are no more friendly to Israel than the Assad regime is, with one of their key propaganda arguments for overthrowing Assad being in fact his failure to retake the Golan Heights from Israel. 

So, Israel has stated that it is neutral and won't interfere in the outcome of the civil war. However, it has also stated that it won't accept that the Assad regime transfers chemical weapons or anti-aircraft missiles to Hezbollah, or that the Sunni rebels conquers the sites where they are located. It appears that the Israeli air strike in Syria did in fact target weapons shpments designated for Hezbollah. 

What made this all the more funny, was the official Assad regime comment of the Israeli air strike, namely that it served to "destabilize Syria". 

The country was in a full-fledged civil war to begin with. How can it become more unstable than that?