Monday, September 30, 2013

About A U.S. "Government Shutdown"

It now increasingly looks as if there will be a "government shutdown" in the U.S., something that could last a while since Republicans, who control the House of representatives, insists that Obamacare should be repealed or delayed while the Democratic Senate and President says that there is no way they'll ever agree to that. Since the two positions are mutually exclusive, there's no deal that can be made without either side essentially surrendering.

Actually, though, most of the government won't be shut down. So-called "mandatory spending", including for example Social Security, Medicare, and yes most Obamacare spending, isn't affected. Nor are so-called essential functions like the military.

Still, a lot of functions will be closed. So what will the effect of a shutdown be? The last time there was a shutdown, in 1995, Jay Leno had this analysis during an appearance in Las Vegas:

Imagine what will happen when the federal government shuts down. Illegal immigrants could start pouring into our cities, drug use could sky rocket. In L.A. they'll think they can get away with murder [This was shortly after O.J. Simpson was acquited]. So what's different? No different really.
Then he corrected himself by saying one thing would change:

Congress is being laid off too, and this effects the local economy here in Vegas too. Five brothels just went out of business, just like that.

Saturday, September 28, 2013

Swedish Is Not A Foreign Language In Finland

Eurostat has released a report on how many are learning "foreign languages". Not surprisingly, English is the by far most popular foreign language, being learnt by the upper secondary level by 100% or nearly 100% of students in most countries.

The report's usefulness is however limited by the fact that the authors seems to dogmatically assume that there can be only one domestic language. For example, despite the fact that German and French are official languages in Luxembourg, they are characterized as "foreign languages". Similarly, both of Belgium's main domestic languages, Dutch and French are characterized as "foreign languages", a feat they explain by characterizing Dutch as "foreign language" in the French-speaking parts and French as "foreign language" in its Dutch speaking parts.

Still, at least in those two cases they have footnotes explaining that they are considered official languages. In Finland, Swedish is characterized as a "foreign language". That is of course factually wrong. Swedish has been spoken in Finland for nearly a millennium and though the percentage of Swedish speakers has dropped considerably since the 19th century mainly due to migration (historically mostly significant net emigration of Swedish speakers, mainly to Sweden, but in recent years also significant net immigration of non-Swedes to Finland) they are still a significant and influential minority. In two regions, Ostrobothnia (Österbotten in Swedish) and the autonomous Åland, Swedish is still the majority language.

It is mainly because of this, and not because of Finland's relations to Sweden, that Swedish is still an official language in Finland. Yet a reader of Eurostat's report who know little of Finland, will probably assume that it is only because of relations with Sweden that 92% study Swedish at the upper seconday level, as it is classified as a "foreign language" without even any explanatory footnotes.

Friday, September 27, 2013

So How Much Warming Has There Been?

I haven't posted much recently  because there hasn't been much news, except the weird political game in Washington D.C. over "continuing resolutions" and debt ceilings, about which there isn't much to say.

Today there was however the IPCC report, which the Al Gore crowd touts because it says that they are even more certain than before (95% versus 90%) that global warming is man made, and because of the forecasts they issue about how much warmer things will become in the future.

But the report also notes how much warming there has been so far, which of course all that is proven because forecasts are after all only forecasts. And as it turns out, the report notes that:

The total increase between the average of the 1850–1900 period and the 2003–2012 period is 0.78 [0.72 to 0.85] °C, based on the single longest dataset available

Wow, a full 0.78 degrees celsius (1.4 degrees fahrenheit) after more than a century of record emissions of carbon dioxide and other "green house gases". That's in line with the normal temperature differences between cities (at the same level above and distance from the sea) 100 or so miles from each other. That's the "dramatic climate change" they make such a big fuss about....

Monday, September 23, 2013

Why Merkel Is So Popular

The German election was a mixed bag for the German government. A great success for the CDU/CSU, but a disaster for the FDP. Overall however, support held up relatively well for the government, much better than other incumbent governments in recent elections in other countries. How come?

Well, there are probably many reasons, but clearly this has something to do with it
During Merkel's 8 year as Chancellor in Germany, the unemployment rate has dropped from about 11% to about 8%, the best development in Europe. Add to that a rising participation rate and rising real wages, and it is understandable that people would like her.

It is true that the reforms that caused most of this drop was implemented by Merkel's predecessor, Social Democrat Gerhard Schröder. But as she has defended the reforms while Schröder's party the SPD has to a large extent distanced themselves from them, she still deserves credit.

Thursday, September 19, 2013

Fed Rejects Tapir To Feed Bulls

So the Federal Reserve has said no to tapir.......
Fed officials insists that they aren't prejudiced towards pig-resembling ungulates , it's just that they need to concentrate on continuing to feed the bulls from their helicopters, as bears are one of the main predators that feeds on tapirs.

Wednesday, September 18, 2013

First Greek CA Surplus In 20 Years

At its peak in 2008, the Greek current account balance had a deficit of  more than €35 billion, or 14.7% of GDP. By 2011 it had fallen to €20.7 billion or 9.9% of GDP and by 2012 Greece had a deficit of €5.6 billion or 2.9% of GDP. As the balance had improved by €6.2 billion in the January-July period, this means that for the first time since 1993, Greece has a current account surplus for the latest 12 month period.

That the Greeks finally ends their habit of living beyond their means is both welcome and necessary. Unfortunately, especially for themselves, they chose to do this the destructive way, by tanking their own economy through constant strikes, riots and whining. Had they instead chosen the more constructive path of trying to become more productive like the Irish and the Baltics did, they would have ended their imbalance and seen their economy recover, just like the Irish and the Baltics have.

Monday, September 16, 2013

The AfD Irony

Bavaria is of course a part of Germany, but it differs in some way from the rest. It is economically a lot more successful with for example an unemployment rate in 2012 of only 3.2% compared to 5.4% in Germany as a whole. It is also politically a lot more conservative, and has its own version of the conservative CDU called CSU, which despite being more right-wing than the CDU has greater support than the CDU got in the rest of Germany.

Bavaria held their election yesterday, one week before the national election. It was a success for the CSU who gained a majority of the seats in the regional parliament, but it was also a big setback for the free market FDP, the coalition partner of CDU/CSU on the federal level.

Opinion polls suggests that the national result the coming sunday will be pretty much the same, the CDU will gain while the FDP will lose seats. The big question is whether the gains of CDU/CSU will be enough to compensate for the FDP:s losses and secure a continued right-wing majority.

One thing that might doom the continued majority of the CDU/CSU and the FDP would be if the anti-euro party AfD (Alternative für Deutschland) gets above the 5% threshold and gains seats. If that happens, the CDU/CSU would probably opt for another "grand coalition" with the Social Democrats, the SDP.

The irony is that while support for the AfD is driven by opposition to the bailouts of Greece and other countries, the AfD:s entry could very well mean that the bailouts increase, as the SDP has criticized the current government for being insufficiently generous.

Thus, an electoral success for the AfD could ironically push actual policy in the opposite direction of their voters' preferences.

Thursday, September 12, 2013

On A Per Capita Basis, Australia Is In A Recession

Employment in Australia fell in August compared to July, but was still up by 0.9% compared to August 2012.

Despite the increase in employment, the unemployment rate still rose from 5.1% to 5.8% during the latest year. This does not reflect a rising participation rate. The participation rate has in fact fallen during the same period.

Instead, the explanation is that Australia's population is growing by nearly 2% per year. When the population is growing that fast , 0.9% employment growth is too low to prevent unemployment from rising.

Similarly, an increase in real net disposable national income of 0.7% is too low to prevent average income from falling. One might say that on a per capita basis Australia is in a recession.

Which is why Matthew Yglesias' assertion that Kevin Rudd lost the election despite Australia avoiding a recession, and that Australia's economy is "recession proof" is misleading. With people's standard of living in Australia in decline, most Australians will perceive it as a recession even though the high population growth rate makes formally avoid recession.

Wednesday, September 11, 2013

Why We Shouldn't Care About The Dow

Neil Irwin explains why we should stop caring about the Dow Jones Industrial Average. An excerpt:

The big (symbolic) news out of Wall Street today is this: Three of the 30 members of the Dow Jones industrial average are changing. Alcoa, Hewlett-Packard and Bank of America are out. Nike, Visa and Goldman Sachs are in.....
....It is an accident of history that the Dow is the most widely cited measure of how the overall stock market is doing, and a bad accident.
Let us count the ways: The Dow includes only 30 stocks. They are chosen by the fine people at S&P Dow Jones indices, intended to represent that breadth of the American stock market. They are weighted not based on the size or importance of the company, but by its per-share price. So IBM, with its $184 per-share price, counts more than four times as much as Coca-Cola, at $39 a share, even though the two have about the same stock market capitalization.
The announcement of the changes shows the absurdity of the index. “The index changes were prompted by the low stock price of the three companies slated for removal and the Index Committee’s desire to diversify the sector and industry group representation of the Index,” the company said.
Of course, the per-share price of a stock has absolutely nothing to do with its size, importance or representativeness. Bank of America is being booted, it would seem, for its sub-$15 per-share price, in favor of Goldman Sachs with a $164 share price. But Bank of America is a way bigger company! Its total market capitalization is $155.6 billion, to $74.5 billion for Goldman. It has 257,000 employees, to 32,000 for Goldman. It is engaged in banking and lending activity in basically every community in America, as opposed to Goldman’s specialty investment banking business. But when you find yourself in the archaic trap of weighing companies based on their per-share price, that’s the kind of absurdity you end up with.
The case for swapping Alcoa for Nike is stronger — the latter company has a $59 billion market cap to Alcoa’s $8.5 billion — but this shows the opposite problem. What took so long? Alcoa has been a relatively small company for years, no longer what one would consider to be among the 30 most important companies or stocks. But the Dow mix is changed only rarely (the last time three members were changed at once was 2004), so it has lingered long past its time as a symbol of American industrial might.
A century ago, it made perfect sense to have an easy-to-calculate index that captured the overall trends in the U.S. stock market, even if it was a little arbitrary and weird. But we are living in an age where magical devices can instantly perform calculations on hundreds or thousands of stock prices at once. And we have the tools to select and weight stocks in an index based on their size — typically, as measured by their total stock market value v rather than the arbitrary per-share price.
In other words, we have the technical capacity to create and monitor the Standard & Poor’s 500 index. Or the Wilshire 5000. Or really anything other than the Dow Jones industrial average. So that’s what we should all do.

Monday, September 09, 2013

Why Syria Attack Is Less Popular In House Than In Senate

The outcome of the Congressional vote is uncertain. One never know how on the one hand pressure from the White House and establishment Republicans like John McCain and John Boehner and on the other hand calls from voters who are overwhelmingly against an attack will play out. But there seems to be a lot higher risk of passage in the Senate than in the House.

Currently, only 25 out of 435 House representatives have clearly stated that they're in favor of an attack while 23 out of 100 Senators have done the same. Meanwhile, 113 representatives have clearly said no compared to only 17 Senators. An additional 115 representatives are "leaning no" compared to 10 Senators.
The rest are "undecided". A majority in the House is thus currently on record as "no" or "leaning no" while only a small minority is in favor. By contrast, in the Senate, almost as many are in favor as are "no" or "leaning no".

Why is the situation so different? Basically, that is because attacking Syria is the centrist position while those who oppose an attack are right-wing Republicans or left-wing Democrats. And Senators of both parties are generally more centrist than their House colleagues.

The reason why Senators are generally more centrist than their House colleagues is because of differences in their electoral districts. Senators are elected in state-wide elections, meaning that they have to win over not just their base, but also centrist voters (centrist is however of course, centrist by that state's standards, which means something very differently in for example Oklahoma than in for example Hawaii). By contrast, House districts are usually notoriously "gerrymandered" so that certain districts are overwhelmingly Republican and other districts are overwhelmingly Democratic. As a result, a vast majority of districts are "safe" for either party.

As a result the only way most incumbents can lose is if they lose their party's primaries. This means in turn that they will have to appeal to their party's base and can ignore centrist voters, making most House Republicans a lot more conservative than most Senate Republicans and making most House Democrats a lot more liberal than most Senate Democrats.

Saturday, September 07, 2013

Still Not Much Of A U.S. Employment Recovery

Yes, the U.S. unemployment rate fell somewhat again, but as many others have pointed out, that was only because the labor force participation rate fell again, now to a new 35 year low. The overall employment to population rate remains stuck at levels only somewhat above the recession lows.

Some argue that it is misleading to view the drop in the participation rate as an increased in "hidden unemployment", people who want a job but don't think they have any chance of getting one so they have stopped sending in applications. Instead they think it reflects the retirement of "baby boomers". But while the  increase in the number of retirees has indeed lowered the participation (and employment) rate, this has to a large extent been offsett by a drop in the number of 15-24 year olds. 15-24 year olds also typically have lower employment rate because so many of them are students.

If you look at the employment rate for "prime age" workers, 25-54 year olds, then you can see that it has developed only slightly less bad than the overall 15+ ratio.

Thursday, September 05, 2013

Sweden's Krugman Wrong About Debt

Lars E.O. Svensson, former member of the board of Sweden's central bank, the Riksbank, and also former colleague of Paul Krugman at Princeton University, is the most prominent advocate of a more inflationist monetary policy in Sweden. One might say that he is "Sweden's Krugman".

While being in the Riksbank board, he publicly criticized  his colleagues for not being more inflationist, arguing that higher interest rates was an inappropriate way of reducing household debt while lower interest rates was an appropriate way of reducing unemployment. After he left the board he has continued to argue for more inflation, now with the new argument that a tighter monetary policy will actually increase the household debt burden in the short term and even in the long term will only leave it unchanged. That is because according to his model, it will reduce nominal GDP, and nominal household income, more than it will reduce nominal household debt

I have already discussed it on my Swedish language blog, but now that a summary of it has been posted on VoxEU, and Mark Thoma's influential Economist's view blog has linked to it , I should perhaps discuss it here too.

If you go through his actual paper, which isn't easy for everyone since it contains a lot of greek letters and related advanced mathematical expressions, you can see that the results in his theoretical model rests on two assumptions:

1) Interest rates has no effect on amortization or the use of value increases on their houses to increase their mortgage.
2) Interest rates only lowers or increases the issuance of new mortgages by the same relative proportion that it lowers or increases nominal income.

Of course, if these assumptions had been true then it would have indeed followed that a tighter monetary policy would raise the debt to income ratio and that a more inflationary would reduce it.

However, both assumptions are in fact wrong. If house prices are lowered then this will clearly greatly reduce or eliminate the possibility of getting a higher mortgage using the value of the house as collateral and higher interest rates will make home owners (and other debtors) more eager to amortize. Higher interest rates will also reduce the issuane of new mortgages (and other forms of debt) more than it reduces nominal income because of the substitution effect from higher interest rates.

And because both key assumptions are wrong, his conclusion is also wrong

Wednesday, September 04, 2013

John Kerry's Lies

Matt Welch at the Hit & Run blog has a really great analysis of the lies of John Kerry during the Senate hearing discussing the planned attack on Syria that I recommend everyone to read. It is clear from reading this that even though this is sold as being merely a limited attack to punish Assad for his alleged use of chemical weapons, Kerry and many within the Obama regime, wants this to be about toppling Assad and handing Syria over to the Sunni jihadist rebels.  We should all hope that Congress votes no to authorizing a war.

Monday, September 02, 2013

Labor Share In US & Germany

Today is "Labor Day" in America, it's substitute for the "International Worker's Day" celebrated in other countries. But labor isn't doing very well in America

 In 1990, compensation of employees was 66.4% of national income, a share that fell to 62.5% in 2006. It then rose briefly during the Great Recession, but has fallen back during the recovery and fell to a new record low of 61.6% in 2012. It has dropped further in 2013.

Sometimes it is asserted that the falling share of national income going to labor is a universal global phenonenom caused by globalization and/or technological changes. However, the fact is that the labor share of national income hasn't fallen in all countries. In Germany, for example, compensation of employees was 68.1% in 2012, slightly higher than the 67.8% share in 1990.

Labor share of income did fall significantly in Germany during the early 2000s, but it rose during the 1990s, and unlike in the US, it has risen significantly since 2006.

Why has the labor share dropped so much in the U.S. while being unchanged in Germany? The left usually blames weaker unions while conservatives, to the extent they view it as a problem, usually blames immigration. As both means weaker bargaining position for workers, they could have contributed. One usually left out factor though  is that monetary conditions in the US have been more inflationary, eroding real wages.