Sunday, September 30, 2012

Irish Emigration Increases

Say what you want about the Irish economy, but it is not suffering from labor immobility. During the height of its housing bubble, in the year to April 2007, it had net immigration (note the emphasis on "net") of about 105,000 people, the equivalent of about 220,000 in Sweden, 1.4 million in the U.K. and 7 million in the United States.

Immigration at that time came mainly from Eastern Europe, but to a lesser extent also of returning Irish expatriates.

Now that the Irish housing boom has ended and turned into a slump, not only has net immigration stopped, it has turned into sizeable net emigration. Though net immigration from Eastern Europe has more or less ended, it is not the case that very many of these previous immigrants are returning. Most are staying in Ireland, though some seem to be moving on to other countries. Moreover, native Irish has started to emigrate  in large numbers, mainly to other English speaking countries like the U.K., the U.S., Australia and Canada.  As a result, net emigration rose to 34,400 in the year to April 2012, the equivalent of more than 2 million in net emigration for the U.S.

Note that the Irish population still increased somewhat because the Irish birth rate, though slowly decreasing, is still very high.

Saturday, September 29, 2012

Why British Unemployment Is So Relatively Low

The last few years has been the by far worst for the British economy since the 1930s, in fact by some measures it has in fact been even worse than the 1930s, with GDP being 4% lower in Q2 2012 than in Q2 2008 (adjusted for terms of trade) and with per capita GDP being 7% lower as population has increased by 3%. Yet despite a drop in per capita GDP by a cumulative 7% in four years, unemployment is a relatively moderate 8.1%. While that is significantly above the roughly 4% it was at during the previous boom, it is far lower than in for example Ireland, Portugal, Greece and Spain. So how come British unemployment has risen so little?

Simply because productivity has been falling. Output per hour for the whole economy was 3.5% lower in Q2 .Output per worker, a variable that also depends on average hours per worker, fell slightly more, 3.9%. That number if of course basically the same as the 4% drop in GDP. So the drop in per capita GDP can be almost entirely attributed to two factors: the increase in population and a big drop in productivity, with a smaller part being due to a small drop in the average work week. However, the absolute number of employed are basically the same now as when the slump started. As this chart illustrates, when the crisis began both employment and productivity fell. In 2010 and early 2011 there was a moderate recovery in both, but since the second half of 2011, the two has diverged as employment has continued to recover while productivity has started to drop again.

Monday, September 24, 2012

Mostly Good News For Ireland

-Ireland's long bond yields, having previously briefly been as high as 10% and still being over 8% as late as early this year, fell to 4.77%.Irish yields are thus now lower than in Spain and Italy.

-GNP-growth increased to 2.9% in the second quarter from 1.4% in the first quarter.

-Its current account surplus increased to a record €3.24 billion in the second quarter. This number isn't seasonally adjusted and for seasonal reasons it is usually larger than normal in the second quarter, but for the latest four quarters the total surplus was €5.42 billion, roughly 4% of GNP.

It is only Ireland's labor market that doesn't have good news as unemployment remains stubbornly high at 14.7%, a level which it has been more or less unchanged at for the latest year. Still, that is less bad than the continued increases seen in for example Greece and Spain.

So, while Ireland still has very deep problems, its situation has started to improve somewhat, and it is certainly doing better than the Southern European crisis countries.

Sunday, September 23, 2012

Very Consistent Fed-Bashing

Paul Krugman accuses "Fed bashers", i.e. critics of its QE schemes, of being self-contradictory when they first argues that interest rates were too low during the housing bubble

the very same people who accuse the Fed of having been too loose then accuse it now of targeting asset prices, trying to boost the stock market rather than focusing on the real economy. (Because high unemployment apparently isn’t a sufficient reason).

See the problem? The only reason for the Fed to have tightened in the naughties would have been concern about asset prices — which is the same kind of concern that is apparently dastardly now.
No, I don't see the problem. In fact, it is very consistent to have been concerned about inflated asset prices during the naughties and to be concerned about inflated asset prices now. During both periods (but clearly  not quite as dramatically now as during the naughties-yet) Fed policy have inflated asset prices.

Krugman's assertion of self-contradiction rests on his illogical claim that "concern about asset prices" must have meant "trying to lower them" in the naughties and "trying to raise them" now, which is to say his assertion that the meaning of "concern about asset prices" must have contradictory meanings in different periods of time, Or in other words, Krugman claims that Fed bashers are self-contradictory solely on the basis that they contradict Krugman's self-contradictory definition!

Wednesday, September 19, 2012

How Do You Lose Against Jimmy Carter II? Nominate Romney

Given Obama's track record, defeating him should be a cakewalk. He's presided over the weakest economic growth of any President since Herbert Hoover, the national debt more than any period since World War II and his foreign policy has been a disastrous failure, with Islamists strengthening their position in the Middle East more than any time since the Islamic revolution in Iran in 1979,significantly partly due to his policies.

But despite having the worst overall track record since Jimmy Carter (and in some aspects being even worse than Carter), it now seems increasingly likely that Obama will be re-elected after all.  The reason for that is that the Republicans chose a really incompetent candidate in the form of Mitt Romney

Making a statement writing off and in effect denouncing and insulting nearly half the population  because they don't pay federal income taxes is really the dumbest thing a candidate can do. Now, this statement was made at a private fund raísing gathering for rich people, so Romney clearly didn't think that the statement would be publicly known. But he should have realized that there is always a high risk that people sympathizing with the other side will be present and that they will secretly record his remarks.

And what's more. not only is the statements bad politically, they're actually inaccurate. America is in fact one of the most idealistic (in the sense that they aren't guided by whether or not they personally benefit from policies) countries in terms of voting preferences.

A lot of rich people who pays millions of dollars in taxes support Obama and his proposals to raise their taxes. America's richest man, Warren Buffett, is the most outspoken example of this with other examples including most Hollywood stars and Silicon Valley executives . And Jewish Americans, despite having a far higher average income than non-Jewish Americans, and therefore likely a far higher average federal income tax bill,.supported Obama with a 78 to 21 margin in 2008 and are likely to overwhelmingly support him again. The same basically goes for Asian Americans as well, though their average income isn't quite as high as the Jewish average income and the winning margin there for Obama among them was only 62 to 35.

Similarly, among low income Whites especially in rural areas and in the South, both "working poor" and retirees living off Social Security and Medicare, there is strong support for the Republican party, despite the fact that they are part of that 47% that Romney denounced.

The fact that so many Americans vote in a different way than Romney's analysis would have you believe reflects in part philosophical differences regarding government redistribution. Many of those low income Whites don't want hand-outs from the government, though in some cases they are unaware of the fact that for example Medicare and Medicaid are government programs, as was illustrated by Art Laffer's hilarious warning that Obama's health care program would entail "government taking over Medicare and Medicaid"

Similarly, many rich people like Warren Buffett and Paul Krugman are ideologically committed to bigger government despite the fact that this would mean that they personally would have to pay a lot more in taxes.

The other reason is that many voters base their vote on non-economic issue. Most Jews for example strongly support gay marriage and legal abortion, while most low income Whites strongly oppose gay marriage and legal abortion, causing the former group to support the Democrats and many in the latter group to support the Republicans.

Because of these factors, Romney's analysis that the 47% can never be won is wrong, and if he only can win votes among the 53% he will lose in a landslide because such a large proportion of that 53% have a philosophical preference for bigger government or care more about issues like abortion and gay marriage.

It remains to be seen just how great damage this gaffe will cause Romney. Given the fact that many Republican voters are unaware of the fact that Medicare and Medicaid are government programs, many Republicans in that 47% will probably just assume that Romney wasn't talking about them, and assume that he only talked about low income Blacks and other low income Democrats. And  many of those who do realize that he was talking about them will turn the other cheek and still vote for him because they oppose Obama. However, considering that Obama started with a narrow lead, losing even only one or two percentage points of the electorate could doom his campaign and ensure Obama's re-election.

Sunday, September 16, 2012

Technical Point About Language & Understanding

I have received a somewhat unexpected criticism regarding my previous post. It's not about any of the statistical facts in it, nor about the point that U.S. inflation is increasing and will likely continue to increase, but about the fact that I, in addition to stating the monthly changes in consumer- and producer prices, also "translated" those monthly changes in to annualized rates. The critics argued that such translation meant that I thought that this would be the yearly change during the coming year, something they argued was implausible, a forecast that I basically agree with as, while it is likely that inflation will increase sharply, it is unlikely to increase that much.

But that was not at all what I meant. The reason why I also stated it in annualized terms was that some people mainly or only think in terms of annual or annualized change, so that any change less than 2% is low inflation. By only stating it in terms of the actual change, such readers would get the wrong impression, so by stating both, you create a greater understanding of recent changes. Stating it in terms of the 12 month change would also create a misleading impression since it would include the relatively low inflation months of late last year and early this year.

Now,since I myself don't think that way, I would have otherwise prefered not to make that addition. But if I had simply disregarded the objective of making as many as possible understand and simply expressed it in the way I myself like best, I wouldn't have written any of this in English in the first place, då skulle jag ha skrivit det på svenska.

But since, unfortunately, few people outside of Sweden and certain parts of Finland (plus perhaps Norway and Denmark due to the similarity of their languages to Swedish) understand Swedish, I still write here in English (däremot kan det för svenskspråkiga läsare som eventuellt missat det påpekas att jag på detta ställe bloggar på svenska). Similarly, since some people think in annualized I also express it that way to make them understand, even though I don't think that way.

Friday, September 14, 2012

Two Inflationary Days

First we hear that U.S. producer prices rose 1.7% (annualized 22.4%) compared to the previous month in August.

Then Ben Bernanke said that wasn't enough, so he will take his helicopter, model QE3/QE5, out for a round.

Then the Fed stated that money supply rose 0.3% the latest week alone, causing the annualized 3 month gain to increase to 8.6% and the yearly gain to increase to 7%.

And then the U.S. consumer price index rose 0.6% (annualized 7.4%) in August.

And as a result of Bernanke's new Helicopter tour, the dollar has plunged, while commodity prices have soared while the yield spread between regular and inflation protected U.S. treasuries have soared.  The yield on the 5-year inflation protected "security" is now by the way as of this writing -1.66% (do note the minus sign), illustrating the point I've repeatedly  made that the only thing safe about them is that those who invest them will lose part of their savings.

So, it is clear that unless the European debt crisis again worses and again causes a surge in demand for dollar  assets, there will be a big increase in price inflation soon.

George Will On U.S. Monetary Policy

A reader tipped me of this interesting article from George Will. Most of the points he makes have been made by me previously, such as the Fed's trickle down economics, but it is interesting that they are advanced by a prominent columnists and by some Fed officials that he discusses the subject with. Presumably these officials aren't too happy about Bernanke's decision to enact QE3, or QE5 if you count the two "twist"-operations.

Thursday, September 13, 2012

Barack Obama As The New Jimmy Carter

A weak Democratic President that presides over a very weak economy and an attack on American diplomats by violent Islamists in a country where the President is partly responsible for the rise of those Islamists.

Jimmy Carter in 1980? Yes, but also Barack Obama in 2012, with only a few smaller differences in details, such as the fact that the Islamists killed the American diplomats, including the ambassador Christopher Stevens, in Libya two days ago (on the eleventh anniversary of the great Islamist terror attack on America, it might be noted), whereas they held them hostage in Iran in 1980.

Considering this, the only thing that might stop Obama from meeting the same fate as Carter is the fact that Mitt Romney is a much weaker candidate than Ronald Reagan was.

Tuesday, September 11, 2012

Interesting Paper About Sweden

Nima Sanandaji has written an interesting paper about Sweden. It largely points to the same historical facts that I have mentioned in my previous writings, namely that Sweden during its most free market oriented era, from 1870 to 1950, had the highest rate of per capita economic growth in the world. After massive tax and spending increases during the 1950s and 1960s, Sweden stopped outperforming other countries, and after a dramatic leftist shift in economic policies implemented by Socialist Olof Palme after he became prime minister in 1969, Sweden started to seriously lagg other countries. However, free market reforms implemented in the 1990s, and in recent years, have enabled Sweden to once again outperform other Western countries in growth.

He also discusses possible cultural factors, and also points out that Sweden in 1920 had a relatively low level of economic inequality, despite the fact that government spending and taxation at that time was only 10% of GDP.

Sunday, September 09, 2012

U.S. Employment Weaker Than Headline Number Suggests

As I've discussed repeatedly, unlike most other countries, the United States publishes two employment numbers: one based on a survey of employers ("the payroll survey") and one based on a survey of households. Since they in principle describe the same real world phenomenon, the number of people employed in the U.S., they should have the same result. As it happens, they usually don't meaning that at least one of them must be wrong.

Because the payroll survey result is less volatile on a monthly basis, economists usually consider it more reliable. I basically agree with that, with the reservation that if the household survey systematically (not necessarily all individual months, but on average) diverge in one direction then this is a hint that the payroll survey number likely underestimates or overestimates (depending on which direction the divergence is) employment growth.

And lately, we have seen that the household survey has in fact been systematically weaker. During the latest six months, between February 2012 and August 2012, payroll survey employment saw a gain of 580,000 jobs or about 0.45%. That is not exactly what one would call a vigorous boom, but at least it's in line with or even slightly above population growth. By contrast, household survey employment saw a gain of merely 36,000 jobs, less than 0.03%, far below population growth.

This means that total unemployment, counting not just those officially unemployed, but also discouraged job seekers, has in fact probably increased this year, despite the fact that the headline numbers cited by the financial press might give you the opposite impression

Saturday, September 08, 2012

Krugman's Suspicious Change Of Opinion

After having for years criticising Obama, and Congress, for not increasing deficit spending enough, and for that reason being bearish on the U.S. economy, Paul Krugman changes his mind two months before the U.S. election, and says that even without new Keynesian measures, the U.S. economy is about to start to boom really soon, unless the Republicans win and ruin everything with their policies.

While we are all entitled to change our opinions if the facts change or one encounters a persuasive argument against our previous position, it strikes me as suspicious that Krugman changes his mind at this point of time that benefits the candidate he favors.

Thursday, September 06, 2012

It's Worse Than That

Joshua Brown writes that "scared money don't make any money" pointing to how Americans, and many other nationalities it could be added, increasingly save in accounts, funds or bonds that has zero, or almost zero, rate of return.

Actually though, the situation is even worse for them than just "not making money". If you consider inflation, which you of course should, everyone receiving zero nominal return are in fact experiencing a decline in the value of the money they saved, meaning that they are in effect giving away part of their savings to the institution they lended it to.

That is why, as I've written before, the only thing safe about certain "safe havens". like government securities issued by the American and British government is that anyone who invests in them is going to lose.

Wednesday, September 05, 2012

$16 Trillion

Tuesday, September 04, 2012

Krugman Argues That Romney-Ryan Would Boost The Economy

Ever since Paul Ryan was named vice president, he has been relentlessly attacked by leftists, especially fellow Paul, Krugman. Krugman has attacked Ryan with many arguments, but the one he has most frequently used is that Ryan's assertion that he is a deficit hawk is a lie as his specified tax cuts and military spending increases far exceeds his specified cuts in non-military spending.

Krugman has also recently pointed to how Mitt Romney is inconsistent as he claims that military government spending is good for the economy while non-military government spending is bad.

I actually mostly agree with Krugman on these points. Based on previous Republican presidents we know that they don't cut non-military spending enough (or even cut it at all, in the case of George W. Bush) to finance their tax cuts and military spending increases, and given the fact that they refuse to specify most of their proposed spending cuts, and also refuses to specify what loopholes in the tax system they want to close, it seems likely that a Romney-Ryan administration wouldn't be different and that the deficit would increase.

I have also made the same point about the inconsistency regarding the effects of government spending from some Republicans.

What  Krugman leaves out is that some Democrats are simililarly inconsistent on the issue of government spending. And even more interestingly, Krugman himself is inconsistent when he uses the likely increase in the deficit that Republicans would bring as an argument against them. After all, Krugman has for the last few years repeatedly argued that what America desperately need is a bigger deficit. So given the fact that Krugman argues that Romney-Ryan would increase the deficit and given the fact that he also argues that a bigger deficit would strengthen the economy, it follows that Krugman without realizing it in effect argues that Romney-Ryan is better for the economy than Obama-Biden.

Sunday, September 02, 2012

The Republican Attempt Of Erasing The Memoring Of GWB

I didn't follow the Republican convention very closely, and I wasn't very impressed with what I saw. What struck me though was the complete absence of one person. The most recent Democratic President, aside from the one currently inhabiting the White House, Bill Clinton has not only been mentioned at,but also visited  and adressed recent Democractoc conventions, and is set to adress the 2012 convention next week as well.

But at the Republican convention, the most recent Republican president, George W. Bush was gone, just gone. Not only wasn't he there, but as far as I know, no one mentioned him and his presidency.

This could be interpreted in both a negative and positive way. The negative way is that this is an attempt to "photoshop" history in the same manner that Joseph Stalin did with his most important rival Leon Trotsky, manipulatig photos and documents to create the impression that Trotsky never existed, or at least wasn't active within the Bolshevik movement. After all, Bush's record was pretty bad, so associating yourself with that is associating yourself with failure.

The positive way is that the Republicans have sincerely realized that Bush's policies, particularly his spending policies were wrong, and that he erred in spending too much, and that they therefore feel the need to disassociate themselves from him.

Which of these explanations is then the correct one? I'm not sure, but it might be a bit of both, but probably more of the former.  If it had been the latter one would think that they at least briefly admit that they made mistakes in the past and put most of the blame for that on Bush. Their failure to do so raises the suspicion that they're not really serious about their professed opposition to big government, and that it's just a retorical weapon against Obama, and that they will revert to embracing big government if they regain power.