Friday, October 31, 2008
British life expectancy hits new high
The fact that life expectancy in Britain has reached record levels should be a cause for celebration. According to the latest release from the Office for National Statistics: “UK life expectancy at birth rises to record level: 77.2 years for males, 81.5 years for females”.
Presumably these figures have received relatively little publicity because they do not chime with the official view that we are facing some kind of national health emergency. The impression given by much of the discussion is that obesity will lead to rampant disease and falling life expectancy. But even if there are health risks associated with obesity (and it should be noted obesity is not the same as simply being overweight) they are evidently more than offset by other factors. The general trend is for greater affluence to lead to us living longer and healthier lives.
Presumably these figures have received relatively little publicity because they do not chime with the official view that we are facing some kind of national health emergency. The impression given by much of the discussion is that obesity will lead to rampant disease and falling life expectancy. But even if there are health risks associated with obesity (and it should be noted obesity is not the same as simply being overweight) they are evidently more than offset by other factors. The general trend is for greater affluence to lead to us living longer and healthier lives.
Thursday, October 30, 2008
Be careful what you wish for
“Be careful what you wish for” is going to be the theme of my introduction to the session on “growing pains” at this coming weekend’s Battle of Ideas.
For a long time growth sceptics have expressed concern about the rising affluence of places such as China and India. They have argued, at least implicitly, for a cut in their economic growth. Now, with the global financial crisis, they could get what they wish for. If they do it will be a tragedy as billions of people will not be in a position to benefit from rising prosperity.
There are already signs that instability is spreading to developing economies. This was discussed in last week’s Economist (25 October) as well as by such luminaries as Paul Krugman of Princeton and Dani Rodrik of Harvard.
Over the past couple of days the authorities (the International Monetary Fund, America’s Federal Reserve and the European Union) have offered financial help to emerging economies in a bid to stabilise them. The catch is, according to a report by Capital Economics, that they are offering help to those countries that need it least. Those which most need help are unlikely to qualify.
For a long time growth sceptics have expressed concern about the rising affluence of places such as China and India. They have argued, at least implicitly, for a cut in their economic growth. Now, with the global financial crisis, they could get what they wish for. If they do it will be a tragedy as billions of people will not be in a position to benefit from rising prosperity.
There are already signs that instability is spreading to developing economies. This was discussed in last week’s Economist (25 October) as well as by such luminaries as Paul Krugman of Princeton and Dani Rodrik of Harvard.
Over the past couple of days the authorities (the International Monetary Fund, America’s Federal Reserve and the European Union) have offered financial help to emerging economies in a bid to stabilise them. The catch is, according to a report by Capital Economics, that they are offering help to those countries that need it least. Those which most need help are unlikely to qualify.
Labels: development, economics, finance, speeches
Tuesday, October 28, 2008
Atwood book on debt
Margaret Atwood, a Canadian writer and activist, has had a non-fiction book published on debt. Payback: Debt and the Shadow Side of Wealth is a collection of essays based on the annual Massey lectures she gave this year. From what I can gather it is against “greed” and pro-environmentalist. For an extract click here.
Labels: book, debt, environment, finance
Monday, October 27, 2008
Put politics back into economics
The following comment by me was published in this week’s Fund Strategy.
Mervyn King, the governor of the Bank of England, has stated that he would like to see economics become boring again. Although his instinct is understandable it is profoundly mistaken.
It is easy to look back with nostalgia at those halcyon days - just a few weeks ago - when stockmarkets seemed to go up most of the time. No doubt everyone in the investment industry, except perhaps short sellers, is yearning for such happy times to return.
But King's oft-repeated desire for economics to be boring means something different. What he is really saying is that economics should be left to clever chaps like himself. It should not be the subject of debate by the mass of the population. In other words, he is saying economics should be apolitical. In his view the masses cannot be trusted.
Leave aside for a moment the fact that such a conception of economics is undemocratic. That it disenfranchises the mass of the population and leaves important decisions in the hands of unelected technocrats such as King. It is also the wrong approach to economic decision-making.
Although Britain has its particular institutional structures, the same argument applies worldwide. Economics should be taken out of the hands of the technocrats and once again become a subject for popular debate.
What is needed now more than ever is a debate about how to deal with economic problems. It is necessary to discuss how to respond to recent volatility in the short term. Over the longer term it is also vital to work out strategic priorities.
The truth is best achieved through rational debate. Each side can put its case and the one which is right should be the most convincing.
Such a procedure also ensures that the right questions are asked. Technocrats tend to get too bogged down in technical detail. They easily lose sight of the bigger picture. Having a broader debate among the public ensures that questions that are important to most, such as raising popular prosperity, receive a proper airing.
A good first step would be to abolish the independence of the Bank of England. New Labour's move to make it independent in the first place was always anti-democratic. Now the downside of taking politics out of economics should also be apparent.
Mervyn King, the governor of the Bank of England, has stated that he would like to see economics become boring again. Although his instinct is understandable it is profoundly mistaken.
It is easy to look back with nostalgia at those halcyon days - just a few weeks ago - when stockmarkets seemed to go up most of the time. No doubt everyone in the investment industry, except perhaps short sellers, is yearning for such happy times to return.
But King's oft-repeated desire for economics to be boring means something different. What he is really saying is that economics should be left to clever chaps like himself. It should not be the subject of debate by the mass of the population. In other words, he is saying economics should be apolitical. In his view the masses cannot be trusted.
Leave aside for a moment the fact that such a conception of economics is undemocratic. That it disenfranchises the mass of the population and leaves important decisions in the hands of unelected technocrats such as King. It is also the wrong approach to economic decision-making.
Although Britain has its particular institutional structures, the same argument applies worldwide. Economics should be taken out of the hands of the technocrats and once again become a subject for popular debate.
What is needed now more than ever is a debate about how to deal with economic problems. It is necessary to discuss how to respond to recent volatility in the short term. Over the longer term it is also vital to work out strategic priorities.
The truth is best achieved through rational debate. Each side can put its case and the one which is right should be the most convincing.
Such a procedure also ensures that the right questions are asked. Technocrats tend to get too bogged down in technical detail. They easily lose sight of the bigger picture. Having a broader debate among the public ensures that questions that are important to most, such as raising popular prosperity, receive a proper airing.
A good first step would be to abolish the independence of the Bank of England. New Labour's move to make it independent in the first place was always anti-democratic. Now the downside of taking politics out of economics should also be apparent.
Labels: economics, finance, Fund Strategy
Sunday, October 26, 2008
Welcome India’s lunar programme
India’s lunar programme should be welcomed. India is sending an unmanned space probe to the moon and in the course of it explore the possibility of bringing helium 3 – the ideal fuel for nuclear fusion – back to earth.
It was inevitable that many would sneer at such a mission when India is still mired in poverty. But it is wrong to counter-pose missions such as India’s space programme with economic development. On the contrary, the same bold ambitious attitude is required of both.
Randeep Ramesh, the Guardian’s south Asia correspondent, claims he is not against the mission in principle but sees it as precocious:
“India is a nation with a proliferating development needs – the global hunger index ranks it below Laos and Burkina Faso. Hundreds of millions of Indians still openly defecate in fields, at roadsides and beside train tracks. Common tropical diseases easily overwhelm the country's poorly-funded public health system. Its roads, railways and airports all need money and managerial overhauls.”
He misses the point that looking to the stars cultivates the right attitude to solve problems on earth too.
It was inevitable that many would sneer at such a mission when India is still mired in poverty. But it is wrong to counter-pose missions such as India’s space programme with economic development. On the contrary, the same bold ambitious attitude is required of both.
Randeep Ramesh, the Guardian’s south Asia correspondent, claims he is not against the mission in principle but sees it as precocious:
“India is a nation with a proliferating development needs – the global hunger index ranks it below Laos and Burkina Faso. Hundreds of millions of Indians still openly defecate in fields, at roadsides and beside train tracks. Common tropical diseases easily overwhelm the country's poorly-funded public health system. Its roads, railways and airports all need money and managerial overhauls.”
He misses the point that looking to the stars cultivates the right attitude to solve problems on earth too.
Labels: Asia, energy, india, inequality, science, technology
Collier for agricultural development
Paul Collier¸ professor of economics and director of the Centre for the Study of African Economies at Oxford University, has expanded on his arguments on the need to develop agriculture (see posts of 15 April 2008 and 22 August 2008) in an article in the latest issue of Foreign Affairs (November / December). I have previously criticised Collier in my review of his book, The Bottom Billion (see link on the left hand side of the homepage), but on this topic he talks much sense. His latest arguments summarises his argument as follows:
“The real challenge is not the technical difficulty of returning the world to cheap food but the political difficulty of confronting the lobbying interests and illusions on which current policies rest. Feeding the world will involve three politically challenging steps. First, contrary to the romantics, the world needs more commercial agriculture, not less. The Brazilian model of high-productivity large farms could readily be extended to areas where land is underused. Second, and again contrary to the romantics, the world needs more science: the European ban and the consequential African ban on genetically modified (GM) crops are slowing the pace of agricultural productivity growth in the face of accelerating growth in demand. Ending such restrictions could be part of a deal, a mutual de-escalation of folly, that would achieve the third step: in return for Europe's lifting its self-damaging ban on GM products, the United States should lift its self-damaging subsidies supporting domestic biofuel.”
“The real challenge is not the technical difficulty of returning the world to cheap food but the political difficulty of confronting the lobbying interests and illusions on which current policies rest. Feeding the world will involve three politically challenging steps. First, contrary to the romantics, the world needs more commercial agriculture, not less. The Brazilian model of high-productivity large farms could readily be extended to areas where land is underused. Second, and again contrary to the romantics, the world needs more science: the European ban and the consequential African ban on genetically modified (GM) crops are slowing the pace of agricultural productivity growth in the face of accelerating growth in demand. Ending such restrictions could be part of a deal, a mutual de-escalation of folly, that would achieve the third step: in return for Europe's lifting its self-damaging ban on GM products, the United States should lift its self-damaging subsidies supporting domestic biofuel.”
Labels: development, economics, food
Wednesday, October 22, 2008
Bush shares water bed with NGOs
A striking feature of yesterday’s speech by George Bush at the White House Summit for International Development was how much he agrees with NGOs such as Actionaid or Oxfam. The supposed conservative demagogue and the supposed radical activists are sleeping in the same bed. The following passage on water provision clearly illusrates this shared approach. None of them are campaigning for modern water utilities for the world’s poorer countries. Note the cute PlayPumps suggestion - children working treadle pumps:
“The United States works with partner nations to deal with the lack of clean water. Last year we dedicated nearly a billion dollars to improve sanitation and water supplies in developing nations. We're also wise enough to enlist the private sector to help, as well.
“I want to share with you an interesting program -- for two reasons, one, it's interesting, and two, my wife thought of it -- (laughter) -- or has actually been involved with it; she didn't think of it. But she thought of it for this speech. She has been involved with a public-private partnership called the PlayPumps Alliance. It brings together international foundations and corporations and the U.S. government. Now, catch this: PlayPumps are children's merry-go-rounds attached to a water pump and a storage tank. When the wheel turns, clean drinking water is produced. And as my good wife says, PlayPumps are fueled by a limitless energy source -- (laughter) -- children at play.
“The United States is working with our partners to install 4,000 pumps in schools and communities across sub-Sahara Africa, which will provide clean drinking water to as many as 10 million people. It's not that hard to help people get clean drinking water. It takes focus, imagination, and effort. And I call upon all nations around the world to join us. (Applause.)”
It is also worth noting that Bob Geldof was another speaker at the event.
“The United States works with partner nations to deal with the lack of clean water. Last year we dedicated nearly a billion dollars to improve sanitation and water supplies in developing nations. We're also wise enough to enlist the private sector to help, as well.
“I want to share with you an interesting program -- for two reasons, one, it's interesting, and two, my wife thought of it -- (laughter) -- or has actually been involved with it; she didn't think of it. But she thought of it for this speech. She has been involved with a public-private partnership called the PlayPumps Alliance. It brings together international foundations and corporations and the U.S. government. Now, catch this: PlayPumps are children's merry-go-rounds attached to a water pump and a storage tank. When the wheel turns, clean drinking water is produced. And as my good wife says, PlayPumps are fueled by a limitless energy source -- (laughter) -- children at play.
“The United States is working with our partners to install 4,000 pumps in schools and communities across sub-Sahara Africa, which will provide clean drinking water to as many as 10 million people. It's not that hard to help people get clean drinking water. It takes focus, imagination, and effort. And I call upon all nations around the world to join us. (Applause.)”
It is also worth noting that Bob Geldof was another speaker at the event.
Labels: America, celebrities, development, water
Tuesday, October 21, 2008
Inequality widening in developed countries
Income inequality is widening in most developed country according to a report on Growing Unequal by the Organisation for Economic Cooperation and Development (OECD). According to the press release the report:
“finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.”
Of course a widening of income inequality does not necessarily preclude a rise in absolute living standards for the poor.
“finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.”
Of course a widening of income inequality does not necessarily preclude a rise in absolute living standards for the poor.
Labels: inequality
Mobile phones raise productivity
The introduction to the following story shows how mobile phones can be used to raise productivity in poorer countries. I should emphasise I have no personal interest in Thomson Reuters!
“CHANDIGARH, India, Oct. 21 /PRNewswire/ -- Thomson Reuters today announced that it has expanded its ground-breaking mobile information service for India's agricultural community to Punjab. Reuters Market Light, which brings commodity prices, crop and weather data to Indian farmers via mobile phone, launched today with over 3,000 subscribers signed up in Punjab, the birthplace of Green Revolution in India.”
“CHANDIGARH, India, Oct. 21 /PRNewswire/ -- Thomson Reuters today announced that it has expanded its ground-breaking mobile information service for India's agricultural community to Punjab. Reuters Market Light, which brings commodity prices, crop and weather data to Indian farmers via mobile phone, launched today with over 3,000 subscribers signed up in Punjab, the birthplace of Green Revolution in India.”
Labels: development, food, technology
Monday, October 20, 2008
Chaos theory against growth
I have unwittingly gone straight from one anti-growth BBC television documentary to another. “High Anxieties: The Mathematics of Chaos”, a one-off documentary by David Malone, achieves this effect by muddying the difference between the natural world and the social world. It starts by outlining how the Newtonian worldview was a relatively simply linear one which allowed for human beings to increase their control over nature. But the development of what later became known as chaos theory from Henri Poincaré (1854-1912), a French mathematician, onwards showed the world was both more complex than previously assumed and non-linear. This set up a phoney debate between environmentalists who recognised the need for caution and limits and economists who believed in growth. It ended with James Lovelock, a veteran environmentalist, arguing that with climate change we could, metaphorically speaking, be at the edge of a cliff and unable to return to normality.
Chaos theory may well be a good way to understand non-linear natural systems such as climate. But the social world is fundamentally different from the natural one. Society is composed of human beings with the potential to act consciously to mould the world around them.
Chaos theory may well be a good way to understand non-linear natural systems such as climate. But the social world is fundamentally different from the natural one. Society is composed of human beings with the potential to act consciously to mould the world around them.
Labels: economics, environment, growth, science, television
Sunday, October 19, 2008
A revisionist history of American plenty
Have just caught up with the first episode of Simon Schama’s BBC television documentary series on “The American Future: A History”. It might more accurately be called “reinterpreting American history to fit today’s culture of low expectations”.
The episode on “American plenty” focused on how America has, sensibly in Schama’s view, come to accept the need for limits. It starts symbolically with the Colorado river and expresses the view that “the land of plenty is running dry”. The building of the Hoover Dam and Lake Mead was basically presented as an act of hubris. Although it enabled the irrigation of several states and the creation of cities such as Las Vegas it was running dry as a result of over-use and climate change. The message was clear: America has to learn to live with fewer resources.
Schama presented the debate between expansion and restraint as a constant theme of American history. Expansion might have brought some short term gains in living standards but it was also responsible for such acts as the “ethnic cleansing” of native Americans. He also presented the 1980 American presidential election as a contest between the calls for restraint of Jimmy Carter and the drive for expansion by Ronald Reagan. He ended with the correct point that both main candidates this time around accept the need for restraint.
Schama’s history is a classic piece of growth scepticism. It downplays the huge benefits of economic growth and exaggerates the scale of problems that need to be overcome.
The episode on “American plenty” focused on how America has, sensibly in Schama’s view, come to accept the need for limits. It starts symbolically with the Colorado river and expresses the view that “the land of plenty is running dry”. The building of the Hoover Dam and Lake Mead was basically presented as an act of hubris. Although it enabled the irrigation of several states and the creation of cities such as Las Vegas it was running dry as a result of over-use and climate change. The message was clear: America has to learn to live with fewer resources.
Schama presented the debate between expansion and restraint as a constant theme of American history. Expansion might have brought some short term gains in living standards but it was also responsible for such acts as the “ethnic cleansing” of native Americans. He also presented the 1980 American presidential election as a contest between the calls for restraint of Jimmy Carter and the drive for expansion by Ronald Reagan. He ended with the correct point that both main candidates this time around accept the need for restraint.
Schama’s history is a classic piece of growth scepticism. It downplays the huge benefits of economic growth and exaggerates the scale of problems that need to be overcome.
Labels: America, economics, environment, growth, television, water
America’s inequality debate
William Tucker argues in an article in the American Spectator that Paul Krugman’s contention that inequality is widening in America – a view that has influenced Barack Obama - is wrong. Tucker starts by pointing out that absolute living standards in America are rising:
“One out of every twelve Americans annually visits Disney World, making Orlando the nation's 9th busiest airport. With children in tow, the trip easily costs several thousand dollars yet the place is always packed. Eighty percent of American homes now have air conditioning. Almost everyone owns a television set. Seventy-five percent have a cell phone. The poorest in America -- the people in the bottom ‘quintile’ - live as well as the average American did in 1970. Calorie intake is now perfectly level across all classes in America - meaning we have reached the millennial dream where everyone has enough to eat” (original emphasis).
Tucker then goes on to examine the methodology favoured by Krugman to show it is wrong. He claims that Krugman’s argument is based on a 2001 paper (PDF) by Thomas Piketty and Emmanuel Saez published by the National Bureau of Economic Research. Tucker argues this paper distorts the true picture because it is based on individual tax returns. This means, for example, that teenagers on holiday jobs and babies with a college fund are counted towards the average. Average household incomes rose from $44,000 in 1980 to $57,000 in 2006, a 30 percent increase. The compound the effect the size of an average household fell over the same period.
I am not sure who is right in this debate but it is a topic worth examining.
“One out of every twelve Americans annually visits Disney World, making Orlando the nation's 9th busiest airport. With children in tow, the trip easily costs several thousand dollars yet the place is always packed. Eighty percent of American homes now have air conditioning. Almost everyone owns a television set. Seventy-five percent have a cell phone. The poorest in America -- the people in the bottom ‘quintile’ - live as well as the average American did in 1970. Calorie intake is now perfectly level across all classes in America - meaning we have reached the millennial dream where everyone has enough to eat” (original emphasis).
Tucker then goes on to examine the methodology favoured by Krugman to show it is wrong. He claims that Krugman’s argument is based on a 2001 paper (PDF) by Thomas Piketty and Emmanuel Saez published by the National Bureau of Economic Research. Tucker argues this paper distorts the true picture because it is based on individual tax returns. This means, for example, that teenagers on holiday jobs and babies with a college fund are counted towards the average. Average household incomes rose from $44,000 in 1980 to $57,000 in 2006, a 30 percent increase. The compound the effect the size of an average household fell over the same period.
I am not sure who is right in this debate but it is a topic worth examining.
Labels: America, inequality
Apocalyptic climate change exhibition in New York
The New York Times has a scary article on the new climate change exhibition at the American Museum of Natural History in New York. The Times argues that the exhibition is catastrophist in its tone:
“There are real issues to be considered here — questions about probabilities, alternative technologies, industrial evolution, relationships between developed and undeveloped nations — but they are never really explored. The main impression, instead, is of an almost religious urgency. ‘Repent!’ these displays seem to call out, ‘Repent! Before it’s too late!’.”
The article also includes a useful reference to a piece by Freeman Dyson in the New York Review of Books. Dyson sees environmentalism as a “worldwide secular religion” – although for him its rise in a welcome development.
The climate change exhibition is due to go to St Louis, Cleveland and Chicago, as well as Denmark, the United Arab Emirates, Spain, South Korea and Mexico.
“There are real issues to be considered here — questions about probabilities, alternative technologies, industrial evolution, relationships between developed and undeveloped nations — but they are never really explored. The main impression, instead, is of an almost religious urgency. ‘Repent!’ these displays seem to call out, ‘Repent! Before it’s too late!’.”
The article also includes a useful reference to a piece by Freeman Dyson in the New York Review of Books. Dyson sees environmentalism as a “worldwide secular religion” – although for him its rise in a welcome development.
The climate change exhibition is due to go to St Louis, Cleveland and Chicago, as well as Denmark, the United Arab Emirates, Spain, South Korea and Mexico.
Labels: America, apocalyptic, climate, environment, technology
Friday, October 17, 2008
Appearance on Al Jazeera television news
This evening I was interviewed by Al Jazeera on this week’s market and economic developments.
Labels: economics, film, media appearances, television
Thursday, October 16, 2008
New Scientist against growth
Just as the world appears to be on the edge of an economic downturn New Scientist (18 October) comes along with a special issue on “The folly of growth”. Its online edition edition is even bleaker with a headline of “How our economy is killing the earth”. It seems to be based on the hoary old argument that the economy is growing exponentially in a finite world. Contributors include many of the usual suspects such as Herman Daly, Susan George, Tim Jackson and Andrew Simms. Along with the customary references to books by Herman Daly, Paul Ehrlich, Al Gore and Jeffrey Sachs are others by Peter Dauvergne, Herve Kempf and James Gustave Speth.
If only the magazine would stick to science rather than recycling dodgy economics.
If only the magazine would stick to science rather than recycling dodgy economics.
Labels: book, economics, environment, growth, science
Wednesday, October 15, 2008
An Indian growth sceptic?
The backdrop to the 2008 Booker Prize Winner, White Tiger by Aravind Adiga, is evidently inequality and getting rich in India. I could be wrong but it sounds relevant to the growth sceptic discussion. The chairman of the award judges was Michael Portillo, a former Conservative politician in Britain, so it should not be surprising that the winning novel has a political theme.
Labels: book, india, inequality
Tuesday, October 14, 2008
Reference catch-up
A couple of belated references I have only just got round to adding in:
*The Economist (11 October) and Financial Times (10 October) have both published their annual surveys on the world economy to coincide with the IMF / World Bank meeting.
*Tim Worstall had a useful piece on the Guardian Comment is Free site making the basic but important point that environmentalists do not value the most precious resource of all: human time. It focused on the discussion of recycling in Britain.
*The Economist (11 October) and Financial Times (10 October) have both published their annual surveys on the world economy to coincide with the IMF / World Bank meeting.
*Tim Worstall had a useful piece on the Guardian Comment is Free site making the basic but important point that environmentalists do not value the most precious resource of all: human time. It focused on the discussion of recycling in Britain.
Labels: economics, environment
Bear article picked up
Real Clear Markets and Times Comment Central have picked up my article on yesterday’s spiked.
Labels: economics, finance, media appearances, spiked
Monday, October 13, 2008
Spiked article on market meltdown
Spiked has published my latest article on the financial crisis. It looks at “why the bear markets are talking bull”.
Labels: economics, finance, spiked
Sunday, October 12, 2008
My session at the Battle of Ideas
Just a reminder I will be speaking in the session growing pains: the pros and cons of economic dynamism at the Battle of Ideas festival at the Royal College of Art, London on 1-2 November. Other speakers in that session include Martin Wolf of the Financial Times, Paul Mason of BBC Newsnight and Ha-Joon Chang of Cambridge University.
Labels: development, economics, growth, speeches
Saturday, October 11, 2008
Media appearances
This week my recent Fund Strategy news analysis on the market meltdown (see 6 October post) was reproduced on Real Clear Markets while spiked ran an updated version of my review of Robert Reich’s Supercapitalism. I was also invited to appear on the Al Jazeera English TV station and Sky News but could not do either as I was in Dubai. It seems that I am at my most popular during a global financial crisis!
Labels: book, economics, finance, Fund Strategy, media appearances, review, spiked, television
Back from Dubai
I have not posted for a few days because I’ve been at a conference in Dubai and have also had to follow the market mayhem. I hope to write a piece about recent market developments over the weekend – arguing that share price movements are a poor indicator of economic health – but in the meantime a quick thought on Dubai.
Before visiting the emirate I was struck by how many people – most of whom have never been there – told me it was awful. No doubt there are genuine grounds for criticism. For example, its lack of democracy and its unequal treatment of migrant workers. But what most people seem to dislike is precisely what is good about it: its modernity. The critics seem to hate the fact that it has created gleaming, modern buildings out of what was until recently desert. In other words they are criticising precisely what is the best thing about Dubai. It is akin to an aristocrat, who perhaps is not as affluent as he once was, sneering at what they regard as the vulgarity of the new rich.
Before visiting the emirate I was struck by how many people – most of whom have never been there – told me it was awful. No doubt there are genuine grounds for criticism. For example, its lack of democracy and its unequal treatment of migrant workers. But what most people seem to dislike is precisely what is good about it: its modernity. The critics seem to hate the fact that it has created gleaming, modern buildings out of what was until recently desert. In other words they are criticising precisely what is the best thing about Dubai. It is akin to an aristocrat, who perhaps is not as affluent as he once was, sneering at what they regard as the vulgarity of the new rich.
Labels: development, economics, modernity, technology
Monday, October 06, 2008
Growth belies hysteria over downturn
The following is my news analysis from the latest Fund Strategy. It is an attempt to develop a framework to understand the current crisis
Given the pervasive sense of doom about the global economy at present it is worth taking a step back to work out what is really happening. In all the hysteria about plunging stockmarkets and failing financial institutions it is easy to lose a sense of perspective.
In broad terms there are several ways in which the impact of the market turmoil can be assessed. There are quantitative measures - the hard numbers so beloved of economists - and more qualitative ones. The latter involve asking what is the precise character of the problems.
It is also important to distinguish between what has already happened and what could happen. This may seem obvious but they are often muddled together in the anxious discussion.
In terms of economic indicators the striking thing is that, so far at least, the impact of the financial turmoil has been muted. Although the credit crunch started back in August 2007 the main developed economies are still - just about - growing.
The only significant developed country in technical recession - defined as two consecutive quarters of falling output - is Ireland. Denmark was in recession but has recently started to grow again.
This is not to say that the textbook definition of a recession is perfect or that things cannot get worse. It is likely that both the eurozone and Japan will soon be in recession.
But what is happening is that growth in many of the developed countries has fallen to about zero rather than there being a sharp drop in output. America is doing relatively well with GDP growth at an annual rate of 2.8% in the second quarter of 2008, although it did suffer a 0.2% fall in the final quarter of 2007.
In contrast, it is worth remembering that America's GDP fell by 30% and industrial output fell by 47% during the Great Depression of the 1930s. Even in the recession of 1981-2 America's output fell by 2%.
Nor are the forecasts for global growth in the coming period that bad. The official International Monetary Fund (IMF) forecasts for the world economy are not out till this week. But last week Michael Mussa, a former IMF chief economist, published economic forecasts last week on behalf of the highly respected Peterson Institute for International Economics in Washington DC.
Overall he forecasts 1.2% growth for the industrial countries in 2009 compared with 1.5% in 2008 and 2.5% in 2007. This is hardly rapid growth but it is a long way from a severe downturn.
The outlook for emerging economies, which today account for almost half of the world economy, is much better although they are expected to slow. Overall emerging economies are forecast to expand by 5.7% in 2009 compared with 6.4% this year and 7.4% in 2007.
Of course the forecasts for future growth could be wrong. To get a better idea of what is going on it is necessary to look more closely at the character of the slowdown. Often conventional economists rely too much on the numbers and appreciate too little the peculiar character of the economic situation. In this respect there are several factors to consider.
This is a consumption-led downturn. What is happening is that people's disposable income is being squeezed by rising energy and food prices while credit is becoming more expensive as a result of the financial turmoil. This is the reverse of a "classic" recession in which problems tend to start in the industrial sector and then spread to the rest of the economy.
In this context it is worth remembering how the Great Depression of the 1930s developed. The initial decline in America's economic output was already apparent in the summer of 1929 - that is before the stockmarket crash. The crash itself started in October 1929 while banking panics did not begin for another year, in the autumn of 1930.
In contrast the banking crisis this time around started about a year ago, stocks have suffered more recently and a fall in output is still not certain. Not only is the magnitude of the downturn not comparable but the character of the crisis was entirely different.
A risk-based financial system. The financial system has been reforged as more of a mechanism for transferring risk than a channel for capital flows. Under the old model if a mortgage lender suffered bad debt problems it could go under.
Under the new model of finance the mortgage lender will have most likely repackaged its debt and passed it on to other institutions. This means the lender is less exposed to risk but there is a greater chance of "contagion" when things go wrong. Such developments as the rise of derivatives and securitisation help to diversify risk but they can also mean problems can spread more easily.
Lack of political leadership. A chronic lack of leadership on both sides of the Atlantic has exacerbated the crisis. In Britain it was most apparent with Alistair Darling, the chancellor, saying the economy was facing its worst crisis for 60 years then backtracking.
In America it was even more glaring with the House of Representatives voting against the first attempt to pass the bail-out plan.
Strong emerging economies. On the positive side, the strong growth of the developing countries gives added resilience to the global economy.
Even though their growth looks set to slow it is still moving forwards at a reasonable pace. Developing economies are also less dependent on the industrial world than in previous slowdowns.
Overall the world economy looks set for a slow, painful squeeze rather than a violent downturn. Financial markets are likely to continue to be volatile but, unless the credit markets seize up in panic, the real economy should continue to move forward, if at a slow pace. Developing countries should outperform the advanced economies by a wide margin.
Given the pervasive sense of doom about the global economy at present it is worth taking a step back to work out what is really happening. In all the hysteria about plunging stockmarkets and failing financial institutions it is easy to lose a sense of perspective.
In broad terms there are several ways in which the impact of the market turmoil can be assessed. There are quantitative measures - the hard numbers so beloved of economists - and more qualitative ones. The latter involve asking what is the precise character of the problems.
It is also important to distinguish between what has already happened and what could happen. This may seem obvious but they are often muddled together in the anxious discussion.
In terms of economic indicators the striking thing is that, so far at least, the impact of the financial turmoil has been muted. Although the credit crunch started back in August 2007 the main developed economies are still - just about - growing.
The only significant developed country in technical recession - defined as two consecutive quarters of falling output - is Ireland. Denmark was in recession but has recently started to grow again.
This is not to say that the textbook definition of a recession is perfect or that things cannot get worse. It is likely that both the eurozone and Japan will soon be in recession.
But what is happening is that growth in many of the developed countries has fallen to about zero rather than there being a sharp drop in output. America is doing relatively well with GDP growth at an annual rate of 2.8% in the second quarter of 2008, although it did suffer a 0.2% fall in the final quarter of 2007.
In contrast, it is worth remembering that America's GDP fell by 30% and industrial output fell by 47% during the Great Depression of the 1930s. Even in the recession of 1981-2 America's output fell by 2%.
Nor are the forecasts for global growth in the coming period that bad. The official International Monetary Fund (IMF) forecasts for the world economy are not out till this week. But last week Michael Mussa, a former IMF chief economist, published economic forecasts last week on behalf of the highly respected Peterson Institute for International Economics in Washington DC.
Overall he forecasts 1.2% growth for the industrial countries in 2009 compared with 1.5% in 2008 and 2.5% in 2007. This is hardly rapid growth but it is a long way from a severe downturn.
The outlook for emerging economies, which today account for almost half of the world economy, is much better although they are expected to slow. Overall emerging economies are forecast to expand by 5.7% in 2009 compared with 6.4% this year and 7.4% in 2007.
Of course the forecasts for future growth could be wrong. To get a better idea of what is going on it is necessary to look more closely at the character of the slowdown. Often conventional economists rely too much on the numbers and appreciate too little the peculiar character of the economic situation. In this respect there are several factors to consider.
This is a consumption-led downturn. What is happening is that people's disposable income is being squeezed by rising energy and food prices while credit is becoming more expensive as a result of the financial turmoil. This is the reverse of a "classic" recession in which problems tend to start in the industrial sector and then spread to the rest of the economy.
In this context it is worth remembering how the Great Depression of the 1930s developed. The initial decline in America's economic output was already apparent in the summer of 1929 - that is before the stockmarket crash. The crash itself started in October 1929 while banking panics did not begin for another year, in the autumn of 1930.
In contrast the banking crisis this time around started about a year ago, stocks have suffered more recently and a fall in output is still not certain. Not only is the magnitude of the downturn not comparable but the character of the crisis was entirely different.
A risk-based financial system. The financial system has been reforged as more of a mechanism for transferring risk than a channel for capital flows. Under the old model if a mortgage lender suffered bad debt problems it could go under.
Under the new model of finance the mortgage lender will have most likely repackaged its debt and passed it on to other institutions. This means the lender is less exposed to risk but there is a greater chance of "contagion" when things go wrong. Such developments as the rise of derivatives and securitisation help to diversify risk but they can also mean problems can spread more easily.
Lack of political leadership. A chronic lack of leadership on both sides of the Atlantic has exacerbated the crisis. In Britain it was most apparent with Alistair Darling, the chancellor, saying the economy was facing its worst crisis for 60 years then backtracking.
In America it was even more glaring with the House of Representatives voting against the first attempt to pass the bail-out plan.
Strong emerging economies. On the positive side, the strong growth of the developing countries gives added resilience to the global economy.
Even though their growth looks set to slow it is still moving forwards at a reasonable pace. Developing economies are also less dependent on the industrial world than in previous slowdowns.
Overall the world economy looks set for a slow, painful squeeze rather than a violent downturn. Financial markets are likely to continue to be volatile but, unless the credit markets seize up in panic, the real economy should continue to move forward, if at a slow pace. Developing countries should outperform the advanced economies by a wide margin.
Labels: economics, finance, Fund Strategy
Panic reaction causes widespread damage
The following is my latest comment from Fund Strategy.
An unfortunate feature of the discussion of the financial crisis is the tendency to blame greedy individuals for the problems. This is in contrast to discussions in the past when such difficulties were seen as more systemic.
More than ever before the responsibility for the crisis is pinned on individual "speculators" and "spivs". To the extent that broader factors are blamed it is generally that the regulatory system has allegedly given too much leeway to such people.
This is also the significance of the frenzied debate about short selling. It does not seem to be based on objective analysis of how important that particular technique is in exacerbating volatility. Rather, it represents a moralistic attack on greedy individuals.
This assault on individual speculators spans the political spectrum. It is as much the domain of conservative politicians and commentators as it is of those who see themselves as on the left.
The problem with this view is that it mystifies what is going on. Rather than provide a rational explanation of recent developments it reduces them to a moral fable.
In fact the most striking feature of the contemporary financial markets is how they have been reshaped by risk aversion. As argued in Cowardly Capitalism, my book on global finance, in 2001 the financial markets have changed fundamentally in character. Whereas financial markets used to be primarily about acting as an intermediary for capital they have increasingly become a way of transferring risks. Developments such as the rise of derivatives and securitisation can be understood in this context.
This development has the paradoxical effect of diversifying risk in the short term while at the same time increasing the dangers of risk spreading. It means that individual lenders can, for example, reduce their risk by removing potentially problematic loans from their balance sheets. But if the loans do go bad it can spread a contagion effect far further than it would otherwise have gone.
This climate of risk aversion has also exacerbated problems in the markets more generally. Politicians have reacted in a panicky way and banks have become reluctant to lend to each other.
The contemporary culture of fear rather than individual greed explains the current crisis.
An unfortunate feature of the discussion of the financial crisis is the tendency to blame greedy individuals for the problems. This is in contrast to discussions in the past when such difficulties were seen as more systemic.
More than ever before the responsibility for the crisis is pinned on individual "speculators" and "spivs". To the extent that broader factors are blamed it is generally that the regulatory system has allegedly given too much leeway to such people.
This is also the significance of the frenzied debate about short selling. It does not seem to be based on objective analysis of how important that particular technique is in exacerbating volatility. Rather, it represents a moralistic attack on greedy individuals.
This assault on individual speculators spans the political spectrum. It is as much the domain of conservative politicians and commentators as it is of those who see themselves as on the left.
The problem with this view is that it mystifies what is going on. Rather than provide a rational explanation of recent developments it reduces them to a moral fable.
In fact the most striking feature of the contemporary financial markets is how they have been reshaped by risk aversion. As argued in Cowardly Capitalism, my book on global finance, in 2001 the financial markets have changed fundamentally in character. Whereas financial markets used to be primarily about acting as an intermediary for capital they have increasingly become a way of transferring risks. Developments such as the rise of derivatives and securitisation can be understood in this context.
This development has the paradoxical effect of diversifying risk in the short term while at the same time increasing the dangers of risk spreading. It means that individual lenders can, for example, reduce their risk by removing potentially problematic loans from their balance sheets. But if the loans do go bad it can spread a contagion effect far further than it would otherwise have gone.
This climate of risk aversion has also exacerbated problems in the markets more generally. Politicians have reacted in a panicky way and banks have become reluctant to lend to each other.
The contemporary culture of fear rather than individual greed explains the current crisis.
Labels: economics, finance, Fund Strategy
Friday, October 03, 2008
Me on global equality on Worldbyes
Worldwrite’s latest Worldbytes television programme includes an item with me talking about global inequality. Other stories include challenging China bashing, a scientist talks about waste and an alien’s take on carbon footprints.
Labels: china, development, environment, footprint, inequality, media appearances, Worldwrite
Free market take on development economics
William Easterly, probably the world’s best-known free market inclined development economist, gives his view of the emergence of development economics in an article in the Wall Street Journal:
“Development economics -- the study of how poor countries can become rich -- was forever cursed by the timing of its birth after the Great Depression. That gave development economics a bias toward relying on governments, rather than markets, to create growth. The early development economists ignored a century and a half of European and North American development through individual enterprise, remembering only that their governments forcefully intervened to stimulate output during the 1930s.
“What is widely agreed to be the seminal article in development economics appeared in 1943, calling poor countries "depressed areas." The Economic Journal article by Paul Rosenstein-Rodan, "Problems of Industrialization of Eastern and South-Eastern Europe," concluded that a fourth of the population of these countries was unemployed, and the solution rested in ceding development to the state. Development comes from state-planned investment in all sectors at once, the "Big Push," not reliance on private investors: "An individual entrepreneur's knowledge of the market is . . . insufficient," because he cannot have all the data "available to the planning board."
“Similarly, the U.N.'s Depression mindset prompted them to ask an expert commission led by Sir Arthur Lewis in 1950 to prepare a report on unemployment in underdeveloped countries. Its report concluded that "economic progress depends to a large extent upon the adoption by governments of appropriate . . . action," and that political leaders must have a strategy for such growth, reflecting "the facts of each particular case."
No doubt Easterly is right to argue that when development economics emerged it was a product of its time. At that point state intervention was widely popular. However, he is wrong to argue that America and Western Europe emerged as a result of individual enterprise - the state played a substantial role.
More importantly it is no sadly no longer true to define economics as “the study of how poor countries can become rich”. At best the current perspective can be defined as “the study of how poor countries can become just slightly less poor”.
“Development economics -- the study of how poor countries can become rich -- was forever cursed by the timing of its birth after the Great Depression. That gave development economics a bias toward relying on governments, rather than markets, to create growth. The early development economists ignored a century and a half of European and North American development through individual enterprise, remembering only that their governments forcefully intervened to stimulate output during the 1930s.
“What is widely agreed to be the seminal article in development economics appeared in 1943, calling poor countries "depressed areas." The Economic Journal article by Paul Rosenstein-Rodan, "Problems of Industrialization of Eastern and South-Eastern Europe," concluded that a fourth of the population of these countries was unemployed, and the solution rested in ceding development to the state. Development comes from state-planned investment in all sectors at once, the "Big Push," not reliance on private investors: "An individual entrepreneur's knowledge of the market is . . . insufficient," because he cannot have all the data "available to the planning board."
“Similarly, the U.N.'s Depression mindset prompted them to ask an expert commission led by Sir Arthur Lewis in 1950 to prepare a report on unemployment in underdeveloped countries. Its report concluded that "economic progress depends to a large extent upon the adoption by governments of appropriate . . . action," and that political leaders must have a strategy for such growth, reflecting "the facts of each particular case."
No doubt Easterly is right to argue that when development economics emerged it was a product of its time. At that point state intervention was widely popular. However, he is wrong to argue that America and Western Europe emerged as a result of individual enterprise - the state played a substantial role.
More importantly it is no sadly no longer true to define economics as “the study of how poor countries can become rich”. At best the current perspective can be defined as “the study of how poor countries can become just slightly less poor”.
Labels: development, economics
