Monthly Archives: January 2012

Whither China, Redux

Ambrose Evans-Pritchard has a great post about the recent sluggishness in Chinese consumption. Imports from certain countries are down, internal freight is declining, with property values and energy usage also slipping.

 

 

There is a widespread misunderstanding that China’s households can easily come to the rescue by cranking up spending because they have the world’s highest savings rate, and consumption is just 36pc of GDP.

Prof Michael Pettis from Beijing University puts that one to rest. The Chinese do not have a much higher personal savings rate than other East Asians. The reason why consumption is so low is that wages are low, the worker share of GDP is low, and the whole economy is massively deformed and tilted towards excess investment.

This is deeply structural. It cannot be changed with a flick of the fingers, and contains the seeds of its own destruction.

China is a marvellous country. I wish them the best. But they have not found the secret formula for perpetual uber-growth.

No such formula exists.

via China’s very mysterious data – Telegraph Blogs.

 

There’s been a lot of talk in the last year or two about the potential for a slowdown in the Chinese real estate sector, and implications for the broader economy. Part of the problem, as Evans-Pritchard points out, is that the data that China releases regarding internal events is often spotty or contradictory. Given that constraint, and the fact that the end result of an investment glut might be worse than a “normal” contraction, how confident do you feel that an expansionary fiscal policy in 2008-2009 resolved intrinsic risks?

 

The problem with a “too small” stimulus is that you get an initial economic boost, but when the stimulus expires the economy slumps back down, as indeed happened in mid 2011.  Ideally a stimulus employs some idle labor, stops it from depreciating, and tides those workers over until they can look for other jobs in fundamentally better economic conditions.  Those last few words are important.  If conditions are not improving soon, the ability of the stimulus to “buy time” for those workers isn’t worth much.  The workers get laid off from the government projects and their reemployment prospects are no better than to begin with.  We end up having spent a lot of money to postpone our adjustment problems, rather than achieving takeoff.

via The size of fiscal stimulus vs. the length of fiscal stimulus — Marginal Revolution.

 

While China is obviously not the US, especially in terms of political constraints or moderately-liquid assets needed to attempt additional stimulus as a response, the answer to the question should probably be “not very.”

 

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Incentives matter, terrorism edition

JIEDDO is doing some really cool stuff with anti-IED technology, but it seems more often than not it’s just a rather expensive, low-effectiveness R&D program.

“We’re not going to solve the IED problem inside Afghanistan,” a senior U.S. military official told ABC News last week. “If we don’t go after the supply, we’re playing defense.”

That’s exactly what JIEDDO’s looking to do. The agency’s new call for research, first spotted by InsideDefense.com, asks for “additives and methods to disrupt or discourage [bomb] manufacturing from fertilizer.”

via Pentagon Looks to Sabotage Pakistan’s Bomb Supply | Danger Room | Wired.com.

That being said, this is probably closer to an ideal strategy; I’m reminded of this paper exploring costs of suicide bombers. We think a lot about the intent or motivations of terrorists, but not as much about what rationality means for them. There are costs born by organizations or individuals, and if we can devise some method of increasing that cost, we’re better off. So far, JIEDDO has been a very pricey game of Whack-a-Mole, but if the focus shifts to an offensive strategy that might change.

One data point is not a narrative

Or at least, not a terribly compelling one:

I’ve mentioned before my beef with the so-called puzzle that “[insert African nation here] and [insert Asian nation here] had the same income per person in 1950, and yet look at the difference now.”

Income levels in 1950 were not, it seems, the best guide to why some countries became rich and why some stayed poor. The understudied field of development history has much to teach us.

via The historical roots of East Asia’s growth miracle | Chris Blattman.

I think a lot about the problems of descriptive versus predictive data, and this comparison exemplifies that tension. Michael Spence’s The Next Convergence relies on a well-meaning optimism, indicating frequently that Asian growth is a test case for African development. This is probably an imperfect analogue; institutions matter, history matters, geography matters. There are a lot of factors that aren’t captured in GDP or per capita income.

Maybe Asian nations which have exhibited rigorous growth have better transportation networks, or closer trading partners, or superior soil types, or a more educated labor pool than their equivalent-GDP cohort in 1950. Saying Singapore started in the same position as Equatorial Guinea ignores the successes of one and the problems of the other.