Thursday January 20th 2011
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- Chinese foreign policy: Discord
- The Tucson shootings: The blame game
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- East Jerusalem: The Shepherd's lost sheep
- Comparing US states with countries: US equivalents
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- Charlemagne: Mr China goes shopping
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I don't think it's a great idea to point to monthly movements in trade surplus as a sign of rebalancing (or not for that matter). And that's not even considering possible seasonal adjustments or possible Chinese government fudging before a scheduled meeting with US officials.
I do think it is possible we have hit a structural adjustment point, where the rising income levels and tightening labor supply (due to lessening of rural labor slack and demographic changes) will inhibit the government's ability to artificially suppress inflation through financial manipulation. That would mean that their ability to affect the real exchange rate would be significantly less than in the last fifteen years.
An interesting synthesis. My memory of Glaeser's work was that it mostly exonerated interest rates via the central bank, I don't remember it similarly exonerating a lowering of credit standards, though I could be wrong.
In any case, the combination of Acemoglu's work and Gorton's is rather powerful. Indeed, if you through in the capital exports from the trade imbalance with both the oil states and China, who maintain a hard peg to the dollar, one can see why collateral was in such high demand.
In reference to your claims on skills supply/demand, I put a good deal of stock in Paul Romer's claims that skilled workers often act as complimentary inputs and increasing the supply of skilled workers, may increase the demand for more skilled workers. Certainly the idea of a lump of skilled demand for a given economy ought to be seriously questioned.
Alright, this inter-modal one's for Ryan.
Here's train, car, airplane, boat
http://ngrams.googlelabs.com/graph?content=train%2Ccar%2Cairplane%2Cboat...
Just tried Germany, France, Japan, China, and India. Poor France, fading steadily for two hundred years. Germany only spikes up when we have to fight them. And the database must have a lot of British books because India beat China up until about last Tuesday.
I think it's mainly down to lower zero bound nuttiness. The operations of QE2 are not very different than those of its normal operations except that the cover of targeting a short term rate is gone. The Fed would do better to explicitly target inflation expectations at around 2% or nominal GDP.
Simply printing money with no stated goal is unsettling for understandable reasons. With the short term interest rate goal off the table some other target should be announced in order to allow political and market actors to have some anchor to judge the policy's effect.
Note, I think there is a typo in the post. You include Niall Fergusson as an 'interesting thinker.' He is neither of those things.
I am not sure why Avent thought the criticism would end. Much the same market reaction
Was evident in the post Obama election in anticipation of the stimulus. I also
Remember a bit of criticism in the last two years.
In any case, the alarmists are wrong, I think. But the legacy of QE2 is likely to be
much like the stimulus, too small to work, but just big enough to bring political
discredit.
Avent: Of course, reading markets can be a fool's game. Sometimes they just move about randomly
You probably should have stopped there. For example, if I remember correctly the market predicted that Tim Geithner would be the greatest Treasury Sec. since Hamilton.
That is because unemployment rate is the wrong economic variable to look at for correlating to election outcomes. Percent change in real per capita incomes is a much better predictor of electoral outcomes:
http://www.stat.columbia.edu/~cook/movabletype/mlm/house2010election22se...
http://www.salon.com/technology/how_the_world_works/2010/10/19/china_pic...
Reminds me of when the Chinese government used shoot missiles off the coast of Taiwan right before the elections. Could somebody send these guys a copy of 'How to Wins Friends and Influence People?'
Hedge- Be careful with those numbers, the Chinese government often buys bonds through third parties in order to hide their purchases. The recent end of direct Chinese purchases of Japanese bonds, coupled with a symmetrical increase in British is probably a case in point.
The Oil states also make US bond purchases through British finance houses.
Also, in response to Yglesias's point, the Finance Minister of Chile recently expressed concern that due to China's strict capital controls the brunt of inflation and exchange rate adjustment would be born by other developing nations such as Mexico, Thailand, Brazil, and India. It is likely that QE2 will be Win-Win-Lose. And those countries will be much quicker to close up their capital accounts than the US.
Avent: And I think we should understand that China's currency policy is not primarily responsible for America's high unemployment rate
That view only holds if one believes that large current account deficits had no correlation to the severity of the financial crisis suffered. A view not shared by Ben Bernanke, for example, or the empirical evidence. There is also the matter of false equivalency here since there is unlikely to be any effort in the US to sterilize the domestic expansionary effect of QE2, quite the opposite in fact.
One interesting note, commentators who are concerned about the international spillover effects of QE2 tend to understand the international trade and financial arrangements as a part of Bretton Woods II. Avent and other QE2 enthusiasts, on the other hand, never mention Bretton Woods II.
So, one point that may be answered beginning this November is whether or not BWII is in fact an important functional framework to understand the global economy. And just how smooth, or painful, an adjustment to a new framework will be if it is.
I don't disagree with your analysis, but price to rent ratios are a much better indicator than price to income. While sectoral spending tends to be stable, it need not be. Anyone looking at education or health spending in 1910 by income would make tremendously false predictions about their level in 2010, the same with food only in the opposite direction.
Renting, on the other hand, is a close substitute for owning and should be affected by the same regulatory, demographic, and technological trends. If Britain's housing appreciation is truly a product of supply restraint, it should show up in rent increases as well, while interest rates moves would not.
Your analysis, by the way, is equally a reason to bet against significant increases in the BoE's interest rates anytime soon.
KPATOS- Except, of course, the single best predictor of economic growth over the last hundred years has been investment in education. The main shame is that we wait until a persons most formative years in cognitive and social development are over before we make any public investment, assuming the parents are all competent and invested in the process.
One can certainly argue for reform of the system, but arguing to stop investing in it is arguing for poverty.
I agree with you that Krugman tends to skip over the potential downside risk of more confrontational policy, but his opponents do much the same in advocating inaction.
The best option would be for a coordinated action including revaluation by China and easing by the Fed over a reasonable time frame. But that may not be available.
All very sensible. Though, of course, if you allow the Chinese subsidies to go unchallenged you're ceding the field and, thereby, betting that electric cars will not be the winner. You're, in effect, already picking the loser domestically.
In the words of the great Canadian philosopher, "If you choose not to decide, you still have made a choice."
Define the problem indeed.
The reasoning behind in-kind benefits tends to be paternalistic. Why do we have WIC instead of giving poor new young mothers and poor mothers-to-be a cheque and hearty good luck?
Because there is an underlying belief that those mired in chronic poverty, in addition to bad luck, tend to lack 'human capital' as the economists euphemize. If we did not believe this we would be much less concerned with neighborhood economic diversity, we'd just plunk supermarkets in the middle of poor neighborhoods and be done with it.
If the problem is entirely a lack of opportunities then cash will fix it, if the problem is deeper such as a lack of human capital in-kind services and things that improve peer effects are called for. There is almost certainly a mix of the two cases among those in poverty, which one you thinks predominates will sway your policy preference.
Still, I can still see a case for allowing developers to buy out of the programs if the buyout is set at the average price for a housing unit in a non-poor neighborhood. But, politically, this may be difficult as those in middle class neighborhoods will tend to complain about being saddled with a disproportionate 'burden' of affordable housing (clearly letting you know where they think the problem lies).
Any chance they'll cut the banks loose? Who owns the non-depositor debt on the Irish Banks books?
An election always looms.
Tzimisces, while I like the alliterative ring of a "Dreadnoughts for Donuts" program, I think you second suggestion is much more practical and geo-strategically appropriate.