Monthly Archives: February 2010

Tea leaves

A hic­cup? Or a sign that import­ed defla­tion—via low-priced Chi­nese imports—will now start to slow?

‘Labour avail­abil­i­ty is tight right now in Guang­dong com­pared to oth­er regions,’ said Paul Hussey, chief exec­u­tive of Strix. The Isle of Man com­pa­ny, which dom­i­nates the glob­al mar­ket for ther­mo­sta­t­ic con­trols on elec­tric ket­tles, main­tains most of its man­u­fac­tur­ing oper­a­tions in the provin­cial cap­i­tal, Guangzhou.” Extract from — Labour short­age hits Chi­na export recov­ery

Accord­ing to the FT, China’s eco­nom­ic stim­u­lus pro­gram has increased invest­ment and employ­ment oppor­tu­ni­ties in the hin­ter­land provinces, reduc­ing the avail­abil­i­ty of labor in the coastal man­u­fac­tur­ing hubs.

If this is not mere­ly a tem­po­rary effect of the stim­u­lus but the start of a long-term shift of indus­tri­al pro­duc­tion away from China’s coast it would not be a sur­prise to find that it was ori­ent­ed more strong­ly toward sup­ply­ing domes­tic demand than export mar­kets. Trans­port and han­dling costs, for exam­ple, would make domes­tic mar­kets a pri­or tar­get.

Discounting the Intergenerational Report

[H]ow often does the IGR [Inter­gen­er­a­tional Report], in five pages vaunt­ing pub­lic invest­ment in infra­struc­ture, use the term ‘cost ben­e­fit analy­sis’? Not once. Clear­ly, sug­gest­ing that pub­lic invest­ment only be under­tak­en when the ben­e­fits exceed the costs is no longer polit­i­cal­ly cor­rect.” Extract from Hen­ry Ergas in The Aus­tralian

Hen­ry Ergas is—as ever—right on the mon­ey. The 2010 IGR has been writ­ten like a gov­ern­ment press release. It does not seri­ous­ly eval­u­ate the evi­dence nor even offer cost-ben­e­fit analy­sis of the cur­rent government’s infra­struc­ture pro­grams (that it prais­es) in the light of the changes it projects.

What can we make, for exam­ple, of an IGR whose chap­ter on ‘Cli­mate’ fails even to men­tion the impacts of migra­tion pol­i­cy or pop­u­la­tion growth when eval­u­at­ing the effi­ca­cy and eco­nom­ic impacts of a pro­posed emis­sions cap/objective/trading scheme?

Why do we need an IGR that mere­ly regur­gi­tates what the Gov­ern­ment has already claimed about its own poli­cies? An inter-gen­er­a­tional report must be an inde­pen­dent and rig­or­ous review of the evi­dence about pol­i­cy out­comes to be of any use in the nec­es­sary debates about grow­ing our wealth or max­imis­ing our oppor­tu­ni­ties. The cur­rent edi­tion is a poor effort from such a tal­ent­ed group (Trea­sury).

EU ramps up farm subsidies

EU farm subsidy spend has grown rapidly


The lat­est offi­cial noti­fi­ca­tion to the WTO shows that total EU sup­port lev­els have returned to lev­els not seen since the pre­vi­ous decade, with €90.7 bil­lion of sup­port being report­ed to the glob­al trade body for 2006/2007 — up from €75.6 bil­lion in 2002, when sup­port was at its low­est in the last fif­teen years.” Extract from ICTSD

So-called ‘Green’ box sub­si­dies were grow­ing dra­mat­i­cal­ly (see the graph) in 2006/7 as the more dis­tort­ing ‘Amber’ and ‘Blue’ box spend declined. There’s no WTO con­straint on the total farm sub­sidy spend, only only spend­ing in a trade-dis­tort­ing way, essen­tial­ly by manip­u­lat­ing prices using tax­es, quo­tas or import restric­tions.

Shorting common sense

I’ve pre­vi­ous­ly not­ed that the pol­i­cy of ban­ning short-sell­ing looked just like the sort of hunch dri­ven reg­u­la­tion that hurts both the econ­o­my and com­mon sense. Its pro­hi­bi­tion ofspec­u­la­tion on price falls was Canute-like.

Now here’s some strong evi­dence that bans such as ASIC’s had adverse impacts on pre­cise­ly fac­tor most need­ed in a cri­sis of mar­ket con­fi­dence: liq­uid­i­ty.

The evi­dence sug­gests that the knee-jerk reac­tion of most stock exchange reg­u­la­tors around the globe to the finan­cial cri­sis – impos­ing bans or reg­u­la­to­ry con­straints on short-sell­ing – was at best neu­tral in its effects on stock prices. The impact on mar­ket liq­uid­i­ty was clear­ly detri­men­tal, espe­cial­ly for small-cap and high-risk stocks. More­over, it slowed down price dis­cov­ery” Extract from Short-sell­ing bans in the cri­sis: Alessan­dro Beber and Mar­co Pagano

Chinese savings rate & the gender balance

Fas­ci­nat­ing. A strong, explana­to­ry cor­re­la­tion appears between very high house­hold sav­ings rates and the male-gen­der imbal­ance.

…[E]conomists and pol­i­cy­mak­ers have looked with con­cern to the large Chi­nese cur­rent account sur­plus and large US cur­rent account deficit, or glob­al imbal­ances, much of their dis­cus­sion has focused on chang­ing exchange rate pol­i­cy. None of the dis­cus­sion about glob­al imbal­ances has brought fam­i­ly-plan­ning pol­i­cy or women’s rights to the table, because many do not see these issues as relat­ed to eco­nom­ic pol­i­cy. Our research sug­gests that this is a seri­ous omis­sion.” Extract from The mys­tery of Chi­nese sav­ings: Shang-Jin Wei

Shang-Jin’s hypoth­e­sis? Sav­ings reflect com­pe­ti­tion in a mar­riage mar­ket with a sig­nif­i­cant deficit of females. I’m impa­tient to see the pub­lished paper.

Variable winds

Asked about The Guardian’s change of tack, a spokesman said: ‘The Guardian edi­to­r­i­al line is that glob­al warm­ing is hap­pen­ing and caused by human activ­i­ties, but that does not mean we are blind to con­tra­dic­to­ry evi­dence” Extract from Media cools on glob­al warm­ing | The Aus­tralian