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 FT.com – 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

Yow!

“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