Economists Behaving Irrationally

Check out this entry by Emmanuel Santos on The Cusp that talks about evidence supporting the view that individuals behave irrationally most of the time, which holds true even among economists the so-called "rationality hawks" of academia. Wild!

Global Ramifications of Aussie Mining Tax Debate

Beyond BRICs in in this entry highlights the global impact of an Aussie mining super profits tax and the important design features in the proposal that do not receive media attention.

(Update) A Perverse Reform Outcome

Bill Easterly a development economist who uses empirical reasoning to refute much of the prevailing wisdom in economic circles debunks the argument of Rodrik (based on an IADB report) regarding the perverse contribution of structural adjustments in Latin America to productivity growth in the decades that followed reform.

He does so in passing as he makes a "clumsy" sports analogy between the World Cup and economic competition among nations. His claim is that in such a tournament type setting, skill trumps luck. The analogy is clumsy in the sense that the length of time covered in the analysis plays a part in determining whether developing the "right" skills in soccer (analogous to developing the "right" policies and institutions) pays off in the end.

Easterly claims that the IADB report's time periods were too short. He means that randomness or "luck" may have played a part in making it appear that the Washington Consensus failed to deliver productivity improvements in the Latin American region. In stating this, Easterly implies that a different time horizon in the report would have revealed the long-term impacts of import substitution policies on the (under)performance of economies in the region.

The New Minerals Race

From a blog maintained by the Financial Times called Beyond BRICs comes this report on the minerals race happening in Afghanistan between India and China. The "ore on terror" as comedian Jon Stewart refers to it means a whole new world of hurt for the people of Afghanistan. 

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Ore on Terror
www.thedailyshow.com
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Stephen Colbert says that this gives the US (and its coalition partners) justification for "staying the course" (see below). He makes reference to the "resource curse" in his usual parodying style.

The Colbert Report	Mon - Thurs 11:30pm / 10:30c
The Word - $tay the Cour$e
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Reich on the Yuan float

If you've been living under a rock (or your new iPad hasn't arrived yet and you are on a no-news protest until it comes in) you may have missed Chinese government's decision to untie the Yuan from ther US Dollar and float its national currency. former US Secretary of Labor Robert Reich, in his own inimitable style, offers his take on the decision and what it means for the rest of us here.
  

A Perverse Reform Outcome

Dani Rodrik of Columbia University featured the following chart in his blog. It was taken from a report by the Inter-American Development Bank entitled The Age of Productivity. It covers Latin America's experience with industry policy from the 1950s to the 2000s.

Rodrik's comments regarding this chart are worth quoting in full:

Ignore the intermediate period of debt crisis (1975-90) and focus on the differences between the periods of import-substitution (IS, 1950-1975) and Washington Consensus (WC, 1990-2005).  What do we see?

1. Labor productivity under IS grew at a rate that is double the rate under WC.
2. The rate of labor productivity growth within sectors (the component identified as “within” in the chart) was comparable under the two policy regimes.
3. The worse overall performance under WC is accounted entirely by the fact that there was much less desirable structural change -- labor moving from low to high-productivity activities -- under WC than under IS.

For all its faults, IS promoted rapid structural change.  Labor moved from agriculture to industry, and within industry from lower-productivity activities to higher-productivity ones.  So much for the inherent inefficiency of IS policies!
Under WC, firms and industries were able to accomplish a comparable rate of productivity growth, but they did so by shedding (rather than hiring) labor.  The displaced labor went not to higher-productivity activities, but to less productive lines of work such as informality and various services.  In other words, the WC ended up promoting the wrong kind of structural change.
This account reinforces the centrality of structural change in driving rapid economic growth. It should also cause us to be wary of productivity studies that focus on what is happening within manufacturing alone.  After all, productivity within manufacturing can be stellar, but if manufacturing or other high productivity sectors as a whole are rapidly shedding labor, economy-wide productivity performance will be disappointing. 

  

Niall Ferguson on the Sovereign Debt Crisis

Niall Ferguson, Laurence A. Tisch Professor of History at Harvard University and William Ziegler Professor at Harvard Business School and author of a handful of very good books including The Acsent of Money, Empire: How Britain Made the Modern World, and Colossus: The Rise and Fall of the American Empire, offers (care of Business Insider - and no, I don't have a financial stake in their wellbeing) a forty-odd frame slide presentation explaining the forces at play that have brought the developed world to the place we find ourselves in today.

Read and let us know if you agree or disagree.
  

So THAT's what a qualified depression looks like...

A while ago on the Ning discussion forum I highlighted a chart over at Business Insider (care of the good people at Calculated Risk) that demonstrated the unemployment trajectories associated with all of the significant recessions in the United States over the last sixty-five years.

Well, the Calculated Risk folks have updated the chart, and written about the continuing bad here.  When America sneezes, Kleenex stocks go through the roof.
     

Hungary the next Greece? Think again

The recent run on Wall Street was partly fuelled by a statement issued by a senior party official on the possibility that Hungary would be the next European economy after Greece to suffer a financial meltdown due to its burgeoning national debt. As this article from the magazine Foreign Policy contends, there are incentives in place that would motivate the new Hungarian government from distorting the true picture of its economy.
   

How the world sees us

Business Insider's "Chart of the Day", is always worth a look - you can get it delivered directly to your inbox through a free subscription, or follow it on Twitter (see the box near the top on the right-hand side of the page).  However, it is usually US-centric in its concerns.

So imagine my surprise when I started going through my email this morning and saw this, a long-term comparison of house-price values between the US and Australia over the last 120 years.  Not as surprised as when I saw the disparity between the "overheated" US market and Australia's positively Vesuvian rise over the last ten years.  When you're living it (paying a mortgage, foregoing some discretonary spending), it seems normal.  When you look from someone else's point of view, suddenly it gets very scary.