Tyler Cowen's Blog, page 468
August 20, 2012
Recent figures on capacity utilization
Industrial production picked up in July after two months of slight growth, the Federal Reserve said Wednesday in the latest reading that shows the economy in the third quarter got off to a decent start. Industrial production picked up 0.6% in July after slender 0.1% monthly gains in May and June, the Fed said. The Fed had previously reported a 0.4% gain in June and a 0.2% drop in May. The 0.6% gain was as expected in a MarketWatch-compiled poll of economists. Capacity utilization rose to 79.3% in July from 78.9% in May – the highest level since April 2008. Even so, it’s still 1% below its average from 1972 to 2011.
The link is here. It suggests there is excess capacity, but not in wild amounts. Elsewhere, in China:
Capacity utilisation has dropped from about 80% before the crisis to a mere 60% in 2011. That compares with about 78.9% for the US currently for total industry (which is not very high by US’s historical average), and 66.8% at the financial crisis trough according to the Federal Reserve. In other words, current capacity utilisation in China appears to be even lower than that of the US during the 2008/09 financial crisis.
Beware all Chinese numbers, but still that cannot be taken as a good sign. Note that the real estate bubble probably is not fundamental to the Chinese economic crisis (though it is a problem), but excess capacity is.
August 19, 2012
To the point (Austro-Chinese business cycle theory)
“There is persuasive evidence to conclude that the Chinese economy is actually growing at just 4 or 5 per cent right now based on a composite of other indicators,” says Patrick Chovanec, a business professor at Tsinghua University in Beijing.
“Of China’s 9.2 per cent GDP growth in 2011, 5 percentage points came from investment which means that if China builds just as many roads, bridges, condos and villas as it built last year and no more it will knock five points of this year’s GDP growth. Growth is dependent on ever-rising levels of investment in an environment where that investment is not creating adequate returns.”
That is from the FT. Does this paragraph reassure you?:
Officials and state media reports have suggested local governments will be able to compensate for slumping exports and real estate construction by embarking on a new infrastructure building binge.
Racism by Political Party
It is undeniably the case that racist Americans are almost entirely in one political coalition and not the other.
Chris Hayes, Up w/ Chris Hayes, August 18, 2012.
Here is data asking whites the question Do you Favor Laws Against Interracial Marriage (this is from 2002, the latest year available for this question).
Favor Laws Against Interracial Marriage
Democrat
Ind
Repub
Other
TOTAL
YES
11.9
9.6
11.5
5
10.8
NO
88.1
90.4
88.5
95
89.2
Here is data asking whites whether they agree with the sentiment that Blacks Shouldn’t be Pushy.
Blacks Shouldn’t Be Pushy
Democrat
Ind
Republican
AGREE STRONGLY
14.9
14.2
15.8
AGREE SLIGHTLY
20.4
20.6
26.6
DISAGREE SLIGHTLY
30.2
28
25.9
DISAGREE STRONGLY
34.5
37.2
31.7
Finally from 2008 here is data asking whites whether they would vote for a black for President. (Row: racprec, column partyid, filter: race(1) year(2008)).
Would Vote for Black President
STRONG DEMOCRAT
NOT STR DEMOCRAT
NOT STR REPUBLICAN
STRONG REPUBLICAN
YES
92.4
94
93.9
94.7
No
7.6
6
6.1
5.3
It is true that there are more differences across party lines on policy questions such as on affirmative action, again with a mix in both parties but with more Republicans than Democrats opposing. I don’t consider these types of policy preferences to be grounds for calling someone a racist, however.
It is undeniable that some Americans are racist but racists split about evenly across the parties. No party has a monopoly on racists.
August 18, 2012
What I’ve not been reading
These books have been sent to me, they appear to be of high quality, but they are still sitting in my pile:
1. Nicolai Foss and Peter Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm.
2. Peter Brown, Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350-550 AD.
3. Barry Cunliffe, Britain Begins.
4. David R. Montgomery, The Rocks Don’t Lie: A Geologist Investigates Noah’s Flood.
5. Evan F. Koenig, Robert Leeson, and George A. Kahn, editors, The Taylor Rule and the Transformation of Monetary Policy.
6. Martin B. Gold, Forbidden Citizens: Chinese Exclusion and the U.S. Congress: A Legislative History.
Solve for the equilibrium
…the Romney campaign went up with an ad just days after the Ryan pick, hitting Obama on the $716 billion figure.
“You paid into Medicare for years: every paycheck. Now, when you need it, Obama has cut $716 billion dollars from Medicare. Why? To pay for Obamacare,” the ad says. “The Romney-Ryan plan protects Medicare benefits for today’s seniors and strengthens the plan for the next generation.”
How the GOP ticket talks about Medicare is vitally important in Florida in particular, a competitive swing state with a high retirement-age population. Ryan is visiting the state for the first time today since he was named to the ticket, and will go to The Villages — billed as the largest retirement community in the world — with his mom.
But instead of wading into the policy details with which Ryan is most comfortable, Republican strategists said it would be far smarter for the Wisconsin lawmaker to focus on the Obama move to remove money from the Medicare trust fund and portray Republicans as the program’s savior.
The article is here. You can try a second exercise, called “Solve for the Equilibrium Ten Years from Now.”
Too Central to Fail
A lot of attention has been put on “too big to fail,” the idea that big is risky. What really matters in a complex network system, however, is not bigness per se but connection centrality. In a network the liabilities of institution A become the assets of institution B whose own liabilities become the assets of institution C. An institution with high connection centrality can spread distress throughout a large portion of the network.
Inspired by Google’s PageRank, the authors of a new paper create DebtRank, a measure of connection centrality. The vertical axis in the following diagram shows DebtRank (centrality) the horizontal axis asset shows size relative to the total network and the color indicates fragility/leverage. Institutions such as Wachovia, RBS and Barclays were relatively small but because of their centrality and fragility they imposed big risks on the system.
You can find the paper here but do check out the web page of the author group which includes much more material including these animations. Mark Buchanan over at Bloomberg also offers useful comment.
One point to note is that the authors calculated centrality using ex-post data from the Fed. Using this measure, DebtRank clearly signaled danger prior to the crisis and did so earlier than other metrics. In order to do this in real time, however, much more transparent and timely data would be necessary. The fact that centrality doesn’t correlate all that well with bigness, however, indicates that without this data the problem of monitoring risk is even more difficult than it appears.
August 17, 2012
Who gained the most from the euro?
Looking at the growth of real incomes over the first few years of the Euro’s existence, it is hard to argue against the idea that the peripheral countries should be taking more pain now. Core countries have had to accept a decline in real living standards, and it seems unrealistic to expect them to finance an increase in living standards for others.
Here is much more. I don’t agree with all of their methods of assessment, but the piece makes some important (and valid) points.
For all the talk about how much German has benefited from the euro, we learn:
What Donovan and co found is that the lowest-income sections of the more “core” countries saw negative real disposable income growth, while those at the other end of the income scale saw incomes rise still further. In other words, in the core countries, the rich got richer, the poor got poorer.
In other contexts, this pattern is not usually considered a benefit at all. Brad Plumer adds comment.
Posner on Skidelsky and Keynes and leisure time
This review is a fun rant about whether we would be better off with lower incomes and more leisure time. Here is one excerpt:
…I well remember as recently as the 1980s how shabby England was, how terrible the plumbing, how shoddy the housing materials, how treacherously uneven the floors and sidewalks, how inadequate the heating and poor the food — and how tolerant the English were of discomfort. I recall breakfast at Hertford College, Oxford, in an imposing hall with a large broken window — apparently broken for some time — and the dons huddled sheeplike in overcoats; and in a freezing, squalid bar in the basement of the college a don in an overcoat expressing relief at being home after a year teaching in Virginia, which he had found terrifying because of America’s high crime rate, though he had not been touched by it. I remember being a guest of Brasenose College — Oxford’s wealthiest — and being envied because I had been invited to stay in the master’s guest quarters, only to find that stepping into the guest quarters was like stepping into a Surrealist painting, because the floor sloped in one direction and the two narrow beds in two other directions. I recall the English (now American) economist Ronald Coase telling me that until he visited the United States he did not know it was possible to be warm.
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