Search the Site

Posts Tagged ‘Economy’

Want to Win Olympic Medals? Fix Your Economy First

Steven Perlberg of Business Insider quotes a private research note by ConvergEx’s Nick Colas on the correlation between Olympic success and economic strength. “The Winter Olympics are a useful backdrop for case studies on the relationship between athletic performance and economic progress in emerging markets around the world,” writes Colas. “We’ve analyzed the medal count by country since the inaugural Winter Games in 1924, and indeed the results show that athletes rarely make it to the podium until their respective countries experience economic progress and stability.”  A few case studies from Colas’s note:

  • Japan’s Winter Olympic performance history tells a post-WWII recovery story.  The country competed in three Winter Games (1928, 1932 and 1936) before it won its first medal – silver – in 1956.  Japanese athletes didn’t earn any additional medals until the 1972 games, which the country hosted, and have been consistently making an appearance on the podium since 1980.  Japan won its first medal when it was taking off as an emerging economy and getting its economic act together following WWII.  Industrialism in the country picked up rapidly following the war, and the Olympic medal consistency coincided with the consumption boom in the 1980s. 


Can Economic Growth Continue Forever? Of Course!

Tim Harford, who writes the Financial Times‘s  “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy. 

Can economic growth continue forever? The internet seems to be full of physicists explaining that economists are clueless on this topic. There’s the late Albert Bartlett’s hugely popular videos – or Tom Murphy’s article “Exponential Economist Meets Finite Physicist.” The key issue is that exponential growth will eventually take you to impossible places. And by eventually, the physicists mean “sooner than we expect.”

Exponential growth is any kind of growth that compounds like interest payments. The classic example is the rice on the chessboard. According to an old story, the inventor of the game of chess was offered a reward by a delighted king. He requested a modest-sounding payment: one grain of rice on the first square of the chessboard, two on the second, four on the third, doubling each time. Yet this is actually a colossal amount—many times the annual rice production of the entire planet.


Are Recessions Like Prison Camps or Baby-sitting Co-ops?

Tim Harford, who writes the Financial Times‘s “Undercover Economist” column, has appeared on our blog many times. This guest post is part of a series adapted from his new book The Undercover Economist Strikes Back: How to Run or Ruin an Economy. 

Robert A. Radford studied economics at Cambridge University, and worked at the International Monetary Fund. In between, he spent half the war in a German prison camp, and on his release wrote an article, “The Economic Organization of a P.O.W. Camp.” It gives a surprising insight into economic recessions.

The building blocks of the P.O.W. camp economy were parcels of food and cigarettes that the prisoners received from the Red Cross. These parcels were standardized—everybody got the same, beyond the occasional package from home. Occasionally, the Red Cross received bumper supplies, or ran short; in those circumstances everybody enjoyed a surplus or a shortage. Naturally enough, while prisoners had equal rations, they did not have identical preferences. The Sikhs didn’t have much use for their rations of beef or razor blades, for example; the French were desperate for more coffee; the English wanted more tea.


How Does the Economy Actually Work? Ray Dalio Explains

Ray Dalio is the founder of Bridgewater Associates, known to some as “the world’s richest and strangest hedge fund.” He has appeared on this blog before, talking about the upsides of negative feedback. Now Dalio has put together a beguiling 30-minute video that tries to explain how the U.S. economy actually works. Don’t be ashamed if you find out a lot you didn’t know — as Dalio makes clear, most policy makers don’t know much about the economy either.


How Politicians Plug Electric Cars

A new study by Bradley W. Lane, Natalie Messer-Betts, Devin Hartmann, Sanya Carley, Rachel M. Krause, and John D. Graham on why governments promote electric vehicles finds that the environmental benefits of the vehicles have little to do with politicians’ motives for supporting the industry. Perhaps not surprisingly, “Government Promotion of the Electric Car: Risk Management or Industrial Policy?” (gated) finds that the economic benefits of the industry are the primary motivator for most governments. From the press release:

Contrary to common belief, many of the world’s most powerful nations promote the manufacture and sale of electric vehicles primarily for reasons of economic development – notably job creation – not because of their potential to improve the environment through decreased air pollution and oil consumption.

This is among the main findings of a study by researchers at the Indiana University Bloomington School of Public and Environmental (SPEA) and University of Kansas that analyzed policies related to electric vehicles (EVs) in California, China, the European Union, France, Germany, and the United States – political jurisdictions with significant automotive industries and markets for EVs.

“Billions of dollars are being invested despite doubts that some express about the viability of electricity as a propulsion system,” said John D. Graham, SPEA dean and co-author of the study. “The objective of many of these national and sub-national governments is to establish a significant position – or even dominance – in the global marketplace for these emerging, innovative new technologies.”


The Wintry Economics of the Arab Spring

Most of the coverage of the turmoil in Egypt and Syria (the latter of which has decreased in proportion to an increase in coverage of the former) focuses on political, religious, and social factors. These are all obviously important. But once you read David P. Goldman‘s op-ed in the Wall Street Journal about the economic underpinnings of the Arab revolutions, you may see things differently. A few key excerpts:

Sometimes economies can’t be fixed after decades of statist misdirection, and the people simply get up and go. Since the debt crisis of the 1980s, 10 million poor Mexicans—victims of a post-revolutionary policy that kept rural Mexicans trapped on government-owned collective farms—have migrated to the United States. Today, Egyptians and Syrians face economic problems much worse than Mexico’s, but there is nowhere for them to go. Half a century of socialist mismanagement has left the two Arab states unable to meet the basic needs of their people, with economies so damaged that they may be past the point of recovery in our lifetimes.

This is the crucial background to understanding the state failure in Egypt and civil war in Syria. It may not be within America’s power to reverse their free falls; the best scenario for the U.S. is to manage the chaos as best it can.


Why Is No One Talking About the Stock Market's All-Time High?

U.S. stock markets* are flirting with all-time highs (it may happen today) but I am hearing and reading very little about it. Why is that?

I can think of a few possible reasons, and am eager to hear yours.

1. After the spectacular meltdown of 2007-2009, a lot of people are generally gun-shy and/or inattentive.

2. Since so many people sold into the teeth of the meltdown, and stayed on the sidelines since, a new high is to them relatively bad news.

3. Because the economy itself is not quite roaring, a roaring stock market doesn’t seem legit (unless, of course, you consider it a leading indicator, which it usually is).

4. Just “getting back” to an all-time high from more than five years ago is, at best, a muted victory.

All that said, I remain surprised by the lack of chatter.

*The Dow and S&P 500, at least; the NASDAQ is still a very long way off its tech-bubble high.


Why America’s Economic Growth May Be (Shh!) Over (Ep. 95)

With the Presidential debate finished, we are officially in the final lap of America’s second-favorite spectator sport. (Yes, football is better than politics.) Of all the talking that Barack Obama and Mitt Romney will do by Nov. 6, you can bet that a great deal of their breath will be expended on economic matters. Because that’s what the President of the United States does, right — runs our economy?

Well, actually, no. The President has far less influence over the economy than people tend to think — as we’ve pointed out not once, or twice, but three times.

That, of course, won’t stop the candidates from talking about their plans to “fix” or “heal” or “restore” our economy — all of which imply that we are in an economic doldrums that is sure to pass. But what if it doesn’t? What if the massive economic growth the U.S. has experienced through most of our history is a thing of the past?

That’s the topic of our latest Freakonomics Radio on Marketplace podcast. (You can download/subscribe at iTunes, get the RSS feed, or listen via the media player in the post.)


Worried About Unemployment? Find a "High Touch" Profession

Writing for Slate, Ray Fisman (who’s been on the blog before) explains why “the bottom 20 percent of American families earned less in 2010 than they did in 2006, the year before the recession began”:

There are two broad shifts that account for much of this decline: globalization and computerization. From T-shirts to toys, manufacturing jobs have migrated to low-wage countries like Vietnam, Bangladesh, and of course China. Meanwhile, many of the tasks that might have been done by middle-income Americans employed as bookkeepers or middle managers have been replaced by spreadsheets and data algorithms.

Fisman argues that in order to succeed in the new economy, American workers need to shift away from construction and manufacturing jobs to “high touch” professions. “If jobs are being lost to low-wage Indians and computer programs, then what today’s worker needs is a set of skills that offers the personal touch and judgment that can’t be provided by a machine or someone 12 time zones away,” writes Fisman.


Portugal's Budget Cut: Public Holidays

The BBC reports that Portugal will be cutting 4 of its 14 public holidays as an “austerity measure”:

Two religious festivals and two other public holidays will be suspended for five years from 2013.

The decision over which Catholic festivals to cut was negotiated with the Vatican.

It is hoped the suspension of the public holidays will improve competitiveness and boost economic activity.


Raghuram Rajan on the Recession

In Foreign Affairs, Raghuram Rajan (who’s appeared on this blog before) writes about the causes and lessons of the Great Recession:

In fact, today’s economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable.


A Tourist in Cuba

Chris Turner explores Cuba’s current economic situation through the lens of a Canadian tourist:

Canada is probably the second most important economic ally Cuba has after Venezuela, which supplies more than 60 percent of the island’s oil. (China exports more stuff to Cuba, but the Chinese don’t show up daily by the multiple charter-flight-loads to hand out gifts and pour hundreds of millions of dollars into the Cuban economy.) Cuba is our largest trading partner in the whole of Central America and the Caribbean. We export a range of commodities to Cuba — sulphur, wheat, copper wire — and we are the second-largest buyer of Cuban exports, particularly sugar, nickel, fish, citrus fruits, and tobacco. That’s over $1 billion in total trade.


In Defense of Two-Handed Economists

My latest Bloomberg View column with Betsey Stevenson is now online:

Here’s something you don’t often hear an economist admit: We have very little idea where the economy will be next year.

Truth be told, our best guesses just aren’t very good. Government forecasts regularly go awry. Private-sector economists and cutting-edge macroeconomic models do even worse.

Our objective isn’t to beat up economists. Rather, we want to make the point that when we recognize our shortcomings, we’re forced to confront the enormous uncertainty that lies ahead.  And appropriate humility about the economy changes how we think about policy.


White House Economist Alan Krueger Answers Your Questions

We recently solicited your questions for Alan Krueger, chairman of the President’s Council of Economic Advisers. Below are Krueger’s answers, in which he talks about the Bush tax cuts, the American Jobs Act, and why NFL coaches should go for it on fourth down. Thanks to everyone for participating.

Q. The recovery from the recent recession has been great for corporate profits, but not so great for employment. I think that this is a natural result of the fact that when demand is insufficient, corporations focus on improving productivity rather than on producing more goods and services.

What can be done to increase employment? –Adam


What can Eeyore and Tigger Teach Bernanke About Monetary Policy?

What can Eeyore and Tigger tell us about the current state of monetary policy?  A lot.  At least that’s the argument that Betsey Stevenson and I make in our new column for Bloomberg View.

The Fed is now engaged in the game of “forward guidance”—they’ve announced that they anticipate keeping interest rates at zero, until late 2014—and hope that it will shape the recovery.  But what effects will this announcement have?  To figure this out, let’s visit two of the greatest ever Fed Chairmen: Eeyore and Tigger.


Bring Your Questions for White House Economist Alan Krueger

The Council of Economic Advisers last week released its annual Economic Report of the President.  The CEA’s report, which dates back to 1947, aims to provide “an overview of the nation’s economic progress” while presenting “the Administration’s domestic and international economic policies.”  This year’s report lays out the “defining issue of our time”:

One of the fundamental tenets of the American economy has been that if you work hard, you can do well enough to raise a family, own a home, send your kids to college, and put a little money away for retirement. That’s the promise of America.

The defining issue of our time is how to keep that promise alive. We can either settle for a country where a shrinking number of people do very well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.


Of Booze and Bags

The Austin City Council is about to outlaw the paper and plastic bags you get at the grocery store. Retailers don’t like the ban. One particularly clever argument by liquor retailers is that it will encourage people to buy less — not a good thing, so they argue, when unemployment is high. 

This is a bad argument for so many reasons: 1) Booze demand and bag provision are at most only a tiny bit complementary — one can always carry the six-pack out by hand; 2) To argue that high unemployment is a reason for anything other than macro stimuli is totally self-serving.  I think all universities should hire more economists to reduce unemployment (although others may differ). The best argument against the ban is that it is not efficient—the environmental improvements don’t justify the extra resource cost of schlepping reusable bags into stores.  I don’t find even that argument to be very persuasive.

(HT to TC).


It’s Not the President, Stupid (Ep. 65)

Our latest Freakonomics Radio on Marketplace podcast is called “It’s Not the President, Stupid.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) The gist: it’s time to admit that the U.S. economy doesn’t have a commander-in-chief.

Over the years, we’ve regularly visited the question of how influential the president of the U.S. really is. This segment focuses on the president’s influence over the economy — which, if you believe polling data, will be the central concern for many voters as the 2012 election unfurls.

In this Marketplace segment, you’ll hear from Austan Goolsbee, the University of Chicago economist who has served President Obama as both campaign adviser and chairman of the Council of Economic Advisers:

GOOLSBEE: I think the world vests too much power, certainly in the president, probably in Washington in general for its influence on the economy, because most all of the economy has nothing to do with the government.


System D: The Shadow Economy is the Second Largest in the World

In 2009, the OECD concluded that half the world’s workers (almost 1.8 billion people) were employed in the shadow economy. By 2020, the OECD predicts the shadow economy will employ two-thirds of the world’s workers.
This new economy even has a name: “System D.”

In a new article (accompanying photoessay here) for Foreign Policy, Robert Neuwirth explains:

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of “l’economie de la débrouillardise.” Or, sweetened for street use, “Systeme D.” This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.


Paying the Rent After the Pink Slip

A recent national survey indicates that “[o]ne in three Americans would be unable to make their mortgage or rent payment beyond one month if they lost their job.” Even higher-income households would find themselves in trouble quickly: “Ten percent of survey respondents earning $100K or more a year say they would immediately miss a payment.”
Even more Americans — 61 percent — wouldn’t be able to pay the rent or mortgage after five months of unemployment. Given the current state of the economy, it’s perhaps wise to heed Suze Orman‘s 2008 advice on this blog — she recommended an eight-month emergency savings fund.


The End is Nigh: Let's All Move to Barter Village!

Let’s face it: things aren’t great right now. The economy is on its back. Our political system is a mess. The South is stuck in a record-breaking drought. And Tiger Woods has apparently forgotten how to play golf. Clearly, the apocalypse is upon us.
Where to turn in such dark times? How about Barter Village. Located in a tiny castle (yes, castle) in northeast Arkansas, Barter Village is an “experimental educational project” where people who’ve been particularly hurt by the down economy can go to learn survival skills such as organic farming, sewing and, yes, bowhunting. Villagers hunt, fish and learn to dress their own game.

After providing for their own needs, Barter Village residents take their excess produce, meats, and handmade goods to the nearby castle market. Items sold there generate a meager income to help cover the costs of their stay at Barter Village. Any excess is divided evenly among the villagers to help fund their own survival community.


The Markets are Mad: Is High-Frequency Trading Making Things Worse?

Thursday’s 423-point gain by the Dow marked the first time ever that the industrial average has posted four consecutive days of 400-point moves. Less than two weeks into August, there have already been six trading days that saw triple-digit swings this month. While the recent sell-off has been swift (the Dow is off more than 12% since July 21), it’s also been choppy. Volatility is back in a big way. The VIX Index, also known as the fear index, has shot up recently, nearly doubling over the last week. The VIX tracks the expected price of a range of protective S&P 500 options over the next 30 days.
While your average investor generally hates volatility, there are those who feed off it, namely high-frequency traders. These are the guys who use complex algorithms and super-fast computers to scour the markets for tiny price differentials, often executing trades in microseconds (one millionth of a second). The more volatile the market, the easier it is for them to make money jumping in and out of stocks across exchanges.
Now, it’s not quite fair to lump all high-frequency traders together. They don’t all necessarily do well in volatile markets. While some are killing it, there are certainly others who’ve been getting killed; it all depends on their strategy. But generally, traders need two things: 1) a price, and 2) movement. Recently, they’ve had plenty of both.


Worried About the Latest Jobs Report? You Should Be

The latest employment numbers have already caused plenty of consternation. But they are actually worse than you may realize.
Most attention focuses just on the headline number, which says that only 18,000 new jobs were created last month. But the employment report actually contains many indicators, which rarely line up perfectly. The problem is that this time they do.


Why Does the South Still Commemorate the Civil War, But Not the North? Peter Coclanis Answers Your Questions

Last week we took stock of the Civil War commemoration situation: namely that the South seems to be taking more pride than the North in commemorating the 150th anniversary of the war’s start. We wondered why that was, particularly when it was the South that was left so economically devastated by the war. For some answers, we turned to Peter Coclanis, a professor of economic and business history at the University of North Carolina, whose research focuses on the American South in the eighteenth and nineteenth centuries. Coclanis offered some intriguing thoughts on the economic legacy of the Civil War in the South, and why many southerners are still so keen to remember it. We also solicited your questions for him. Now, Coclanis gives you his answers.


Google Makes a Bad Economist

I love Google. But it’s not a very good economist. Type “unemployment rate,” and here’s what it yields:
The first of these links is from Google, and it tells you that the unemployment rate is 8.7%. The second is to the Bureau of Labor Statistics, which tells you that it is 9.1%.
Technically, both are correct. But you are better off not relying on the Google number. You see most economic discourse is about seasonally-adjusted data—the unemployment rate adjusted to take account of the usual seasonal ups and downs. But Google links instead to the non-seasonally-adjusted data, which virtually no one pays attention to. And this is why its little graph wiggles up and down so much.


We're Halfway to a Lost Decade

Our current slump began a lot earlier than you think. Which means that we’re halfway to a lost decade.
Many people date the financial crisis as beginning when Lehman collapsed in September 2008. But the economy was already in recession. The NBER reckons the recession began in December 2007. But look closely, and you’ll see that it may have begun a year earlier.
That’s the case I made in my latest Marketplace commentary, which you can listen to here. The point is more easily made with a simple graph. (Click inside the story for a bigger version).
The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that the red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ. I’ve also plotted the peak, trough, and latest reading of each measure.


Freakonomics Quorum: Why, During a Bad Economy, Does Crime Continue to Fall?

The FBI recently announced that the number of violent crimes fell 5.5 percent in 2010, with property crimes falling 2.8 percent. This extends the dramatic reduction in crime that began in the 1990s. The Times declared that criminologists were baffled by the news, and Levitt was baffled by their bafflement:

Apparently, everyone expected crime to rise because of the weak economy, which I find strange, because there is zero evidence of any relationship between violent crime and the economy, and a relatively weak one between property crime and the economy. Plus, relative to 2009, the economy in 2010 was substantially improved.

We spent an entire chapter in Freakonomics exploring the factors that do and do not seem to have brought down the rate of violent crime in the U.S. In short, factors that matter include: number of police; number of prisoners; changes in drug markets; and the availability of abortion. And those that don’t seem to much matter: the economy; innovative policing strategies; most gun laws; capital punishment; and demographics.
There is of course no reason for anyone to have complete confidence in the arguments we presented, even if they were more empirical than most arguments about crime. Still, as Levitt said in the excerpt above, it is surprising that so many people seem wedded to the view that the economy drives violent crime even when the evidence supports the contrary.
So, given the amount of bafflement on the issue, it seemed like a good time to convene a Freakonomics Quorum.


Why Does the South Still Commemorate the Civil War, But Not the North? Bring Your Questions for Historian Peter Coclanis

This year marks the 150th anniversary of the start of the American Civil War. Celebrations, commemorations, remembrances of all kinds are planned over the next four years. Twenty-two states are getting in on the action. But the majority of events, and the people displaying the most zeal for the occasion, are in the South.

In December, a mostly white crowd turned out in their antebellum best for the Secession Ball in Charleston, S.C. In February, the Sons of Confederate Veterans descended on the state capitol in Montgomery, Ala., to cheer the reenactment of Jefferson Davis being sworn in as president of the Confederacy. My home state of Virginia, where a third of all Civil War battles were fought, is spending millions in hopes of cashing in on the four-year event. In the South, the Civil War is still big business, which got me thinking: why are the ones who lost the war trying the hardest to remember it? The Civil War devastated the South, and plunged much of the region into a century of poverty and economic stagnation, the effects of which are still apparent in many areas. The South’s relationship with the “Lost Cause” is obviously complicated, but where else in history do we see the losers commemorating a war while the winners, by comparison, largely ignore its anniversary?


Why Is Failure a Sign of a Healthy Economy? A Guest Post by Tim Harford

I’ve known Tim Harford for a while; to me, he’s one of the best writers who also happens to be an economist (although in recent years he’s spent more time as a writer than a practicing economist, which may explain everything). Disclosure: Harford profiled Steve Levitt back when Freakonomics came out, and he’s had the two of us on his BBC radio show More or Less.
He writes a Financial Times column (on Saturdays) called “Undercover Economist,” and that was the title of his first book, published in 2005 (and just updated). His latest book, out this week, is called Adapt: Why Success Always Starts with Failure. It examines the incremental, adaptive ways by which success is achieved across a number of fields. Here’s a taste, in the form of a guest post. It’s very good, and to my mind, here’s the best passage:

[W]here’s the churn in education policy or healthcare policy or policing? These are difficult problems. Why would we expect them to be solved the first time? They are surely no simpler than the business problems which seem so prone to experiment and error.