Over the fold, my column in today’s Fin, which deals with the latest “don’t worry, be happy” theory on the US (but not Australian) current account deficit.
A dark matter of deficits
AFR 22/12
Given the unwillingness of the Bush Administration to offer any policy response to the massive growth in US budget and current account deficits, it is not surprising to observe a steady stream of theories explaining that such deficits can be sustained indefinitely.
The latest put forward by Ricardo Hausmann and Fredrico Sturzenegger of the Kennedy School of Government at Harvard, uses the catchy idea of ‘dark matter’, a reference to the unseen matter cosmologists believe is necessary to explain the observed properties of the universe.
Such hypothetical forms of matter have a patchy history. Successes include the prediction, by the Big Bang theory, of the cosmic microwave background radiation, discovered in 1963. In the eighteenth century, on the other hand, physicists posited the existence of a substance called phlogiston, with negative mass, suppose to be emitted in the process of combustion. In reality, substances gained mass during combustion because they combined with oxygen.
Another hypothetical substance was the luminiferous ether of the 19th century supposed to carry light waves. Einstein’s theory of relativity eliminated any need for the ether and the idea has been discarded.
Hausmann and Sturzenegger use the idea of dark matter in a couple of ways. The first (fairly uncontroversial) is to argue that while the official accounts show that the US is a large net debtor, the fact that the income account has shown a small surplus for most of the past two decades suggests that the value of US assets overseas is understated. The unmeasured excess is referred to as dark matter.
The second idea is to argue that, since the income balance has been roughly stable over the past five years, the massive trade deficits of that period must have been offset by steadily increasing exports of dark matter, totalling around $3 trillion. Hausmann and Sturzenegger suggest that this dark matter consists of such things as seignorage on US currency, the expertise embodied in operations like EuroDisney and the capacity of the US to provide implicit insurance services.
Something like this must be true if it is assumed that the willingness of foreign lenders to support the trade deficit is the rational outcome of efficient markets. In this sense, the ‘dark matter’ hypothesis is very like phlogiston. No-one would believe in its existence if it were not necessary to make the theory work.
In 1999, after all, the US economy was riding high. The dotcom mania was in full swing and a stream of books promised a golden future, with an unending boom and the Dow rising to 36 000. The US government had balanced its books and was projecting a surplus of $US5 trillion over the period to 2010.
Is it really plausible that the last five years, with the collapse of the dotcom boom, the emergence of chronic government budget deficits and weak employment growth have increased international faith in the US to the tune of $3 trillion, as claimed by Hausmann and Sturzenegger?
There have been some important positive developments in the US economy in this period, such as strong growth in output per hour. But this ought to have led to an inflow of equity capital. In fact, foreign investors have generally withdrawn equity capital from the US in this period.
There are some technical difficulties with the ‘dark matter’ analysis. A crucial analytical assumption is that assets should be valued according to the average value of the returns they generate. In fact, however, the riskiness of returns is equally important. The visible transactions in the national accounts show that the US has built up a large stock of short-term debt, which offers relatively low risk in the absence of an exchange rate collapse. By contrast, the putative dark matter is illiquid and almost certainly highly risky.
The real problem though is that Hausmann and Sturzenegger overlook the obvious explanation for the recent strength of the US income balance. For most of the period since 2000, US interest rates have been exceptionally low. Given the importance of short-term debt, this obviously improved the balance temporarily. As interest rates have risen, however, the income balance has turned negative, and this trend will accelerate as debt is rolled over.
One final point. If the sustainability of the US current account deficit is explained by ‘dark matter’ what does this say for Australia? It’s hard to believe that we share the supposedly unique capacity of the US for seignorage, insurance and so on. The ‘dark matter’ hypothesis actually makes Australia’s chronic deficits look less sustainable.
John Quiggin is an ARC Federation Fellow in Economics and Political Science at the University of Queensland.
John Quiggin 
It’s like most things, the US current account will matter when markets say it does. There have been a lot of epitaphs written for countries with seemingly “unsustainable” deficits, but they can go on in that condition for a long time. The dismal scientists do get their one day in the sun, whilst currency dealers get a sun tan by treating the currencies on their day-to-day merits. Even The Economist admitted a few weeks ago that selling US dollars on the basis of an eventual current account-related adjustment would have seen you lose a lot of money.
..the luminiferous ether of the 19th century supposed to carry light waves. Einstein’s theory of relativity eliminated any need for the ether..
I thought it was Maxwell’s maths on electromagnetism that showed there was no need for a medium for light to travel in (ie the ether).
I fear that in ten or one hundred years, when economics history books are being written, they will say “how could they have been so blind?”.
“Even The Economist admitted a few weeks ago that selling US dollars on the basis of an eventual current account-related adjustment would have seen you lose a lot of money.”
Actually over the last few years borrowing in the US and investing the money in Euro- or Pound- denominated debt securities would have been quite lucrative.
I don’t know if there is such a thing but a euro-denominated gold-loan fund would have been a fantastic investemnt over the last year.
Yes that was my understanding also.
Terje
Finally a post where you can be justified in banging on about a gold standard and yet you choose to focus on a throwaway.
Craigm,
Finally somebody that thinks a gold standard can be justified and they want me to do all the heavy lifting.
Regards,
Terje.
Quote Jude Wanniski:-
REFERENCE: http://wanniski.com/PrintPage.asp?TextID=4002
ROW = rest of world
Andrew says:
I’ll take care or the “throw away”.
Maxwell believed in the ether. To quote big Al himself
Maxwell published in 1864. The “>Michelson-Morley experiment of 1887 failed to detect the ether. It was Einstein’s special theory of 1905 that discarded the ether as a reference frame.
Terje, during the 19th century the USA soaked up a lot of foreign investment – not debt – which was largely wiped out by the operation of democracy.changing the rules when things didn’t work out favourably to the locals (see the Income Bonds following railroad reorganisation, and the way small farmers received preference over foreign landowners despite their undercapitalisation which forced them into dependency on US banks). In fact, contrary to received US opinion today, the USA then had a very bad credit rating because of this high sovereign risk (see Trollope’s “North America”). Nevertheless, the USA kept mopping up foreign savings which were being generated in excess (see Keynes’s introcutory material in “The Economic Consequences of the Peace”). It has been estimated that the USA received far more wealth transfer from Europe than it ever gave back in the form of Marshall Aid after 1945.
Today’s US attitudes to repudiation of debts etc. is just a case of “the devil is ill, the devil a saint would be; the devil is well, the devil a devil is he”.
Fixed link to Michelson-Morley experiment.
I presume you mean that foreigners took an equity stake in US assets. I would think that a debt position is only marginally different. I certainly think of the bank having equity in my house even though it is actually just a debt that I owe the bank.
Terje says:
Like your thinking on the ether, this is simply wrong.
SJ,
Clearly a simile is too complex for you. Although given your attitude of late I think you are just looking for any opening that allows you to say “you’re wrong!”. Obviously you have not allowed the spirit of Christmas to cloud your mind.
My comment that you quote (in isolation) is not “simply wrong”, it is “technically wrong”. However there are a lot of similarities between debt and equity, just as there are obvious differences.
If the similarities did not exist then Islamic banking wouldn’t work.
Perhaps you might explain the significance of the differences in the context of the US current account deficit.
Regards,
Terje.
P.S. Merry Christmas SJ. I hope it is devoid of Metaphors such that you may avoid confusion.
Terje, it would serve you better to look back at P.M. Lawrence’s post, and try to work out why he drew the distiction between “foreign investment” and “debt”.
A response like yours, which essentially attempts to rebut Lawrence by claiming that there’s no difference, is kinda worthless.
I understand that your training is in engineering, not economics. So I guess it’s forgiveable that you don’t understand economics very well. I do think it’s funny that John knows more about physics than you do, however.
Merry Christmas to you, too. And P.S., when people frequently tell you that you’re wrong, you should at least consider the possibility, you know, that you’re frequently wrong.
SJ,
Perhaps you missed the inquisitive tone in my response to PML. For instance I said “I would think…“, in order to make clear that I was not denouncing his assertion but rather trying to understand it.
You’re wrong to characterise my comment to PML as a rebutal. It was no such thing.
I have never denied the possibility that I could be wrong. In fact I work very hard to remain open to that possibility.
If I was closed to the notion that I might be wrong I would not devote time to discussion sites where there are lots of people who disagree with me.
With regards to Andrews comments about Maxwell I said “Yes that was my understanding also”. Again my choice of words should make it clear that I was quite open to being wrong. I am satisfied that my understanding of Maxwells position was flawed. So thankyou for clearing it up. I am most grateful (and humbled) to be in the presence of somebody as knowledgable about Maxwell as your kind self.
If you’re suggesting that I should be fearful of being wrong then I disagree. Maybe if I was playing with an electrical circuit or mixing chemicals I might be fearful of a mistake. However in social discourse my experience is that being wrong is not the end of the world.
Regards,
Terje.
P.S.
QUOTE: “I have learnt more from my failures than my successes.”
Just to be really clear.
PML,
I can not discern why you think the distinction between debt and equity is important in this context. Can you please expand on this point.
Regards,
Terje.
God, I miss the Gold Standard, I miss it so much, even if it is only a superstitious relic (Keynes). Every little child on Christmas morning, when they see the tree and all the presents, understands the Gold Standard.
Bring back bullion. Then every year will have a Christmas.
(Did JM Keymes,
Cheat on his exans?
Does being on a Blog
Release my rabid dog?)
Thanks for the reply SJ. However, after reading it, I still get the distinct impression that though Maxwell still believed in the ether, his mathematics proved it unnecessary.
That he was unwilling to take on the implications doesn’t really matter.
Really, the only thing that teed me off (slightly) is that all things good in physics have a tendency to be laid at Einstein’s feet. Great though he was, there was plenty of intellectual firepower around before him and they all end up being downplayed.
And to forestall any comments about the off-topicality, I say this about the US economy. Buy yuan.
No probs, Andrew.
Maxwell’s mathematics didn’t prove that the ether was unnecessary. They threw a spanner works, which caused people to question Gallilean relativity.
The equations for time dilation, length contraction etc., are actually due to Lorentz, not Einstein. However:
Einstein is highly regarded, but most people don’t understand the real reason. It’s not for special relativity, which would have been worked out with or without Einstein’s help. Einstein’s great contribution was general relativity, in 1915.
I should offer some evidence for this assertion. Henri Poincare almost (and arguably did) beat Einstein to the punch:
Occassionally around Christmas time people still give gold coins to Charity. The salvation army in Sydney get given them every few years.
http://news.google.com.au/news?hl=en&ned=&q=salvation+army+gold+coin
The thing I find neat about the gold starndard in Australia is that when we went metric we really went metric. The Australian Dollar when introduced in 1966 was worth 1 gram of gold. Its worth about 45 milligrams today.
Dark Matter? Yet another paradigm shift? I think not. A poor explanation for the obvious, just as the monarchs of the sixteenth and seventeenth centuries found it expedient to run deficits and then debase the coinage to pay for those excess, so to in time will it be found that derivatives and the various forms of new money have had the same effect. A return to the gold standard would simply bring the whole world to a shuddering halt immediately as the simple math of the multiplier would quickly reveal that the money we take as wealth is all simply mutlply tiered created money aka debt. From my view creating money like this is no different to reducing the amount of gold in a coin with say copper, same result, there is still originally only so much gold or wealth to go around.
The core problem is central banks relieving first tier banks from holding large reserves, then allowing the non banking sectors and business to create money without any real control. The nightmare which is to come is visible in the sheer liquidity that is sloshing around the world, low interest rates and huge mortgages are merely symptomatic, trouble is that this liquidity and the rampant real inflationary effects are not being measured correctly anymore because of the distorted Price signals taken by policy makers via M1, M2,M3 and CPI (trying putting back debt or stocks as part of CPI and see what happens to your inflation rate). Everybody has become comfortable with money as a commodity and it being produced or held in basically any form you like, so the deception that you can ignore economic fundementals continues. Even retailers are effectively marketing money as a commodity, although they attach a good to it to establish some value in the transaction.
We can keep the whole game going forever providing that foreign capital is prepared to give us their surplus, we can comfortably live with very large current account deficits forever probably well until the one of those unforseen events allows the multiplier to work in reverse. But until then virtuous government will shift debt to the private sector and the public, the Americans will devalue their currency again to forestall the inevitable, and superannuation and pension funds will keep a floor under the whole edifice until such time as redemptions are greater than inflows and people have a need to redeem the ‘new’ wealth’. The internal versus external balance essentially vanished with the acceptance of globilisation, problem is there is no global central bank to keep it working in any form of prudent manner. So the great public and business involvement in the speculation with money as a commodity continues unabated. Think about it – why are the foreign currency speculators and hedge funds relatively quiet and the long term bond markets in the doldrums. They have called it correctly me thinks.
Anyway we can relax, these are long run issues and as Keynes said in the long run your dead.
Merry Xmas All.
People invest in the US because it is by far the most dynamic economy on earth.
Europe is sclerotic, the result of being run by academics and bureacrats who for the large part have never held a real job or created any wealth. Britain manages to distance itself from many of Europe’s problems, but still suffers from Eurpoean drag, and that perennial negative outlook of the “pommie whingers”.
Australia is better, but we’re still little more than the world’s mine. At least we’re in the process of rolling back the influence of bureacrats and academics, which should ensure continued prosperity. Long may Howard reign.
Asia is getting there. The Chinese are at least as entrepreneurial as the Americans, but I doubt they will ever be as creative. It’s not in their culture.
China will keep propping up the US dollar until not doing so has a negligible effect on their economy. Presumably that will be when the Chinese domestic economy is some sizable fraction of the US economy. I give it 10 or 15 years.
>People invest in the US because it is by far the most dynamic economy on earth.
>Europe is sclerotic, the result of being run by academics and bureacrats
Average per capita GDP growth in the US in recent years has been 1.6% per year, average per capita GDP growth in the EU in recent years has been 1.5%.
The “dynamsm” of the US economy is almost entirely explained by high net population growth largely due to higher immigration (legal and illegal).
That’s based on figures in an Economist article I quoted and linked to in one of the recent “week-end reflections” or “Monday observations” but which I can no longer find on the Economic site.
This US government report provides similar figures:
Click to access flsgdp.pdf
For the period 1980 to 2004, Australia, Japan, Norway and the UK all matched or exceeded the real rate of per capita GDP growth for the US.
>Asia is getting there. The Chinese are at least as entrepreneurial as the Americans, but I doubt they will ever be as creative. It’s not in their culture.
That’s a staggeringly foolish and patronising comment.
This is a hilarious personal coincidence for me — I was just reading about dark matter theory on wikipedia this week out of general interest, and reflecting on how it is an ‘ether’ theory to try to explain observed large-scale gravitational anomalies. See also the theoretical revision of ‘F = ma’ as an alternative attempt to explain the strange behaviour of galaxies in rotation.
In conjunction with the US current account deficit and what happens when a country is run by robber barons and self-serving elites. Even more impetus on their part to try to drive home the military possession of parts of the Middle East — how do you get out of a current account crisis? — appropriate a new chunk of resources on the cheap somewhere by neo-colonial imperialism, dressed up with a lot of propaganda to make it palatable at home. Change the petrocurrency of said country back to the US dollar from the Euro in order to further artificially prop up the currency — isn’t it called robbing Peter to pay Paul, and depriving a country of its sovereign rights to trade in whatever currency it desires and with whatever countries it desires? The more trouble the US is in, the more determined it will be to see this agenda through, the more recent history will be reinvented, and the more intricate spin and propaganda will be written and presented to the gullible masses to enable them to continue living beyond their means. It’s just like 1984 newspeak and doublethink, except the peasantry aren’t deliberately kept in poverty, the result is intended to be more like the conventional wars of acquisition throughout history.
I’m never sure about the gold standard… I assume the argument is that a country must have mined or acquired financially a whole pile of gold as some sort of fairly unwavering economically valuable substance to back up its issue of currency. I assume it then is intended to stop free-floating build-ups of credit that can’t be sustained or met when called in to account.
> Mike Hart Says: trying putting back debt or stocks as part of CPI and see what happens to your inflation rate.
Yes indeed, well said. Similar remarks on using ‘GDP growth’ as some sort of proxy measure of the wellbeing of the country and its people — or true economic growth vs empty inflation from internal speculative booms.
Terje, I drew the debt/investment distinction for two reasons. The first is that that was mostly how things were handled then; by itself that wouldn’t have made much difference, as you picked up on.
But the second reason is that foreign interests in the USA were eroded by subterfuges, and one of these related to whether dividends were paid. At the end of the 19th century Bertrand Russell was struck by how US enterprises that were technically bankrupt seemed to be outwardly more prosperous than sound ones, being larger and having equipment in better condition and so on. The finagle was via legal forms, like trusts; technically firms were so indebted in a round robin that owners of record never got anything back. And there were many other tricks (like the income bonds I mentioned).
You forgot to add: almost all per capita GDP growth in the EU is coming from the new eastern-block additions. You know, the ones that have employed all those policies so popular with the left, eg flat income taxes (sarcasm alert). With such a large influx of ex-commie countries, your statistics are only remarkable for how low Europe’s growth has been overall. US has GDP per capita (in $US) of $40,100 (est). EU as a whole is $26,900. Even off such a low base US growth is outstripping the EU. Victory for the socialists and bureaucrats (sarcasm alert again).
To use your hubris Ian, that’s one of the most staggeringly foolish things I have ever read. US dynamism is explained first-and-foremost by US culture. Unlike the French bureaucrats, for example, who shove their poor immigrants in welfare-state bunkers to rot for generations, US immigrants are fed into a culture that gives everyone an opportunity and everyone a foot on the bottom rung. A culture that believes in opportunity. Go live and work there (a real job, not some govt or academic junket) for a while Ian, you’ll see what I mean.
And I’ll take a bet on the Chinese. $100,000 says that even when their economy is as large as the US, they won’t be as creative. That’s not patronizing – it is just a product of their more top-down, hierarchical culture.
“Europe is sclerotic, the result of being run by academics and bureacrats who for the large part have never held a real job or created any wealth. ”
I’d say it’s more the bureaucrats, who protect their turf at the expense of everyone else. Europe is a “Have” vs “Have not” place. You’re born into one of these and you don’t get out
“Britain manages to distance itself from many of Europe’s problems, but still suffers from Eurpoean drag, and that perennial negative outlook of the “pommie whingersâ€?.”
Britain can thank Mrs. Thatcher for keeping Britain our of the illness that currently infects the former economic powerhouses, Germany and France.
“It’s like most things, the US current account will matter when markets say it does.”
Excellent point, Ray. Do you have any ideas as to why the markets have so far said the US current account doesn’t matter?
“There have been a lot of epitaphs written for countries with seemingly “unsustainableâ€? deficits, but they can go on in that condition for a long time.”
The epitaph for the US is written daily, economically, politically, on matters of faith, education, medicine. Yet, here we are.
“Even The Economist admitted a few weeks ago that selling US dollars on the basis of an eventual current account-related adjustment would have seen you lose a lot of money.”
which may be why the markets haven’t yet written us off.
This may happen if there was a move to make fractional reserve banking illegal. However such a move has nothing to do with introducing a gold standard.
PML,
Are you implying that legal forms as they relate to current US debt could not be manipulated in the same manner as 19th century foreign equity?
I would guess that the political and legal risks for foreigners under a debt model are little better than under an equity model.
It is still not clear to me whether you think the situation today is better for the USA, less prone to a painful correction or somehow different in terms of moral hazards.
Regards,
Terje.
Terje, all I was doing was point out the things actually done and how. I wasn’t trying to say anything else about today and what could be done today, so don’t try to read too much into it.
For what it’s worth, I do think the USA is a huge source of sovereign risk, today as well as in the past, but that small players needn’t worry for so long as it suits the USA not to change for everybody; a bit like small fish swimming in and out of a crocodile’s open jaws. Or people can use the system that works on crooked roulette wheels, make small bets against the rest of the players so as to piggyback on the house (who won’t give them away for fear of scaring the other punters).
It comes down to democracies failing to get ethical values but rather to start listening to themselves, groupthink. The USA is today’s major victim and culprit, but it isn’t a peculiarly US thing.
Dogz Says:
You know, like France, which averaged 1.9% for the past 5 years.
Next time, bring numbers, not nonsense.
http://www.nationmaster.com/graph-T/eco_gdp_rea_gro_rat&b_map=1
(click on Europe)
Next time, don’t even bother posting.
Your number (1.1%), for a single year (2002), from exactly the same source I used (CIA factbook), proves what, exactly?
Did they cover statistics at all in that degree you claimed to have done?
>You forgot to add: almost all per capita GDP growth in the EU is coming from the new eastern-block additions.
The figures I quote are for the period 1980-2004 and are for individual EU member-states (none of them from Eastern Europe).
Considering that the countries you refer to only joined the EU two years ago, I’d suggest it’s “hubris” to invoke them in this context.
Maybe we’re looking at the wrong measure of dynamism.
Let’s look at the real PPP GDP per capita of variosu countries as a percentage of the US real GDP per capita. (Refer to page 12 of the document I linekd to earlier)
Since 1960, France has gone from 58.1% of US GDP per capita to 89%.
In the same period the UK grew from 66.7% to 78.8%.
Canada actually went backwards from 84% of US real GDP per capita to 77.3%.
Let’s see, let’ take a look at some of those other sclerotic stagnant European economies,
Italy 51.5% to 79%.
Hey wait a minute, the two continental economies grew FASTER than Canada or the UK. So much for the superiority of “anglo-saxon capitalism”.
Maybe, the Euros grew faster because in 1960 they were still recovering from World War II.
Let’s test it by looking at Sweden a WWII neutral: 1960: 61.3%; 2004 78.8%. Boy that featherbedding socialist welfare state sure killed their economic development. I mean, sure like Italy and France they grew faster than the UK and caught up with and passed the UK real capita GDP but the margin of out-performance was significantly lower.
That can’t be right, these darn facts just have respect for people’s ideology.
Actually I misread the 2004 figure for Sweden it should be 76.1. So in fact England is still slightly ahead of Sweden on this measure – but by substantially less than in 1960.
Dogz
I have to agree with Ian Gould on this. Indeed France in particular has proven to be an economic engine that is so well tuned it simply defies imagination. Unemployment has become a lifestyle choice not because there are too few jobs but because people have simply chosen not to work as they pursue other more interesting activities. It is multiculturalism at its best.
One other thing/
Top down command type economies work best as efficiencies of scale are allowed to combine without the interruption of competition. That’s why we need a strong dose of industrial planning in this country along the lines of what is happening in China. Sure, class A stocks on the Shanghai stock market are not performing anywhere near their full potential. But why is stock market performance a good indicator of economic fortunes down the road anyway. If like China, our Government followed an appropriate industrial policy with directed lending policies in the banking sector we could easily grow at 10 % per annum without much difficulty. Such a policy mix would allow us to have our cake and eat it too.
Enough of this Anglo-Saxon model! We need a planned approach to the economy in order to allow for competing interests. The sooner we move in that direction the better. Firstly, however, we need to solve the problems of this notional democracy we live. That’s for another day.
Thanks for pointing all this out before I did, Ian G. You’re spot on when it comes to which is better the command approach or the inflexible, difficult to understand Anglo- Saxon model.
I also afraid your links do not disclose the real benefits that can be derived by applying the European model as Ian Gould so gratiously explained to you. I hope this settles it.
SJ, click on Europe in the world map at that link. Blue is slower growth, green is faster growth. Almost all the faster growth is in the new eastern-block countries.
Ian, “1980-2004” is not “recent years”. The Berlin wall fell in that period. The common currncy was introduced. An entire generation of Europeans have grown up and become productive members of the economy in that time (well, about 50% of a generation in the case of the old European countries :). Averaging over that entire period tells you very little. Gotta love the economist’s penchant for drawing strong conclusions from meaningless averages.
Steve chidio, I thought for a minute you were being sarcastic, but apprently you are serious. You’re also dead wrong. Start with China: their economy started to grow rapidly precisely when they started to move from command to free-markets.
As it stands today, US GDP per capita is 50% greater than in France and Germany. That’s about US$13,000 per person per year. That’s an awful lot of extra money sloshing around. The impact of that money is obvious if you spend time in the US. So much better infrastructure, roads, education, larger houses, purchasing power, etc.
>As it stands today, US GDP per capita is 50% greater than in France and Germany. That’s about US$13,000 per person per year.
Ever hear of the concept of purchasing power parity.
I’ll refer you AGAIN to the BLS document which shows in the years 2001, 2002, 2003 that in ever single one of those years some individual “Old Europe” countries grew faster than the US.
Ay this point I expect you to argue that US growth in that period was depressed by the Tech Wreck, meaning that you refuse to accept either recent or long term trend data which fails to support your beliefs.
I’m sure the citizens of New Orleans are suitability impressed with the state of US infrastructure.
Steve, I’m no fan of the command economy – it’s just that I see little evidence of Steve’s claimed “US dynamism” outside of its immigration policy. The lesson I take from international comparisons of tax levels, levels of government economic intervention and economic growth is that tzx and spending levels and government regulation have surpirsingly little effect either way.
Peopel also fail to understand that Europe is in fact undergoing quite radical economic reform including reductions in payments under the Common Agricultural Policy and cuts to tariffs as well as increased competition and economic integration within the Eurozone.
Not to offend further against Dogz religious beliefs (“There is no God but the market and Milton Friedman is his prophet”) but the high unemployment in France and Germany pointed to as evidence of economic inefficiency is largely the result of economic reform.
As noted in the Economist article I cited earlier there’s been a massive growth in labor market participation in Europe in the past decade as governments reduced retirement benefits, increased consumer contirubtions to medical costs and made it harder to retire early.
Yes Ian, I have. Per capita GDP (PPP) in international dollars (2004):
US: 42,367
France: 27,738
42,367 = 1.527 * 27,738
So, in fact, the US is 52.7% ahead of France per capita. I was conservative with my 50% statement.
I am sure the New Orleans citizens are about as impressed with the state of US infrastraucture as the citizens of Redfern are with the state of Australian infrastructure. Both groups have a large net negative economic impact in their respective countries.
What’s it going to be Ian: judge a country’s economic performance by the average standard of living or the worst? Expectation analysis or worst-case? While the US certainly could do better in terms of its least well-off without reducing its economic performance, particularly on the healthcare front, most Western countries would be indistinguishable if you compared them based on the standard of living of their worst-off citizens. Not a very useful measure.
Fully agree with you Ian, after all who wouldn’t. I am thankful a knowledgeable person such yourself understands that a command economy with one industrial policy is the future.
Watch this Dogz charactor; next up he will be telling us Ronald Reagan turned the US around. Huh! Yea sure. Pull that other leg Dogz.
As you rightly pointed out, there is no such thing as unemployment in France or Germany. There are only people who choose not to work as leisure is a far more interersting and simply just a facet of life.
As Ian would agree, I’m sure, we need only one producer in one industry at a time supported of course by government fiat of a nationalized banking system. If the firm fails, support it, by giving the management another chance at success. Isn’t capitalism, after all, not accepting failure but only success.
Dogz, Ian of course is doing the right thing. He is accurately presenting the fact that that US has at least 30% of its population living under the poverty line. Compare that to France where its close to zero. Why do you think that happens. Of course the reason is industry policy combined with a strong multicultural social system. The European economy works despite crude capitalist impuluses.
Thanks for beinjg gentle in the face of a spurious attack, Ian. Dogz needs more time reading books.
All this to and froing about GDP, I much prefer GPI as a measure, gives a very different picture about the state of various so called growth nations and the costs of our gllobal economic miracle. If your going to have a balance sheet approach to measurement then lets see what the liabilities are as well.
A definition of the “International Dollar” indicating how it is adjusted using purchasing power parities (PPP).
http://en.wikipedia.org/wiki/International_dollar
A list of countries ordered by GDP per capita in International Dollars (ie adjusted for PPP).
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita
A small sample of the list:-
Dogz:
Yes Ian, I have. Per capita GDP (PPP) in international dollars (2004):
US: 42,367
France: 27,738
42,367 = 1.527 * 27,738
So, in fact, the US is 52.7% ahead of France per capita. I was conservative with my 50% statement.
Response, well I certainly accept your unsoruced figures over those of the US Government.
Steve Chido: Fully agree with you Ian, after all who wouldn’t. I am thankful a knowledgeable person such yourself understands that a command economy with one industrial policy is the future.
As you well know, i have never said anything of the sort.
By the waty, how’s your campaign to deregulate the child prostitution and child ppornography industrries going?