My opinion piece in yesterday’s Fin was about unemployment. It’s over the fold.
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Category: Economics – General
US vs EU, Round XXVIII
Fareed Zakaria has yet another piece on the inevitable decline of Europe. In it, he makes the claim
Talk to top-level scientists and educators about the future of scientific research and they will rarely even mention Europe. There are areas in which it is world class, but they are fewer than they once were. In the biomedical sciences, for example, Europe is not on the map.
High energy physics, anyone? Western European output of scientific papers surpassed that of the US about 10 years ago and the gap is still widening. The US is relatively stronger in biomedical research than in the physical sciences, but Europe has caught up there as well. The loss of the US lead in science is sufficiently widely-accepted that proposed responses made it into Bush’s State of the Union speech.
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EFIC
The AWB wheat deals with Iraq also involved the Export Finance Insurance Corporation (EFIC) which, as the name implies, insures exporters like AWB when they sell goods on credit. I actually did some work on this fifteen years ago, and concluded that the operations of EFIC were likely to lead to cross-subsidisation of bad customers by good ones. Even then, Iraq was at the top of the list of bad customers. As Ken Davidson points out (via VVB), the involvement of EFIC in the deals also implies high-level involvement by government departments like Treasury and Finance that have so far not been mentioned.
Meanwhile, as the hearings roll on, it’s clear that the government knew nothing about the bribery in exactly the same way as Bill Clinton did not have sexual relations with that woman, Miss Lewinsky. Indeed, looking at the things they didn’t know, it’s testimony to their organisational ability that they could manage to know exactly what they needed not to know, without ever being told.
An ounce of inefficiency (Crossposted at CT)
This post by Belle Waring at CT, on the fact that the US appears unlikely ever to go metric prompted me to try and put together some thoughts I’ve had for a long time.
When I lived in the US around 1990, I was struck by all sorts of minor inefficiencies that seemed to be sanctified by tradition. In addition to its unique system of weights and measures (similar to, but confusingly different from, the Imperial system I had grown up with), there was the currency, with no coin of any substantial value, thanks to inflation (this particular inefficiency was subsequently enshrined in the Save the Greenback Act), and the practice of quoting prices net of sales tax, so you always had to pay more than the marked price. And then there was a huge, but ill-defined, range of activities where tips were expected, apparently regardless of the quality of service. In all of these cases, Americans seemed much more willing to put up with day-to-day inefficiency in the name of tradition than Australians would be, and much more resistant to government action that would sweep such inefficiencies away in the name of reform.
Bigger issues like creationism can be fitted into this picture. As far as I can see, very few supporters of creationism (or intelligent design or what have you) have any desire to see it taught in university biology departments [there are a handful of exceptions, like Bob Jones, that are resolutely stuck in the pre-Civil War era on most things] or applied by oil geologists. Their big objection is seeing evolution stated as fact in museum displays or taught in high schools. Broadly speaking the position seems to be like that with the metric system – scientists are welcome to be evolutionists as long as they don’t try and ram it down the throats of our kids. Obviously, this is costly; as with metric and traditional measures, the two systems are bound to clash from time to time.
Then there’s the inefficiency that seems to be built in to the US system of government. When I lived there, I was subject to four different levels of government (town, county, state and federal) with multiple overlapping responsibilities, and procedures that seem designed to achieve maximal inconvenience for citizens (not to mention resident aliens!).
All of this of course, was set against the background of a general level of technology in advance of very other country in the world, and an economic system in which the pursuit of efficiency wasn’t much hindered by concerns about equity. At least for the upper-middle class to which I belonged, these things produced a very high standard of living.
How much do these minor inefficiencies matter? In one sense, I think, quite a lot. In another, they don’t matter very much at all, and can in fact be defended on cultural grounds
The direct costs of the inefficiencies I’ve mentioned are all small, but taken together I wouldn’t be surprised if they added up to several percentage points of national income, or hundreds of billions of dollars per year. I think, for example, that a payment of a dollar a day would be a bargain for an average American adult if it could deliver a sensible coinage and posted prices that actually corresponded to the amount to be paid. Multiplied out, that’s around $60 billion a year or 0.5 per cent of national income. And requirements for goods to be made in non-metric measures amount to a kind of trade barrier which seems likely to have a similar cost.
Even more than this, the attitude underlying the adherence to traditional measures is that the US is rich enough and important enough to do what it likes, and the rest of the world can like it or lump it (an attitude not unique to this issue). There’s a lot of truth in this, and it helps to explain why the US is pretty much self-sufficient in a wide range of cultural services. On the other hand, it’s not conducive to success in export markets for goods. Now that the US no longer has a big technological lead, the lack of interest in what foreigners think is one of the factors explaining big trade deficits with almost every other country in the world (Australia is one of the few exceptions).
So, in these ways, adherence to inefficient traditions matters quite a lot. On the other hand, taking the long-term historical view, they scarcely matter at all. Suppose inefficiency costs 6 per cent of national income. With productivity rising at a rate of 2 per cent a year, that means that the average living standard that might have been reached in 2006 will in fact be reached in 2009. For any given person, this trend effect will be swamped by year to year fluctuations in income and expenses. And in most households, there are probably inefficient arrangements that cost a fair bit, but are maintained because that’s the way things have always been done in the family.
Moreover, looking around the world it seems that nearly every country has its sanctified inefficiencies. France has its heavily protected agriculture, as does Japan, and Britain has a whole set of hangovers from the class system and reactions against it. I don’t buy general claims about Eurosclerosis, but there are clearly plenty of features of European social welfare systems that don’t stand up to close scrutiny. In Australia, although agricultural protection is pretty much gone, we spend a lot of money ensuring that much the same bundle of services is available everywhere in the country at the same price, regardless of the cost of delivery.
In a world where the level of technological development and the basic pattern of consumption are much the same in all developed countries, such idiosyncratic differences between countries that are an important barrier to a completely globalised uniformity.
BTW, if you want to comment on this post, you might be better off at CT which is currently leading JQ 92-0.
Dark Matter
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.
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Income and Consumption Inequality (crossposted at CT)
I’ve spent a lot of time trying to work out what’s been going on with income and consumption inequality in the United States. Partly that’s because the subject is of interest in itself and partly because social and economic developments in Australia often (not always) follow the lead of the US.
However, there seem to be lots of contradictions in the data, and between data and popular perceptions, for example regarding social mobility and consumption inequality. I’ve finally managed to sort out what seems (to me, at any rate) to be a coherent account of what’s going on. A list of the main points follows, with supporting links, some of which may require registration/subscription. I’ve tried to indicate which bits of the story reflect my judgements, and which are drawn from the literature.
Comments and criticism on this are most welcome.
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Some more recent presentations
Here are some more presentations from the last couple of years. I’ll be putting them all up here as I get time.
Some recent presentations
I’m in the process of trying to make my presentations available on the internets. Here are links to a couple in which people have expressed interest (PowerPoint versions only). More presentations and Keynote versions to come, I hope.
The (un)sustainability of trade and current account deficits
Peak Oil
I’m talking today at a Brisbane Institute forum on oil and whether it’s running out. 12:30 at the Hilton. I’ll try to post my presentation soon.
The Unsustainability of Trade Deficits
I’ll be talking on this topic to the Economic Society of Australia (Queensland branch) on Thursday night at the Exhange Hotel, a well-known Brisbane cultural centre. I’m preparing a presentation and I found this graph of the US trade balance at the St Louis Fed
The graph is in billions of dollars per quarter, unadjusted for inflation, so the pattern is exaggerated. Still it’s a good illustration of how the recent massive deficits are historically unprecedented, something which is true even when the more appropriate measure of percent of national income is used.
Australia’s experience is less dramatic, but we are, nonetheless hitting new records in terms of deficits and debts.
fn1. No animals were harmed in the preparation of this talk.
John Quiggin 