Tag Archive | Economics

Links I liked January 6, 2015

I’m trying to lose 20 pounds, sleep more than five hours a night, finish piles of work and keep this blog alive so I’ll cop out and just post to some stuff that other people wrote.

1. Confusion on the internet is not the answer (WaPo). I almost bought the book of the review that he’s writing about here. It’s amazing how limited writers’ knowledge is sometimes, particularly of economics. Is Amazon good or bad? That’s the question, though.

2. A Farewell to Africa Rising (LSE) Some people are optimistic about Africa, others are pessimistic. One thing they share is that they routinely ignore Africans.

3. 2014: The Year Marvel Studios Redefined Itself (Again) I will not hesitate to admit that I have been quite excited by Marvel’s Phase One and Phase Two films. Thankfully, they weren’t like the not so good X-Men movies, which have sadly lost their way.

4. What a Strong Dollar Means for the Economy (NYT) My paycheck is in yen so I now make as much as I did as a graduate student.

Does the environment cause poverty?

SESKwaleAfrican countries are blessed with ample cropland and resources, but suffer from crippling and unforgivable levels of poverty, have some of the shortest lifespans on the planet and the highest rates of infant mortality in the world. Meanwhile, Japan, Korea, Sweden, Switzerland and Singapore are wholly the opposite, yet mostly lacking in everything that Africa has. Clearly, the picture is more complicated than merely having access to a natural resources.

However, within countries, the picture might be different. African countries are complex and diverse places. Poverty is often confined to the most unproductive regions, areas with poor soils, poor rainfalls or dangerous terrains.

I was just working with some socio-economic data from one of our field sites, and noticed some interesting patterns (note the map up top). In Kwale, a small area along the Coast, socio-economic levels vary widely, but neighbors tend to be like neighbors and patterns of socio-economic clustering emerge.

Note that the poorest of the poor are concentrated to an area in the middle, which I know to be extremely dry, difficult to get to, difficult to farm and generally tough to live in.

I tried to see if socio-economic status (as measured through a composite material wealth index a la Filmer and Pritchett but using multiple correspondence analysis rather than PCA) was related to any environmental variables that I might have data for.

I fit a generalized additive model using the continuous measure of of wealth from the MCA as an outcome. Knowing that very few things in nature or human societies are linear, I also applied smoothing to the predictors to relax these assumptions. The results can be seen in the plot at the bottom.

A few interesting things came out. While it is hard to tell much about the poorest of the poor, we can tell something about the most wealthy. The richest in this poor area, tend to live in areas with the richest vegetation (possibly representing water), a high altitude (low temperature), high relief (no standing water) and in locations distant from a wildlife reserve (far from annoying and dangerous wildlife).

I’m not sure the wildlife reserve is meaningful (unless the reserve was an area undesirable for human habitation to begin with), but the others might be and represent a trend seen in other Sub-Saharan contexts. Areas without malarious swamps and ample farm land tend to do the best. Central Province, one of the most developed areas of Kenya, would be an example.

But the question has to be, does a harsh environment doom people to poverty, or do people self shuffle into and compete for access to more favorable areas? Is environmentally determined poverty (or wealth) an accident of birth, or the result of competitive selection?

Alright, back to work. Oh wait, this is my work. Well….

Results of GAM model of SES in Kwale. Y axis is the continuous measure of socio-economic status.

Results of GAM model of SES in Kwale. Y axis is the continuous measure of socio-economic status.

Defense Spending and the Economy: Is there a link?

DefenseGDPEventsToday I encountered a discussion, where the participants emphatically maintained that the current US economic woes are to be blamed in part on increased US defense spending during the Iraq and Afghanistan wars. I countered and claimed that they have no relation at all. Of course, these people hate me now (thinking I was merely being difficult for the same of being difficult), but that’s ok. I’m used to it.

To test this hypothesis, I took data on US GDP (adjusted to constant 2005 dollars) and combined them with data on US defense spending (adjusted to constant 2010 dollars). The results can be seen to the left. The red line is defense spending. The blue line is GDP.

As I maintained, there is no obvious relationship between defense spending and economic growth. There are a couple of major blips in GDP growth, namely the collapsing of tech equities in the early 2000’s and the economic meltdown on 2007/8. There are no events in US GDP for drops during Clinton nor sudden increases in defense spending following 9/11.

In fact, as defense spending dropped pre-9/11, you can see the US economy was plugging along just fine. As defense spending went up post 9/11, the US economy maintained the same trajectory, minus the economic bumps.

DefenseUnemploymentEventsCertainly, GDP is not the only economic marker we could use. I did the same thing with the unemployment rate.

Now, at first glance, this is a little more convincing. But when you take the events into consideration, it is less so. The two major economic events of the 2000’s, namely the equity bust, and the financial meltdown both resulted in sudden jumps in the unemployment rate. 9/11 and the troop surge did not. In fact, as spending was doing up, unemployment was going down. If we look back into the nineties, we can notice that even though defense spending was declining, unemployment was up, then down again. In short, given the context, there is no real reason to assume that two related.

I am NOT an advocate for war. I am though, an advocate for evidence backed claims. There is little evidence to suggest that increased defense expenditures during the Bush years affected our economy.

We can claim, if we like, that federal revenues might have been greater had the wars not happened. These revenues, it is argued, could have been allocated to education or infrastructure improvements, for example. However, it has to be noted that the wars weren’t funded out of federal revenues. They were funded out of low interest bonds. Thus, as those bonds had not been serviced at the time that this data was collected, there is, again, even less reason to assume that the wars negatively impacted the economy.

Now, we can certainly make arguments over how much defense spending is too much and what the potential long term effects of servicing the war debt will be. I argue, though, that our elected representatives are much more interested in financing the military than, say, welfare programs for the needy. It would take a great leap of faith to assume that, if the military were closed tomorrow, monies targeted for defense would automatically be transferred to providing health care to poor people. I also argue that, long term, the expenditures that came out of the financial crisis will be, in comparison, more difficult to service.

The war cost us politically, but was a bargain economically. To me, that’s a much more frightening state of affairs.

Today’s Readings 1/8/2013

1. A Military Man Denounces Guns.It’s worth the read for the neanderthalic comments. The presence of the poorly worded 2nd Amendment to the Consitution doesn’t not preclude criticism, nor does the color of the subject’s passport (he’s a Brit) compromise his views on guns. Comments are always to be avoided, but this particular set is a ridiculous and unnecessarily hostile expression of jingoistic stupidity. (HuffPo)

2. Part of Obamacare came unceremoniously into effect on January 1st, namely the part where insurance companies have to actually tell you what you’re buying within four pages, using the language of an 8th grader. (HuffPo)

3. Chinese bloggers have to provide their names.. or else. (Bloomberg) Liberal newspapers are fed up and taking to the streets to demand an end to meddling censors (NYT)

4. The US Government is not only NOT a household, its also NOT a small business. It is frightening how ignorant Americans (particularly elected officials) are of the differences between business and government. “In the news release announcing his bill to derail the platinum coin effort, Republican Representative Greg Walden says something really stupid: “My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn’t just mint a coin to create more money out of thin air.”” I’m glad the US government isn’t a small business. They tend to fail, and provide poor returns on labor and investment. (Bloomberg)

5. An interesting take on the austerity debate. Latvia was more austere than Greece and is now experiencing growth. Given the differences in other factors, such as tax evasion, corruption and past growth, I’m skeptical. (Bloomberg)

6. Japan is dumping some of its reserves to buy European bonds in order to devalue its currency. Let’s hope it works. (Bloomberg)

7. Should we tax people for being annoying? The arguments for taxing negative externalities, like traffic jams and public noise. (NYT)

8. Rape is horrible, but not because women shame their families. That women are still praised for killing themselves following rape in India is reprehensible. (NYT)

James Bond and Economics: Shaken and Stirred

James Bond, closet Keynsian

Over my nearly 40 years of watching James Bond movies, it wasn’t until recently that I picked up on what it all meant.

James Bond, a talented 00 agent in MI6, gets sent the world over to thwart the nefarious plans of mad geniuses hell bent on world domination, all the while bagging beautiful women and downing martini after martini. That much is clear.

What was not clear to me, was the deep economic and political significance of the series. The Economist recently ran a blog post on 2006’s Casino Royale as an allegory for the financial meltdown, despite the fact that it appeared two years before.

Le Chiffre, a opportunistic genius who finances international terrorism for profit comes up with an infallible plan to short sell rapidly rising stocks in a airline company, destroy a highly anticipated prototype, then profit off the subsequent crash in stock prices. He does this by investing money that is not his own. The plan, of course, fails, and the “genius” plans to win it all back through a poker game.

This could have been pulled from the playbook of every alcoholic and gambling addict out there. Genius, indeed, but little different from the irresponsible and desperate behavior of market players as the American economic bubble was crashing.

Interestingly, Bond himself, through a couple of poorly planned strategies loses everything and appeals to the Treasury of the United Kingdom (taxpayers) to bail him out. The Treasury rightly refuses, unlike the Government of the United States. Instead of saying no, the US bailed out some of the worst offenders in the banking crisis, effectively rewarding them for gambling stupidly.

Of course, Bond has little to fear. The $50 million dollars that Bond needs is secretly offered up by the Americans as long as they are able to take the credit for the win. This exchange underlines the complex relationship between the UK and the US. Britain, once the largest power in the world, now relies on bailouts from the former colony when it makes stupid mistakes. Amazing.

The villains of the bond world distinguish themselves by not being power-hungry-insecure-would-be-despots (such as the Asgardian Loki in the recent movie the Avengers), but rather as shrewd financial schemers, who wish to manipulate the market to securely enrich themselves.

In this manner, they are no different than food speculators on Wall Street (the gold manipulation scheme in Goldfinger), and not out of step with the ever more obvious trend of the mass privatization of that which should be a public good (see the water scheme in Quantum of Solace).

Of course, not all of these villains are supply siders like the plan to control the worlds solar energy in The Man with the Golden Gun (of course, this ignores the possibility someone else might redevelop the technology and enter the market). Dr. Kananga in Live and Let Die sought to create market demand for his product by getting restaurant patrons hooked on heroin.

The economic depth of 007 was certainly lost of me until I started digging. Truthfully, I really didn’t know what a stock short sale was, but now I do. Perhaps instead of reading wordy economic tomes, we might just make students rewatch Bond movies? It would certainly be more entertaining.

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