via FT Alphaville le 29/08/08
Blame the credit-card wielding girls of Essex (you know, the ones who racked up £50,000 in debt in the days of easy credit) or the banks who lent to them, but the Anglo-Saxon consumer isn't doing too well, notes Merrill Lynch: One of our global macro themes is the impaired consumer in the Anglo-Saxon developed countries....vendredi 29 août 2008
An impaired Anglo-Saxon Consumer
Ce n'est pas faute d'avoir entendu vanter le modèle économique qui y correspond...
GDP Release Signals Further Decline into Banana Republic Status
la fiabilité des statistiques américaines fait l'objet de débats virulents depuis un certain temps, mais jusq'à présent le débat s'était principalement focalisé sur les statistiques de l'emploi et, dans une moindre mesure, celles de la construction. Le scepticisme qui a accompagné la publication du GDP Q2, très supérieur aux attentes, est un phénomène nouveau. YS dresse un excellent panorama de la question.
GDP Release Signals Further Decline into Banana Republic Status
What is remarkable is that today's 2Q GDP revision. from a 1.9% that most observers regard as likely to be revised downward (and initial releases are often revised by significant increments), has now been revised to a simply not credible 3.3%. We'll discuss in a bit how this artwork was achieved.
Yet what is more remarkable is that a quick read of the MSM (Bloomberg, Financial Times, the Wall Street Journal, and the New York Times) reveals that no source seems willing to challenge this practice and call it for what it is, manipulation for political purposes. Some economists quoted by the MSM instead politely chose to ignore the dead body in the room and argue, essentially, that this supposed data point was irrelevant as far as the outlook was concerned. Here we see some tiptoeing around the tulips quotes:
Now of course, there is good reason for less than a full-bore assault. One is that by the time someone made all the Freedom of Information Act filings to get enough of the supporting work to prove this number was massaged, we'll be not just into the next Adminstration, but into the recovery. Second, economists are supposed to be sober and analytical. Stirring controversy is not part of their job description.
Nevertheless, there were quarters in which doubts were expressed more strongly. Zubin Jelveh at Portfolio provided this quote:
Bloggers, needless to say, were less inhibited, with Barry Ritholtz, long on the bogus statistics beat, leading the charge:
That boldface was mine. If that isn't sus, I don't know what is.
Barry in a later post, with the help of a chart provided by Michael Panzner, found the real smoking gun: a laughable assumption for inflation. The lower the inflation assumption, the higher the GDP figure. Not only was the 1.2% chosen lower than CPI, which has been adjusted over time to underreport inflation so to reduce payouts on CPI-indexed programs, most notably Social Security, but as a commentor on Econompics noted, constituted the biggest gap between the GDP deflator and CPI since 1980 (squinting at the chart, that seems to be accurate):
Mind you, this massaging is taking place on top of long-running adjustments that make both GDP and inflation stats questionable. Is it time to revive the 1960s expression "credibility gap"?
Refreshingly, some in the MSM are coming close to doing so. This story in Bloomberg, "Lagging Incomes Signal U.S. Economy Weaker Than GDP Suggests," which came out within hours of the release, discusses the disparity between incomes data and GDP without taking on the GDP report frontally. That's a step in the right direction.
From Bloomberg:
via naked capitalism de Yves Smith le 28/08/08
Last year, we put America on Banana Republic watch, and sadly, things appear to be playing out as we feared:I'm certain you're familiar with the expression "death wish." I am beginning to wonder whether America has a banana republic wish. The country has been taking steps towards being a small-minded, elite-dominated, sham democracy.
Mind you, I am pointing to a tendency, not an established fact. The US isn't Haiti, or even Argentina. But we are moving in that direction on a variety of fronts, and the devolution seems so concerted that I wonder if there is some unconscious mass desire to give up on the messiness and ambiguity of an open society and surrender to the certainty of one with institutionalized inequality, more authoritarianism, but more predictability, and perhaps an illusion of greater security.
What triggered this line of thought? Something surprisingly minor: the April employment report,...But even this disappointing figure may have been the product of manipulation, as we will discuss in due course. And we've now had so many instances of what charitably may be called artful reporting that it's beginning to undermine my faith in government statistics. Unreliable government statistics are a Banana Republic Indicator..... the integrity of that data is becoming compromised on enough fronts so as to render them suspect. And inaccurate data leads to bad business and bad policy decisions. Bad policy decisions are particularly likely since the information is massaged so as to minimize unpleasant news.
What is remarkable is that today's 2Q GDP revision. from a 1.9% that most observers regard as likely to be revised downward (and initial releases are often revised by significant increments), has now been revised to a simply not credible 3.3%. We'll discuss in a bit how this artwork was achieved.
Yet what is more remarkable is that a quick read of the MSM (Bloomberg, Financial Times, the Wall Street Journal, and the New York Times) reveals that no source seems willing to challenge this practice and call it for what it is, manipulation for political purposes. Some economists quoted by the MSM instead politely chose to ignore the dead body in the room and argue, essentially, that this supposed data point was irrelevant as far as the outlook was concerned. Here we see some tiptoeing around the tulips quotes:
Bloomberg: ``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''
Reuters: "This number seems to overstate the underlying strength even though exports are obviously strong," said James O'Sullivan, an economist at UBS Securities in Stamford, Connecticut.
Now of course, there is good reason for less than a full-bore assault. One is that by the time someone made all the Freedom of Information Act filings to get enough of the supporting work to prove this number was massaged, we'll be not just into the next Adminstration, but into the recovery. Second, economists are supposed to be sober and analytical. Stirring controversy is not part of their job description.
Nevertheless, there were quarters in which doubts were expressed more strongly. Zubin Jelveh at Portfolio provided this quote:
RDQ Economics: "The strength of the economy in the second quarter suggested by the expenditure estimate of real GDP growth seems truly bizarre and is a product of a declining real trade gap."
Bloggers, needless to say, were less inhibited, with Barry Ritholtz, long on the bogus statistics beat, leading the charge:
GDP is out, ticking higher to 3.3% rather than 2.7%
And if you believe that data, I also have a bridge for sale in Brooklyn.
Why the beat on the headline figure? Aside from the usual inflation nonsense, there were two other factors: Exports, which rose to 13.2% (versus earlier reported 9.2%) and Inventories, which also played a part in the apparent strength.
My fishing buddy John Silvia of Wachovia put it into context:
"The overwhelming story is that the export numbers have offset this domestic weakness in consumer spending and business investment. We have a domestic recession.''
Also worth noting: larger than earlier reported gains in every single government expenditure category. If you are wondering why the government does not know what it is actually spending in near real time, welcome to the club.
That boldface was mine. If that isn't sus, I don't know what is.
Barry in a later post, with the help of a chart provided by Michael Panzner, found the real smoking gun: a laughable assumption for inflation. The lower the inflation assumption, the higher the GDP figure. Not only was the 1.2% chosen lower than CPI, which has been adjusted over time to underreport inflation so to reduce payouts on CPI-indexed programs, most notably Social Security, but as a commentor on Econompics noted, constituted the biggest gap between the GDP deflator and CPI since 1980 (squinting at the chart, that seems to be accurate):
Mind you, this massaging is taking place on top of long-running adjustments that make both GDP and inflation stats questionable. Is it time to revive the 1960s expression "credibility gap"?
Refreshingly, some in the MSM are coming close to doing so. This story in Bloomberg, "Lagging Incomes Signal U.S. Economy Weaker Than GDP Suggests," which came out within hours of the release, discusses the disparity between incomes data and GDP without taking on the GDP report frontally. That's a step in the right direction.
From Bloomberg:
The meager gains in earnings over the last year signal the U.S. economy is in much deeper trouble than the growth estimates indicate, economists said.
Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating gross domestic product, rose 0.3 percent in the 12 months ended in June after adjusting for inflation, according to Bloomberg calculations based on today's Commerce Department growth report. GDP expanded 2.2 percent.
``The income side of the economy, with profits down for four straight quarters and employment falling, looks like a recession,'' said John Ryding, chief economist at RDQ Economics in New York.
Incomes last quarter grew 1.9 percent at an annual rate after adjusting for inflation, a little more than half the 3.3 percent gain posted by GDP, according to Bloomberg calculations. The figures showed incomes dropped in each of the prior two quarters.
``What you are seeing is more legitimate economic weakness in the income numbers,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``The GDI numbers raise the potential that GDP is overstating growth.''
The 1.9 percentage-point difference between the GDI and GDP over the last 12 months is the biggest in the post World War II era.....
The income numbers are more in line with other figures that indicate the economy struggled from April through June. The jobless rate was 5.5 percent in June, up from 5.1 percent at the end of the first quarter, and employers cut 165,000 workers from payrolls, according to the Labor Department.
``I'm looking at the labor market, and the GDP income numbers make more sense,'' said Ryding. ``It certainly did not feel like 3.3 percent growth.''
The earnings data may more accurately predict the start of economic contractions, according to researchers at the Federal Reserve.
Income adjusted for inflation ``has done a better job recognizing the start of recessions than has the growth rate of real GDP,'' Jeremy J. Nalewaik, a Fed economist wrote in a December 2006 report. ``Placing an increased focus on GDI may be useful in assessing the current state of the economy.''
While the income and growth figures should theoretically match, the different methods used in calculating the numbers prevent them from converging fully.
mercredi 27 août 2008
New Census Data on Poverty, Income, and Health Insurance
L'analyse ci-dessous résume bien les questions qu'ont soulevées, aux USA, les caractéristiques particulières de la reprise 2001/2007. Les chiffres sont moins marqués en France (même si la croissance a été inférieure sur cette période à celle des US), mais je crois que les tendances de fond sont applicables à l'ensemble des pays occidentaux. Il semble en effet que, lors de cette dernière période de croissance, la totalité (US, UK) ou une large partie (Europe) des gains réalisés par l'ensemble de l'économie aient été distribués à un minorité. Ce qui ne va pas sans poser d'intéressantes questions...
L'explication néo-classique ou conservatrice du phénomène (une prime à l'éducation accrue par le développement technologique) semble difficile à réconcilier avec le caractère de la distribution. Si l'essentiel des gains avait été réalisé par 10 ou 15% de la société, cela aurait été crédible. Lorsque les gains s'accumulent au 1%, et en réalité au 1/1000, il doit y avoir autre chose.Quoi qu'il en soit, si vraiment cette distorsion résulte d'une prime à l'éducation, la conclusion en terme de politique publique est assez pessimiste : on peut en effet imaginer que des efforts d'éducation amènent 30% d'une population au niveau des 10% supérieurs, mais 30% au niveau du 1% ou 1/1000 supérieur ? No way. Ce ne sont pas des efforts sur le niveau général d'éducation qui augmenteront le nombre (et donc la dispersion des gains) des gestionnaires de hedge funds, entrepreneurs, CEOs, banquiers d'affaires ou détenteurs de capital. Qu'est ce qui entraînera une inversion de la tendance ou, si elle ne s'inverse pas, quelles sont les conséquences potentielles pour la démocratie ?
L'explication néo-classique ou conservatrice du phénomène (une prime à l'éducation accrue par le développement technologique) semble difficile à réconcilier avec le caractère de la distribution. Si l'essentiel des gains avait été réalisé par 10 ou 15% de la société, cela aurait été crédible. Lorsque les gains s'accumulent au 1%, et en réalité au 1/1000, il doit y avoir autre chose.Quoi qu'il en soit, si vraiment cette distorsion résulte d'une prime à l'éducation, la conclusion en terme de politique publique est assez pessimiste : on peut en effet imaginer que des efforts d'éducation amènent 30% d'une population au niveau des 10% supérieurs, mais 30% au niveau du 1% ou 1/1000 supérieur ? No way. Ce ne sont pas des efforts sur le niveau général d'éducation qui augmenteront le nombre (et donc la dispersion des gains) des gestionnaires de hedge funds, entrepreneurs, CEOs, banquiers d'affaires ou détenteurs de capital. Qu'est ce qui entraînera une inversion de la tendance ou, si elle ne s'inverse pas, quelles sont les conséquences potentielles pour la démocratie ?
via Economist's View de Mark Thoma le 26/08/08
Here's a round up or reactions to the Poverty, Income, and health Insurance Report released today by the Census Bureau:
Statement by Robert Greenstein on the New New Census Bureau Data on Poverty, Income, and Health Insurance, CBPP: ...[T]he new Census data are disquieting. Though 2007 was the sixth (and likely the final) year of an economic expansion, poverty was significantly higher, the median income of non-elderly households significantly lower, and the number and percentage of Americans who are uninsured substantially greater than in 2001 — even though the economy was in recession that year.
This is unprecedented. Never before on record has poverty been higher and median income for working-age households lower at the end of a multi-year economic expansion than at the beginning. The new data add to the mounting evidence that the gains from the 2001-2007 expansion were concentrated among high-income Americans. ...
In addition, the number of children living in poverty jumped by 500,000 to 13.3 million, and the child poverty rate climbed from 17.4 percent in 2006 to 18.0 percent in 2007. There was some welcome news on child health insurance – the number of children lacking health insurance declined in 2007, but it remained 400,000 above the number of children who lacked insurance three years earlier, in 2004.
The data also show that employer-based health coverage — and private health coverage in general — continued to erode in 2007, and that all of the improvement in health care coverage in 2007 was due to more Americans obtaining coverage through government health insurance programs, principally Medicare and Medicaid.
Data for 2008 Expected to Be Unfavorable The data for 2007 are of particular concern given that the economy is now in a slowdown, and poverty is almost certainly higher now — and incomes lower — than in 2007. ... This suggests that significant pain may lie ahead for many Americans. ...
Paul Krugman summarizes the significance of the implications of the Census data:
About that Bush Boom …, by Paul Krugman: The 2007 income, poverty and health insurance numbers are out. As far as I can tell on a first read, there's nothing deeply surprising. Still, they represent a landmark — and not in a good way.
The key point is that 2007 was the end of an economic expansion — whether or not the NBER declares a recession, the employment situation, which is what matters to most people, has deteriorated sharply this year. So 2007 was as good as it got in this cycle. Yet median household income was lower than in 2000, while both the poverty rate and the percentage of Americans without health insurance were higher.
In short, the economic policies we've been following just aren't working.
Is the bad economic news all Bush's fault? No, of course not — but remember, the key argument of the right has always been that tax cuts and deregulation would produce good news, a rising tide that raised all boats. Boy, has that not happened.
But remember, we're just a nation of whiners.
Michael Mandel notes the bad news for recent college graduates:
No Income Gain for Young College Grads, by Michael Mandel: The latest income distribution numbers are out from the Census Bureau. ...
For my part, I'm back to my regular business of being concerned with young college grads—the ones who don't have advanced degrees. Basically, the last numbers show almost no change between 2006 and 2007 (as the chart below shows). Young college grads still have not made back their losses from the earlier part of the decade. ...
Jared Bernstein at the EPI echoes the above:
Income Picture, by Jared Bernstein: [See also..., Overall health insurance coverage rises, but masks decline in private coverage.] ...While last year's overall income gains are good news, the longer-range view is quite different. The Census figures show that the economic cycle that began in 2000 and ended late last year was one of the weakest on record for working families, despite strong overall economic growth during the same period (see Table 1 and Figure 1). ...
Looking at the full cycle across economic peak years—a more useful measure in evaluating economic performance—reveals that household income was no higher in 2007 than in 2000, the previous peak. Given rising joblessness and declining real wages, next year's numbers will certainly be worse. ...
... The economy of course expanded in the 2000s, but that growth clearly failed to reach most households, a dynamic that implicates growing income inequality. ...
Next, Brad DeLong
Barack Obama on the Income-Poverty-Health Release, by Brad DeLong: Statement From Senator Obama on the Census Income, Health Insurance and Poverty Numbers
Today's news confirms what America's struggling families already know – that over the past seven years our economy has moved backwards. We have now lived through first so-called economic 'expansion' on record where typical families saw their incomes fall, and working-age households lost more than $2,000 from their paychecks. Another 816,000 Americans fell into poverty in 2007 – including nearly 500,000 children – bringing the total increase in Americans in poverty under President Bush to 5.7 million. And on Bush's watch, an additional 7.2 million Americans have fallen into the ranks of the uninsured. This is the failed record of George Bush's economic policies that Senator McCain has called 'great progress.' While Senator McCain is promising four more years of the failed Bush economic policies, my economic plan will restore bottom up economic growth that benefits all Americans by cutting taxes for working Americans, providing affordable, accessible health care for all, and investing in new energy, education and infrastructure so we can create millions of good jobs here in America," said Senator Barack Obama.
Highlights from the Census report:
- Between 2000 and 2007, median income for working age households fell by $2,176. When elderly households are included, median income declined by $324 over the same period. This is the first economic expansion on record where typical households have seen their incomes decline. Under the Clinton Administration, median household income increased by $6,200.
- African American household income fell by $1,804 between 2000 and 2007; Hispanic household income fell by $1,256 over the same period...
- An additional 816,000 Americans fell into poverty in 2007, bringing the total increase in Americans in poverty under President Bush to 5.7 million.
- 500,000 children fell into poverty in 2007. There are 1.7 million more children living in poverty than in 2000.
- Between 2000 and 2007, an additional 7.2 million Americans have fallen into the ranks of the uninsured. This is the largest increase in the number of people without health insurance of any Presidential Administration on record.
- The share of Americans with private health coverage fell from 67.9% in 2006 to 67.5% in 2007. This share has fallen every year that President Bush has been in office, declining a total of 5 percentage points since 2000.
- 940,000 African Americans have lost health insurance since 2000, along with 3 million Hispanics
Mathew Yglesias emphasized the importance of the public sector as a health insurance backstop:
Public Sector to the Rescue, by Mathew Yglesias: Today's Census numbers show a slight downtick in the proportion of Americans who lack health insurance. This, Jonathan Cohn notes, despite a continued decline in the number of people with private sector health insurance. "The reason the overall numbers look good is rising enrollment in public insurance programs, particularly Medicaid." He also notes that when you peer into the numbers, the state with the largest overall two-year increase in health insurance rates is Massachusetts, which has adopted the most aggressive health care reform agenda of any state and serves as a kinda sorta model for what progressive reform at the federal level — especially something authored by Ted Kennedy — might look like.
And, finally, one more from Brad DeLong
Income and Poverty Over the 2000-2007 Business Cycle, by Brad DeLong: 2000-2007: the first business cycle during which median household income in America falls from peak to peak. ...
http://www.census.gov/prod/2008pubs/p60-235.pdf
It's not all George W. Bush's fault, but I can think of a number of things he did to hurt and not a damned thing he did to help. ...
"The swelling tide of toxic home loans is proving to be even more worrisome ...
Un des aspects intéressants de la bulle et de son éclatement est qu'elle n'avait pas manqué d'analystes, souvent crédibles et, grâce à l'internet, très visibles. Les Cassandre, et c'est nouveau, avaient des tribunes publiques, et Dean Baker qui en faisait partie supporte mal qu'on l'oublie. Il a raison...
via Beat the Press le 26/08/08
It would be nice if some of the people who get paid big dollars because they supposedly have high skills could acknowledge that they messed up. It would also be nice if the national media did not consider it part of their job to cover up for powerful people who messed up on their job.
Yes, that headline is a a direct quote. It also is the sort of statement that has no place in a serious news article. The swelling tide of toxic loans is not proving to be more worrisome than feared. The problem is that the people who were supposed to be regulating the financial system did not know what they were doling.
The people who did understand the economy knew that an unprecedented run-up in house prices, with no remotely plausible explanation based on fundamentals, with no corresponding increase in rents, was a bubble. We also knew that bubbles burst. And, we knew that when bubbles in a highly leveraged asset like housing burst, that lots of debts go bad and that banks then take really big hits.
The NYT should be exposing the incompetence of people who were paid big dollars to know the housing and financial markets (this includes both bankers at place like Citigroup, Merill Lynch, Bear Stearns, Fannie Mae and Freddie Mac, as well as the top regulators) and completely failed in their responsibilities.
It should not try to tell readers that the housing crash was somehow an unforeseeable event that came out of the blue. It was an entirely predictable event and it was only incompetence that prevented these people from seeing it. Unfortunately, unlike dishwashers and custodians, bank executives and regulators are not held accountable for their performance. Instead, the media covers it up for them.
--Dean Baker
mardi 26 août 2008
Financial Times Advocates Newspeak!
!!!!
Je les trouve optimistes. L'essentiel du business dans les multinationales d'aujourd'hui est réalisé en Newspeak. Le manager "international" de base a rarement plus de 1500 mots de vocabulaire.
The total surveillance society program is further along in London than in the US (the prevalence of CCTV, for instance), but it's still a shocker to see a comment in the Financial Times, which many consider to be the best paper in the English language, advocating Newspeak.
For those of you who need a refresher, English writer George Orwell's best known work, 1984, describes a totalitarian state which has perfected the art of mind control. One of its tools is Newspeak. From Wikipedia:
Now from the op-ed in the Financial Times by Michael Skapinker, which, a la Newspeak, recommends sharply reducing the vocabulary used in writing for the convenience of foreigners. We've too often seen, however, that seemingly beneficial initiatives can be turned to other ends.
From the Financial Times:
The problem is it will be too tempting to make a more robust version of Simplified English serve for everyone. Just imagine how it will take dumbing down to a new level.
Je les trouve optimistes. L'essentiel du business dans les multinationales d'aujourd'hui est réalisé en Newspeak. Le manager "international" de base a rarement plus de 1500 mots de vocabulaire.
via naked capitalism de Yves Smith le 25/08/08
The total surveillance society program is further along in London than in the US (the prevalence of CCTV, for instance), but it's still a shocker to see a comment in the Financial Times, which many consider to be the best paper in the English language, advocating Newspeak.
For those of you who need a refresher, English writer George Orwell's best known work, 1984, describes a totalitarian state which has perfected the art of mind control. One of its tools is Newspeak. From Wikipedia:
Newspeak is a fictional language in George Orwell's novel Nineteen Eighty-Four. In the novel, it is described as being "the only language in the world whose vocabulary gets smaller every year." Orwell included an essay about it in the form of an appendix in which the basic principles of the language are explained. Newspeak is closely based on English but has a greatly reduced and simplified vocabulary and grammar. This suits the totalitarian regime of the Party, whose aim is to make any alternative thinking – "thoughtcrime", or "crimethink" in the newest edition of Newspeak – or speech impossible by removing any words or possible constructs which describe the ideas of freedom, rebellion and so on. One character says admiringly of the shrinking volume of the new dictionary: "It's a beautiful thing, the destruction of words."
Now from the op-ed in the Financial Times by Michael Skapinker, which, a la Newspeak, recommends sharply reducing the vocabulary used in writing for the convenience of foreigners. We've too often seen, however, that seemingly beneficial initiatives can be turned to other ends.
From the Financial Times:
When I spoke to a recent Brussels conference of business translators, one of them asked me if the Financial Times had any plans to publish a separate edition in simplified English.....
On the Eurostar back to London, I pondered what a simplified FT might look like. The first issue to tackle, I thought, would be vocabulary. In his book The English Language, David Crystal says that a medium-sized English dictionary has about 100,000 words in it. Even native speakers know only a fraction of these....
Mr Crystal, in his book, recounts an attempt to work out how many words the average native English-speaker does know. This involved taking a sample of entries from different parts of a dictionary and asking the subject to count how many she recognised. Extrapolating her answer to the whole dictionary suggested she understood 38,300 words and regularly used 31,500.
How many words would a non-native speaker need to understand a simplified form of English? Several people have investigated this over the years and have come up with a similar answer: fewer than 1,000. One of the pioneers of simplified language, Charles Kay Ogden, devised what he called Basic English in the 1920s. It used only 850 words – sufficient, he said, to communicate.
The Aerospace and Defence Industries Association of Europe, a champion of simplified English, has devised a system that uses no more than 900 words. The association's involvement demonstrates what often drives simplified English: the need for safety.
When pilots or sailors from different countries talk to each other, they usually do so in English. English is the international language and, in spite of challenges from Spanish or Mandarin, is likely to remain that way throughout our lifetimes.
Air traffic controllers, pilots and sailors began speaking to each other in English and soon developed a language they could all understand. A limited but effective vocabulary was one part of it, but they also needed forms of speech that they could all recognise. Misunderstandings meant people could die.
So in 1980, Mr Crystal writes, a project was set up on Essential English for International Maritime Use. Also known as Seaspeak, this relied on standard, easily understood phrases. So instead of "What did you say?" or "I can't hear you" or "Please repeat that", sailors and coast guard officials were told to opt for "Say again."
The European aerospace association's effort began a year earlier when the Association of European Airlines asked aircraft manufacturers to improve the comprehensibility of maintenance manuals. Many airline technicians were not native English speakers and found the documents difficult.
In 1986 the manufacturers issued their first guide to Simplified Technical English, which was then adopted by the Air Transport Association of America and has since become an international standard.
The standard is specific in its instructions, which aim to ensure that once someone has learnt a word in one form, they will not encounter it in another. So manufacturers are told the word "follow" should always mean "come after" and not "obey". So you can say "obey the safety instructions" but not "follow the safety instructions".
You can see why this might be useful in aircraft maintenance books but it would be unnecessarily restrictive in reporting the credit crisis.
But at least one news organisation has developed a simplified English service, and it did it some time back. The Voice of America broadcast its first programme in what it calls "Special English" in 1959.
This has a slightly bigger vocabulary – 1,500 words. It also has style rules: use short sentences that contain only one idea. Use the active voice. Do not use idioms. And above all, speak slowly. Special English broadcasters speak at two-thirds of normal speed.
To a native speaker, the effect is soporific. To a non-native speaker, the increase in comprehension must be thrilling. Simplified English may not be for everyone, but with the rise in the number of people around the world working in English, I suspect we will see more of it.
The problem is it will be too tempting to make a more robust version of Simplified English serve for everyone. Just imagine how it will take dumbing down to a new level.
jeudi 21 août 2008
Sur l'impact de la taxation des gains en capital
Au détour d'un allumage par Brad de Long de la NR, qqes arguments intéressants sur l'impact des variations de l'imposition sur les plus values.
via Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong de Brad DeLong le 14/08/08
Someday the writers of National Review will realize that the incompetence of their economic coverage is one reason for the shredding of their own professional reputations. But that day is not yet.
Thomas Sowell
Thomas Sowell on Obama on National Review Online: The question, incidentally, was why Senator Obama was advocating a higher capital-gains tax rate when experience has shown that the government typically collected more revenue from a lower capital-gains tax rate than from a higher rate.... Economists may say that higher capital-gains tax rates can translate into lower levels of economic activity and fewer jobs, but Obama will leave that kind of analysis to the economists...
Congressional Budget Office:
Congressional Budget Office: Because taxes are paid on realized rather than accrued capital gains, taxpayers have a great deal of control over when they pay their capital gains taxes. By choosing to hold on to an asset, a taxpayer defers the tax. The incentive to do that -- even when it might otherwise be financially desirable to sell an asset -- is known as the lock-in effect. As a consequence of that incentive, the level of the tax rate can substantially influence when asset holders realize their gains, as can be seen particularly clearly when tax rates change.... For instance, the Tax Reform Act of 1986 boosted capital gains tax rates effective at the beginning of 1987. Anticipating that increase, investors realized a huge amount of gains in 1986. Then, in 1987, realizations fell by almost as much, returning to a level comparable to that before the tax increase.... The sensitivity of realizations to gains tax rates raises the possibility that a cut in the rate could so increase realizations... in the short run.... [A] stock of accumulated gains may be realized shortly after the rate is cut, but once that accumulation is "unlocked," the stock of accrued gains is smaller and realizations cannot continue at as fast a rate as they did initially.... The potentially large difference between the long- and short-term sensitivity of realizations to tax rates can mislead observers into assuming a greater permanent responsiveness than actually exists...
Justin Fox:
"Serious" economists and capital gains taxes - The Curious Capitalist - Justin Fox - Economy - Markets - Business - TIME: on this particular topic I tend to rely on professors at fancy universities who have served in the current Bush administration, because I figure it's hard to dismiss their verdict as political. The current consensus of this crowd is pretty well reflected in a 2004 paper by Greg Mankiw, the former chairman of Bush's Council of Economic Advisers, and Matthew Weinzierl, which concluded that "for standard parameter values, half of a capital tax cut is self-financing." That means half of the tax cut is not self-financing--so the overall result of the cut is a revenue loss. And those "standard parameter values" include spending cuts to make up for the revenue loss from the tax cuts. If you simply do as the Bush administration has done, and make no commensurate spending cuts, you get less than half of the tax cut back...
A quibble: without offsetting spending cuts, you get less than zero of the tax cut back. The dynamic revenue loss is greater than the static revenue loss.
The Second Coming of Norman Angell
Le type qui croyait que la guerre était obsolète
via Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong de Brad DeLong le 15/08/08
China's government attempts to reassure its citizens of its power and worth by hosting the Olympic Games. Russia's government attempts to reassure its citizens of its power and worth by picking up a small country and throwing it against the wall--as recommended by AEI scholar Michael Ledeen. Paul Krugman meditates on the Great Illusion identified by Norman Angell, and the Great Illusion of Norman Angell:
The Great Illusion: I found myself wondering whether this war is an omen — a sign that the second great age of globalization may share the fate of the first.... [O]ur grandfathers lived in a world of largely self-sufficient, inward-looking national economies — but our great-great grandfathers lived, as we do, in a world of large-scale international trade and investment, a world destroyed by nationalism.
Writing in 1919, the great British economist John Maynard Keynes described the world economy as it was on the eve of World War I. "The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth ... he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world." And Keynes's Londoner "regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement ... The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion ... appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice."
But then came three decades of war, revolution, political instability, depression and more war. By the end of World War II, the world was fragmented economically as well as politically. And it took a couple of generations to put it back together....
Europe's dependence on Russian energy, especially natural gas, now looks very dangerous — more dangerous, arguably, than its dependence on Middle Eastern oil. After all, Russia has already used gas as a weapon: in 2006, it cut off supplies to Ukraine amid a dispute over prices. And if Russia is willing and able to use force to assert control over its self-declared sphere of influence, won't others do the same?... Some analysts tell us not to worry: global economic integration itself protects us against war... because successful trading economies won't risk their prosperity by engaging in military adventurism. But this, too, raises unpleasant historical memories.
Shortly before World War I another British author, Norman Angell, published a famous book titled "The Great Illusion," in which he argued that war had become obsolete, that in the modern industrial era even military victors lose far more than they gain. He was right — but wars kept happening anyway.... [W]ar among the nations of Western Europe really does seem inconceivable now, not so much because of economic ties as because of shared democratic values. Much of the world, however, including nations that play a key role in the global economy, doesn't share those values....
Angell was right to describe the belief that conquest pays as a great illusion. But the belief that economic rationality always prevents war is an equally great illusion...
mercredi 20 août 2008
pensée unique et théorie du salaire minimum
via EconoSpeak de Michael Perelman le 14/08/08
Here is the last paragraph of what I posted earlier, plus some text that goes into more detail about the subject. Any suggestions would be appreciated.
Most economists are dismissive of any theory not built on what they consider to be solid micro-foundations -- economists' jargon for this patently unrealistic model. Mainstream economists feel threatened by the suggestion that work, workers, or working conditions could be a legitimate subject of economic inquiry. As a result, any challenges to their theoretical position get treated to a hostile reception.
In one famous case, in 1944 Richard Lester published an article questioning whether labor markets actually operated in the manner that mainstream economics suggested. Lester had extensive experience in industry after having recently served as chair of the Southern Textile Commission of the National War Labor Board. Using government data, as well as surveys of industry leaders, Lester found evidence at odds with the assumptions of mainstream economic theory (Lester 1944). For example, his results suggested that an increase in the minimum wage would have little or no effect on employment, a conclusion that infuriated major defenders of the faith, led by George Stigler, later a leader of the Chicago school of economics and a Nobel laureate (see Prasch 2007).
Exactly a half century later, using an entirely different approach, Alan Krueger of Princeton and David Card of the University of California, Berkeley walked back into the same hornet's nest (Card and Krueger 1994). As might be expected, they too met with hostile criticism from fellow economists, some sponsored by the fast food industry. Card and Krueger were both distinguished economists. In fact, Card had won the John Bates Clark award from the American Economic Association given to the outstanding economist under the age of 40. In the face of the controversy, Card eventually dropped this line of research because of the personal costs of challenging the discipline. He explained:
I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole. [Clement 2006]
Lester and Card did not fail to convince their fellow economists because of errors in their work. Economists either ignored their results or, worse yet, rejected them out of hand because they conflicted with economists cherished beliefs. As Stigler's colleague, Milton Friedman, once wrote: "Nothing is harder than for men to face facts that threaten to undermine strongly held beliefs, to change views arrived at over a long period. And there are no such things as unambiguous facts" (Friedman 1968, p. 14; cited in Diesing 1985, p. 61).
Yet, Chicago economics is famous for rejecting empirical evidence. Dierdre McCloskey, a former Chicago faculty member, recounts how people who used data that called the theory into question would "be met by choruses of "I can't believe it" or "It doesn't make sense." Milton Friedman's own Money Workshop at Chicago in the late 1960s and the early 1970s was a case in point" (McCloskey 1985, p. 140).
Melvin Reder, another Chicago faculty member, offered further insight in the way that Chicago refuses to give ground in the face of evidence that calls the micro-foundations into question:
Chicago economists tend strongly to appraise their own research and that of others by a standard that requires [inter alia] that the findings of empirical research be consistent with the implications of standard price theory .... The major objective is to convert non economists to their way of thinking .... However imaginative, answers that violate any maintained hypothesis of the paradigm, are penalized as evincing failure to absorb training. [Reder 1982, pp. 13, 18, and 19]
Economists regard this stubborn resistance to be good science. Predictably, the troubling questions raised by Lester and Card had no effect. Economists' beloved micro-foundations and their faith in market efficiency remained invulnerable -- so much so that economists today rarely even bother to publish research about the core of economic theory. In this environment, economists can continue to use their transaction-based theory without the inconvenience of dealing with work, workers, or working conditions. But by removing work, workers, and working conditions from their theory, economists blind themselves to the kind of inefficiencies that this book shows, especially in Chapter 9.
"Let the Games Be Doped"
J'aime bien cette vision de la question du dopage, l'argument est séduisant et peut s'appliquer à d'autres domaines dans lesquels l'application du principe de stricte liberté crée des externalités significatives
In his recent (8/12/08) New York TIMES article titled "Let the Games Be Doped," John Tierney argues that we should let athletes take any drugs -- or use any artificial means they want -- in athletic contests. I was going to write a letter to the TIMES, but got lazy and/or busy. Now, in today's "Science" section, there are two particularly anemic letters criticizing Tierney's perspective. So I'm provoked to write.
Of course, there are obvious questions. If all artificial means are OK, why can't Olympic swimmers use flippers? or why not weapons? Take THAT, Michael Phelps!
But that's not my point (see also my Valentine's Day card on EconoSpeak this year at http://econospeak.blogspot.com/2008/02/next-steroids.html). Tierney comes at the issue from a "libertarian" angle, arguing essentially that it's up to the individual to decide on whether or not the costs of steroids (or whatever) outweigh benefits. The problem is (as is often ignored by so-called "libertarians") there are external costs. In this case, athlete A imposes costs on athlete B without the latter's consent.
In plainer prose, if athlete A uses steroids, that gives him a competitive advantage. So, if athlete B wants to win, she has to take them too (or compensate for her disadvantage in some other way). With a bunch of athletes in the same event, it's unlikely that the relative rankings will change a lot due to steroid use. The external costs would push them all to use steroids -- and they'll all end up pretty much where they started. Since steroids have bad side-effects, it's a kind of self-destructive competition.
Robert Frank and Philip Cook call for an "arms control" agreement in this situation. All of the athletes in an event are prevented from using steroids, then we prevent the self-destructive competition. That's what anti-doping rules are all about.
Further, the Olympics involve what Frank and Cook call a "winner-take-all" competition (in their book THE WINNER-TAKE-ALL SOCIETY). That means that if someone wins a gold medal (in a TV-popular event) it means big bucks, along with a lot of non-financial rewards. But if you win "only" a silver or a bronze medal, the rewards are nil. This creates a massive incentive to engage in self-destructive competition.
What to do? We could split athletics into two completely separate "tracks." On the one hand, there would be dope-free track, where athletes must voluntarily participate in drug tests. On the other, there would be the "Tierney track," where all artificial means are allowed. Saturday Night Live had a skit about Tierney's idea a long time ago, back when Dennis Miller was funny (see http://www.hulu.com/watch/4090/saturday-night-live-weekend-update-all-drug-olympics).
My guess is that the drug-free track would have much greater prestige. In terms of "libertarian" notions, I'd bet that it would pass the "market test" with flying colors. The Tierney track would go the way of the late unlamented XFL.
Note that I am not against new technology (cyborgs in athletic events, etc.) Go for it: if you want to abuse your body, it's your right as an American! (Why not heroin?) Nor am I saying that Big Brother should dictate to all athletes. But there should be a minimal-technology or "clean" track in athletics. If people don't want to participate, they don't have to.
On top of that, some effort should be made to get rid of the "winner-take-all" element. For example, take the money out of sports. This is less likely to happen. But I think we can all do something as individuals: shun "big league" sports and watch "minor league" or amateurs ones. Here in L.A., forget the Kings and watch the Long Beach Ice Dogs. Even better, instead of watching sports, participate in them. Among other things, it's actually good for one's health. And feel free to use advanced technology, like a Wii.
-- Jim Devine
via EconoSpeak de Econoclast le 20/08/08
In his recent (8/12/08) New York TIMES article titled "Let the Games Be Doped," John Tierney argues that we should let athletes take any drugs -- or use any artificial means they want -- in athletic contests. I was going to write a letter to the TIMES, but got lazy and/or busy. Now, in today's "Science" section, there are two particularly anemic letters criticizing Tierney's perspective. So I'm provoked to write.
Of course, there are obvious questions. If all artificial means are OK, why can't Olympic swimmers use flippers? or why not weapons? Take THAT, Michael Phelps!
But that's not my point (see also my Valentine's Day card on EconoSpeak this year at http://econospeak.blogspot.com/2008/02/next-steroids.html). Tierney comes at the issue from a "libertarian" angle, arguing essentially that it's up to the individual to decide on whether or not the costs of steroids (or whatever) outweigh benefits. The problem is (as is often ignored by so-called "libertarians") there are external costs. In this case, athlete A imposes costs on athlete B without the latter's consent.
In plainer prose, if athlete A uses steroids, that gives him a competitive advantage. So, if athlete B wants to win, she has to take them too (or compensate for her disadvantage in some other way). With a bunch of athletes in the same event, it's unlikely that the relative rankings will change a lot due to steroid use. The external costs would push them all to use steroids -- and they'll all end up pretty much where they started. Since steroids have bad side-effects, it's a kind of self-destructive competition.
Robert Frank and Philip Cook call for an "arms control" agreement in this situation. All of the athletes in an event are prevented from using steroids, then we prevent the self-destructive competition. That's what anti-doping rules are all about.
Further, the Olympics involve what Frank and Cook call a "winner-take-all" competition (in their book THE WINNER-TAKE-ALL SOCIETY). That means that if someone wins a gold medal (in a TV-popular event) it means big bucks, along with a lot of non-financial rewards. But if you win "only" a silver or a bronze medal, the rewards are nil. This creates a massive incentive to engage in self-destructive competition.
What to do? We could split athletics into two completely separate "tracks." On the one hand, there would be dope-free track, where athletes must voluntarily participate in drug tests. On the other, there would be the "Tierney track," where all artificial means are allowed. Saturday Night Live had a skit about Tierney's idea a long time ago, back when Dennis Miller was funny (see http://www.hulu.com/watch/4090/saturday-night-live-weekend-update-all-drug-olympics).
My guess is that the drug-free track would have much greater prestige. In terms of "libertarian" notions, I'd bet that it would pass the "market test" with flying colors. The Tierney track would go the way of the late unlamented XFL.
Note that I am not against new technology (cyborgs in athletic events, etc.) Go for it: if you want to abuse your body, it's your right as an American! (Why not heroin?) Nor am I saying that Big Brother should dictate to all athletes. But there should be a minimal-technology or "clean" track in athletics. If people don't want to participate, they don't have to.
On top of that, some effort should be made to get rid of the "winner-take-all" element. For example, take the money out of sports. This is less likely to happen. But I think we can all do something as individuals: shun "big league" sports and watch "minor league" or amateurs ones. Here in L.A., forget the Kings and watch the Long Beach Ice Dogs. Even better, instead of watching sports, participate in them. Among other things, it's actually good for one's health. And feel free to use advanced technology, like a Wii.
-- Jim Devine
lundi 18 août 2008
Financial Innovation
Résumé de 20 ans de politiques publiques américaines (et malheureusment, par ricochet, européennes) en matière de régulation des marchés financiers
via The Big Picture de Barry Ritholtz le 15/08/08
Thank you for all of the Cartoons -- This was one of the best ones:
vendredi 8 août 2008
Democratic versus Authoritarian Capitalism
via Economist's View de Mark Thoma le 06/08/08
Robert Reich is back from vacation:
The Real Competition Behind the Olympic Games, Robert Reich: The real competition lurking behind the upcoming Olympic games is between democratic capitalism and authoritarian capitalism.
For years American policy toward China assumed that trade and economic growth would generate a large Chinese middle class, and this middle class would demand democratic reforms. We were right on the first part. ... But we were wrong about the democracy part. We thought capitalism and democracy went hand in glove. They don't. Economic reforms are well underway in China. Individual Chinese can own property and invest, trade and buy almost whatever they want. Private enterprise is in, collectives are out. But when it comes to civil and political rights, China today is where it was almost two decades ago at the time of Tiananmen Square.
Authoritarian capitalism works wonders if all you care about is getting ahead economically... Never before in history have so many people gained economic ground so fast as in China over the last two decades. But if you're someone with a grievance, or you want to criticize those in power, or you're a Tibetan or ethnic minority, or you happen to like clean air, you're out of luck.
Democratic capitalism should win in the end because it responds far better to what people want -- not only as consumers but also as citizens. Yet right now the outcome of the competition doesn't seem so clear. The Chinese economy is booming while we're in deep trouble. Eighty percent of Chinese are optimistic about the future but only 20 percent of Americans say this nation is on the right track. And most Americans tell pollsters they don't trust politicians and believe our government is run by big corporations and the rich.
In terms of this large underlying competition, think of our upcoming presidential election is our own Olympic games. It will showcase to the world whether, and how well, democratic capitalism still works.
Will authoritarian capitalism become the next economic development model as other countries try to mimic China's success? If so, is that a good thing? Will democracy, in fact, win in the end?
Stiglitz: Turn Left for Growth
via Economist's View de Mark Thoma le 06/08/08
Who has the better prescription for economic growth, the left or the right? Joseph Stiglitz says that's an easy call, it's the left:
Turn left for growth, by Joseph Stiglitz, Comment is Free: Both the left and the right say they stand for economic growth. ... There are, indeed, big differences in growth strategies, which make different outcomes highly likely.
The first difference concerns how growth itself is conceived. Growth ... must be sustainable: growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources, without reinvesting the proceeds, is not sustainable.
Growth also must be inclusive; at least a majority of citizens must benefit. Trickle-down economics does not work... America's recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than they were seven years ago.
But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. ... So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.
A modern economy also requires risk-taking. Individuals are more willing to take risks if there is a good safety net. If not, citizens may demand protection from foreign competition. Social protection is more efficient than protectionism.
Failures to promote social solidarity can have other costs... [For example, the] cost of incarcerating two million Americans – one of the highest per capita rates (pdf) in the world – should be viewed as a subtraction from GDP, yet it is added on.
A second major difference between left and right concerns the role of the state in promoting development. The left understands that the government's role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. ...[examples]
The final difference may seem odd: the left now understands markets... The right, especially in America, does not. The new right, typified by the Bush-Cheney administration, is really old corporatism in a new guise.
These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles. The list of examples is long, but it includes...
By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own... Defenders of markets sometimes admit that they do fail, even disastrously, but they claim that markets are "self-correcting." ...
Markets are not self-correcting in the relevant time frame. No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy's hospital bills, they must ... make it less likely that hospitalisation will be needed. The right's deregulation mantra was simply wrong, and ... the price tag – in terms of lost output – will be high, perhaps more than $1.5trn in the US alone.
The right often traces its intellectual parentage to Adam Smith, but ... Smith recognised the ... need for strong anti-trust laws.
It is easy to host a party. For the moment, everyone can feel good. Promoting sustainable growth is much harder. Today, in contrast to the right, the left has a coherent agenda, one that offers not only higher growth, but also social justice. For voters, the choice should be easy.
vendredi 1 août 2008
GDP for Q4 2007 revised to negative !
Comme prévu, la croissance Q4 aux US s'est finalement, après révision, avérée négative. Via Big P, un ensemble de stats qui confirment, s'il en était besoin, que nos problèmes ne font que commencer.
via The Big Picture de Barry Ritholtz le 31/07/08
Across the board, this was simply a horrible, recession set of data:
Initial Jobless Claims: 448k. That's the worst level since April 2003.
Q2 GDP: 1.9%, well below consensus of 2.3%.
Q4 GDP Revisions: Revised from +0.6 down to -0.2%; The first negative quarter (Don't say we didn't warn you) since Q3 2001.
Q1 GDP Revisions: Revised down to 0.9% from 1.0%
Note -- I expect these revisions will get revised even lower in the future.
Durable Goods:
Consumer Spending: Despite $100 billion in rebate checks, consumer spending was up only .56% -- the bulk of which was (undercounted) food and energy inflation. Nominal spending for the quarter was 3%.
Inflation: The personal consumption expenditure price index rose at a 4.2% annual rate.
Revisions: A major set of revisions, and nearly all were negative. The economy contracted in the last three months of 2007, providing the first negative quarterly GDP data. Q4 GDP 2007 was revised to a negative number from +0.6% to -0.2%. And, this is very likely to be revised even lower in the future.
Just nasty numbers across the board.
One last "surprise" -- Bill King observes that the GDP Price Index inexplicably tanked to 1.1% in Q2; 2.4% was expected. Nominal GDP declined to 3% from Q1's 3.5%. Thus, the Q2 GDP benefited by 1.5% points, thanks to the mysteriously collapsing GDP Price Index, down to 1.1% from Q1's 2.6%.
Hence, I expect Q2 2008 GDP to eventually get revised downwards to 0.4% -- or worse.
Here are the charts:
>
Real GDP Growth
Chart courtesy of Barron's Econoday
>
New Jobless Claims
Chart courtesy of Barron's Econoday
>
Larry, you have some 'splainin to do!
James, are you really going to make me wait for that Bladerunner DVD?
>
Previously:
Recessions Often Begin With Positive GDP Data (May 2008)
http://bigpicture.typepad.com/comments/2008/05/positive-gdp-re.html
Sources:
GROSS DOMESTIC PRODUCT: Second Quarter 2008 (Advance)
BEA, JULY 31, 2008
http://www.bea.gov/newsreleases/national/gdp/2008/gdp208a.htm
Summary of GDP Revisions
http://bigpicture.typepad.com/comments/files/summary_of_gdp_revisions.pdf
Related:
U.S. economy suffers fourth-quarter contraction
Revisions show spending slower, profits higher than previously thought
Rex Nutting
MarketWatch, 9:01 a.m. EDT July 31, 2008
http://www.marketwatch.com/news/story/commerce-dept-concedes-us-economy/story.aspx?guid=%7BB40570D2%2D40FB%2D45BD%2D8920%2DFEC19E1A1F26%7D
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