This is interesting.
It is not really news that a focus on the source of job losses is a waste of attention, but I do not recall it being illustrated quite as well as in the labour market statistics quoted by David Leonhardt in this New York Times article. What the data over 14 years appear to show is that what happens in a slow-down is not that more jobs are lost but that less jobs are created.
]]>"Today, a bank can grant a leveraged loan with impunity, since it can offload the credit risk. And market demand for that risk is insatiable. The form of credit derivative known as the collateralised loan obligation, or CLO, feeds on just such loans."
To which my reaction is: That "insatiable" demand will surely not last for long. After all, the market for securitised UK home loans was affected by the big blow-out in the housing market c.1990, was it not ?
The current turmoil in the world's stock markets is a result of that "insatiable" demand going sharply into reverse, mainly because investors have belatedly realised that money was being lent with wild abandon.
]]>Here are some extracts:
..The broad question is the one Erik Reinert states in his title: How Rich Countries Got Rich... and Why Poor Countries Stay Poor. Reinert is a Norwegian professor who now teaches at Tallinn, Estonia. Ha-Joon Chang, a well-known Korean development economist, teaches at Cambridge. But both give strikingly similar answers to this question.
Both state that the priority in development is rapid and sustained growth. Only industrialisation can deliver such growth, because industry is the only sector in which rapid and sustained rises in productivity are feasible. Furthermore, to industrialise, countries must upgrade their technological and managerial capabilities, which can be achieved only if they are able to nurture infant sectors. That requires protection, they both argue, as has been the case in every successful economy of the past half-millennium.
Tragically, they argue, the “neo-liberal hegemony” - the broad consensus on liberal trade and freer markets of the past quarter century - has deprived countries of these valuable tools. The result has been a development disaster, particularly in Latin America and Africa, where the International Monetary Fund and the World Bank have run amuck. The World Trade Organisation and a host of one-sided so-called free trade agreements further constrain the ability of developing countries to adopt sensible policies. ....
[Reinert]... points to the success of protection against imports since the Renaissance. Reinert argues that, for poor countries, specialisation in line with comparative advantage means specialising in poverty. ... free trade is suitable only for countries at the same level of development.
So, in respect of Africa - surely the most important and urgent case for treatment - Reinert recommends internal free trade and external barriers to trade, in place of what he condemns as the mere “palliative economics” of millennium development goals, bed-nets and ever more aid....
... I agree with both authors that ....some policies that now affect developing countries are dangerous: restrictions on easy access to intellectual property are perhaps the most important....
South Korea and Taiwan were exceptional cases. The argument that success will follow the overthrow of the neo-liberal consensus and the return of protection is nonsense. But the authors are right that those who argued that free trade alone is the answer were wrong. There are no magic potions for development. Developmental states can work. Many fail. But some may succeed.
Above all, developing countries should be allowed to try, and so learn from their own mistakes. Countries should be warned of the difficulties of following South Korea’s example, but allowed to do so if they wish....
Chang is right that some of the constraints imposed upon developing countries, notably on intellectual property, are unconscionable. Most should enjoy the benefit of open markets from the rich, but be allowed to pursue their own paths, from laissez-faire to its opposite. They will make many mistakes. So be it. That is what sovereignty means.
The comments of Dani Rodrik, my favourite on-line economist at present, on the review are interesting, too, as all of his contributions, especially on this subject, are.
]]>Here are some extracts from a long piece:
We can all have fun in Household Budget Survey land....
Where else can you find that in the bottom 40% income groups, no one buys limes ? Or that the poorest 10% spend a higher proportion of their income on church contributions than anyone else? Or that the richest 10% spent nothing on funeral expenses (the rich must ‘die harder’)?
...I’d like to try my hand at a small set of figures: the extent to which higher income groups’ spending patterns attract higher state subsidies. For instance, if the state subsidises house-purchasing more than it does rent, we can get an idea of where that public expenditure is going by analysing the spending patterns of the different decline groups. Similarly with VHI relief or a whole group of other categories. ...
Public subsidies are heavily skewered to house purchase as opposed to tenants. ...[and]Nearly ¾ of mortgage interest relief goes to the upper-half of the adult population (the top four deciles of households equals 50% of all adults).
Relief for health insurance is only slightly less regressive though this may be an under-estimate as a number of low and even middle income households may not get the full tax relief if they are not fully in the tax net (these figures only relate to expenditure and not to the actual distribution of tax relief).
Taken together, these two reliefs cost the Exchequer (that is, the taxpayer – which is everyone; from the richest to the poorest) over €500 per year (that’s before the Government increased mortgage interest relief in the last budget – therefore, it’s [now]higher). It is questionable whether the vast majority of people are getting ‘value for money’ here.
It has long been established that pension contributions are highly regressive. The CSO gives us an update...While the top 25% of income earners account for nearly 70% of private pension expenditure – the distribution of tax relief would probably be even more regressive as those on the top rate get 41% relief while those on standard rate only get 20%. And this means a lot of money – employees and self-employed pension relief costs in the order of €1 billion a year (and that’s not counting the pension funds’ full tax exemption).
So the distribution of over €1.5 billion in public expenditure is skewered to the highest income groups. By contrast let’s take a look at one particular tax – refuse charges.
Charges for this absolute necessity of domestic life are skewered in favour of high income groups. This extremely regressive tax (or levy or charge) has such an impact that many low income households pay less in income tax or PRSI than they do refuse charges. In any event, the lowest income group pays five times more than the highest income groups as a % of gross income, even though they have nearly 18 times less income.
Please bear that last point in mind the next time you are tempted to get "sniffy" with those who object to being charged under the "polluter pays" principle, as I confess that I often am (despite the baby brother's repeated correctives).
I recommend going to Michael's website/RSS feed to read the full thing, if only to see the graphics which tell the stories even more clearly.
]]>As he licks his wounds after losing his political career, Michael McDowell gets support for his position on inequalityfrom economist Arnold Kling.
A couple of months ago, I drew attention to another article by Kling. Like the earlier one, this article is yet another contribution to the debate on immigration which has continued even after the recent defeat of the proposed amendments to U.S. immigration legislation.
Giovanni Peri writes [that]U.S.-born workers are climbing the educational ladder, acquiring interactive/analytic skills and progressively leaving the manual jobs that would put them in competition with immigrants. If the trend continues as expected, the day is not far off when virtually all manual labor will be performed by foreign-born labor. This implies large wage gains for native workers, since they will be able to specialize in language-intensive and interactive tasks that are typically far better paid.
While some people shudder at the prospect of a more stratified society with immigrants at the bottom, keep in mind that the biggest gainers by far in this situation are the immigrants themselves. They can expect to earn six to seven times what they can now make in similar jobs in their countries of origin.
So it's a win-win. We get more nannies, lawn-care workers, waiters, and hotel maids, the immigrants get more money, and our kids learn skills that keep them out of competition with the underclass. All we have to lose is our self-concept of an egalitarian society.
I can see why economists have difficulty selling our pro-immigration position.
It seems to me that this reasoning is equally applicable to the Irish position.
Incidentally, I see that Sam Brittan, for whose views I have enormous respect, "has a go" at crude equality crusaders in a recent article.
]]>Courtesy of the Cedar Lounge Revolution ("for lefties too stubborn to quit"), I learn that motorway constructed by the private sector cost at least EUR 8 million more - per kilometre ! - than the public sector.
]]>Economist Arnold Kling - I hope that he will forgive me, but I cannot help thinking of him as a relative of Klinger, the cross-dresser in M.A.S.H. - has a good oneto start you on:
...we ought to try to double the U.S. poverty rate in the next decade.The way everyone else looks at it, if a Mexican comes here legally and earns $350 a week, poverty has increased, regardless of whether he is earning 10 times as much as he was before.
I think we ought to try to find a humanitarian way to "increase" this type of poverty.
This is just as applicable to, say, Romanians coming to Ireland, so, shall we all say
"Bring 'em in !- Make Romanian Poverty History!"?]]>
For the first time that I (or anyone, I think) can remember, there is a real debate about whether the nurses have right on their side. This is partly because of a recognition that nurses are no longer as abysmally paid as was once the case, and almost certainly also because everyone realises that giving the nurses what they want this time will be very costly indeed.
Look elsewhere for a discussion of the detailed arguments. My purpose here is to consider the question in the title.
How much is anyone "worth" i.e. what should they be paid in return for the work they do ?
I suggest that the question has no single rational answer. How much someone is paid depends on so many things that, in the end, the only answer is that a person is worth whatever the labour market clearing rate for their services happens to be.
This will infuriate some, perhaps most, people, and indeed was not my starting position when I first considered these matters some decades ago, but I have been forced by the lessons of experience and the application of logic to adopt it.I hope to elaborate on this over the near future. If any reader is impatient, please do not hesitate to challenge me.
]]>Inflation is a monetary phenomenon, and the banking industry is where money is created and, for inflation, over-created. (I am not overlooking other engines of inflation).
Fixed-rate lending means that the banking industry has a vested interest in avoiding inflationary behaviour. Hence, my idea is that it would help to avoid inflation, to encourage more use of fixed-rate borrowing.
It was often said of Germany a couple of decades ago that its good record on inflation was related to the prevalence of fixed-rate lending, not least in the residential mortgage market.
(This piece reproduces a comment I have made to this article on The Economist's Free Exchange service, which I heartly recommend to all those with an interest in economic questions).
]]>In his regular FT Column, Tony Jackson argues that most of the criticism of private equity groups misses the point. He said the problem was neither profiteering nor lack of transparency, but the fact private equity companies "load a company with excess debt, then strip the cash out as a dividend. If this is done on a big enough scale, the fund can profit handsomely even if the company goes bust."
He said that the pre-private equity world had obvious safeguards against this: The banks would stop lending. But with the advent of credit derivatives all that has changed.
"Today, a bank can grant a leveraged loan with impunity, since it can offload the credit risk. And market demand for that risk is insatiable. The form of credit derivative known as the collateralised loan obligation, or CLO, feeds on just such loans."
To which my reaction is: That "insatiable" demand will surely not last for long. After all, the market for securitised UK home loans was affected by the big blow-out in the housing market c.1990, was it not ?
(I strongly recommend the Eurointelligence RSS feed - very useful for Italian and French political developments right now, as well as for the developing debate on ECB policy/governance which is a very important one for Ireland, and all Eurozone states.)
POSTSCRIPT(1510 hrs): I have just tried unsuccessfully to find the excerpt quoted above on the Eurointelligence website: it came to me in this morning's RSS feed from the site, so that is rather mysterious.
UPDATE (1520 hrs): Ah !here it is.
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