Comments on economics, mystery fiction, drama, and art.

Tuesday, April 30, 2013

Generating the Wealth of Nations: 2

This is a response to one of the study questions for the first week's overview of world economic development.

How does Japan’s economic performance compare against England/UK and the US?  Has it benefited from the Industrial Revolution?  If so, at what time did that occur?
(Click image to enlarge.)

I have used data for the 1870 – 2010 period, because the Maddison Project has only limited GDP per capita data for Japan before 1870.
There appear to be four clearly defined periods in the data:

1.      1870 – 1940.  Japan’s GDP per capita grew relative to that in the UK and the US, but very slowly.  Over that 70 year period, GDP per capita grew at an average annual rate of 1.96%, compared with 1.10% in the UK and 1.53% in the US.
2.      1940 – 1945.  During World War II, Japan’s GDP per capita fell considerably relative to the other two countries.  This is, in large part, a consequence of being an easily blockaded country that ultimately lost the war.
3.      1945 – 1992.  Convergence.  Japan’s 5.85% average annual growth rate was 3 to 4 times as fast as that in the UK or in the US.  In consequence, by 1992, Japan’s GDP per capita exceeded that in the UK and had grown to more than 80% of the US level.
4.      1992 – 2010.  Relative stagnation in Japan.  Since 1992, Japan’s GDP per capita has grown by only 0.67% per year, one-third the rate in the UK and less than half the rate in the US.  As a result, its relative GDP per capita was declined to (roughly) its 1970 level.
The impact of the Industrial Revolution might begin to become apparent as early as 1870, but I would prefer to date it to the post-World-War II period, when convergence really became apparent.  While Japan’s economy grew (modestly) more rapidly than those of the UK and US in the 1870-1940 period, its relative economic performance remained far behind.  With continuation of the pre-1940 trend Japan would have caught up to the UK in about 2080, and would have reached 80% of the US level of development also in about 2080.  Only after WWII do we see any real closing of the gap.  It’s the 1992 – 2010 period that represents something of a conundrum for us, I think.

Monday, April 29, 2013

Generating the Wealth of Nations, I

I'm doing a MOOC called "Generating the Wealth of Nations," and I'm going to be posting some things here that I think are relevant for that course, mostly some charts of data, but also as I go along some analysis as well.

Here are a couple of charts.  The first one has data for over 100 countries on infant mortality and GDP per capita in about 2008; the second, life expectancy and GDP per capita in about 2008.  (Click either chart to expand it.)


Monday, April 22, 2013

Has worldwide economic growth led to reduced worlwide income inequality?

I taught a unit on economic growth this week, and in preparing for it, I delved into the international economic data set maintained by the US Department of Agriculture (of all places), with data for about 190 countries.  I began to wonder, as I looked at the data, whether the worldwide growth in real GDP per capita (whichone can calculate from these data as having been 1.5% per year from 1969 to 2011) has contributed to a reduction in worldwide income inequality.  These two charts suggest--but only suggest--that perhaps it has not.

The first chart shows the relationship between real GDP per capita in 1969 and the average annual rates of growth of real GDP per capita. 

 (Click chart to expand.)

It may be a failure of imagination or vision on my part, but I really don't see any particular tendency for incomes to have grown more rapidly in countries that were poorer in 1969.  And growth would have to have been more rapid in poorer contries for inequality between countries to narrow.

Then I thought about computing something like the equivalent of a Lorenz Curve.  A Lorenz Curve shows the deviation of an actual distirbution of income from complete equality.  For incomes to have become more equal across countries then my pseudo-Lorencz Curve should have shifted up to the left.  it does not appear to have done so to any noticeable extent.

(Click chart to expand.)

I also calculated a pseudo-Gini coefficient from the data I used to construct the pseudo-Lorenz Curve.  Reduced inequality should result in a reduced Gini coefficent.  The pseudo-Gini coefficient was 55.6% in 1969 and 53.6% in 2011.  I'd call that not a significant change, either.

While this does not prove that income inequality between countries did not narrow, it certainly doesn't provide support for the proposition that income inequality between countries did narrow.


Some more links

The jobless trap--Paul Krugman

A potentially significant change to national income accounting, noted by Antonio Fatas

Destructive creativity--Paul Krugman

Is the "underground economy" resurgent"--James Surowiecki  (although I've often thought that the size of the "underground economy" is exaggerated.  In this case, all those construction companies that are not reporting employees and not paying payroll taxes?  Are they also under-reporting their revenue? Wouldn't they have to be in order to make this work?)

What if the demand for college grauates is really declinding?  FromStumbling and Mumbling

Housing bubbles and land fever--Robert Schiller

That's it so far today.

Saturday, April 20, 2013

Some links

The stupidity of the creditor, at Mainly Macro.

The Golden Constant My Eye, at Uneasy Money.

FedSpeak, at the New York Fed's Historical Echoes

Is there a baseline level of risk?  At Modeled Behavior

Correlation, Causation, and Causistry, by Paul Krugman

Managing a market economy, by Brad DeLong

The five roles of market exchanges

From Brad DeLong, something I think I need to keep in mind every time I teach intro econ (and especially, as I think about it, intro micro):

"...that market exchanges have to fulfill five distinct social roles:
(1) The prices at which commodities are exchanged [serve] as signals and incentives to direct and coordinate the human division of labor.
(2) The fact of trade and exchange cements social bonds--Albert Hirshman's "doux commerce" idea.
(3) Present generosity--giving more than you receive right now, whether explicitly a loan or not--creates a status hierarchy that distributes social decision-making power.
 (4) The unlucky benefit from a modicum of social insurance by implicitly trading away some decision-making autonomy for current resources.
(5) The prices the market attaches to the resources at one's hand make some rich and others poor..."

A thought--or two--on the Boston situation

Now that the two bombers are off the streets--one dead, one arrested--the next question is why?

I may be strange, but very early on I found myself wondering if anyone involved in the bombing had applied to run in the Marathon, and been turned down.  And so, now, I find myself wondering if anyone has though to check on that.

And, I might add, I find Lindsey Graham's instantaneous call to shove whoever got arrested into a legal limbo, in which almost anything could be done to him, outrageous.

Update:  We appear to be doing what Graham wants us to do, which is terrible:
A Justice Department official says the Boston Marathon bombing suspect will not be read his Miranda rights because the government is invoking a public safety exception.That official and a second person briefed on the investigation says 19-year-old Dzhokhar Tsarnaev will be questioned by a special interrogation team for high-value suspects. The officials spoke on the condition of anonymity because they weren't authorized to disclose the information publicly.
The public safety exception permits law enforcement officials to engage in a limited and focused unwarned interrogation of a suspect and allows the government to introduce the statement as evidence in court. The public safety exception is triggered when police officers have an objectively reasonable need to protect the police or the public from immediate danger.
Update:  See this, for a more detailed argument as to why not Mirandizing Tsarnaev is wrong, wrong, wrong.

Saturday, April 06, 2013

Institutions and growth

It's become something of a standard argument (maybe, even, a cliche) that economic gorwth depends on a country having an appropriate set of "good" institutions.  For example, Greg Mankiw's best-selling intro econ text,  has a box of pp. 550-551, in which he turns the stage over to Daron Acemoglu, who writes:

...the key to ensuring thost incentives is sound institutions--the rule of law and security and a governing system that offers opportunites to achieve and innovate.  That's what determines the haves from the have-nots--not geography or weather or technology or ethincity...
But maybe it's not that simple.  In a recent paper, ("Developing the Guts of a GUT (Grand Unified Theory): Elite Commitment and Inclusive Growth"), Lant Pritchett and Eric Kerker argue that "...there is no link at all between the improvement in ‘quality of government’ and economic growth 1984 to 2004. A country like Uganda has massive improvement but exactly average growth, China has massive growth and no improvement at all, Malaysia saw QOG worsen but growth well above average, etc..."

Tyler Cowen (on whose blog I found this paper,) adds this comment: "Was it Jeff Sachs who put it this way?: Go back to 1960 and try to measure the quality of institutions any way you wish, knowing of course in advance which countries end up doing well. Can you find any measure at all which predicts subsequent growth? This is a tough problem for we economists."

Just another grain of salt...

On markets and pre-markets

Haggling versus inefficiency, a useful and interesting post:

Tuesday, April 02, 2013

Are Americans "Saving Too Little"? Or Has Income Growth Tanked?

Tyler Cowan links to a piece inThe Economist website discussing the decline in the personal saving rate (personal saving as a percent of disposable personal income) in the U.S., which begins: “Americans probably aren’t saving enough.”  Leaving aside the discussion of the split between retirement and non-retirement savings, and whether some policy options should be adopted to increase saving generally, the piece is thin on explanations for the decline in the personal saving rate.  Oddly, one explanation sort of leaps out and is not that hard to find.

But first, the decline in the personal saving rate is real:
(Click to enlarge.)

The personal saving rate rose through the 1950s and 1960s, and peaked at slightly over 12% in 1975.  It has declined more-or-less steadily since the early 1980s.  What’s interesting is that the Private savings rate (gross private saving divided by gross domestic income) has not declined in the same way, or nearly as much.  Gross private saving includes business saving as well as personal saving, and will therefore be a larger fraction of national income.  Both the increase in the gross private saving rate and its decline (which also begins in the early 1980s) are smaller, and the gross private saving rate has returned to its 1986 level (about 20%).  The personal saving rate, even after recovering from its 2005 low point, is still well below its historical average.
(Click to enlarge.)
What could be driving the behavior of the personal saving rate?  My first thought was that it could changes in disposable personal income.  So I looked.  The following chart shows the five-year (cumulative) growth in real personal disposable income.  This is calculated from quarterly data, so, for each quarter, the growth is calculated from the date 20 quarters earlier.
(Click to enlarge.)
I’m tempted to say, “Well, what a surprise!”  The 5-year percentage growth in real disposable personal income rose in the 1960s and then began to decline.  It tended to recover in business cycle recoveries, but has never even begun to approach the peak growth rates in the 1960s.  More to the point. Virtually all of the 20-quarter periods (all but one of them) in which the growth in disposable personal income has been less than 10% have been…the 16 most recent such periods—beginning in 2009.  The highest 5-year rate of growth in real personal disposable income in the past four years came at the end of 2008.  There has been no recovery in the rate of growth of real personal disposable income growth similar to that in past recoveries, and the growth since 2009 is at, and remains at, a post-World-War II low.

This seems to make the decline in the personal saving rate quite explicable, as the following chart suggests.  Low rates of growth in real disposable personal income are associated with (I would suggest that they cause) low rates of personal saving out of disposable income.  The correlation between the two is 0.71, so it’s not just a relationship, it’s quite strong.  So if we are concerned about low rates of saving, we should be concerned to do more to generate higher rates of growth in real personal disposable income. 
(Click to enlarge.)
(All data used in this post can be found at the St. Louis Federal Reserve Bank’s on-line macroeconomic database, FRED.)