Economics and International Affairs Blog: November 2014

Sunday, November 30, 2014

Investment Strategy: Buy at ‘The Point of Maximum Pessimism’

Betting on Risky Sovereign Bonds

http://www.economist.com/news/finance-and-economics/21635015-controversial-strategy-bargain-hunting-bond-trader-where-others-fear

Poor Quality Economic Research

A ridiculous study on Chinese investment waste (which was hyped by the Financial Times – were the FT editors asleep?) is (rightly) lambasted on the blogosphere:

FT article (with an alarming headline) [gated version] – “China has ‘wasted’ $6.8tn in investment, warn Beijing researchers”:

http://www.ft.com/cms/s/0/002a1978-7629-11e4-9761-00144feabdc0.html#axzz3KZcg4Fy3

Critiques of the study:

http://www.economist.com/blogs/freeexchange/2014/11/wasted-investment

http://krugman.blogs.nytimes.com/2014/11/28/diminishing-returns-arent-waste-wonkish/

Friday, November 28, 2014

Labor and Technology

Labor substituting technology and skilled workers:
http://www.project-syndicate.org/print/artificial-intelligence-competitiveness-by-dalia-marin-2014-11

Thursday, November 27, 2014

Profile of Angela Merkel

A lengthy piece by George Packer on the German Chancellor Angela Merkel:

http://www.newyorker.com/magazine/2014/12/01/quiet-german

George Packer notes:

“Merkel is obsessed with demography and economic competitiveness. She loves reading charts. In September, one of her senior aides showed me a stack of them that the Chancellor had just been examining; they showed the relative performance of different European economies across a variety of indicators. In unit-labor costs, he pointed out, Germany lies well below the euro-zone average. But the population of Germany—the largest of any nation in Europe—is stagnant and aging. “A country like that cannot run up more and more debt,” the senior aide said.”

Tuesday, November 25, 2014

US GDP

There is far too much media attention devoted to quarter-on-quarter changes in real GDP. A better approach is to consider the real GDP this period to same period a year earlier. Note the relative consistency of the post-crisis recovery growth rate (when it is measured as percentage change from same period a year ago):

Robert Solow Awarded the Presidential Medal of Freedom

Economic Growth Theorist Robert Solow - Presidential Medal of Freedom Recipient:
http://equitablegrowth.org/research/appreciation-robert-solow/

Monday, November 24, 2014

Multi-Ethnic Regions – EU and India

Pallavi Iyer has written an interesting and thought-provoking piece: “EU Politics Could Look to Multiethnic India for Strategies”.

She observes:

“With its eclectic mix of languages, ethnicities and religions, India, like the European Union, is the antithesis of the 19th-century European conception of the “nation state” according to which a single religion, a single language and a common enemy, are the only “natural” basis for a sustainable political entity”

The Zero Lower Bound

In today’s NYTIMES, Paul Krugman has an interesting op-ed titled ‘Rock Bottom Economics’. In his op-ed, Krugman states that at the zero lower bound:

“Government spending doesn’t compete with private investment — it actually promotes business spending. Central bankers, who normally cultivate an image as stern inflation-fighters, need to do the exact opposite, convincing markets and investors that they will push inflation up.”

Article Link:

http://www.nytimes.com/2014/11/24/opinion/paul-krugman-the-inflation-and-rising-interest-rates-that-never-showed-up.html

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For an alternate perspective, read the transcript of a recent speech by Jens Weidmann (President of the Deutsche Bundesbank)

http://www.bundesbank.de/Redaktion/EN/Reden/2014/2014_11_24_weidmann.html

Saturday, November 22, 2014

Weekend Reading - 11/22/14

Spain’s Bold Reform

Spain, which has struggled economically since 2008, is pursuing bold reforms in some areas. One such reform (fast-tracked entrepreneur visa program) has the potential to rejuvenate Spain’s economy:

http://www.nytimes.com/2014/11/23/business/international/at-spains-door-a-welcome-mat-for-entrepreneurs-.html

Taking the Pulse of the US Economy is Not an Easy Task

http://www.nytimes.com/2014/11/22/upshot/is-the-economic-outlook-great-or-lousy-making-sense-of-markets-mixed-messages.html

India and Australia – A Growing Strategic and Economic Alliance

http://www.bloombergview.com/articles/2014-11-20/modi-takes-indias-mojo-to-australia

Pesek on Reforms in China

http://www.bloombergview.com/articles/2014-11-21/is-china-building-a-mortgage-bomb

Jeffrey Sachs on China
http://www.project-syndicate.org/print/china-global-leadership-by-jeffrey-d-sachs-2014-11

Stephen Roach on China's Monetary Policy
http://www.project-syndicate.org/print/china-cuts-policy-interest-rates-by-stephen-s--roach-2014-11

Friday, November 21, 2014

Downside of Modern Technologies

An interesting essay in the WSJ (“Automation Makes Us Dumb” by NICHOLAS CARR) states:

“Worrisome evidence suggests that our own intelligence is withering as we become more dependent on the artificial variety. Rather than lifting us up, smart software seems to be dumbing us down.

…

The philosopher Hubert Dreyfus of the University of California, Berkeley, wrote in 2002 that human expertise develops through “experience in a variety of situations, all seen from the same perspective but requiring different tactical decisions.” In other words, our skills get sharper only through practice, when we use them regularly to overcome different sorts of difficult challenges.

The goal of modern software, by contrast, is to ease our way through such challenges. Arduous, painstaking work is exactly what programmers are most eager to automate—after all, that is where the immediate efficiency gains tend to lie. In other words, a fundamental tension ripples between the interests of the people doing the automation and the interests of the people doing the work.”