One Chart To Rule Them All, One Chart To Find Them (Out)

Look, if there is one simple chart which sums up everything that is wrong with current thinking at the International Monetary Fund, then it is this one.

Basically, I spent much of the day yesterday scratching my head, trying to work out how the hell the IMF could be forecasting Spanish GDP growth of 1.7% in 2012, of 1.9% in both 2013 and 2014 and 1.8% in 2015. And now it has dawned on me how and why they can. Quite simply they are forecasting current account deficits for Spain of 5.3% of GDP in 2010, 5.1% in 2011, 5.0% in 2012, 5.0 in 2013, 5.0% in 2014%, and 5.0% again in 2015. In other words, the assumption is that nothing fundamental is going to change in the post 2008 world, when compared with the years that preceded it. And this is clear when you come to look at the whole structure of current account balances revealed in the chart above, which are based on the IMF forcasts through 2015 as set out in the April 2010 World Economic Outlook. It is a case of plus ça change. Continue reading

Too Soon To Cry Victory?

Confidence Has Returned To Europe’s Financial Markets, But Lasting Economic Growth May Not Be So Easy To Achieve

ECB president Jean-Claude Trichet was in rather optimistic, one might even say jovial, mood at the press conference which followed this week’s central bank rate-setting meeting. Second-quarter GDP growth in the 16-nation euro zone would prove “really exceptional,” he stated, while the July bank stress tests marked “an important step forward in restoring market confidence.”

And it wasn’t only that pre-holiday bonhomie – as Ralph Atkins also reports M. Trichet was about to head off for some well earned rest in the Brittany seaport of Saint-Malo – which was lifting M. Trichet’s spirits, recent data – especially from France and Germany – has been reasonably encouraging. Indeed, M. Trichet’s comments came just hours after Germany reported a stronger-than-expected 3.2 per cent rise in industrial orders in June, which came hot on the heels of some pretty strong PMI readings and a further rise in confidence among those living in the Euro Area about the immediate economic outlook, which hit its highest level in more than two years in July according to the EU economic sentiment indicator. Nevertheless, as the EU Commission itself points out, a substantial part of the most recent improvement is due to the improved mood in Germany.

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Just What Is The Economist Up To In It’s Seeming Crusade Against Catalunya?

Well, this is certainly not the first time I have had cause to complain about the quality of the journalism and economic reporting served up over at the Economist, and I’m damn sure it won’t be the last. But this latest example of shoddy (I would almost even go so far as to use the word “gutter”) journalism certainly takes the biscuit. Catalunya, the august magazine informs its readers is the “Land of the Ban” – “First the burqa, now the bullfight. What will Catalonia outlaw next?” Evidently the author of the article is entitled to his opinion, but could it be that the long-standing practice of incorporating unsigned opinion pieces may now have lost its earlier justification, and may it not somehow have inadvertently converted itself into a rather cowardly way of expressing otherwise hard to justify opinions behind the safe shield of anonymity. Or would our author really like to show us that valour is, at least in this case, the better part of discretion, and enter the arena in persona in order to face the wrath of the Catalan bull?

“The bullfight is not a sport in the Anglo-Saxon sense of the word,” wrote Hemingway in his classic treatise Death in the Afternoon, “that is, it is not an equal contest, or an attempt at an equal contest between a bull and a man. Rather, it is a tragedy; the death of the bull, which is played, more or less well, by the bull and the man involved, and in which there is danger for the man, but certain death for the animal.”

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Hidden away in a sunlit mountain valley …

The Wall Street Journal carries a review by Trevor Butterworth of The Enlightened Economy by Joel Mokyr, former editor of the Oxford Encyclopedia of Economic History. This is a book which aims to explain why the industrial revolution happened in Britain before it happened anywhere else. Thoughts on the book itself will follow, perhaps. Right now, I’m more worried about the review:

The reason for Britain’s exceptionalism, Mr. Mokyr says, lies in the increasing hostility to rent-seeking—the use of political power to redistribute rather than create wealth—among the country’s most important intellectuals in the second half of the 18th century. Indeed, a host of liberal ideas, in the classic sense, took hold: the rejection of mercantilism’s closed markets, the weakening of guilds and the expansion of internal free trade, and robust physical and intellectual property rights all put Britain far ahead of France, where violent revolution was needed to disrupt the privileges of the old regime.

This is the first time I’ve seen ‘rent-seeking’ defined as ‘the use of political power to redistribute rather than create wealth’. It’s a bad definition, since we naturally tend to think of ‘political power’ as something wielded by government; this particular definition, then, will lead us to think of ‘rent-seeking’ as primarily an activity of government. Which it ain’t. Things like ‘robust physical and intellectual property rights’ may privilege any suitably placed individual or private company: Sky TV, for example. But let’s take the main point as given: at one time, Britain was comparatively liberal, France was comparatively regressive. And France did indeed experience revolution. Of course, you’d think that revolution might allow France a bit of a catch-up opportunity. Apparently not:

Such political upheaval in Europe, notes Mr. Mokyr, disrupted trade, fostered uncertainty, and may well have created all kinds of knock-on social disincentives for technological and scientific innovation and collaboration with business. Much as we might deplore too many of our brightest students going into law rather than chemistry or engineering, it is not unreasonable to think that many of France’s brightest thinkers were diverted by brute events into political rather than scientific activism (or chastened by poor Lavoisier’s beheading during the Revolution).

Admit it, people, the real thesis here is: heads the Anglos win, tails the Euro-weenies lose. I note also that ‘France’ and ‘Europe’ are treated as synonyms, but hey.

I suppose it’s mostly fairly difficult to untangle the prejudices of the reviewer from the subject, where the subject itself is a representation in writing of someone’s thoughts, but I suspect this particular review gets close to the limiting case: i.e. the case where everything you see is the prejudice of the reviewer. Stock tropes only; nothing substantial or falsifiable to be given away.

Incidentally, I think there’s a way to understand the Murdoch publications paywall: it’s journalism going Galt. They’ll come out as they went in; how else could it be? I think it’s a shame Rand had the first-handers hide themselves away in the Rockies, though; I’m imagining a South American tepui, Conan Doyle Lost World style.

Update: I’ve realised that there is a reading of ‘the use of political power …’ which brings it more into line with how rent-seeking is usually understood. This is the reading in which political power (of government) is held ready for someone outside government to make use of: government as a utility, if you like. Even on this reading, I still think it’s a poor definition. It’s understood that it costs a petitioner something to engage with government – hence there’s an efficiency argument to be made in connection with rent-seeking – but terms like ‘use’ and ‘manipulate’ suggest that policy can be flipped on and off like a light. So, how would I define ‘rent-seeking’, you might ask. Perhaps like this: rent-seeking is the attempt to influence public policy in search of policy privilege.

And a welcome to readers from University of North Carolina at Chapel Hill, also.