We had some debate about it on the old India Economy Watch:
http://indiaeconomywatch.blogspot.com/2003_10_19_indiaeconomywatch_archive.html#106680925997813056

http://indiaeconomywatch.blogspot.com/2003_10_26_indiaeconomywatch_archive.html#106732131363726911

http://indiaeconomywatch.blogspot.com/2003_10_26_indiaeconomywatch_archive.html#106740645762601471

http://indiaeconomywatch.blogspot.com/2003_10_26_indiaeconomywatch_archive.html#106741419079211033

My main feeling is that one of the consequences of having 10s of millions of excess men roaming the planet will be more aggression, and more problems like terrorism and war. So we really all need to be thinking about this. It is another example of a local problem which is about to become a global one.

What we lack are really systematic global statistics. My feeling is that this has always been happening in agricultural societies, and that those centuries of European wars may have had something to do with this too. But this is only a guess, since I haven’t seen any explicit investigation of this practice in a European context.

I added my hypothesis:
More abortions on female fetuses and even infanticide on baby-girls is indeed one of the most disgusting aspects of China and (as far as I know: even more) India getting so little press-coverage: the number of males exceed the number of females with millions; still I don’t believe the effect on demography won’t be very big. (or is this some indirect wish that it can not be THAT horrific?)

Unfortunately the sentence in brackets was right. It turns out that Amatrya Sen has written on the subject of “100 Million Missing Women”.
The utter realpolitiker in me however could still question if this disgusting practices (Camille refers to ” *…One of the important causes of sharp decline in sex ratio is the unregulated use of pre natal diagnostic technologies”) influence the demografy in a way that has major economic influence.
Would be interesting to hear comments from the female Indian bloggers.

“It seems that Indian women bloggers are undressing their minds, while Chinese women bloggers are undressing their bodier”.

If you want to see the difference go try Hard Candy, who is now our very own Muzimei on LiC, and read Divya, or Charukesi, or Nancy, or Dina on the India page.

1) More Democratic than China
2) Better Investment Track Record than China
3) Descent rate of improvement in key skills areas.
4) Stabilizing Population.
5) Reasonably Competent Civil Service

If there is a long-term accord with Pakistan there could be a big boom, right?

I think another big wild card is the enfranchisement of Women in India. India has always seemed a tad schizoid on that one. I will go look at Living on India now.

On this point Patrick we finally have agreement: and if I were a betting man, I’d be looking to India as the most likely venue.

To the jumper it doesn’t matter anymore, but for the other occupants of the building, they best not react as if the laws of physics were being violated, lest they suffer the same fate.
“”With regards to productivity gains…If those gains primarily benefit the rentier class, as seems to have happened in the U.S in 2003, you have your work cut out convincing me that society as a whole truly benefits.”

In fact Partick I wasn’t saying anything about who benefits, simply that it was happening, and that this was a major issue for economic policy. The very scale of the productivity boom in itself generates issues. But if you have productivity growth whose benefits are not widely enough distributed, the answer is not to put the productivity engine in reverse gear. Maybe we need some new creative ideas on this, I am just saying I haven’t seen any on the table so far.”

It’s too soon to know if the recent U.S. productivity gains are actually sustainable productivity growth. But the benefits seem to be going not to the ones who are increasing their productivity, but at their expense, and that’s just not sustainable.

The downside from incorrectly assuming that this will prove sustainable is rather greater than upside from incorrectly assuming that it won’t.

“We need to think about Krugman’s ‘new trade theory’ here. The most important trade for us is that between the US, Europe and Japan. In this league the US companies just got a reasonably big price adantage. Also, China is another important factor, and the Chinese currency is going in the same direction as the dollar, the benefits of leveraging Chinese ousourcing just went up dramatically here in Europe, and the problems of selling European as against US technology in China just became even greater.”

I seem to recall a lot of American companies rushing to establish a European beachhead in the early nineties, “before the walls of Fortress Europe go up”. If so, their European presense means that they have European expenses which may limit their ability to undercut European companies.

More to the point, I think it’s the productivity improvements in the manufacturing sector that are going to squeeze people out of that area, just as has happened in agriculture. Manipulating currencies to brake this trend is ultimately futile.

I don’t believe that undercutting the U.S. dollar while simultaneously financially propping up the U.S. Government as china and Japan are doing, to the tune of a trillion dollars a year is long-term sustainable. It’s an inefficient way of subsidizing their manufacturing sectors.

The economic winners in the post-agricultural, post-industrial 21st century will be those who manage to figure out “Now what?” socio-economically.

In fact Partick I wasn’t saying anything about who benefits, simply that it was happening, and that this was a major issue for economic policy. The very scale of the productivity boom in itself generates issues. But if you have productivity growth whose benefits are not widely enough distributed, the answer is not to put the productivity engine in reverse gear. Maybe we need some new creative ideas on this, I am just saying I haven’t seen any on the table so far.

“The euro is stable”

Look the point is this, everything here is relative: if I jump out of the window, is my body going downwards, or is the building moving up?

We need to think about Krugman’s ‘new trade theory’ here. The most important trade for us is that between the US, Europe and Japan. In this league the US companies just got a reasonably big price adantage. Also, China is another important factor, and the Chinese currency is going in the same direction as the dollar, the benefits of leveraging Chinese ousourcing just went up dramatically here in Europe, and the problems of selling European as against US technology in China just became even greater.

Jerome is absolutely right here. If this was the mid 80’s I’d say take this argument and run with it. A strong euro would be a good thing.

But it isn’t the mid 80’s: so things aren’t necessarily on a ‘business as usual’ basis. Internal eurozone consumption is flat to declining - which also brings us to Markku’s point (and thanks for the compliment!).

You see the big error I think most conventional economists are making is to assume that there is something called a business cycle out there is some abstract state space, which just keeps repeating itself in a sort of eternal (if slightly modified) run of the same. So most of the emphasis is on the cycle as the regulatory mechanism, with a few caveats thrown in for safe-keeping about every cycle being unique. This is effectively why Trichet didn’t lower rates yesterday - he’s looking at what they call the projected trend growth and assuming we are in a recovery phase with a reasonably well understood structure. (the other two reasons he did nothing seem to be that his reputation as an obsessive inflation fighter seems could be well founded - he thinks the big risk in Europe is inflation, and since a major recovery is just round the corner, then better err on the side of caution, and secondly he at least had the intelligence to recognise the fact that when you really can’t do very much, it is better not to make this fact too obvious).

What I am arguing is that if you set up the question in a different way, and ask what may be changing, and in what ways will these changes make their presence felt, then you come up with some different answers.

I have been arguing that I can see three factors which make today very different from twenty years ago: demography (the fact that all the OECD countries have a higher average age today than they did 20 years ago), global rebalancing (especially the rise of China and India, but probably also later Brazil, Indonesia and Turkey among others - simply the demography tells me this), and the fact that we are living in the middle of an ICT driven productivity revolution of enormous and as yet still undetermined proportions.

All these three factors are deflationary in their impact in my book. There are 180 million bodies looking for gainful employment in China alone. There are an unknown number of brains in India just waiting to be trained and connected-up. In a fully globalised labour market - thanks of course to the internet - how can anyone seriously imagine this isn’t going to have a major downward impact on prices. The only comparable epoch in history you could compare this with is at the back-end of the 19th century, and just look what happend.In fact the biggest part of the ‘growth spurt’ both in India and China still lies in front, and remember each of these countries is already seriously into systematic outsourcing to yet cheaper countries in order to maintain their competitivity.

Back to Markku’s point about internal consumption in Europe. As everyone now recognises the numbers are more preoccupying in Europe than the US.(and incidentally have a look at this: http://economist.com/world/asia/displayStory.cfm?story_id=2342430 from the economist, which is finally waking up to the extent of the problem in Japan.)

Now this guy (US economic historian Jeffrey Williamson)

http://www.bos.frb.org/economic/conf/conf46/conf46h1.pdf

explains quite well how saving and consumption is age related. In fact it is really only necessary to extrapolate a bit from Modigliani’s ‘Life Cycle Model’ or Friedman’s ‘Permanent Income Hypothesis’to see what should really be obvious (I don’t think you need rocket science): as Williamson argues excessively young societies do virtually no saving (this is why it is so difficult to get capital formation and hence growth), youngish societies do a lot of consuming, borrowing from the bright future (70’s, 80’s 90’s OECD style), middle aged societies start to notice a slow but steady decline in consumption, a rise in saving, an excess of liquidity (Germany post 1995 Japan post 1990).And elderly societies: well we don’t know yet, we still haven’t quite got there.

I posted yesterday on the Living in India page a fuller exposition of all this, in this case oriented to explaining why the Indians have grounds for cautious optimism.

http://www.livinginindia.com/archives/000129.html

Of course, this probably would entail scaling back the welfare state… and perhaps Europe’s politicians are simply not up to that task, beneficial as it may be.

By the way, thank you for an excellent post.