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The Long Tail by Chris Anderson
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Category Archives: Economics and demography
The Economics of the German VAT Hike
I am very happy to be back here at AFOE, if not only, for a brief one-stop guest post about the economics of the German VAT hike and more specifically how market commentators and analists might just be reading the German economy somewhat falsely at the moment in the sense that they are not taking into account the implications of the sustained and evolving process of ageing in the German society. Indeed as Edward noted just a few days ago here at AFOE we might actually be talking about a clash of paradigms or at least a clash between two ways of looking at and interpreting the economic data coming out of Germany and indeed of the entire Eurozone. There are consequently many venues on which this diagreement is fielded and an important one of these is the German economy and more specifically the significance of the VAT hike and below the fold I will give my view on this topic.
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Eurozone Economy: When Paradigms Collide
When scientific paradigms collide everyone should duck, at least that is the best advice I can offer at the present moment. The provisional German retail sales for January are now in, and they don’t make especially pleasant reading:
“European retail sales dropped for the first time in 10 months in January as spending in Germany slumped, adding to signs economic growth is slowing, the Bloomberg purchasing managers index showed…..German retail sales had the biggest drop in two-and-a-half years, with its index declining to 43.9 from 55.2 in December”
Now for those who have been following the German economy in recent months none of this should be particularly surprising, since as is reasonably well known Angela Merkel’s government has just upped VAT from 16% to 19% in an attempt to address the ongoing federal deficit problems. And of course, one months data never offer a complete picture. But this decline in retail consumption in Germany forms part of a much longer ongoing weakness in domestic consumption (and here), one which many were arguing had finally come to an end in 2006. Some of us, however, seriously doubted that this was the case, and hence the initial significance of today’s reading. In particular what we may be faced with are changing structural characteristics of economies as median population ages rise. In particular – and following the well-known life cycle pattern of saving and consumption – more elderly economies may have a higher rate of saving and a lower rate of consumption increase than their younger counterparts.
Some more evidence to back this point of view comes from Japan, where today we learn that household spending in December declined for a 12th straight month, dropping 1.9 percent from a year ago. Yet the Japanese economy is not in recession, and output is actually rising. As Bloomberg say:
Japan’s factory production rose to a record and household spending fell, underscoring the central bank’s concern that growth has bypassed consumers and left the economy dependent on exports.
So please note: growth appears to have by-passed consumers, and the economy is ever more dependent on exports. The same goes for Germany, and this is why I talk about paradigm collision, since the neo-classical theory of economic growth – with its core conception of ‘steady state’ growth – was never built to handle median age related changes in economic performance and structural characteristics. Something new is clearly needed.
Over the coming weeks I will undoubtedly have more to say about all this, as we get to see more of the 2007 Eurozone data, but for now let me point you in the direction of Claus Vistesen, who has been patiently toiling away trying to work through a hypothesis which, in terms of the data we are now seeing, certainly seems more in keeping with current economic realities than the view we currently see emanating from the ECB. His arguments on Japan can be found in depth here, and his latest piece on the eurozone is reproduced below the fold.
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Blogrolling
It says something about AFOE charter member and – to use a NASA title – principal investigator Edward Hugh that, when Nosemonkey recently did a roundup of new European blogs, the top one on the list had already been roped in to EdWorld, as a contributor to Demography Matters and Global Economy Matters.
You will be assimilated.
Brio and Open-Source Hardware
Intellectual property rights in technology. Great, aren’t they? Consider Brio, the middle-class fave range of wooden toys, whose manufacturers have neatly locked out competitors who want to make toys that will go with theirs by using couplings and fasteners that are proprietary and non-standard.
Elsewhere, on the NANOG (North American Network Operators’ Group) list, they discussed the thorny problem of cooling increasingly powerful servers and routers, and arrived at some consensus around using much more water cooling. Paul Vixie argued that in the future, rackmount equipment would have standard connectors for cool water in and warm water out, as it already has standard power connectors, USB ports, and RJ-45 Ethernet ports.
Cool idea! Naturally, there are already racks with water connectors, but inevitably they are proprietary and incompatible. Amusingly, someone pointed out that standard connectors and flexible pipes exist in the beer trade, which is a start. But what does intellectual property actually bring society? I know the standard arguments about the necessity of rewarding invention, but it’s very noticeable that a lot of innovation happens in the open-source world and in what you might call the non-patent space, among academic researchers and the like.
When Bell Labs invented the transistor, they didn’t try to enforce patents on it. Instead they published all their results in peer-reviewed journals and organised technical conferences to spread the knowledge. Perhaps the optimal solution isn’t to look for a total solution, but just to start pushing back the limits of the IP-sphere and see what happens, tolerating any anomalies? Again, seeing that the EU’s misbegotten software patents directive is now dead, this is something we could get started..
This is not how to deal with demography
Demography matters, as Ed constantly points out. It matters so much they’re even talking about it up at Davos, where they’ve invited “the world’s most important bloggers” into the bargain. So, from the AFOE (Europe’s No.1, according to E-Sharp magazine) forward bureau in the Hotel Derby, we’d like to point out that this probably won’t solve Japan’s demographic problems:
“The number of women aged between 15 and 50 is fixed. Because the number of birth-giving machines and devices is fixed, all we can ask for is for them to do their best per head, although it may not be so appropriate to call them machines.”
Ya think? So says Health Minister Hakuo Yanagisawa.
BTW, if this is Davos it looks a lot like my front room…you see, we at AFOE have a deployable blog-unit in a standard shipping container that contains everything we need to support our mission of pan-European opinion in remote locations. Or something. Ho hum.
Serbia: That Incredible Shrinking Country
This weekend’s election results in Serbia, and in particular the gridlock state of the political process and the resilience of the vote for the nationalist Serbian Radical Party (as ably explained by Doug in the previous post), pose new, and arguably reasonably urgent questions for all those who are concerned about the future of those European countries who currently find themselves locked outside the frontiers of the European Union. What follows below the fold is a cross-post of an entry I put up earlier this afternoon on the new global economy blog: Global Economy Matters. I don’t normally like cross-posting, since I would prefer to put up original Afoe content, but my time is a bit pressed at the moment, and I feel the issues raised are important enough to merit a separate airing on this site.
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The Plot!
I’m not sure what Jerome is driving at here. It seems quite clear that, by promising a further referendum on whatever arises from Angela Merkel’s efforts to revive the Constitution, Ségoléne Royal is taking quite a risk, not least by betting on her ability to get the Laurent Fabius fanclub on side. I wouldn’t bet on a remixed Euroconstitution passing a referendum in France, but perhaps the argument is that the “non de gauche” was really a generalised protest vote and once the Left is back in power, the poison will have been drained from the issue.
Instead, the collectif antilibérale over there seem to think the whole thing is a British plot to get the Germans to stop the French from reviving the constitution, which is now a key document of multipolarity, solidarity, republicanism, laicité and other agreeable qualities. It used, of course, to be an Anglo-Saxon liberal conspiracy to subvert the French welfare state, but presumably that portion of the statement is no longer operative. Anyway, it’s not the French government that is reviving it, it’s the Germans. And it’s not the Left that is reviving it, but the Right, which begs the question why he is so annoyed by the possibility of its non-revival.
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Sometimes the stereotypes are right
It’s usually a charmingly naive belief that wars are the fault of leaders, and if the Ordinary People could choose we’d all live in peace. It doesn’t take long, considering some parts of the blogosphere, your local bar, the historical record and such, to realise this is absurdly simplistic. For one thing, there are always plenty of people who, whether they knew it or not beforehand, burst into a dark bloom of hatred at the hat of a drop. For another thing, the structural forces, the permanently-operating factors in Soviet military jargon, that make leaders do these things would work just as well whoever the individuals are.
Call me a determinist and spank me if you like, but I doubt that’s seriously contestable. But the Arab-Israeli conflict seems to defy this, or at least it has done in the last two years or so. Consider the detailed draft agreement on the Golan Heights, but not just that – the Prisoners’ Document agreed between Hamas and Fatah, Khalid Meshaal’s recent statement that Hamas would accept Israel within the 1967 green line as a “reality”, and more, going back to the ceasefire offer set up by MI6 station chief Alistair Crooke back in 2002, and it’s hard not to conclude that some people aren’t trying.
As Simon Hoggard said about Northern Ireland, they’ll do anything for peace but vote for it. More accurately, they would vote for it if it was on offer – majorities of both parties to the conflict express this view in polls. There are probably lessons to be learned about the long-term management of national interests in a small space from Europe – Gordon Brown’s chief economist and now MP, Ed Balls, has apparently been commissioned to study the economic aspects of the question, and he’d be a fool not to look back at the Monnet/Schuman plans. I doubt he’d like it very much – what did happen to the suggested French-Italian-Spanish initiative after all, then?
In conclusion, though, it’s tempting to think that the continuance of the conflict has a lot to do with hierarchy itself, and the vastly enhanced power and status that war gies leaders. If it wasn’t for the frozen war, Belfast politicians would be of similar status to those of Bradford. No US presidential gladhanding there.
Update: You doubt my method? The Globe and Mail reports that Dick Cheney rejected an offer of Iranian help in Iraq and Lebanon in 2003…oh, and another offer: Jalal Talabani says the Iranians offered him and the US talks “from Afghanistan to Lebanon”..
One goes up, one goes down
An unacknowledged fact of world economics is the role of command or planning mechanisms in what is held to be a global market economy. J.K. Galbraith raised the point that large companies are in a sense planned economies within their walls, with technical and commercial decisions made by management, wage and pricing structures determined either managerially or by negotiation with trade unions, and the whole enforced through targeting and budgeting exercises.
Hence, China announces a cut in petrol prices, presumably passing-on some of the $20 drop in the oil price since the summer of 2006, or perhaps trying to supply-manage inflation. Sometimes, though, decisions driven by nonmarket procedures can be just as quick as market ones..
Iran, Venezuela and other oil exporters are lobbying for an OPEC production cut. I think Jerome of Eurotrib suggested that the Saudis were targeting US stock levels. Here is, perhaps, another interesting indicator.