Chart of the Day

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Also, maps of the day:

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Thus, this table of the day:

High Supply, High Demand (Nevada, Arizona, Florida, Delaware, small parts of California) Low Supply, High Demand (Massachusetts, most, but not all, of California)
High Supply, Low Demand (Utah, Colorado, Texas) Low Supply, Low Demand (Mississippi, Indiana)

Vermont leans toward Low Supply, High Demand. Indiana’s low demand problem seems to have become even worse after the Great Recession. Its home prices were always extraordinarily restrained, both before and after the crash. Its housing construction bust was dramatic, and it didn’t have much of a construction boom. It was just an open-access rust belt place suffering from the effects of globalization. Most of California was a closed-access New Economy place suffering from the effects of underdevelopment where it was needed. Overdevelopment where it eventually wasn’t needed did occur in small places with disproportionate shifts in house prices during the mid-2000s housing boom, like San Bernardino. As Kevin Erdmann says, except for areas such as this, the bizarre period of the U.S. housing market wasn’t between 2001 and 2006, but between 2006 and 2009. Just look at the High Supply, Low Demand areas. Why did demand crash there for no reason?

The Celtic Tiger is not in the PIGS

One of my favorite variables, all too often underused, is real GDP divided by the price level. It really only works as a useful measurement in large, populous single-currency areas, though -like the United States, China, or the Eurozone. Basically, it’s a measure of how efficiently a region is using its resources given its nominal GDP. For example, if a country enters a deflationary depression due solely to collapsing NGDP, its RGDP should suffer. But its RGDP should also fall at the same rate as its price level.

These are the real GDPs of Portugal, Italy, Greece, Spain, Germany, and Ireland:
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And these are the price levels of the same countries:
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At first glance, Ireland’s real GDP up to Q4 2014 seems in the same boat as that of Portugal, Italy, and Spain, except that Ireland had no double-dip recession.
But look at the real GDPs of the same countries divided by their price level:
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Between Q1 1997 and Q4 2007, the largest improvements in real GDP divided by the price level were seen in Ireland, then Germany, then Greece, then Spain, then Portugal, then Italy. Between Q4 2007 and Q4 2014 (seven years of pain!) the smallest deteriorations in the same measure were seen in Ireland, then Germany, then Spain, then Portugal, then Italy, then, lastly, Greece.

Neoliberalism works! The Celtic Tiger lives! The only thing that’s missing is the aggregate demand (and even that’s coming back)! Meanwhile, anti-neoliberal Greece and Italy remain in their own boat of awful, which even the greatest quantity of monetary stimulus can’t fix. Italy had virtually the same inflation as Germany from 2007 onwards, yet it had a severe double-dip recession while Germany didn’t. Ireland remains a classic case of economic convergence, while Italy and Greece may soon be known as classic cases of economic divergence.

The Ascent of the Second World: U.S. South Edition

See my post The Ascent of the Second World for international examples. In 1929, the U.S. South (as well as North Dakota and surrounding states) was very relatively poor, while the U.S. North (especially New York and Illinois) was very relatively rich. The four richest states in the country were New York, Illinois, Delaware, and California, with the exception of Delaware, all home to the largest cities of America. Today, things are very different. Due to greater mobility of labor and capital and institutional convergence of the U.S. South and North (at least partly due to Federal legislation), the U.S. is a much more regionally equal country than it was in 1929, or even 1979. As I discussed in the Ascent of the Second World post, Puerto Rico is also much closer to U.S. income levels than it was in 1950.

Lighter states are richer. In 1929, regional inequality in the United States was at a point unimaginable today. South Carolina and Mississippi, the poorest states in the Union, had less than 40% of the U.S. average per capita income. Today, no state has a per capita income of less than 70% of the U.S. average.

PNGs (bummer WordPress does not allow SVGs):

Animated GIF:

I did not enter the data I used to make the maps into a spreadsheet (I got it all from FRED2), but might do so a few days from now.

Kasich’s Jobs Record Completely Ordinary

Kasich did not have an excellent jobs record.

Marginal Counterrevolution

Kasich often touts his jobs record as some kind of evidence of his administration’s success. Well, here are the unemployment rates of the great states of Florida, Michigan, and Ohio relative to that of the United States:

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As of January 2016, Michigan and Ohio had unemployment rates exactly the same as the national one, and Florida had one a tad bit higher, but not by a significant number. Ohio under Kasich shows no sign of any sort of extraordinary jobs improvement. Unemployment was roughly the national rate when he came into power as Governor and remains roughly the national rate now. Granholm (second term), as well as Snyder (second term), however, do show extraordinary unemployment rate improvement, though Granholm’s second term did not go far enough in fixing the economic disaster of her first term, and Snyder’s first term was pretty meh. Florida also had some improvement since…

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Why is Russia Reducing its Troop Numbers in Syria?

News has arrived that Russia is planning to reduce its troop numbers in Syria. To understand this important development, one must first dispense with ridiculous ideas. New York Times commenters’ claims that this is a result of excessive cost, the wisdom of the re-creator of the Islamic State (Obama), or Syria being a quagmire for Russia (LOL) are all squarely ridiculous on their face and are completely wrong. Russia is not withdrawing from the Syrian conflict completely (just the contrary, it will continue airstrikes for as long as needed), the Syrian conflict is not a drain on Russia’s resources (just the contrary, it is estimated to be very cheap), Syria is not a quagmire for Russia (just the contrary, it has accomplished large gains in a fairly short time), and, as I say, sometimes, the world does not revolve around Washington. Sometimes, the world revolves around Moscow.

So why is Russia reducing its troop numbers in Syria? The answer is that this is an inevitable result of Russia’s accomplishment of four of its war aims:

1. Save Latakia from being overrun by the rebels. This is the most obvious explanation for the reduction of troop numbers, as many Russian troops were required to prevent the remote, but potentially catastrophic possibility of this occurring. As Latakia is now almost all regime-held, these troops are no longer needed.

2. Close the Azaz corridor. This prevents supplies from getting through to Aleppo via Azaz, Turkey, and allows the Syrian government to prepare for its eventual closing of the routes to East Aleppo. This can only be accomplished once; the planes used to launch these airstrikes are now less useful than before the closing.

3. A cessation of hostilities across most of the rebel-regime nominal conflict area (Latakia, IS-held areas, Nusra-held areas, and Aleppo mostly excepted). This reduces the need for a very large number of airstrikes on Syrian territory, thus making the present very large number of Russian troops and planes in Syria needless. This also allows for a more concentrated emphasis of Russian assets in Syria on the Islamic State, rather than on other Syrian rebels.

4. Train and equip the Syrian army. Lots of equipment has arrived from Russia to the Syrian army, and numerous Russian forces were temporarily needed to train the Syrian army how to use this equipment. These troops are no longer necessary, either, as the equipment is now being used in battle.

Of course, there could be some other reason for the troop reduction which has not been revealed by the Russian government and I am not familiar with. But these are the most obvious explanations for the reduction of Russian troop numbers in Syria. Ridiculous explanations should not be on the table.

I Was Right (America and Kurdish Expansionism)

Three months and one day ago, on November 26, I predicted U.S.-backed Kurdish expansionism in Syria to exactly the areas where it happened.
My predictions then:
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The situation now:
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And more evidence has come out since that the U.S. is directly promoting Syrian Kurdish expansionism.

Meanwhile, Turkey, which must be destroyed, is stark flaming mad about the Kurdish expansionism that is going on in its front yard, and its President has explicitly claimed he sees no problem with al-Qaeda. Sometimes, the Daily Scimitar is all too prescient.

My analysis on November 26 remains accurate and unchanged.

NGDP is no Cure-All for the Eurozone

An unsophisticated observer might see this clear correlation:
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and conclude that all that is needed to stop the Eurozone’s gradual economic descent relative to the U.S. is to boost its nominal GDP.

Then, he might begin to see to see some flaws in this logic. For example, other major countries that have had much faster NGDP growth than the U.S. over the past five years have not had much faster RGDP growth:

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“Ah.”, but our observer might say, “Brazil may require a faster NGDP growth rate than the U.S. to get the same level of RGDP growth, but Brazil’s NGDP and RGDP growth rates relative to those of the United States are still highly correlated“.

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“The correlation might not be as strong with Russia (especially during the 2004-2007 and 2013-14 periods), but it’s still pretty clear that even there a firm correlation generally exists between NGDP growth relative to the United States and RGDP growth relative to the United States”.

But, then, he might also notice that Japan seems to be a shining demonstration that NGDP growth far weaker than that in the U.S. need not lead to anywhere near similarly weak RGDP growth, and that in Q3 2014, Japan at last fell into the Russian and Brazilian pattern of having a higher year-over-year GDP deflator growth rate than the U.S., while having a year-over-year RGDP growth rate three percentage points lower than the U.S.:

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And, at last, he may come across this extraordinarily clear case showing that higher NGDP growth is no cure-all for weak real GDP: the 1970s U.K.:
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At last, our unsophisticated observer sees the light and comes to the correct conclusion: in our lifetimes, we’re always in the long run.

That is, though unusually weak NGDP growth might always result in unusually weak RGDP growth, the reverse is by no means always true. Or, an NGDP level target (even a 0% one, as seemed to have unofficially existed in Japan, 1999-2006 and 2009-2012) is an excellent thing in the short run, but an ever-higher-shifting GDP deflator target is not.

Deutschland Thrives, Italia Withers

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Blue is real GDP as a percentage of Euro area real GDP (indexed at Q4 2007=100), red is nominal GDP as a percentage of Euro area nominal GDP (indexed at Q4 2007=100). Note that, for Italy, nominal GDP was consistently stronger in relative growth than real GDP, especially before 2004, while in Germany, nominal GDP was consistently much weaker in relation to the rest of the Euro area than real GDP until the 2008 financial crisis, after which they both became tightly linked. In fact, for Italy, nominal GDP was so strong that as a share of Euro area nominal GDP, it continued rising until 2004, while for Germany, real GDP was so strong that it grew as a percentage of Euro area real GDP from 2005 to 2008, and continued growing at this same trend (with the exception of the Great Recession, which impacted German real GDP unusually strongly) until the end of the graph, while German nominal GDP as a share of Euro area nominal GDP actually shrunk between 2005 and 2008. This, my friends, is the supply side in action! You can’t realistically hope to see it much more clearly than that. Italy is sclerotic and did terribly even when its demand side was good; Germany is resilient and did surprisingly well when its nominal income performed terribly. In fact, even though its nominal GDP as a percentage of Euro area nominal GDP in late 2013 was far lower than the same in 1999, its real GDP as a percentage of Euro area real GDP was even higher than in late 2013 than in early 1999!

Thanks to Marcus Nunes for inspiration.

BTW, more graphs.

In conclusion, have a free labor market, kids.

2016: Obama’s World

Imagine 2008.

Marginal Counterrevolution

Before the 2008 election, James Dobson wrote this letter to Obama’s America. Of course, the vast majority of it was inaccurate, and much of it was hilariously off-base. Nevertheless, had it included the below points in 2008, it would have been the most prophetic document ever, and it would still have been laughed off by the vast majority of Americans for being ridiculous:

In Obama’s first term:

1. Don’t Ask, Don’t Tell will be repealed.
2. Bin Laden will be killed by U.S. forces.
3. Moammar Gaddafi’s government will be overthrown with U.S. bombs, with the U.S. taking advantage of a popular uprising in that country. Gaddafi will be killed by U.S. backed-rebels in Sirte after the rebel capture of Tripoli.
4. A series of protests in Syria will turn into a U.S. and Turkey-backed civil war, leading to much of the country falling outside government control and into…

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On Late 19th Century Indian Famines under British Rule

I’ve been researching this topic intensively over the past couple days and feel as though if I don’t type a post on it today, all my work shall be for nought, as my browser is piling up with tabs at a pace sufficient to prevent me from typing this post after today.

From some point in the first half of the twentieth century to 1990, Great Britain’s GDP (PPP) exceeded that of India. This was despite a much larger population and stronger population growth in the latter than in the former, the latter being ruled by the former, and a re-industrialization in the latter following an 18th and early 19th century de-industrialization. This curious absence of economic development despite the presence of British institutions shows the truth of Adam Smith’s claim that “The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries”. For reasons behind this, see Acemoglu 2001. In the late 19th century British Raj, tax revenues as a percentage of income were twice as high as in the U.K. And, indeed, during the first half of the British Raj, India was wreaked with famine so severe, the only only reliable source of food men had was in prison.

Which makes it all the more interesting why, even during the darkest days of the Indian famines of 1876-9, 1896-1897, and 1900-1901, Indian exports of foodgrains to the U.K. continued to constitute roughly 2% of total Indian grain production -enough to feed six million Indians per year in the same quantity they were commonly fed at the time. This was greater than the amount they are fed by foodgrains today, though India has been a consistent net exporter of foodgrains since about 1990 after being a consistent net importer of the same since independence, part of this, obviously, being a result of a dietary shift towards superior goods. The gap between deaths and food exports in the 1876-9 famine was even greater than that in the more severe ones of the 1890s and 1900s. Indian per capita foodgrain production also rose strongly during decades characterized by famine while declining in the decades after 1920, when Indian famines also disappeared, reaching a nadir in the years around independence. Several things may account for this phenomenon- the transformation of India from a net exporter to a net importer of foodstuffs by the 1930s, the revival of the Indian manufacturing sector, the end of the strong El Nino disasters, and the end of the process of the expansion of the cultivation of famine-vulnerable marginal lands.

No doubt this export of grain when there should have been imports took place due to lack of sufficient industrialization -anecdotally, despite British rule, it was still difficult for Indians to acquire European capital. The debt payments to Britain, which hurt, but did not totally prevent, equalization of Indian with world grain prices via inflow of specie, something essential to prevent some grim humor, also couldn’t have helped. Aid to the poor for the whole of India was generally less than half that for the U.K. in nominal currency, despite the latter having less than a sixth of the population of the former. And the vast majority of the British famine aid was spent not on actually delivering any food, but on building railroads. And, indeed, the Indian famines were perfectly soluble by a sufficient amount of British aid; the main victims of the famine were those unemployed by lack of employment opportunities to work the land or to supply those refocusing their purchases on consumption of foodgrains with their goods and services. This manifested itself as both a labor supply shock due to a rising reservation wage and a labor demand shock due to reduced nominal demand for farm and artisan labor.

The effect of the British railroads on Indian famines was decidedly mixed. While the rise of the railroad did lead to increased co-movement of prices throughout India, which might well have made famine toll more severe by raising prices strongly throughout the land, rather than to near-infinite heights in only some parts of it, as well as the elimination of actual shortages (in the economist’s sense) of grain, it also permitted the grain export trade out of India to rise, expand, and continue, even during times of the most dire famine. There were no foodgrain exports out of India before the rise of the railroads. Indian wheat exports, constituting 13% of Indian wheat production and 23% of British wheat imports in 1886, were quite significant, even in the famine of 1876-79. Indian rice exports and internal rice production, however, were much greater at the time, with Indian rice, due to its low price and quality, constituting the majority of rice sold in Europe, nearly half of it being used to produce alcohol, and much of the rice sold in South America during the famine of 1876-9. The rise of the railroads also permitted grain to be exported from already famished Indian provinces to others, with more purchasing power and different comparative advantages.

The stupidity of wasting food by making work a requirement for receiving welfare in order to prevent sloth does not need to be pointed out, of course. Especially in the 1876-9 famine, British famine aid was marked by stupidity.

Now, how, exactly, would Britain have been able to prevent the famines that afflicted India during the late 19th century? Firstly, ban food exports. That would have kept enough food in the country to save millions of lives without even much of an effort on Britain’s part. But, to prevent that food from being consumed solely by the unfamished,  Britain needed to do much more than just ban food exports; prices would have still skyrocketed even with this action due to internal crop failure. Consumption-side cash grants to the unemployed might have been disastrous and counterproductive, as would have price controls, which, while raising affordability of food for the poor, would have resulted in shortages (in the economist’s sense). What needs to be understood is that the demand for food in India was highly price-insensitive -the nominal revenue of able producers strongly spiked with price increases resulting from food supply shocks. The price sensitivity of Indian food supply is less clear. What was needed was to pay more producers to import grain into the famished provinces to sell at a price level set by the British government. This supply-side subsidy would have successfully lowered prices and prevented Indian famines by lowering producers’ marginal cost.

A supply and demand graph of a typical late 19th century Indian famine.

Obviously, structural changes, especially superior institutions, greater market integration, and faster industrialization, would have been superior to all this. But the conditions were not yet ripe for massive outsourcing and offshoring to be profitable for British business and the British government. Had they been, it would have led to changing government policy to promote export-led industrialization and economic development, as actually happened in Puerto Rico and other territories imperialist powers held on to in the age of independence from imperialism.

How does one rank the cruelty of these famines in comparison to those of the Communists? I believe that, overall, the British famines in India were comparable to those of Stalin in the southern Soviet Union. While Stalin did more for the Soviet Union than the British did for India (the Soviet economy was roughly twice the size of that of India at Indian independence; they were roughly comparable in size when Stalin came to power), and the famines under him were smaller than those of British India terms of pure human cost, the famines under Stalin did end up killing a larger proportion of the population in the affected areas than those under the British Empire (with exceptions in the 18th century). Stalin does get a demerit for covering up the famines going on under him in order to avoid embarrassment, while the British at no point did anything of the sort. The 1959-61 famine of Mao, meanwhile, was completely inexcusable; it took place during the early phases of the Green Revolution, when China could have imported millions of tons of grain, it took place over a background of declining mortality since the founding of the PRC, it was covered up by Mao in order to avoid embarrassment, and it was partly caused by Mao’s Great Leap Forward, which should have received special scrutiny of its results from the Chinese leadership, not the cover-up of its failures that it did. Those of Hitler were certainly worse, if not in raw human cost, then in intent. Those of Pol Pot, imperial Japan, and Kim Jong-Il deserve their own special place in hell.