North Korea: Falling Behind

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Looking at the previous post on the country, a question arises: if North Korea was, in some respects, ahead of the South in the early 1970s, to the extent that, in 1970, the Black Panthers could look on it as a model of resistance, and Joan Robinson could speak of a (North) “Korean Miracle” in 1964, when, exactly, did it start to fall behind?

Surprisingly early.

It turns out that South Korea had always had a surprisingly high level of economic complexity of exports, being consistently among the top 25 countries in this measure -even as early as 1964 (click the link for PDF showing the development of South Korea and Peru’s export components). North Korea, meanwhile, remains middling in this regard, but this still means its economy is underrated, because other countries with similar economic complexity are, in every way, much richer.

According to the paper Assessing the economic performance of North Korea, 1954–1989: Estimates and growth accounting analysis., there was only one period in which North Korean per capita real GNP grew faster than South Korea’s: the period 1954-1960. From then on, North Korea, with the exception of the period 1980-1985, consistently had a per capita real GNP growth rate of below 3%, growing an average 1.9% per year from 1954 to 1989. This (except for the early 1980s boom claim) is consistent with the per capita electricity consumption figures, which show that while North Korean per capita electricity consumption from 1971 to 1989 grew at at a thoroughly unimpressive 2.14% per year, South Korean per capita electricity consumption grew at a stunning 11.5% per year during the same period. The energy consumption statistics are more consistent with the early 1980s boom claim. Interestingly, up until the 1990s, North Korean per capita electricity consumption was no different from Argentina’s, suggesting North Korea had a truly abysmal capital productivity, as Argentina had a per capita GDP (PPP) at least three times as high as that of North Korea. The North Korean country study seems to be consistent with the surprisingly early slowdown, describing the post-war three-year-plan and five-year plan of the 1950s as successes and the North Korean economic slowdown as beginning in the “buffer year” of 1960. On the other hand, the semi-socialistic outward-oriented South Korean economy boomed after the 1961 coup. Apparently, the South’s economic surpassing of the North in the 1960s is evident even from the statistics on the sectoral composition of the labor force.

There are some other indicators, all indicating severe zastoy had set in North Korea by the 1970s. Firstly, food rations, which were were stable from 1955, were cut in September 1973, and sugar rations were also eliminated in the early 1970s. Food rations were cut again in 1987.

However, from the 1950s to the 1970s, housing construction boomed while the rest of the economy slowed. Yet, even housing construction must have declined during the late 1970s, as there was a sharp slowdown in North Korean urbanization at the time.

In 2011, North Korea had about the same percentage of its labor force employed in agriculture as China. Yet, China is a much richer country than North Korea. China can definitely feed itself if need be. North Korea can’t.

So when Brad DeLong says he, too, thought Joan Robinson’s support for “absorbing the South into socialism” in 1977 was “loony”, we now know why.

The question remains why the North fell behind the South economically so early in the 1960s and continued doing so during the 1970s and 1980s, and why the North is so much poorer than even neighboring China. This is a question which must be explored in a later post.

Note: Pretty much all this post was written on April 12, 2015. Only the first link and this and the above paragraph have been added, as well as the note on the energy consumption statistics. It is only being published today due to A. Karlin’s response to R. Khan‘s brief post on Communism.

The Great Axis Stagnation

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The post-1990 stagnation in Japan has been much discussed, analyzed, and ballyhooed. Yet, comparatively little attention has been given to the other Axis powers, Germany and Italy, which are nearly equally stagnant (Italy more so, Germany slightly less). The reason is that Japan’s stagnation started earlier and then decelerated, while Germany’s and Italy’s started and accelerated later. Let us look at the RGDP/worker of these countries in relation to that in the United States (peak=1):

Screenshot (26)
http://research.stlouisfed.org/fred2/graph/?g=1Eu0

Compare this to the same variable in, for example, Sweden:
Screenshot (27)
http://research.stlouisfed.org/fred2/graph/?g=1EMr
Basically, Sweden has little more than an exaggerated version of the U.S. trend. So what is going on in the Axis countries?

Whatever it is, it probably has nothing whatsoever to do with aggregate demand, and probably has to do with anything financial only on a tangential level. Since 1995, the highest rate of inflation among the Axis countries has been in Italy, yet it has had the worst stagnation. By simply glancing at inflation, it is clear that Italy only began to suffer unique aggregate demand problems in April 2013-precisely when Italy’s output per worker bottomed out! Also, as pointed out by Mark Sadowski, a huge (and successful) aggregate demand stimulus effort carried out by the Bank of Japan in 2012-2015 failed to significantly boost the rate of real GDP growth, while it did successfully boost the rate of nominal GDP growth.

Screenshot (28)
http://research.stlouisfed.org/fred2/graph/?g=1EV9

Thus, in Italy, anything that happened before 2013 was an aggregate supply crisis with rough parallels to that in Indonesia in 1997-8, disguised by a single currency combined with relatively tight European Central Bank monetary policy, combined with increasing malinvestment resulting from flawed European integration both before and during the Eurozone depression, as is evident from its falling behind Germany in its RGDP/worker precisely when its currency became pegged to the Euro. Indeed, it is clear that in Italy, hourly compensation has risen faster than productivity since at least 2000.

Speaking of 1997, it’s pretty clear that Japan suffered mightily during the crash, which fairly few people discussing the Japanese stagnation in broad terms have seen fit to mention. Sometimes, Japan’s suffering in 1997 is blamed on the sales tax hike, but this is nonsense, as the 2014 sales tax hike, which was even greater, led to a much, much tinier crash in RGDP per worker. Unlike the German and Italian stagnations, which have been more or less continuous, the Japanese productivity stagnation has taken place in three discrete phases, all coinciding with financial crises: the post-bubble period of 1991-1993, while the Yen was strongly appreciating, the 1997 crisis and aftermath in 1997-1999, when the Yen strongly depreciated, and the deflationary period of the Great Recession, Q4 2008-Q1 2009, when the Yen strongly appreciated. It seems to me that the simplest explanation for Japan’s stagnation is that each great financial crisis Japan suffers through hits its high-productivity industries hardest, leading them to shed jobs and lead Japan’s average productivity to regress behind the U.S. Also, that Japan ended its natural productivity convergence with the U.S. in or around 1990. The natural pricing powers of the free market don’t bring productivity back to U.S. levels in a process of reconvergence due to notorious Japanese protectionism, which keeps the Japanese export-to-GDP ratio smaller than that of the U.K., Palestine, Australia, Mexico, Russia, or the Philippines.

The famous correlations all too many people have in mind:

Screenshot (29)
Screenshot (30)
http://research.stlouisfed.org/fred2/graph/?g=1E1d

are little more than illusions. Japan’s productivity stagnation is not causally linked to its employment stagnation, and its CPI stagnation is not causally linked to its productivity stagnation. Had it had higher inflation, it would not have had higher growth. Had it had higher growth, it would not have had higher inflation. Had it had higher productivity growth, it would not (necessarily) have higher employment. Had it had higher employment growth, it would not (necessarily) have higher productivity.

If it’s Japan’s population size which makes Japan’s stagnation such a disproportionate topic of discussion in the English-speaking world, then I know a country of 124 million people who’s productivity stagnation has been longer (by a decade) and much, much harder than that of Japan, and which is thousands of miles nearer to the U.S., and whose stagnation is much less discussed: Mexico:

Screenshot (31)
Screenshot (32)
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http://www.minneapolisfed.org/research/wp/wp69

http://www.mckinsey.com/~/media/McKinsey/dotcom/Insights/North%20and%20Central%20Americas/A%20tale%20of%20two%20Mexicos/MGI_Mexico_Full_report_March_2014.ashx3.pdf

But why does the former Sick Man of Europe and the present Healthy Man of Europe, Germany, have a similar history of GDP/worker rise and stagnation as Italy, only milder? From the data, it seems that Germany has been holding on to manufacturing jobs harder than the United States. My first thought was guessing working hours fell harder in Germany, but that turned out to be precisely the wrong explanation. The idea that Germany’s falling behind the U.S. in output per worker is due to different labor market fates in these countries is contradicted by a lot of the German productivity stagnation taking place before Germany’s labor market sclerosis began to subside in 2005. So my present guess is that Germany has been falling behind the United States due to its failure to move quickly from manufacturing into high-value-added services. Perhaps most of the Axis productivity stagnation can be explained via three factors: over-reliance on high-wage manufacturing, insufficient labor market churn, and an aging, more risk-averse working population.

It now seems time to give some charts of the labor force sizes of the Axis countries, as well as that of the United States:

Screenshot (37)
http://research.stlouisfed.org/fred2/graph/?g=1Erx
Screenshot (38)
http://research.stlouisfed.org/fred2/graph/?g=1Ers
Screenshot (39)
http://research.stlouisfed.org/fred2/graph/?g=1Eu7
Screenshot (40)
http://research.stlouisfed.org/fred2/graph/?g=1FUm

Nothing here to clearly relate to productivity differences. Aw, well.

From these charts, it seems clear that variation in unemployment rates between countries really is mostly a structural issue, not one related to the rate of growth of the size of the labor force.

Windows 10: Review (or, why I’m Temporarily Going Back to 8.1)

1. Holy privacy violations, Batman! While Google has only become evil in the past decade, Microsoft has never stopped being evil. There are a whole lot of data transfers from Microsoft to you and from you to Microsoft set as default in Windows 10. Among these are mandatory Microsoft updates (both security and non-) and (voluntary) contributions of all sorts of data from you to Microsoft. Cortana (Bing voice search, basically) I have neither used or enabled, as I consider it too invasive to turn on.

2. Metro Internet Explorer is gone. What’s the point of Tablet Mode with no Metro Internet Explorer? And Edge is hardly a great tablet browser like Metro Internet Explorer was.

3. With Microsoft Edge, Microsoft has narrowed the gap with Firefox&Chrome almost by half. Unlike Internet Explorer, at least it loads all the content in a webpage with some reliability. It also has the most attractive desktop user interface of all the major browsers. Edge also has a very good built-in PDF rendering function, thus making it the default PDF viewer in Windows 10. However, there is no “Open File” button in Microsoft Edge that I can find, so I don’t see why Microsoft made it the default PDF viewer while omitting this feature. This PDF rendering capability, however, was also brought to Microsoft’s Reader App in an update around June 28, so there’s no need to upgrade from Windows 8.1 to 10 just for this feature. Edge is a memory hog like no other. At present, when I have only eight tabs of Google.com open, Edge is using nearly 400 megabytes of memory. Also, for some reason, Edge does not deal well with horizontal scrollbars in webpages. It also continues Microsoft’s four-year-long tradition of interpreting blatant search terms as addresses. I would suggest sticking with Firefox or Chrome for now. Microsoft has been routinely bad at improving and innovating web browsers since 2003 (the nadir: Internet Explorer 8).

4. The added user-friendly displays of disk space and Internet activity in the Settings App look nice.

5. The Tablet Mode has some good parts, but is not yet a clear improvement on 8.1. The Task View is definitely an improvement on 8.1. The Start Screen is slightly improved (it has more empty space, but there’s more freedom in moving the tiles). The permanent taskbar is obviously a replacement for the Charms (it should have been an impermanent taskbar, which would have been called up in the manner of the Charms), and Desktop programs opened in Tablet mode have occasional difficulties in automatically opening new windows. This makes it difficult to recommend it for either tablet or desktop users. There’s also the curious omission that desktop apps cannot be split-screened, but they couldn’t have been split-screened in Windows 8.1, either. Also, as all desktop apps are fullscreen in Tablet mode, even if they were never designed to be, the Tablet Mode may be somewhat worse than the barely-sensible desktop-as-an-app system in Windows 8.1 at displaying desktop apps.

6. The Start Menu is clearly a redeeming feature in Windows 10. It replaces the desktop in Windows 10 tablet mode, and works similar to the Windows 7 Start Menu in Desktop mode. There are live tiles in the Start Menu. The location of the live tiles is much more customizable than it was under Windows 8.1. The list of programs is vertically scrollable in All Apps view and is accessible from Start.

7. The twice-renamed Zune Music and Video apps and the XBox App need to be uninstalled (and not re-installed again) by PowerShell commands if they are ever to be uninstalled (and not re-installed again).

8. There is a multiple desktop feature in Windows 10. This allows the intuitive opening of multiple processes of the same program, one in each desktop. This is unique to Windows 10.

9. The ability to create a Guest account has been totally removed. Of course, this is avertable by making the signin an image that’s extremely obvious to figure out to guests.

10. The Windows DVD player is only available free for one year, and is very limited. Seriously, I have no idea why it exists (or why Microsoft is charging for ad-free Solitaire and Minesweeper).

11. The ability to display Metro apps in the desktop is nice, but there’s no way to make some of them fullscreen! The Photos app, for example, does not display genuinely fullscreen in Windows 10 the way it does in Windows 8.1, and, indeed, looks kinda ugly. The split-screen mode in Windows 10 is neither better nor worse than in 8.1.

12. The default OneNote app has suffered a massive feature downgrade, as is readily visible from the comments in the Windows App Store, especially for tablets.

In short, there are too many downgrades for me to decisively recommend Windows 10 over 8.1. I certainly don’t recommend Windows 10 over 8.1 on any touch-centric device (including Windows Phone), and will probably not ever do this, as Microsoft seems to have de-emphasized touch permanently. So I’m temporarily switching back to 8.1 on my main computer (this is only allowed for one month after Windows 10 installation) until Microsoft either ends its customizability removals, improves Edge to the point it’s recommendable over Firefox or Chrome, or offers some other decisive new feature making Windows 10 superior to 8.1. I recommend the Windows 10 upgrade only for Windows 7 users, as it allows them to install Windows Store apps. For Windows 8.1 users, it offers no decisive advantage. Windows 10 is a work in progress, and may be decisively superior to Windows 8.1 sometime in the future. But Windows 8.1 is an established operating system, with less uncertainty about its features or lack of them. I’ll probably go back to Windows 10 by July 2016, if only to experience new features missed out on by Windows 8.1 users in the distant future. But if Microsoft continues limiting Windows 10, I’ll doubt I’ll ever go back to it.

Update: I have gone back to Windows 8.1. All programs I’ve installed after switching to Windows 10 are gone. All my Firefox history remains. I forgot to mention that Windows 10’s startup time (from power button to lock screen) is much faster than that of Windows 8.1, not to speak of Windows 7.

Update 2: If some Windows Store apps aren’t installing after the reset (esp., Fresh Paint, OneNote, Tubecast), you may need to install the Flixter app for reasons specified here.

Euro-Americans: IQ Beyond Achievement

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James Flynn, a famous psychometrician, once wrote a book entitled Asian-Americans: Achievement Beyond IQ. In it, he argued that Asian-Americans, especially East Asians in the U.S., experienced much greater occupational, educational, and other achievement than could be justified by their IQ scores. What he neglected to point out was that this applied for Mestizos and Blacks in the U.S., as well. So the real issue was not and is not Asian-American achievement beyond IQ, but Euro-American IQ beyond achievement:
Screenshot (22)
This is as of 1992, before the great wave of high-skilled Asian immigration to the U.S. But it’s still interesting to look at how at every level of education, in every area of knowledge tested, on average, Whites are always #1. Got any ideas why?
Hat Tip: Sean Last of The Right Stuff (.biz).

Fastest Year-To-Year Decline in US Unemployment Since 1984

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In the United States, October 2014 had the fastest year-to-year decline in unemployment in over thirty years and the fastest job growth since 2000.

Screenshot (11)
http://research.stlouisfed.org/fred2/graph/?g=1ygT

Screenshot (10)
http://research.stlouisfed.org/fred2/graph/?g=1ygS

Considering the length of the “jobless recovery” in the United States that lasted from October 2009 until the end of the government slimdown in October 2013, this is extraordinary. Of course, as the U.S. gets closer to full employment, employment gains must necessarily slow down.

NAIRU, the Natural Rate of Unemployment, and Full Employment

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The NAIRU, the rate of full employment, and the natural rate of unemployment are often conflated. But they are not the same.

The natural rate of unemployment, as that term is defined by the Congressional Budget Office, “is the rate of unemployment arising from all sources except fluctuations in aggregate demand”. As the close-to-full-employment rate in 2000 was at least partly caused by a fluctuation in aggregate demand, the natural rate of unemployment was, in fact, higher.

The NAIRU (non-accelerating inflation rate of unemployment) is the lowest possible rate of unemployment that can exist in a free-market environment without the acceleration of the growth rate of nominal wages, and, therefore, nominal prices. From historical experience (mostly from before 1970), the U.S. NAIRU used to be ~4.3%. From post-1985 experience, it also looked to be ~4.3% at the turn of the millennium. During its peak in the 1970s, it was ~7.8%. But this was mostly due to a combination of structural changes in the economy, and, to a lesser extent, to the entry of millions of Boomers and females into the labor force. These structural changes are long past, as is the Baby Boom and the entry of females into the labor force. So the NAIRU most likely remains ~4.3%, if not lower.

The rate of full employment is the rate of unemployment when the number of job openings becomes equivalent to the number of unemployed. This has probably never happened in the United States since at least 1970, but the closest the U.S. has gotten there since my birth has been in April 2000, when the unemployment rate was 3.8%. In December 2000, when the unemployment rate was 3.9%, the number of unemployed in the United States was still higher than the number of job openings. Consequently, the rate of full employment in 2000 must have been somewhere below that; most likely between 3.5 and 3.7%. From the looks of things, the number of job openings and the number of unemployed in the United States in the recovery from the Great Recession is most likely to equalize at around 6.5 million workers, or at an unemployment rate of 4.0%. Imagining current economic trends continue, the U.S. will reach full employment and the NAIRU in about two years, if that long.

Sorta Obvious Things To Have Done in Windows 8.1 and 10

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1. Unify the Start Screen with the Desktop. I.e., instead of simply allowing desktop shortcuts on the desktop, allow the placement of live tiles on there, as well. The present Windows 10 Start Menu is convenient, but, as the Start Screen was, kinda redundant. Also, the Windows 10 Start Menu is not as readily visible as the 8/8.1 Start Screen is and should be, making the user less likely to look at the Live Tile notifications. The 8/8.1 Start Screen really helped me keep my email up-to-date and my YouTube subscriptions checked due to the Live Tiles. Never underestimate the power of glanceability.
2. Keep the charms, but make them much easier to use in mouse mode. First, decrease the time between the user pointing to the upper- (or lower-) right corner and the appearance of a 8.1 lower-left corner square-type-indicator preceding the charms to 0.00000 seconds. Then, when a user clicks on the square, show the charms. Instead of increasing the difficulty of clicking on the charms by making them disappear when the user moves one’s mouse away from them, just add an X button to them (but only in mouse mode), so that they can be closed when the mouse user wants. This would greatly increase users’ praise for the utility of the charms. Of course, much (though not all) of the utility of the charms is still there in the Action Center:
Screenshot (9)
As well as in the Network and volume indicators.
3. Get rid of the insufficiently touch-optimized Windows 7-style Control Panel entirely and move all its functions to Modern UI (I hear this is exactly what Microsoft is planning to do over the next few years with updates to Windows 10, but don’t take my word for it) and make every feature of Windows tablet-optimized, including all the technical ones, like Services and the Firewall. Delaying Windows 8 or 8.1 or 10 for another year would have been totally worth the benefit of these changes.

Natural Disasters are not like Recessions

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In natural disasters:

1. Net migration temporarily collapses.
Screenshot (6)
2. Per capita income rises (due to the poorest people leaving).
Screenshot (5)
3. Unemployment is elevated for under a year.
Screenshot (7)
In recessions:

1. Net migration falls, though not necessarily into negative territory.

2. Per capita income falls.
Screenshot (8)
3. Unemployment is persistently elevated for well over a year (see above).

Inspired by Scott Sumner.