Don’t Trust, but Verify, all Economic Forecasts

01recession

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Sometimes, the most useful tool in economic forecasting is a brick to smash against heads. Natural disasters and their equivalents don’t cause recessions in modern economies (Haiti is not a modern economy). A few collapsed buildings have never ever caused a recession on their own, no matter how much their collapse is talked about on TV news.

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Development Successes; Development Failures

I recently wondered, after seeing Brazil and South Korea’s striking real GDP per capita divergence, which underdeveloped economies over the past forty years most succeeded and which most failed at growing their real GDP per capita. As Scott Sumner has pointed out, many countries (including, to some extent, the U.S.) experienced a permanent decline in real per capita GDP growth around the year 1973, though some countries (e.g., in Latin America) had high growth rates until the early 1980s Volcker Shock. North Korea, the Soviet Union, Singapore, South Africa, Japan, Greece, Portugal, Spain, Canada, and other nations that had managed to make great strides between 1900 and 1973 had dramatic growth slowdowns following that year, with Spain and Portugal having a decade of stagnation between 1974 and 1984 and Greece two such decades (1974-1994!). Italy, a country with lower living standards than China in 1900 and which had surpassed the U.K. in real GDP per capita (PPP) terms by 1976, had a growth slowdown around 1993 and another one around 2003. Japan had a very famous (and seemingly permanent) growth slowdown in 1991. Japan, France and Italy had all finished their phase of catch-up growth with the U.S. by 1973 (Germany had done so by 1961).

The below are the answers to the question mentioned in the first sentence of this post. All real GDP per capita numbers are from the World Bank. They can be verified by looking at Google Public Data.
Development Successes:

Former Soviet States:

Estonia (astonishing growth from 1994 to today) and the other Baltics

Belarus (astonishing growth from 1995 to 2011, especially compared with Ukraine, but economy has stagnated for the last two years)

Armenia and Georgia (grew at almost exactly the pace and level of China until 2009, but fell behind China as these countries had a recession in 2009, while China didn’t)

East Asian Successes:

China (so far; 21X increase in GDP per capita in 40 years counts as a success in any book, even if the economy stagnates for a century after)

The Four Asian Tigers (South Korea, Taiwan, Singapore, Hong Kong) and Macau

Slower-Growing East Asian Economies (successful for any other region, but not when compared to other Asian countries):

Vietnam (Grew 4X since reforms. Overly affected by China and seems like a complete failure compared to it).

Malaysia (GDP per capita 4.2X that of 1973).

Indonesia (GDP per capita 4.6X that of 1973. Seems like a failure compared to China).

Thailand (GDP per capita 5.3X that of 1973).

Latin American and Caribbean Successes:

Chile (2013 GDP per capita is 3.3X that at time of Pinochet’s coup).

Dominican Republic (2013 GDP per capita is 2.93X that in 1973).

St. Vincent and the Grenadines (2013 GDP per capita is 3.18X that in 1973).

Belize (2013 GDP per capita 2.96X that in 1973, but has stagnated for nearly a decade).

African Outliers:

Cabo Verde (2013 GDP per capita is 5.5X that in 1980)

Seychelles (2013 GDP per capita is 3.06X that in 1973).

Botswana (2013 GDP per capita is 6X that in 1973).

Lesotho (2013 GDP per capita is 2.93X that in 1973).

South Asian Successes:

Bhutan (miraculous growth since 1980 [GDP per capita 6.2X in 2013 compared with that of 1980] with no strong foundation of economic freedom, but, by all accounts, the best court system in South Asia).

India (2013 GDP per capita is 4.37X that in 1973).

Sri Lanka (2013 GDP per capita 4.66X that in 1973).

Mauritius (2013 GDP per capita 3.48X that in 1976).

Middle Eastern Successes:

Egypt (2013 GDP per capita 3.71X that in 1973).

Malta (2013 GDP per capita 3.68X that in 1973).

Celtic Tiger:

Ireland (2013 GDP per capita over 3.5X that in 1973).

Development Failures:

Asian Failures:

Philippines (Fell into a dump between 1982 and 2003. Very instructive East Asian failure, if only for showing East Asian economies can fail in an age of microchips.)

Papua New Guinea (18% GDP per capita growth in 40 years.)

Burma and North Korea (for obvious reasons)

Latin American Disasters:

Brazil (a country that pretended to be China between 1968 and 1980; 38% GDP per capita growth between 1980 and 2013)

Mexico (a country that hasn’t lost its track record of failure since 1980; GDP per capita in 2013 20% higher than that in 1980).

Nicaragua (1976 was the best year it’s ever had).

Suriname (yes, not Latin American, but still a failure from independence to the Year 2000)

Venezuela (the classic Latin American basket case; GDP per capita today lower than that in 1964).

Argentina (moving roughly sideways since at least 1960; GDP per capita in 2006 65% higher than that in 1960, but this may be due to understated inflation).

Haiti (same place it was in the 1950s).

Guatemala, El Salvador, Honduras (all in the same boat-failures growing at 0-2.5% per year)

African Countries:

South Africa (fell behind Brazil in growth terms after 1974)

Madagascar (steady decline; GDP per capita is 55% of what it was in 1960)

Senegal (GDP per capita remarkably steady; no change since 1960)

Togo (economic miracle until 1969; no lasting change in GDP per capita after that even unto this day).

Malawi (economic miracle between 1960 and 1979; no lasting change in GDP per capita after that even unto this day)

Comoros (GDP per capita is 20% lower than peak in 1984).

Guinea (amazingly flat)

Kenya (strong growth until 1972, stagnation for three decades, return to less impressive growth)

Niger (fantastic decline from 1966 onward followed by stagnation)

Gambia (stagnation since 1978)

Belgian Congo (it was 2.6X better off in real GDP per capita terms under Belgium).

Djibouti (country still not up to its 1990 level of real GDP per capita).

Burundi (5% growth per 53-year period)

Ivory Coast (strong growth until 1978; then, collapse until 2011)

Now, ask yourself: what was different between the failures and successes? Both some of the Latin American failures and the Asian tigers had industrial policies. Mexico has more economic freedom than China, but the labor force in Mexico is prematurely shifting away from the productive sectors (manufacturing and agriculture) and into the famously unproductive traditional economy and services, while China has successfully continued its rapid growth. What prevented the Comoros from growing like Taiwan, Singapore, or Egypt? Why is Belarus, well known for its red tape and financial repression, one of the development successes?

Lo!

See previous post, by the points of which I fully stand.

the available proxy evidence does not reveal what conditions were like in different parts of northern Iraq, or for that matter, in northern Iraq as a whole.

It is possible that increased regional aridity, as indicated by the paleoclimatic proxy records discussed earlier, may also have been a factor in rising grain prices, though this question must remain unresolved pending further research.

In 616 BC, a former Assyrian subject named Nabopolassar declared himself king of Babylon, and took to the offensive against the moribund Assyrian state.

-Of course, this took place in 626 BC.

We also strongly suspect that any economic damage inflicted upon the Assyrian Empire by drought would have served as a key stimulus for the increasing unrest which was to characterize its final decades, although this notion cannot be conclusively demonstrated from the available evidence, and for the present must remain in the realm of conjecture. While there is no direct evidence from which a causal relationship can be inferred between drought and political dissatisfaction with Assurbanipal’s regime, the fact that insurrections apparently broke out not only in Babylonia but within the Assyrian heartland itself in 652 and 651 BC, respectively (Fig. 2), is suggestive that political unrest may have been partly influenced by economic hardship that resulted from drought earlier in the decade.

It would be misleading, however, to suggest that episodes of drought caused by a change in climate were the only—or even the primary – causal factor for the decline of the Assyrian Empire. We must assume that there were many other important known and unknown contingent factors that also influenced the historical trajectory of the Assyrian state during its final century.

In short, the climatological record relating to the 7th century BC Middle Eastern interior is too scanty, of too low “temporal resolution”, too self-contradictory, and too far away to be of any relevance to the fall of the 7th century BC Assyrian Empire. Whee.

So, why was this paper accepted, again?

At a more global level, the fate of the Assyrian Empire also teaches modern societies about the consequences of prioritizing policies intended to maximize short-term economic and political benefit over those which favor long-term economic security and risk mitigation. Of course, the Assyrians can be “excused” to some extent for focusing on short-term economic or political goals which increased their risk of being negatively impacted by climate change, given their technological capacity and their level of scientific understanding about how the natural world works. We, however, have no such excuses, and we also possess the additional Climatic Change benefit of hindsight, which allows us to piece together from the past what can go wrong if we choose not to enact policies that promote longer-term sustainability.

-So, this paper is little more than a platform to spread baseless climate alarmism with fictional evidence. Got it. Not impressed.

Historical Illiteracy Defined

haaretzignorance

To the ignorant:
1. Sennacherib died long before 657 BC.
2. Drought had little to nothing to do with the fall of the Assyrian Empire. The Empire was doomed by Nabopolassar’s Chaldean revolts in Akkad and an usurper in Nineveh. Nadav Na’aman describes this thoroughly.

3. Crowding was always a feature of Assyrian life; Assyria was a very urbanized country since at least the 9th century BC, and probably long before.

Stay classy, Haaretz.