Tuesday, August 31, 2010

"We're going to make a change..."

"I'm going to make a change
For once in my life
It's gonna feel real good
Gonna make a difference, gonna make it right"   
- Michael Jackson


...to DJ:ing Economics!

From now on our homepage is www.djingeconomics.com!

So bookmark this address, because this is where you will find us from now on. No more blogspot. Word to Michael Jackson, This Is It!

A real and new (non blog-based) website is also on its way! (until then the url redirects here).

But there is more! We are designing a logo and setting up a Facebook page and a Twitter page (they already exist but we do not want to call them active just yet).

Until the real website is up and running we will update this current site with different sections such as an "About Us" section where we will explain more about who we are and what we do and stand for.

For those of you wondering where we get the quotes in the beginning of the articles from there will be a "Music of DJ:ing Economics" section, where you will find the songs and videos (where available) that the quotes are taken from.

You are also going to find a "Resources" section where you will be able to find material used in the articles and other useful information.

There is also going to be more information about how to contact us but you can already email us @ djingeconomics@gmail.com

Stay tuned for more! The next couple of articles are going to be about promises made by the political parties leading up to the elections and about the situation in Afghanistan.

Until then, get inspired by the King!

Sunday, August 22, 2010

China's one-child policy and growth



"Have a baby by me baby, be a millionaire
I write the check before the baby comes, who the f*ck cares" - 50 Cent

Maybe it should be "do not have a baby, be a millionaire"? Or at least, maybe one should "care" about the effect on society of another baby and especially in countries with high fertility rate and the quality of life of that child. And I am not just talking in monetary terms but in more general ones like development and growth.

Let us compare two countries that has taken two different paths; China and India. Let us as well present some well known facts. It is a well known fact that China is the country with the world's largest population (1.33 bn according to CIA) and India is the one with the second largest population (1.17 bn according to CIA). Another commonly known fact is that China has implemented a one-child policy while India has not taken such action to control their rising population.

Now listen, here it is perhaps worth pointing out that this subject is in many ways a sensitive one. To decide how many children you want is a very basic human right and trying to control something as fundamental (for every living spieces) as reproduction will always be difficult and often painful. On the other hand if we take a bigger perspective it is easy to see that an uncontrolled birthrate can have negative effects on society which then translates to negative effects for individuals which "may also indicate difficulties for families, in some situations, to feed and educate their children and for woman to enter the labor force"(www.cia.gov). The reason for this article is not to advocate for the one-child policy, it is obviously an extreme measure to an extreme problem. Family planning is not needed in an ideal world, but as we already know, we are not living in an ideal world.


Let us rewind the tape a bit though. The reason for this post was a graph (which can be seen below) I did in a growth theory class where the aim was to compare GDP growth between two countries, China and India, one with a strict family planning policy and one without respectively. I had expected to see some kind of difference between the two but not such a distinct one that I found. The graph shows the difference (here measured in the natural logarithm of the standard deviance) between the two countries' GDP, GPD/capita and population between 1950-2009. As you can see the two countries follow each other, more or less, until 1979-1980 where there is a sharp break followed by a continuous increase in the standard deviance of both GDP and GDP/capita and a gradual decrease in population. As it turns out 1979 is the exact year when China implemented their one-child policy. But can this divergence be all because of a strict family planning system and can it happen so fast? Probably not, but something most certainly happened.



Well, if you take a look at China's fertility rate (in the graph below) over the years you can see that largest decrease in China's population growth happened ten years before the one-child policy but that the policy has lowered it further from almost 3/1000 to 1.7/1000. This is also pointed out by Hesketh who says that the voluntary and more campaign-like "late, long, few" (later childbearing, longer time between children and fewer children) was the reason that the fertility rate dropped from almost 6/1000 to 3/1000. She points out that the further decrease maybe would have happened without the one-child policy. As you can see India has had a perhaps more "natural" but still decreasing trend. This would indicate that the one-child policy did not have such a sudden effect on the fertility rate and that a much larger decrease had happened before and without any big change in differences between the two countries' GDP.



Even though the effectiveness can be questioned and perhaps voluntary methods would have had better and quicker results Hesketh also says that according to Chinese authorities the one-child policy has prevented 250 to 300 million births (!). The social cost of 250 million more citizens for a developing country may be hard to calculate, and for a person from a country like Sweden with a population of barely 10 million even hard to fathom.

According to Rosenzweig & Zhang the one-child policy has had only a modest effect on human capital in China contributing to schooling attainment by 4%, college attainment by 9% and grades by 1 %. It may not seem much but at least to me 9% more in college for a country of China's size sounds as a whole lot more college students right?

Another factor to take a look at is population growth. The graph below shows just that for China and India plus Germany and Sweden. As you can see this looks a lot like the fertility rate graph, but here the difference is even more clear. India has a population growth about 175% higher than China while China actually has had a lower growth than Sweden for a couple of years.



The problem China is facing today is rather a problem of an aging population just like Sweden and Germany and many european countries. Hesketh (2005) calls this problem the 4:2:1, meaning that a couple has to care for one child but four parents since they are the only child themselves.

So, how does this relate to the first graph and the huge difference that began showing in 1979-80? Well, apparently all the change cannot be attributed to the one-child policy, although having 250 million people less to feed and care for has to free up a lot of resources to raise the standard of living for the rest. The answer is probably that the one-child policy was part of a bigger reform program initiated at the same time after the cultural revolution and it is this reform to a kind-of-market economy that has produced the differences shown in the graph.

The question that follows is: Is China's model the best one for developing countries?

I do not know but perhaps it is time for the western world to stop believing that their way is the only one to go?
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Update 8/23/10, 08:37 am

I just now saw that The Economist had also published an article about the one-child policy. Why did they not ask us to do it?

Monday, August 9, 2010

The Greens and the allaince: A forced marriage

The speculations concerning the left-right belongings of miljöpartiet has been vast; not at least in election times where they have been, and still is, in a position where they hold the balance of power and a fortiori the final say on who is to govern the next four years.

In an article in Dagens nyheter not only Folkpartiet (FP) but also Moderaterna (M) opens up for a coalition that includes the greens. The position of the green party is somewhat different this time then earlier elections when talks about joining the right wing coalition has occured. This difference is the emergence of Sverigedemokraterna (SD) and the possibility of them entering the parliament. According to a recent poll SD have a relatively good chance of getting the 4% required to get seats in the parliament.

According to their own sayings none of the present parties occupying the parliament is willing to be in coalition with SD. These statements is most certainly honest ones as SD is another kind of party with more direct extreme right connections then the former populistic Ny Demokrati which was in coalition with the right wing block in the 1994 government. This means not only that their politics is somewhat far of from the other right wing parties, but aloso that the political climate in Sweden is such that a coalition with SD may be perceived as a major political risk for any party – hopefully.

The big question then is, will the green party be willing to join coalition with the right wing block? There are more or less two ways to answer this question - and none of them will of course be able to predict what will happen. First you can look at the politics of the green party. According to Björklund, the leader of FP, MP is a party that has the most affinity with the alliance of the right wing block; a part from their view on nuclear power that is. This is very true but maybe to a simplistic view of Björklund, underestimating the differences in other core areas such as the EMU and the much debated health insurance issues. Even setting these things aside the “free year” policy enacted by the green party was one of the first things abolished by the alliance as they formed government four years ago.

There are of course possibilities to build bridges between the greens and the alliance that isn’t overwhelmingly long. But even though the greens will be a relativily small party even after the election in September it will be in the size of other parties in the alliance. In this sense having the green party joining the alliance it will most certainly have a saying in many issues. Thus, having the greens in a coalition will not only mean letting one more party join in, but most certainly change the way the government will govern in the forthcoming four years.

How many demands the greens will be able to have in a hypothetical agreement with the alliance touches on the other way in which you can answer the question whether or not there will be a coalition of this type. If SD will have such a big impact on the outcome of the election that the green party is in a situation where they need to cooperate, they may relinquish some of the demands they might be able to pull up if they are in a more favourable position. On the other hand, the situation might become so difficult to handle that their will be a cooperation between the blocks locking SD out of action.

Thursday, August 5, 2010

To sell a Waterfall

"Don't go chasing waterfalls, please stick to the rivers
and the lakes that you're used to
I know you're gonna have it your way or nothing at all" - TLC

The leader of Centerpartiet, Maud Olofsson said in an article in Dagens Nyheter on August 1 that she wants the government to sell a minority share of the partly state owned energy company Vattenfall. She wants to use the money, SEK 10 billion, to start a new state-owned high technology energy company called Framtidsenergi AB (Future Energy Ltd.) which would have one clear goal to; "together with the private sector invest in future energy solutions and new green jobs in Sweden" She points out that some important areas of investments would be "electric cars (see DJ:ing Economics' post below), the next generations biofuel, new super efficient energy technology, wave energy, intelligent electric grids and more efficient usage of energy in construction, housing and industries"

I have to say that this is a really great idea coming from Centerpartiet. Why is not this idea coming from Peter Eriksson or Maria Wetterstrand of the Green Party? Peter Eriksson did mention selling parts of Vattenfall earlier however.


Why is this such a great idea then?

Firstly, as I wrote in the post about electric cars I truly believe that future growth will depend on new highly technological and environmentally friendly inventions and solutions. Why? Because I believe this is what is going to be demanded more and more and the one being first to supply the demand will have a huge advantage over other countries.

Secondly, this is exactly the role that a government is supposed to take in my opinion. A government is supposed to help create a demand for this type of technology when the markets do not (the ghost of Keynes ones again) because of profits being to far away or because of risk aversion. The horizon for a government is and should be far greater then for a company and that is why it is the role of the government to support new inventions and solutions way before the market do so to help speed up the process.






Thirdly, this needs to happen now, not tomorrow.

This is why I think it is a good idea to sell a minority share in Vattenfall, because not only does government seem to do a pretty bad job as owners, but the influence that the Swedish government is able to have on Vattenfall's operations outside of Sweden seems very small, considering the company's investment in coal and gas energy in Germany for example.

At least we got good commercials in cinemas right?
http://www.youtube.com/watch?v=ZxrlXio4NRM


On a another note; Lars Ohly is of course against this as well. As he is so many other things. What is his problem? He claims that the current government is privatizing out of pure principle. Well he seems to not want to privatize anything just out principle as well. Principles you refuse to change are bad principles and only make you blind and inflexible. I do not really know which kind of world he wants to live in, but it does not seem to be a very modern one. I would rather see the red-green alliance without the Left Party and I suspect so would the Socialists and The Green Party as well, if it was possible.

Thursday, July 22, 2010

A $6.3 billion question: Is the IMF or Anders Borg wrong?

On July 5th Anders Borg presented his revised (from the budget proposition in April) forecast for Swedish economic growth for the years 2010-2014. He presented it at Almedalen, the biggest political event of the year and with just about three months left until elections in September.


The new revised forecast states that "The recovery in the Swedish economy is becoming clearer with improved prospects for growth and a stronger labor market. This strengthens public finances and Sweden's ability to meet increasing economic concerns that comes with the uncertain fiscal situation in the world" (author's translation from http://regeringen.se/sb/d/13357/a/149354).

In the Table 1 below you can see that Borg revises GDP growth for 2010 up from 2,5 % to 3,3 % since the proposition in April. The changes in the forecast for the coming years are not as drastic. Unemployment rate however gets revised across the board. The new forecast predicts the unemployment to be on an average 0,5 % lower (than the April forecast) every year until 2014 where it will stay on 6 %, also notice that the GDP gap is predicted to be close to zero in 2014.

Table 1 (Yellow highlighting by the author) download here












Were this to be true this would all be very good news indeed, the economy does seem to be recovering and you are always inclined to accept good news easier than the bad.
 
However, on July 14th the IMF released their annual Staff Report for Sweden. Their predictions for 2010-2014 can be seen in Table 2 below. The interesting and maybe also disconcerting fact about it is that it, especially for the years 2010-2011 and for the unemployment forecasts, predicts drastically different numbers from that of minister Borg. The biggest different is the GDP forecast for 2011 and the forecast for the unemployment rate for the years 2010-2014. Instead of the 3.8 % growth for 2011 that Borg's new forecast predicts the IMF believes that GDP growth for 2011 will only be 1,9%, that is 1,9 percent lower! The predictions for the unemployment are also considerably gloomier than that of Borg. According to the IMF the unemployment in Sweden will not come down below 9 % this year and will stay well above 7 % until 2014. This is in stark contrast with Anders Borg's statement saying that: "The trend in the labor market is a sign of strength for the Swedish model and a development that needs to be protected" (author's translation from http://regeringen.se/sb/d/13357/a/149354). Anders Borg further claims that the stronger labor market will help to further improve the public finances and make them show a surplus in 2012. Well, you do not need to be very good at math to see that seems very unlikely if it turns out that the IMF are right and not Anders Borg.

IMF, 2010. Country Report 10/220





















Now, certainly it is perfectly normal that different organizations and persons have different opinions about something as uncertain as future GDP growth. But a 1,9 % difference is too much to just be a coming from different ways of measuring. Either both the IMF and Anders Borg are mistaken or one of them is really wrong. 1,9 % may not sound like very much, but when you are talking about GDP 1.9% translates to enourmous amounts. A quick calculation gives a good idea of how much we are talking about. The CIA world factbook puts the estimated Swedish GDP for 2009 to 333,5 billion. 1,9 % x $333,5 bn = $6.3 bn. Multiplying that with the current SEK/$ gives you: 6.3 bn * 7.33 =  SEK 46 179 000 000. Now that is a lot of value that would not be created would the IMF's forecast come true!

The big question is of course who is right and who is wrong?

I cannot help to think about who has an election to win in September and who is part of a government whose most important political question is the "Job line" and who has lately been giving them self credit for the soundness of public finances?

I'm just sayin' now.

Monday, July 19, 2010

I owe U, U owe me, We owe the future

I stumbled over a new very pedagogic interactive graphic of world debt, divided on households, government, financial and non financial companies, from the Economist and saw that usdebtclock.org had been updated to include real time numbers on external and public debt for a couple of countries.

They can be found here:
usdebtclock.org 
World debt 


















Ones again it worth the while to point out the importance between the implications of external and internal debt (if you owe other countries money or if you owe your own citizens).

If you are not 100 % sure about these terms here are two good definitions and explanations from wikipedia:

External debt
Internal debt

Sunday, June 27, 2010

Electric cars & sustainable growth

The much troubled carmaker GM's new electric car Opel Ampera (Chevrolet Volt in the US and Vauxhall Ampera in the UK) will probably be available somtimes in 2011. This is some of best news I have heard in a long while and apperantly this was one of the reasons that convinced the Obama administration to save the giant company last year. Good job.



I think that the transition from fuel driven vehicles to electric ones is one of the most important if not the most important change that has to happen for real sustainabe growth to be possible.

To begin with, the car industry is one that drives new technology and innovation. Secondly cars is one of the most important consumer good, one that drives economies worldwide both from a real economic aspect and as an indicator of the current economic situation, and since it seems virtually impossible to get something to replace the C in Y=C+I+G+NX a change in the car industry will change future growth, for better or for worse. Last but least a new orientation towards electric cars will mean a huge increase in energy demand and in that industry there exist two roads to take. One possible scenario is that this will mean a surge in cheap fossil fuel or nuclear based electricity or it will help push renewable energy forward. Well, the first scenario would probably add up to almost nothing, because if the electricity does not come from renewable sources electric cars will make little or no difference. The second scenario on the other hand would constitute a real revolution and it would do so by still letting people live their lives the way they want to. Cars mean freedom, and people value their freedom more than ever. The transistion from fuel driven to electric cars will mean that a lot new cars will be bought, a lot of new investments will be made and a lot of demand will be created. People will save to buy cars and governments will hopefully invest in new infrastructure and create incentives for people to make the change and also, countries will trade different models with each other just as they do today. Let us see, consumption, demand, saving, private and public investment and trade; this should equal Y. Growth. And it would be a consumption and a growth we all could live with and which in the best of worlds could spread to more parts of the economy.

I believe (a bit cynical, I know) that the best and most effective way to obtain sustainable growth is not to force people to change their way they live their lives but to make their way of living more sustainable. That should be the goal for technology and innovation. It may sound as a gamble but considering how negotiations in Copenhagen ended last year I think its pretty safe to say that people will not change until they are standing with both their feet on the precipice.

This means that a lot is depending on how governments will act to help people make this vital transistion. And let us just be clear. This, like everything else will always be an economic question and a question of making it easy for people. If people view it as something difficult and time consuming, nothing, or too little to have an impact, will happen.

It is election year in Sweden and I think it is pretty clear that there is one side who seems more commited to this transistion than the other. Still, I do not hear anyone talking about electric cars or the infrastructure needed. There is talk about trains, which is great, but cars affect almost everybody's everyday living in a much bigger way than trains do. If we really want change, we need to help people live better not make them. That never works. Like Keynes pointed out, governments should be there to create and help demand when there is none.

And yes, it is possible.






Pictures taken from: http://ampera.opel.info/photography.html

More info: www.opel-ampera.com