Relevant and even prescient commentary on news, politics and the economy.

How do We Reduce Misery Caused by Poverty Around the World?

A few weeks ago I had a post looking at the success of a number of countries. I noted that countries that do well include,

(in no particular order): the US, Canada, Northwest Europe, Switzerland, Scandinavia, Australia, New Zealand, Japan, South Korea, Singapore and, until China began applying a heavier thumb, Hong Kong. Those also happen to be the countries that would attract the most foreigners interested in being citizens, so this quick and dirty list should pass a basic smell test. (If some of these nations don’t have much of an immigrant population and don’t rank on high on the destination of potential immigrants, it is because they are very selective about the who they let in as opposed to being shunned by would be immigrants.)

So what do these places have in common? It isn’t natural resources. Just ask the Japanese. (Plus, in countries outside of the list above, being blessed by nature somehow correlates with suffering from the “Resource Curse.”) It isn’t Democracy as we know it. That’s a relatively new thing for South Korea, Hong Kong was ruled by foreigners for most of the last century, and then, of course, there’s Singapore. It isn’t coming into the post-WW2 period wealthy; quite a few countries on the list were in miserable shape in 1945. It isn’t a matter of exploiting other countries (which Americans of a certain bent are always fond of claiming is the US’ secret) – South Koreans will proudly tell you that the country has never invaded anyone in well over 2,000 years. Switzerland, too, is proudly neutral. The Scandinavians have also been pretty pacifist for well over a century as well. Small government? As much as libertarians like to claim Singapore for their own, ignoring the massive government participation in the economy (think Temasek, Singapore Airlines, Mediacorp, Singtel, Singapore Power, etc.). Nor did Japan, Inc. qualify. Something about about geography and environmental factors that these countries have in common? Nope and nope.

To be blunt, there doesn’t seem to be a factor or group of factors that can be applied to these countries but not to countries that are “developing.”

Let’s go the other way on this post. Most of us care about poverty. We’d like to see a world with less poverty, and more opportunity for everyone. Put a different way – it would be a wonderful thing if Bolivians, Burundians and Bangladeshis were able to live the lifestyle enjoyed by people of Switzerland, South Korea and Singapore. But wishing is easy. And useless. So… how do we get from here to there in a reasonable amount of time?

My answer is that it will take changing the culture. For example, most countries that do well tend to have a reputation for punctuality which is rarely shared in less developed countries. Of course, there is more than just punctuality. Find out what other aspects of the culture of South Korea, to use a specific example, work and export that culture. After all, South Korea was in very bad shape at the close of WW2, and by the 1980s was a force to be reckoned with. If Burundi makes the same transformation over the same period of time, many, many people’s lives will be much improved.

But at this blog, a lot of people don’t like “culture” as an answer. For reasons I frankly don’t get, saying culture is a big driver of economic outcomes is viewed is racist by many people. OK. Fine. But if then how do we do it? How do we reduce the misery that comes from the poverty that is so pervasive around the world?

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February jobs report: hitting on all cylinders but wages

by New Deal democrat

February jobs report: hitting on all cylinders but wages
HEADLINES:
  • +236,000 jobs added
  • U3 unemployment rate down -0.1% from 4.8% to 4.7%
  • U6 underemployment rate down -0.2% from 9.4% to 9.2%
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  down -142,000 from 5.739 million to 5.597 million
  • Part time for economic reasons: down -136,000 from 5.840 million to 5.704 million
  • Employment/population ratio ages 25-54: up +0.1% from 78.2% to 78.3%
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.04 from $21.82 to $21.86,  up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
December was revised downward by -2,000, and January was revised upward by +11,000, for a net change of +9,000.
The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly positive.
  • the average manufacturing workweek was unchanged at 40.8 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +58,000. YoY construction jobs are up +219,000.
  • manufacturing jobs increased by +28,000, and after being down YoY for a year, have now turned the corner again and are up +7,000 YoY
  • temporary jobs increased by +3,100.
  • the number of people unemployed for 5 weeks or less increased by +98,000 from 2,468,000 to 2,566,000.  The post-recession low was set over 1 year ago at 2,095,000.
Other important coincident indicators help  us paint a more complete picture of the present:
  • Overtime rose +0.1 from 3.2 to 3.3 hours.
  • Professional and business employment (generally higher- paying jobs) increased by +37,000 and are up +597,000 YoY, an acceleration over the last year’s pace.
  • the index of aggregate hours worked in the economy rose by 0.2 from  106.4 to 106.6
  •  the index of aggregate payrolls -rose by 0.6 from 132.4 to 133.0.
Other news included:
  • the alternate jobs number contained  in the more volatile household survey increased by  +447,000 jobs.  This represents an increase  of 1,485,000  jobs YoY vs. 2,,349,000 in the establishment survey.
  • Government jobs rose by +8,000.
  • the overall employment  to  population ratio  for all ages 16 and up rose from  59.9%  to 60.0 m/m  and is up +0.2% YoY.
  • The  labor force participation  rate rose  from 62.9% to 63.0%  and is up +0.1%  YoY (remember, this includes droves of retiring Bsoomers).
 SUMMARY 
This was a very good report in almost all respects, including the end of the manufacturing jobs recession, and a slight acceleration in better-paying professional and business jobs.
The few warts included the fact that none of the broader measures of labor market slack made new lows (although they did decline), and short term unemployment – a leading indicator – has not made a new low in 15 months.
But most of all, aside from some continued slack, the big shortfall in the economy as experienced by most Americans is the seemingly unending paltry wage growth.  Once again, adjusted for inflation, there has likely been no growth whatsoever in real wages YoY.  Nearly 8 years into an expansion, this ought to be totally unacceptable, and should be ringing alarm bells about what might happen to wages when the next recession inevitably hits.

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A quick primer on interest rates and rate hikes

 by New Deal democrat

A quick primer on interest rates and rate hikes

With increasing speculation that the Fed will again raise interest rates this month, I thought I would take a look at how long term rates, and the yield curve, react.
As most everybody who follows this stuff knows, in the last 60 years the yield curve has always inverted before the onset of a recession — which presumably means that it narrows before it inverts.
But *how* does it narrow?  Do long term interest rates come down, do short term rates go up, or is there some of each?
Let’s go to the graphs. Below are the yields on 10 year treasuries (blue), the Fed funds rate (green), and YoY consumer inflation (red), first from 1962 to 1983:
and from 1983 to the present:
There are a few trends that have remained true during both the earlier, inflationary era, and the more recent disinflationary and deflationary era.
First, all three generally move in the same direction, i.e., both long and short term interest rates tend to broadly correlate with the inflation rate.
Second, in terms of volatility:
 - long term interest rates are least volatile
 - the YoY inflation rate is next
 - the Fed funds rate is the most volatile.
Finally, in each case over the last 60 years, before a recession the yield curve has inverted because the Fed funds rate rose to and overtook long term rates. In the inflationary era, both continued to rise into the recession. In the more recent era, long term rates have been flat or declined slightly once there was an inversion.
Contrarily, the few times that long term rates declined to the level of the Fed funds rate (1986, 1994, 1998) it did *not* signal a recession, but rather a correction in a strong economy.
So let’s take a look at the last 12 months:
Since the end of June, long term rates have actually risen more than short term rates, and have risen to over 2.5% again this week.  This is the sign of a relatively strong economy, at least over the shorter term 6 – 12 months.  Short rates have a long ways to go before they overtake long term rates.  Of course, if long term rates rise high enough, that will act to choke off the housing market and will set up longer term weakness.  But we’re not there yet.

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No evidence to back idea of learning styles

On Sunday, the Guardian published a letter signed by a number of prominent psychologists, cognitive neuroscientists and the like. Coincidentally, the list includes Steven Pinker who I happened to be quoting in a post from the same day.

Here’s the title:

No evidence to back idea of learning styles

Here are the first two paragraphs:

There is widespread interest among teachers in the use of neuroscientific research findings in educational practice. However, there are also misconceptions and myths that are supposedly based on sound neuroscience that are prevalent in our schools. We wish to draw attention to this problem by focusing on an educational practice supposedly based on neuroscience that lacks sufficient evidence and so we believe should not be promoted or supported.

Generally known as “learning styles”, it is the belief that individuals can benefit from receiving information in their preferred format, based on a self-report questionnaire. This belief has much intuitive appeal because individuals are better at some things than others and ultimately there may be a brain basis for these differences. Learning styles promises to optimise education by tailoring materials to match the individual’s preferred mode of sensory information processing.

Here are the last few paragraphs:

Finally, and most damning, is that there have been systematic studies of the effectiveness of learning styles that have consistently found either no evidence or very weak evidence to support the hypothesis that matching or “meshing” material in the appropriate format to an individual’s learning style is selectively more effective for educational attainment. Students will improve if they think about how they learn but not because material is matched to their supposed learning style. The Educational Endowment Foundation in the UK has concluded that learning styles is “Low impact for very low cost, based on limited evidence”.

These neuromyths may be ineffectual, but they are not low cost. We would submit that any activity that draws upon resources of time and money that could be better directed to evidence-based practices is costly and should be exposed and rejected. Such neuromyths create a false impression of individuals’ abilities, leading to expectations and excuses that are detrimental to learning in general, which is a cost in the long term.

One way forward is to draw attention to practices that are not evidence-based and to encourage neuroscientists and educationalists to promote the need for critical thinking when evaluating the claims for educational benefits supposedly based on neuroscience. As part of Brain Awareness Week that begins 13 March, we support neuroscientists going into schools to talk about their research but also to raise awareness of neuromyths.

Your thoughts….

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The Emerging Market Economies and the Appreciating Dollar

by Joseph Joyce

The Emerging Market Economies and the Appreciating Dollar

U.S. policymakers are changing gears. First, the Federal Reserve has signaled its intent to raise its policy rate several times this year. Second, some Congressional policymakers are working on a border tax plan that would adversely impact imports. Third, the White House has announced that it intends to spend $1 trillion on infrastructure projects. How all these measures affect the U.S. economy will depends in large part on the timing of the interest rate rises and the final details of the fiscal policy measures. But they will have consequences outside our borders, particularly for the emerging market economies.

Forecasts for growth in the emerging markets and developing economies have generally improved. In January the IMF revised its global outlook for the emerging markets and developing economies (EMDE):

EMDE growth is currently estimated at 4.1 percent in 2016, and is projected to reach 4.5 percent for 2017, around 0.1 percentage point weaker than the October forecast. A further pickup in growth to 4.8 percent is projected for 2018.

The improvement is based in part on the stabilization of commodity prices, as well as the spillover of steady growth in the U.S. and the European Union. But the U.S. policy initiatives could upend these predications. A tax on imports or any trade restrictions would deter trade flows. Moreover, those policies combined with higher interest rates are almost guaranteed to appreciate the dollar. How would a more expensive dollar affect the emerging markets?

On the one hand, an appreciation of the dollar would help countries that export to the U.S. But the cost of servicing dollar-denominated debt would increase while U.S. interest rates were rising. The Bank for International Settlements has estimated that emerging market non-bank borrowers have accumulated about $3.6 trillion in such debt, so the amounts are considerable.

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Sadistic Gods

I was re-reading random parts of Pinker’s The Better Angels of Our Nature and came across this:

In an insightful book on the history of force, the political scientist James Payne suggests that ancient peoples put a low value on other people’s lives because pain and death were so common in their own. This set a low threshold for any practice that had a chance of bringing them an advantage, even if the price was the lives of others. And if the ancients believed in gods, as most people do, then human sacrifice could easily have been seen as offering them that advantage. “Their primitive world was full of dangers, suffering, and nasty surprises, including plagues, famines, and wars. It would be natural for them to ask, ‘What kind of god would create such a world?’ A plausible answer was: a sadistic god, a god who liked to see people bleed and suffer.”  So, they might think, if these gods have a minimum daily requirement of human gore, why not be proactive about it? Better him than me.

I haven’t read James Payne referenced in the paragraph above, but The Better Angels of Our Nature is a very good book which I highly recommend. Still, the second half of this paragraph doesn’t quite ring true for me. Your thoughts?

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A Bleg

Good evening.  Or a fine morning to you, whatever the case may be.   I am working on a project in my spare time.  Some of the data I am collecting might make for good blog posts.

Anyway, there are a few things whose trajectory I’d like to measure historically.  I have come up ideas for most of them, but there are a few for which I wouldn’t mind if somebody had a better idea than the one I came up with.  Here are the ones that are troubling me.  From colonial times to the present, I would like to find proxy variables for:

1. Social cohesion (i.e., how strong it is, and how strong it is perceived to be)

2. Equality under the law (i.e., whether it exists, and whether it is perceived to exist)

3.  Justice

4. Conflict between the Federal Government and the States

5. Conflict between the Executive and Judicial Branch

To use #2 as an example, obviously equality of the law increased with the Emancipation Proclamation, and again, as the suffragette movement gained strength.  One potential measure for this would be percentage of the adult population that is eligible to vote.  However, that leaves out other forms of inequality before the law, including (but obviously not limited to) other discriminatory restrictions on voting.  No measure of any social value will be perfect, but good proxy measures for the five listed above would be appreciated.  Bonus points if the data is readily available going back to the Colonial period.

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