What Can You Tell From Real Per Capita GDP?

Real-GDP-per-capita-masked

Here’s a little puzzle for you. Can you match the countries with their per capita GDPs? The countries illustrated in the graph are Australia, Canada, Euro area, Japan, New Zealand, U. S., and U. K. Click on the graphic for the answer.

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Explaining China to Americans

This morning the editors of the Wall Street Journal came very close to explicating a good theory of China for an American audience:

China’s laws forbids storing explosive chemicals within one kilometer of residences. Regulations on how dangerous chemicals should be stored were also violated. Chinese state media reported that the owners of the warehouse, now under arrest, admitted using ties to government officials to skirt the law. Such corruption is a major contributing factor to China’s poor safety record.

The Tianjin disaster also exposes a major fault line in Chinese society. A growing middle class largely signed on to the Communist Party’s post-1989 social contract: You don’t question our power, and we will make you prosperous and secure.

For more than two decades the Party has largely kept its side of the bargain. But an economic slowdown and the costs of official corruption could shake its legitimacy. As people become more prosperous, they value more highly the benefits that come from an accountable political system.

By contrast, China’s state capitalist system can’t root out corruption and other abuses of official power, no matter how hard President Xi Jinping tries. That’s because the central tenet that can’t be questioned is that the Communist Party is above the law.

but, sadly, they fell short of the mark. China does not have a robust system of civil law. In the final analysis it doesn’t matter what the laws say—those are just for the rubes. Corruption is not an aberration of the system; it is the system. What the heck good is party power if you can’t throw money the way of your friends and family?

Another thing they missed which you can hardly avoid realizing. You only need to listen to the survivors of the explosions: nothing happens that the authorities didn’t intend. I don’t believe that’s the case but it’s obvious that the Chinese people believe it. It was an obvious takeaway from the market crashes they’ve sustained. There was interview after interview with poor sods who’d lost their life savings who said “Why did the government do this to me?”

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Mad About Hillary

I think it was George Santayana who characterized fanaticism as redoubling your efforts when you’d lost sight of your goal and nowhere is that truer than in the contest over who will become the next president. Conor Friedersdorf explains why Hillary Clinton has never made much sense as a Democratic presidential candidate:

As Hillary Clinton loses ground to Bernie Sanders in Iowa, where her lead shrinks by the day, it’s worth noticing that she has never made particular sense as the Democratic Party’s nominee. She may be more electable than her social-democratic rival from Vermont, but plenty of Democrats are better positioned to represent the center-left coalition. Why have they let the former secretary of state keep them out of the race? If Clinton makes it to the general election, I understand why most Democrats will support her. She shares their views on issues as varied as preserving Obamacare, abortion rights, extending legal status to undocumented workers, strengthening labor unions, and imposing a carbon tax to slow climate change.

But most Democrats hold similar positions on those issues. So why are Democrats supporting her in a primary bid? She’s awful on other issues they’ve deemed hugely important.

Maybe it’s just the pursuit of power for its own sake. It will be interesting to see how Sec. Clinton continues to wrap herself in her husband’s legacy while repudiating his policies. Interesting in a grim sort of way, I mean.

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Arguing About the Minimum Wage

Once upon a time evidence actually meant, you know, evidence, something material and factual you could point to. Nowadays that notion is just too quaint, a relic of a bygone day. When I read this post on new evidence on the effects of increasing the minimum wage, I was excited about the prospect of additional, you know, evidence. Sadly, I was disappointed.

It’s a good enough article and reasonably interesting but it actually is a survey of various sources of additional analysis. I guess we’ll just have to wait for actual evidence.

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I Understood There Was to Be No Math

Noah Smith makes a really good point which, coincidentally is something I’ve been complaining about for a long time—despite its pretensions economics just isn’t very mathematical:

A lot of people complain about the math in economics. Economists tend to quietly dismiss such complaints as the sour-grapes protests of literary types who lack the talent or training to hack their way through systems of equations. But it isn’t just the mathematically illiterate who grouse. New York University economist Paul Romer — hardly a lightweight when it comes to equations — recently complained about how economists use math as a tool of rhetoric instead of a tool to understand the world.

Personally, I think that what’s odd about econ isn’t that it uses lots of math — it’s the way it uses math. In most applied math disciplines — computational biology, fluid dynamics, quantitative finance — mathematical theories are always tied to the evidence. If a theory hasn’t been tested, it’s treated as pure conjecture.

It’s not very surprising. Expressing ideas in mathematical symbols isn’t all there is to math. I don’t recall seeing any econ majors or grad students in the higher level math courses when I was in college and those are the guys who would be running the departments now.

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This Time Is Always Different

At Bloomberg Justin Fox ruminates over whether the incipient global slowdown actually is different:

He presents several different pieces of evidence:

  • Flat global trading volumes
  • The slowdown may be accelerating
  • Population growth is slowing
  • The transition to a services economy
  • Peak light vehicle sales (at least in the U. S.)
  • Declining per capita energy production (at least in the developed world)

I don’t find any of those convincing, each for a different reason but the only one I’ll expand on is the transition from goods to services. First, in the U. S. the demand for goods is still increasing. If you don’t believe me, go over to the St. Louis Fed’s FRED site and chart it out yourself. Real durable goods plus non-durable goods continues to increase (whether per capita or overall). That’s an effective refutation. Despite the claim I’ve read here and there that all earthly wants have been satisfied, people somehow still keep wanting more. And if it’s true here it’s got to be true in China and India (where most of the world’s poor people live).

I also don’t see why if we didn’t want more stuff that still couldn’t translate into growth increasing indefinitely.

What I really think Mr. Fox is seeing is laziness. We’ve come to rely too heavily on credit, the sugar high of economy development. The U. S. is overextended and we haven’t saved enough over the last half dozen years to fill the void and now China is about tapped out, too.

Nobody really has any idea of China’s credit problems. Its banking system is too opaque.

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The Internet of Silly Things

If you’re interested in an Internet-connected cup, fork, toothbrush or pacifier you might want to check this article out. As it turned out the Internet-connected toilet mentioned in the article was hackable with predictable results.

That’s the problem I have with the Internet of Things. I strongly suspect it will be inherently insecure.

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Lights! Action! Madness!

There has been an interesting psychological study done in Finland. Researchers were able to distinguish psychosis patients from normal individuals based on their responses to the Disney movie Alice in Wonderland:

Using a 3-Tesla MRI device, they scanned the brains of 46 first-episode psychotic patients (meaning that they had only had one psychotic event) and 32 healthy controls, while watching the movie. The researchers found that significant differences could be seen in the precuneus region of the brain, which is an area associated with memory, visuospatial awareness, self-awareness, and aspects of consciousness.

Asked by the ECNP, lead researcher, Eva Rikandi (Aalto University, Helsinki, Finland) said:

‘In this work, we attempted to determine whether a person is a first-episode psychosis patient or a healthy control subject just by looking at their brain activity recorded during movie viewing. We found, that by monitoring activity in a region known as the precuneus we were able to distinguish patients from control subjects especially well. This would mean that the precuneus, a central hub for the integration of self- and episodic-memory-related information, plays an important role in this kind of information processing of psychotic patients.

She continued:

We were able to achieve almost 80% classification accuracy using these methods. This is the first study which directly associates the beginnings of psychosis with the precuneus, so it is now important that much more research is done in this area’. The researchers hope that this approach can feed into earlier screening and better diagnosis of at-risk populations.

It’s early days for this study, of course. It’s got to be repeatable (keep in mind the high rate of unrepeatability in psychological studies that has been found). It’s a relatively small sample.

I note that another researcher had exactly the same response to the study that I did. I wonder whether people respond the same way to exaggerated fantasy (like Alice in Wonderland) that they do to other sorts of movies?

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Wes Craven, 1939-2015

There’s a good retrospective on youth horror film creator and director Wes Craven at The Hollywood Reporter. Mr. Craven died yesterday, August 30, at the age of 76.

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Downsizing Cities

Impelled by a comment left by one of the regular commenters here I began thinking about the situation in which many American cities find themselves. My researches revealed something interesting: all major U. S. cities north of the Mason-Dixon line and east of the Mississippi have decreased in population from their peaks nearly 60 years ago. See the table below to get some idea of the scope of the change.

City Population at peak Population now (est.) Percentage difference
Baltimore 949.708 622,793 34.4%
Boston 801,444 655,884 18.2%
Buffalo 580,132 258,703 55.4%
Chicago 3,620,962 2,722,309 24.8%
Cincinnati 503,998 298,165 40.8%
Cleveland 914,808 389,521 57.4%
Detroit 1,849,568 680,250 63.2%
Minneapolis 521,718 407,207 21.9%
Newark 438,776 280,579 36.1%
Philadelphia 2,071,605 1,560,797 24.7%
St. Louis 821,960 317,419 61.4%

Yes, neither St. Louis nor Minneapolis are east of the Mississippi but they follow the pattern of the Eastern cities. There appear to be two exceptions to that pattern: New York City and state capitals. In general the date of peak population for these cities was 1950 but in the case of St. Louis it was 1930.

There are all sorts of reasons for this startling transformation of American cities including

  • Suburbanization
  • De-industrialization
  • Lifestyle reasons impelling people to move south or west
  • Economic reasons impelling people to move south or west
  • Cities just aren’t as necessary as they used to be
  • Incompetent city governments
  • Predatory state governments
  • The interstate highway system

If you had the choice between living in Detroit and living in San Francisco which would you choose?

This dwindling in population has taken place even as the total population of the United States has doubled. Given the length of time over which urban populations have declined, it’s clearly a long-term trend. Rather than dwelling on measures to reverse the trend I believe it’s time to adjust to it.

Sharply smaller populations pose serious problems for cities. City revenues increase as their populations increase and decrease as their populations decrease but cities’ expenses don’t decrease nearly as quickly as revenues do when a city’s population decreases. A city block in which two hundred people live and one in which two people live both need sanitation, police, fire, and other city services but it’s a lot easier to distribute the cost of those services among two hundred people than it is between two.

Decreasing city populations make commitments for future payments like municipal bonds or city workers’ pensions significantly more difficult to satisfy. I don’t know what roll declining population has on the crisis in public workers’ pensions but it can’t be inconsequential.

Typically cities don’t have either the power or the will to, as me auld mither used to say, grasp the nettle and shrink the borders that made sense when the cities were 10% or 20% or, in some cases, 60% more populous than they are now and states must step in. It’s high time for states to start taking the task of downsizing cities seriously.

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