news —
economics

economics archives

for previously archived news article pages, visit the news archive page (click on the button above)

XI-2005: 01 04 10 19 27 | I-2006: 17 | II-2006: 01 03 17 | IX-2006: 17 | IX-2006: 06 | IX-2006: 13 16

the world’s poor are getting richer faster than the rich - the auroran sunset

Forget the lefty whining, the reality is that it is the trade and freedom spread by America and her allies that are making the world better for the world's poor.

“Only two decades ago the world's poor nations provided only 14 percent of wealthy nations' manufactured imports. Today they provide 40 percent and by 2030 they are projected to provide over 65 percent.”
—
“For the next 25 years the report estimates that developing nations will increase their wealth by an average of 3.1 percent per year, above their average of 2.1 percent for the last 25 years. "That rate of increase will produce average per capita incomes [constant dollars adjusted for purchasing power parity] in the developing world of $11,000 by 2030, compared with $4,800 today, roughly the level of the Czech Republic and the Slovak Republic today.”

“The net result is that the income of developing countries "will continue to converge with those of wealthy countries. This would imply that countries as diverse as China, Mexico and Turkey would have average living standards roughly comparable to Spain today." ”

The actual World Bank report, “Prospects for the Global Economy”, is here.

related material
what makes people happy

advertising
disclaimer

advertising
disclaimer

advertising
disclaimer

french pm attacks the emu - the sound of chickens coming home to roost

“What was once seen as a giant step towards "ever-closer union", as prescribed by the Treaty of Rome, is becoming an intolerable straitjacket . Common sense would suggest loosening the sleeves, but it may well be ignored as each of the camps cries foul. Britain found itself in a similar quandary before it left the ERM in 1992. For the eurozone members, there is, unfortunately, no immediate way out.”

Oh yes, there is a way out ....

Written about nine years ago, one of the very first items on my wonderful web site, and a main motivator for starting abelard.org:

EMU and inflation - a civil liberty issue

on speculating, investing and currencies

Many who invest, don’t understand markets and are, in fact, speculating.

A while ago, people were worrying about their negative equity in housing. I told them the equity would probably reverse if they were calm and patient. It is not much different with most investment, if you are in it for the long term.

The foolish are the ones who think they ‘know when to jump’.

The objective of investment is simple: to buy when you assess prices are low, and to sell when you assess they are high.

In my view, the dollar is too low. That is a buy signal, not a sell signal.

If you buy sommat because it looks cheap, and it goes down, then a sane person buys more if they can. It’s idiots that would buy when a price gets too high. That is how they get caught in bubbles and sell in panic on falling prices.

These are the sort of person the rich live off.

First, you must know what high and low mean. If I think the dollar is under-valued relative to the euro, as currently I do, I will tend to increase dollars at the expense of euros, for in my view dollars are relatively cheap! So you may say wait until next month, but I’m not interested in next month. My minimum time-frame is 5 years.

As for, say, dumping dollars and buying euros, or visa versa - well, I wouldn’t do that sort of gambling. I might as will wish I’d backed Twinkle Toes in the 3:30, after the event when it won.

I would not seek to dump dollars in fear of what I might think after the 3:30, or next month. Meanwhile, why hold more of any currency than is necessary? Just about all currencies are being steadily eroded.

Further, I never move unless I can see three possible routes towards gain. That is because I am well aware I cannot forecast the future, unlike the foolish who believe they can. I allow for at least one aspect to go wrong and hope it is not two.

I don’t tend to lose, but then investment is for spare cash.

It is possible to make plain wise investments based on a vast knowledge of the particular business or market.

I don’t have ‘vast knowledge’. I do understand money. I am much less knowledgable about business.

So remember the principles of Warren Buffet : keep it simple and stick to what you know.

All investments can go down as well as up - this is sometimes regarded as a trite saw, but it has virtually been made law so potential gamblers, sorry investors, can be constantly reminded.

Sane investment is about risk and opportunity assessment.

Arbitragers may be able to make profits (or losses) in relative exchange rates, I don’t do arbitrage. That is just one market. It is a market that requires a different attitude to my own. But I don’t play poker either.

So, it currently makes sense to buy some dollars. But gamblers are probably selling dollars short and hoping that the dollar will weaken, partly because of their actions. However, shorting the dollar is to attack a mammoth. You may well get stood upon.

“The desire seemed to be to find a short cut to money and to pass over the
obvious short cut - which is work.” Henry Ford

I understand money because I have worked hard, and do work hard, at doing that.

the web address for this article is
https://www.abelard.org/news/economics0601.php#dollar_strength_061206

fossil media circulation falling despite book cooking - the auroran sunset

The American economy is booming. The American population is booming. Here is the fourth consecutive twice yearly report on US fossil media newspaper circulation to show losses:

“While the estimated decline 2.8% for daily circulation for all reporting papers may seem negligible, consider that in years past that decrease averaged around 1%. [ed. it's not 'insignificant' when compounded like that!] Sunday, considered the industry's bread-and-butter, showed even steeper losses, with a decline of about 3.4%.”
—
“The Los Angeles Times reported that daily circulation fell 8% to 775,766. Sunday dropped 6% to 1,172,005.

“The San Francisco Chronicle was down. Daily dropped 5.3% to 373,805 and Sunday fell 7.3% to 432,957.

“The New York Times lost 3.5% daily to 1,086,798 and 3.5% on Sunday to 1,623,697. Its sister publication, The Boston Globe, reported decreases in daily circulation, down 6.7% to 386,415 and Sunday, down 9.9% to 587,292.

“The Washington Post lost daily circulation, which was down 3.3% to 656,297 while Sunday declined 3.6% to 930,619.

“Circulation losses at The Wall Street Journal were average, with daily down 1.9% to 2,043,235. The paper's Weekend Edition, however, saw its circulation fall 6.7% to 1,945,830.”

The list goes on and on and on... Only two papers on the list increased daily circulation - both by less than 1% and both with larger losses in Sunday circulation.

Meanwhile, the newspaper companies both legally and illegally inflate their circulation figures:

“Last year, the Chicago-based Tribune Co. acknowledged that circulation levels had been inflated by as much as 20 percent at Newsday, and as much as 50 percent for daily sales of Hoy. [..]

“Now, for the first time, the federal government says the business models for Newsday and Hoy were based on criminal fraud from 2002 through 2004.”

The Tribune Co. (TRB on the graph below) also owns the LA Times and the Chicago Tribune. It is not the only company caught in fraudulent practices over the last few years. The newspapers want higher circulation numbers so that they can charge more to advertisers because the adverts are getting seen by more people. Advertising is by far the largest income stream for media organisations.

Little wonder that the advertising revenues are moving to the internet. The internet has two advantages for advertisers. First readship auditing is easier and more transparent than with the fossil media. The second advantage is perhaps more important: advertisers only pay when a reader clicks through to their site. That means that, unlike with a newspaper, the advertiser can be fairly sure that they are paying only for the readers who are interested in their product. This both makes the advert more valuable and also decreases the costs to the advertiser, because they don’t need to pay for blanket advertising to get results.

Unsurprisingly the fossil media share prices and profits are also falling in these boom times:

“At the New York Times Co., 3Q operating profit was down 48% from the same period in 2005 to $20.5 million on total revenues that slipped 2.4% to $739.6 million.”

The New York Times has long been leading the losses race amongst the fossil media industry. Here is a graph of the top ten newspaper companies by market capitalisation, with the Dow Jones Average as a benchmark, over the last five years. As you can see, only two of those companies, EW Scripps (SSP) and the Washington Post Company (WPO), have joined in the happy economic times.

Both SSP and WPO tend to be somewhat right-leaning companies, although most news companies own outlets with biases all over the spectrum! Scripps is also largely a television company and so far there is still money to be made in television.

The New York Times is probably the most consistent and extreme left-leaning fossil media organisation. Go figure.

on friedman: important economic warrior dies age 94

“Inflation is always and everywhere a monetary phenomenon.” Milton Friedman

Milton Friedman was, effectively, a spiritual follower of Hayek without Hayek’s depth. He was important in concentrating the minds of modern governments on money supply. His criticism of neo-Keynsianism (not to be confused with the real views of Keynes) has now become accepted convention. Naturally, statists hate him and leftist fellow travellers are purblind to what he was teaching.

Friedman’s main weakness was a market fundamentalist approach to his own theories - a religious faith in the market that, at times, goes beyond the rational. But, all in all, he was a very positive influence on modern times.

Obit in the New York Times:

“In the 1963 book "A Monetary History of the United States, 1867-1960," which he wrote with Anna Jacobson Schwartz, Mr. Friedman compiled statistics to buttress his theory that recessions, as well as the Great Depression, had been preceded by declines in the money supply. And it was an oversupply, he argued, that caused inflation.”
—
“A spiral developed. Wages and prices rose until expectations came into line with reality, usually at the natural rate of unemployment. Once that rate is achieved, any attempt to drive down unemployment through expansionary government policies is inflationary, according to Mr. Friedman’s thesis, which he unveiled in a speech to the American Economic Association in 1968.
—
“Mr. Friedman also pursued his attack on Keynesianism in a more general way. He warned that a government allowed to regulate the economy could not be trusted to keep its hands off individual liberties.”
—
Criticising President Kennedy, he said:
“What your country can do for you," Mr. Friedman said, implies that the government is the patron, the citizen the ward; and "what you can do for your country" assumes that the government is the master, the citizen the servant. Rather, he said, you should ask, "What I and my compatriots can do through government to help discharge our individual responsibilities, to achieve our several goals and purposes, and above all protect our freedom.”
—
“In Vietnam, whose constitution was amended in 1986 to guarantee the rights of private property, the writings of Mr. Friedman were circulated at the highest levels of government. "Privatize," he told Chinese scholars at a meeting in Shanghai’s Fudan University; and he told those in Moscow and elsewhere in Eastern Europe: "Speed the conversion of state-run enterprises to private ownership." They did.

“Among economic scholars, Milton Friedman had no peer," Federal Reserve Chairman Ben Bernanke said yesterday. "The direct and indirect influences of his thinking on contemporary monetary economics would be difficult to overstate. Just as important, in his humane and engaging way, Milton conveyed to millions an understanding of the economic benefits of free, competitive markets, as well as the close connection that economic freedoms bear to other types of liberty." ”
—
“[...] In another address, he[reagan] quoted Mr. Friedman, saying, "When you start paying people to be poor, you wind up with an awful lot of poor people.” [Quoted from online.wsj.com ]

Recommended book

Free to Choose: A Personal Statement by Milton Friedman and Rose Friedman (originally published 1980) $10.20 [amazon.com] {advert} Harcourt Reprint, pbk, 1990, 015633460 £7.09 [amazon.co.uk] {advert} Thomson Learning, pbk, 1990, 0156334607 Only four GoldenYaks because Friedman stands so firmly on the shoulders of Hayek and Keynes, more a great populariser than an original. Free to Choose is reasonably easy and important reading reading for any person with adequate curiosity.

the web address for this article is
https://www.abelard.org/news/economics0601.php#friedman_171106

bernanke before congress - the us economy examined
extracts from the full text:

“The U.S. economy performed impressively in 2005. Real gross domestic product increased a bit more than 3 percent, building on the sustained expansion that gained traction in the middle of 2003. Payroll employment rose 2 million in 2005, and the unemployment rate fell below 5 percent. Productivity continued to advance briskly.

“The economy achieved these gains despite some significant obstacles: energy prices rose substantially yet again, in response to increasing global demand, hurricane-related disruptions to production, and concerns about the adequacy and reliability of supply.

“The Gulf Coast region suffered through severe hurricanes that inflicted a terrible loss of life; destroyed homes, personal property, businesses, and infrastructure on a massive scale; and displaced more than a million people.

“The storms also damaged facilities and disrupted production in many industries, with substantial effects on the energy and petrochemical sectors, and on the region's ports.

“Full recovery in the affected areas is likely to be slow.”
—
“At that meeting monetary policymakers also discussed the economic outlook for the next two years. The central tendency of the forecasts of members of the Board of Governors and the presidents of Federal Reserve Banks is for real GDP to increase about 3.5 percent in 2006, and 3 percent to 3.5 percent in 2007.

“The civilian unemployment rate is expected to finish both 2006 and 2007 at a level between 4.75 percent and 5 percent.”

“Construction of new homes and apartments, defying forecasts of a housing slowdown, shot up in January at the fastest pace in more than three decades.

“The Commerce Department reported Thursday that building activity was up 14.5 percent last month when compared to December, pushing construction to a seasonally adjusted annual rate of 2.276 million units.

“That was the fastest construction rate since March 1973, but it was expected to be a one-time blip caused by unusually warm weather in January that prompted builders to start work on more homes. Analysts are forecasting that housing construction will slow this year as the nation's five-year housing boom quiets down.”
—
“ Building activity rose in all parts of the country in January. The biggest gain was a 29.2 percent rise in the Northeast followed by increases of 23.7 percent in the Midwest, 16.9 percent in the West and 8.7 percent in the South.” [Quoted from normantranscript.com]

“The Dow jumped to a new four-and-a-half year high today following moderate gains, buoyed by Hewlett-Packard Co's earnings, a surprising jump in home construction and more positive comments from the Federal Reserve.

“A late surge in trading pushed the Dow Jones industrial average to 61.71 points, or 0.56 per cent, to 11,120.68 while Standard & Poor's 500 index gained 9.38, or 0.73 per cent, to 1,289.38, and the tech-focused Nasdaq index rose 18.20, or 0.8 per cent, to 2,294.63.” [Quoted from theage.com.au]

“Later, in a question and answer period, Bernanke reiterated a commitment to the Fed's dual mandate of maintaining price stability and maximum employment. He also said the U.S. current account deficit should contract over time, and that he's not particularly worried that China will shift its foreign reserves away from U.S. assets.” [Quoted from jacksonholestartrib.com]

Meanwhile, that pesky US dollar, which I keep being told is going to ‘plummet’ or ‘collapse’, has gained about ten percent against the pound sterling in the past year. This is not unreasonable considering that Gordon Brown (UK finance minister) is inflating like blazes, while the Fed. has continued to pursue its strong dollar policy.

All this strength of the US economy is in the face of rising energy costs. Those eurosocialists and UK oldnewoldlabour pundits must be making George W. Bush real jealous of their glorious socialist model.

ex-eu commissioner questions survival of euro

“Frits Bolkestein, who served in the previous Prodi commission as internal market commissioner from 1999 to 2004, last week predicted that the common currency would face a huge test in around 10 years, when a pensions boom is likely to hit Europe.”

This comment is confused. It is quite possible to have ‘euros’ of different and diverging values; for instance, the UK pound and the Irish punt.

The breakdown in the euro will come when countries become fed up with the cross-border transfers of value, which are currently very large.

The euro will not work unless the ‘stability pact’ is enforced, but pretty well all the EU countries presently are ignoring the ‘stability pact’.

Further, at the heart of euro policy are contradictory objectives:

1. to challenge the US dollar
2. to erode the value of working-class wages and of pensions.

The euro cannot survive as long as these problems remain, unless Europe becomes one country under one government, an unaccountable government that imposes ‘unity’. The current situation will lead inevitably to ever-increasing inflation.

“Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
John Maynard Keynes 1919.

Keynes was correct then, and his statement remains correct now.

You may ignore facts for just so long, .but eventually the facts will blow you out of the water.

The above statements about the euro are facts. Arguing will not change facts.

related material
EMU (European Monetary Union) and inflation – a civil liberty issue

greenspan

“I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

Alan Greenspan, one of the few serious economic experts around the world, is about to retire, although doubtless his advice will be sought in the future.

“Tuesday morning Alan Greenspan will preside over his last meeting as chairman of the Federal Reserve, a post from which he has steered the nation through more than 18 years of the most solid and inflation-free growth in its history.” [Quoted from sfgate.com]

While Greenspan is one of the really able/great monetary economists of the modern age, what I find of greater interest is the shoaling minnows who constantly circle offering foolish ‘analysis’ and ‘advice’. Realities seem to matter nothing to them. You can see several of their uninformed ‘opinions’ and assertions in the article linked above.

“A New York City-bred and educated economist, Greenspan has kept inflation at bay for nearly two decades. But he hardly stopped there. Greenspan reinvented the job, deftly maneuvered the country through financial crises, set new standards for economic policy and altered the Fed itself.

“Along the way, his handiwork touched every homeowner who refinanced a mortgage, every pensioner sustained by a fixed income, every worker with a steady paycheck who survived two mild recessions and every investor confident enough to own stocks despite the market’s 1987 crash and new millennium tech meltdown.

“The Greenspan era will be noted also for the 50 percent jump in the economy’s output per person, said longtime Fed analyst Allan Meltzer, whose first-volume history of the Fed carries an introduction by Greenspan.

“ "It’s hard to find a period which was better," Meltzer said. "Unemployment
rates have been low. That’s a real achievement, and we owe that to the
Greenspan Fed." ” [Quoted from kansascity.com]

In answer to a correspondent:
Alan Greenspan has an intellect far above most of his listeners and certainly far above that of his would-be critics.

From the second article:

“He has enormous patience," Hoenig said. "To work with 18 other people, all of whom have opinions, allow them to say their piece, bring the group together and avoid needlessly offending or cutting off, is just an amazing show of patience from my perspective and what I’ve seen him do over the years.”

and:

“Alan probably knew more about everything than I knew about anything," said Norman Robertson, an adjunct professor of economics at Carnegie Mellon University and a friend of Greenspan for more than 40 years.”

Norman Robertson’s statement is merely honest and cautionary.

Often I tell people things, which long experience has taught me, most of them will not understand very well.

Of course, the quotes above are from able men; they do not lack confidence to the extent that they need to bluster.

useful item on government price index manipulation

Now this item is useful, even if somewhat naive in places. The author does not understand fiat [or ticket] currency at various levels. For instance:

• he has the usual poor grasp of the meaning of ‘interest rates’;
• ‘hedonics’as a practice does have some justification, but used as wildly as he reporting, it is being misused;
• he misses entirely the effects of USA reserve currency status.

The author further misses the high importance of hydrocarbon inputs to farming. He also needs a counterpoise item on GDP structure.

Despite claims in the item, none of his discussion has much to do with ‘markets’ in the sense of major corporations and stockmarkets. Businesses should be building these factors into any planning, although small businesses and idiots will not.

I quote from the article:

“In effect, the US is exporting its inflation and it will ultimately result in deflation in the rest of the world, which is heavily laden with overcapacity and hyperinflation in the US when foreigners no longer finance our deficits. That is when the end game of hyperinflating our way out of our debt bubble really begins [...] ”

The first comment is arrant nonsense up to the comma - the reverse is the case, it will liable to generate inflation abroad. The rest of that section is mere babble.

His comments on fiat money are a combination of the speculative and the erroneous.

Now the next statement is much more important if he could make any sort of case, but all I see is an unbacked assertion.

“An understated CPI also overstates GDP by not removing the full inflationary impact of pricing from nominal numbers. It also overstates productivity by overstating the numerator part of the equation.”

So, read the article for an understanding of the CPI (RPI in the UK). On this he is accurate and has done his homework, a useful contribution.

The rest of the article is unsupported dribble.

end notes

hedonics

an attempt to compare items by their value rather than their price.
For instance, you can buy a computer with a much higher spec. this year than last year while still paying the same price. Hedonics attempts to quantify that increase in value.

 

the web address for this article is
https://www.abelard.org/news/economics0601.php#cpi_170106

email email_abelard [at] abelard.org

© abelard, 2006, 17 january


all rights reserved

the address for this document is https://www.abelard.org/news/economics0601.php

vaiable words
prints as variable A4 pages (on my printer and set-up)