Posts

Showing posts from May, 2012

A worse crime?

Image
Yesterday, 32 children were among 90 people killed in Houla, Syria. The international community has united in its condemnation of the people responsible for this atrocity. Predictably, the Syrian government denies any responsibility and blames "terrorists": while the opposition Free Syrian Army, equally predictably, claims it was done by government forces. Reports from the area are inconclusive, though there seems to be a prevalent belief that this was the work of a brutal and terrified government.

Whenever children and the elderly are murdered in large numbers, particularly for political motives, there is always an international outcry. I certainly don't defend such behaviour, whether perpetrated by government forces or opposition. But I could ask in what way the death of a child or an old person is worse than the death of a mother or father, whose children are left without anyone to care for them. I could ask in what way death is worse than survival, maimed and unable …

The European disaster story

Image
As you all know by now, I like charts. They tell stories.

Here's a pretty chart:



(apologies for Google's misplacing of UK's label - should be between Germany & Italy).

What this chart tells us is that unemployment in Europe was FALLING, generally, until 2008. Since then it has risen sharply and continues to rise in all these countries except Germany.

Then there's this chart:



This chart tells two stories. The first is the effect of the Euro in synchronising growth among Eurozone countries. The synchronicity is striking - the UK, which is not a member of the Euro, stands out like a sore thumb. This chart suggests that the Eurozone countries are coupled closely together and an adverse shock in one is likely to have serious consequences for the rest - as we are seeing at the moment.

The second story that this chart tells is related to my first chart. All the Eurozone countries in this chart were growing at a similar pace - until 2008. The UK's collapse starts earli…

Silly charts and bad economics

Image
A short while ago, the esteemed Adam Smith Institute (ASI) produced this chart as part of a post from Sam Bowman:


I criticised the chart in this post on four grounds:

- the figures were not adjusted for inflation
- the figures were shown in Euros, which meant that the UK's spending in 2009 was overstated because of the devaluation of sterling
- the figures were not quoted in relation to the size of the countries' economies
- there was no allowance for cyclicality (automatic increase in government spending as benefits bills increase in economic downturns due to unemployment and wage cuts).

And I produced a lot of charts of my own showing that when the above are taken into account, the conclusions of Sam Bowman's post - that there hadn't yet been any serious spending cuts and there was far worse to come - were only partly justified.

So what did the ASI do? They issued the same chart AGAIN in a different post, by Vuk Vukovic. And he produced from it an even more mistaken…

JP Morgan and rabbits

When my children were little we used to keep rabbits. Rather a lot of rabbits, actually - because of an all-too-well-timed escape by our natural male rabbit, we ended up with eight when we had previously only had three.  Two, including our male, were caught by foxes, but the rest lived happily together in a small shed leading to a large open-air run. Until one day they dug out of the run and had a big party all over the garden.

I was busy teaching at the time and didn't know about the escape until my daughter came running in screaming that the rabbits were on the lawn. We all (including my student) went out there, rounded them up and returned them to their pen. But it was apparent that all was not well. Most of them were injured, two quite seriously. I immediately thought that the foxes had attempted to catch them - but that turned out not to be the case. When I took them to the vet, the vet commented that the injuries were consistent with rabbits fighting.

FIGHTING? Mum and kids?…

Liquidity matters

Image
There has been much discussion recently about whether banks are insolvent or simply illiquid, and indeed similar discussions about some European countries. Mervyn King said that the problem in Europe was solvency, not liquidity - but the ECB has been providing lots of liquidity to keep the banking system and, indirectly, European sovereigns afloat. So what is the difference between insolvency and illiquidity?

Here's an illustration. Suppose I go to the pub with a friend, and when I get there I discover that I have no cash. So my friend buys me a drink. Am I illiquid or insolvent?

It all depends why I have no cash. If the reason I have no cash is that the kids cleaned me out earlier and I forgot to go to the cashpoint, but there is money in the bank that is not earmarked for another purpose (and this is important), then I am illiquid. I don't have ready money available, but I'm not broke. Next time I meet up with my friend, I will have no difficulty buying him a drink in r…

Who has REALLY benefited from Euro membership?

Just to remind you - the Euro came into being on 1 January 1999. These are the eleven founder members.

To make it even clearer, here is a chart showing only the largest economies among the founder members:



Now, admittedly I am only showing external trade balances. But part of the point of the European Union has always been promotion of trade between its members. The common currency was supposed to improve this by removing currency risk from cross-border trade.

Please tell me what value the common currency has brought to Italy,Spain and France?

And I haven't even included Greece......


The road to hell

I found an interesting chart from the World Bank this week. It shows Greek GDP since 1960.



And here's another chart showing the growth rate of Greek GDP. Note that it is currently shrinking (negative growth).



We hear a lot about the collapse of Greek GDP, and the second chart shows the dimensions of this. Greece is now in its fifth year of recession and things are only getting worse. Though it's interesting to note that Greece had a much sharper drop in 1973-5, probably due to the oil embargo, and also in the early 60s. But those were from a much lower GDP base than the current contraction. And therein lies the problem.

Greece was for a long time a poor economy. Its major industries were agriculture, shipping and tourism. But the first chart shows that after it joined the Euro in 2001, its GDP shot up. What caused this?

Well, it certainly wasn't improvement in exports. Here's another chart showing Greece's export performance:



Note that Greece was ALREADY running a …

So what about that austerity, then?

Image
The other day, Veronique de Rugy produced this chart from Eurostat statistics for European Union government spending

.
Various writers picked it up as evidence that there haven't been any serious spending cuts anywhere in Europe yet. Sam Bowman at the ASI complained that Eurocountries are moaning about the idea of spending cuts rather than the reality, and warned that the real nightmare is still to come. Is he right?

There are some serious issues with this chart:

- it uses nominal figures rather than real, so does not allow for the effects of inflation. To be fair, De Rugy herself bewails the lack of inflation-adjusted figures.

- the UK's figures are shown in Euros. The UK is not a member of the Euro, so these are translated figures. Sterling was devalued by approx. 25% in 2008/9 versus the Euro: it is creeping back up again but has not yet reached its pre-crisis levels.

- no allowance is made for cyclical factors and the operation of automatic stabilisers. Government spending …

The naked King

Image
In this post I use a number of charts from various sources. I hope you will bear with the mishmash of formats and fonts: I did think about doing my own charts, for consistency, but hey, life's too short!

Yesterday the Governor of the Bank of England gave a lecture broadcast on BBC Radio 4, and was then interviewed by Evan Davis. The full text of his lecture is here and you can also listen to part of the broadcast interview.

Mervyn King was the Governor of the Bank of England during the financial crisis and was responsible for the exceptional actions taken during that period to support the banking system. In partnership with the  Government and the rest of the Monetary Policy Committee (MPC), he has effectively managed the UK economy from 2003.

In his lecture and ensuing interview, did Mervyn King admit any responsibility for the financial crisis? No. He makes the extraordinary claim that "this was a bust without a boom" and followed it up in the interview with Davis with…