Ten years from now, when the history of events such as this are being written, I wonder (a) if moves toward "fair" trade will be shown to be anything more than window dressing and public relations, and -- far more important -- (b) whether the consultants and advisors who made their own personal fortunes guiding corporations in their noble move toward fair trade were actually members of the community of green activists.
UPDATE II: But seriously folks: as we join the crowd linking to Belmont Club's important post, I have a reservation. What we heard from Bin Laden was frankly less ideologically radical than Michael Moore -- but did we hear all of what Bin Laden actually said? Wasn't there additional material?
The Bush and Kerry election contracts seem at times to add up to a higher than 100% probability one will be elected.
The charts aren't available right now, and the quote boards can be seen at their site but (as the time of this writing at least) things are happening so fast&furious the info isn't being passed across the internet to quoteboards like mine.
So what's happening? Is the market finally deciding, somehow, Bush can't make it -- that Kerry is in?
And if this individual is spending lots of $$$$$$$ to temporarily depress the price of the Bush reelection contract, isn't this individual merely creating a massive buying opportunity for those among us with confidence/courage/a few spare bucks to (take your pick:) risk/invest?
UPDATE: At last, a chart. LOOK AT THIS THING!
If this were a stress test, face it, this is not someone you'd hire to fly your company jet or whatever.
But check it out. The graph speaks for itself. It does not seem possible for that price to get pushed below 50 for any length of time.
As loyal EconoPunditistas know, since the third Presidential Debate (when John Kerry charged there are 4,000 undocumented immigrants crossing the border from Mexico each day) we've been obsessed with finding macroeconomic implications of any labor flow of this magnitude.
So as is our wont (nice expression no?) we submitted the question to our favorite macroeconomic simulation model. First mixed results were reported last week. These were partly unsatisfying for several reasons, including the rather unrealistic way population was adjusted to approximate appropriate numbers for immigration reform.
Accordingly, this week we used Ray Fair's new MCU model, an updated version of his MC (multi-country) model which calculates macroeconomic impact by simulating (rather than approximating) all international US trade relations. Additionally, we smoothed the adjusted population figures to allow a more realistic transition from normal conditions to those of immigration reform. Here's a plot of the population data, along with the smoothed series we used:
So: what happens when we subject Ray's MCU simulation to a smoothed pop1 reduction of approximately 4,000 per day from 2004:4 to end of MCU prediction period, 2007:4?
First and foremost the population reduction induces a distinct decline in real GDP of approximately $120 billion per year averaged over the entire prediction period:
Averaged over the lower noninstitutional working age population however, the decline turns into a net gain amounting to roughly $220 per year in real terms averaged over the entire prediction period.
The unemployment rate is reduced by roughly half a percentage point:
There are several wage/earnings variables in the model that must be considered when assessing the wage-rate impact of immigration reform. Here are the variables, their description, and an indication of how each one changes over the prediction period as compared with its baseline (i.e. its "no-immigration-reform") simulated value.
Very tentatively these numbers suggest
1. The effects of immigration reform on wage rates are modest at best. Indeed, from these numbers it is hard to see any evidence of widespread depression of wage rates being caused by an augmentation of the male working-age labor force of "4000 per day."
2. The private sector impact of immigration reform is smaller than the over-all impact.
3. In real terms the wage impact of immigration reform may run completely counter to intuition. According to this run of the model the private sector wage measured in real terms would increase at a faster rate without immigration reform than with.
A final consideration is the fiscal impact of immigration reform. Despite a substantial reduction in unemployment insurance benefits, the population induced decline in aggregate income induces substantial losses in all income induced federal tax revenue. Immigration reform on the order of magnitude modeled here causes an increase in the NIA deficit by the end of the prediction period of approximately $10.5 billion. Until further evidence emerges, immigration reform is no solution to Washington's fiscal problems.
UPDATE: One needn't be a political genius to predict soon this issue will move from basically regional to national. Maybe I'm old-fashioned, but I think the more reasoned thinking we can do on the subject the less ugly will be this upcoming national discussion.
Diminishing pressure world basic materials prices?
David Malpass, of Bear Stearns, sends these wise words on China:
The People's Bank of China (PBoC) raised its benchmark one-year lending and deposit interest rates by 27 basis points (to 5.58% and 2.25% respectively). We [have noted in the past] that "monetary restraint and nominal interest rate hikes remain the likely scenario in China going forward…we maintain an expectation of 25-50 basis points in PBoC interest rate hikes before end-2004." In the ongoing sequence of global rate hikes, we expect the ECB to hike in the first of 2005 and the Bank of Japan later in 2005.
For the longer-term, China's rate hike represents a constructive recognition that investment activity hasn't slowed enough. In the near-term, the move is likely to slow aggregate demand primarily on the investment side. It is an intensification of China's policy-driven slowdown that likely will further curtail demand for investment-driven basic materials and producer goods (steel, cement, plastics, etc.). However, we believe the Chinese consumer story can remain resilient in the face of a rising interest rate cycle.
China's recent third-quarter GDP data showed some moderation in growth, with real y/y GDP falling to 9.1% from Q2's 9.6%. But the combination of 1) fixed asset investment growth (at 26.8% y/y) still well above nominal GDP growth, 2) sustained evidence of overcapacity at the core consumer goods level and 3) further acceleration of inflation at the producer goods level (with PPI having accelerated to 7.9% y/y from 6.8% y/y in August) all suggest that China's investment slowdown has to go farther if policymakers are to steer clear of an even bigger oversupply problem and the risk that consumers might hold off consumption in anticipation of price cuts.
We expect further PBoC interest rate hikes in coming months, in large measure to offset still-negative real borrowing costs, which have been exacerbating China's capital misallocation. Even after today's rate hike, real lending rates remain below zero (nominal 12-month lending rate minus y/y PPI is still -2.3%). Furthermore, the recent weakening in the U.S. dollar, alongside larger Chinese trade surpluses and a pickup in 'hot money' inflows all likely increase the PBoC's monetary sterilization burden, adding to pressure for higher nominal interest rates. Given China's overcapacity issues, we think the PBoC will choose to pursue currency stability and further rate hikes rather than revalue the yuan (which would risk a Japan style 1980s asset appreciation and a deflation crisis.)
During China's last rate-tightening cycle (30-months from Q2 1993 to Q4 1995), China raised its 12-month working capital loan rate by 350 basis points (to 12.1% from 8.6%) and its 12-month deposit rate by 250 basis points (to 10.1% from 7.6%). We expect a much smaller exercise this time -- perhaps 150 basis points over 12 months. Reasons: the less inflationary value of the yuan this time(it had devalued substantially in the early 1990s); quantitative credit controls and other tools (such as open market operations and the reserve requirement ratio) have all been used this time and were not available as policy options in 1993-95.
Recent data suggest that Chinese private consumption has strengthened in recent months, even as investment has slowed somewhat: 1) Retail sales strengthened in September at +14.0% y/y vs. August's 13.1%. 2) Year-over-year growth in household savings continued to decline in September -- i.e. to 14.4% from August's 15.4% -- reflecting a propensity to spend rather than save. And 3) we note that during China's 1993-95 rate-hiking cycle, fixed capital formation growth slowed to 11.0% y/y in 1996 from 1993's 29.5%; yet 1996 household consumption growth, at 11.0% y/y, was nearly unchanged from 1993's 11.2%. Now, as then, deposit rates over time will likely rise by less than lending rates do. Where consumption likely will be more adversely impacted will be spending that involves consumer finance, such as autos and property spending.
Hmmm. Should I be slowly eating a chocolate chip cookie? No. How about...
I am having deep fantasies about how to spend those delicious few moments when the Site Meter index at the base of the blogroll reaches that magic number 499,999.
The most intriguing of all is the case of Benon Sevan, the UN director of the Oil for Food Program. Mr. Sevan, who was identified in the lists with the United Nations but listed under African-Middle East (Panama), has received several vouchers. The last one for 1.5 million barrels appears to coincide with Mr. Sevan's visit to Iraq and his meeting with Iraq's Deputy President Taha Yassin Ramadan in February, 2002. At the meeting, Mr. Sevan was quoted by Babil, the daily which was owned by Saddam's son Uday, as stating that the program "suffers from paralysis." Following his meeting with Sevan, Ramadan declared: "We call on the United Nations to exercise its role to ensure proper implementation of the memorandum of understanding on the Oil for Food Program."...
The Iraqi government daily Al-Thawra compared Sevan to "other honest employees of the United Nations," Dennis Haliday(an Irish national) and Hans von Sponeck (a German national) who served, in succession, as UN Representatives in Iraq for Humanitarian Affairs. [6] Until the fall of Saddam these two UN officials had given numerous interviews on visual and written media denouncing the UN sanctions as harmful to the people of Iraq.
Oil voucher recipients are alleged to include the Russian presidential office, former French Interior Minister Charles Pasqua, and even former Oil for Food program director Benon Sevan of the U.N. Just this week our news side colleagues reported that French authorities have placed under formal investigation a top official of French oil giant Total, for possible misuse of funds including payment of the Iraqi kickbacks. Before the war Total was also openly courting Baghdad for the rights to develop two large Iraqi oil fields.
Here is Larry Kudlow's response to Don Luskin's "bubble of fear." (This may be a "subscribers only" page that has somehow leaked into the pulicblogosphere domain. If so, uh, sorry about the link, Larry.)
Full disclosure: my company, a regular display advertiser in both Chicago daily papers, is patiently waiting news on class action lawsuits on behalf of companies like ours.
And yes, they seem to have been produced on a typewriter...
Drudge doesn't have this new story yet and National Review seems offline (maybe because of the story). Anyway, I pass it along to you since nobody else seems to be doing so right now.
UPDATE: I guess I feel a sort of proprietary interest in this story, having been an active paricipant (i.e. I was tear-gassed) in the demonstrations the documents discuss.
This story originates in part from the primary author of Chapter 6 (on Social Security) of 2004's Economic Report of the President. If I understand what's being said correctly, in effect an argument which can be illustrated by the following EconoPundit-edited graph:
is being presented by one of the two Presidential campaigns as if it were the whole story portrayed by this orignal version:
Via Bruce Bartlett -- but EconoPundit assumes full responsibility for any unintentional misrepresentation, etc., etc.
Latest fact to come in from CBS News' 60 Minutes...
I hope the blogosphere investigates this and finds it either (a) completely false or (b) so isolated as to be in effect false:
And what did he find? "Many Iraqis have so much distrust for U.S. forces we found they've come up with a nickname for our troops," Scott said. "They call American soldiers 'The Jews,' as in, 'Don't go down that street, the Jews set up a roadblock.' "
Then again, what the heck, it is the Middle East and US troops have to be called something, right?
UPDATE: I wonder when the individual whose work makes possible quick, easy research projects like the one producing this graphic will be considered for the Nobel Prize? Soon I hope.
UPDATE II: Longer report on the above-mentioned little research project can be found here.
China has not only become a new heavy addict of the world's oil teat, it is one of the worst offenders in terms of efficiency. To generate every $1 of GDP, China uses three times or more as much energy as the global average, 4.7 times more than the U.S., 7.7 times more than Germany and 11.5 times more than Japan.
Unless a "hard landing" produces a Japanese or Korean style bust, Chinese oil consumption and imports are going to keep climbing. And so is the inefficiency of use.
China is well on its way toward replacing a big part of its 1 billion bicycles with cars. Manufacturers produced only 220,000 vehicles in 1999. Last year they produced more than 2 million, an 81 percent increase over just the previous year. With 24 million cars operating in 2003, the People's Republic is projected to have 60 million private automobiles by 2010 and 130 million by 2020. If those straight-line projections -- or anything like them -- work out, oil for transportation alone will account for half of the total consumption.
Again some industry analysts point out the annual average fuel consumption per car in China is 2.28 tons, 10 to 20 percent higher than the United States twice that in Japan.
No wonder that "Liberating Taiwan," a recently published book from the Chinese Military Publishing House, makes capturing the Southeast Asian Mideast oil route a part of a dramatic war scenario.
UPDATE: I have to say the opening mixed metaphor is about as repulsive as they come. It is a serious imposition on readers to describe China as a "heavy addict of the world's oil teat."
Larry Kudlow now has a blog. This blog has a blogroll at the side. The blogroll has just sixteen links -- huge scale folks like WSJ, Glenn Reynolds, Kaus, National Review, and so on.
Oy vay! I just nearly wet my pants! EconoPundit is right there too!
I'd like to invite those with more knowledge of petroleum economics to examine this site and report back.
On the one hand, these people have spent many hours gathering information -- much of it interesting and useful -- on an important subject.
On the other hand:
(1) The site fosters doctrinaire confusion by, for example, confounding petroleum exploration (one economic activity) with development and production (two different economic activities).
(2) The site's unnerving underlying assumption is that any economic activity servicing only a small fraction of the US market is trivial and, one can only presume, needless. Thus: petroleum exploration, development, and production that only provides "ten minutes" of energy for the US is dismissively ridiculed.
Fueling the US even for "ten minutes" is a huge economic project. The costs, wages, salaries, and profits generated by ten minutes' worth of oil production puts hundreds of children through college, pays thousands of workers' health care costs, generates mountains of tax dollars for schools, and on the list goes.
Further, there are countless small businesses even lower on the food chain than the petroleum projects that, we are sneeringly told, fueled the US for just "ten minutes." What kind of economic thinking can wrap its little mind around nothing more complicated than the very large enterprise? Like Fascist economic thought, I worry such a worldview cozies up for warm, fine-wine dinners with the most-rich and most-powerful -- laughing at those unimportant small businesses bleeding to death outside in the gutter.
UPDATE: Bruce Stram sends these thoughts:
Your criticisms are mostly apt.
I haven't done a study of drilling on federally protected land in particular, so these comments apply to Western land in general. Its very clear they're talking really about production per unit of time. Production of course follows successful exploration and development. The west in general and Rocky Mountains in particular has attracted growing exploration attention, and production has been steadily growing. There have as yet been no huge finds and are unlikely to be so because of the geologic nature of the region. Smaller reservoirs and lack of ready access to transportation have tended to hinder production and consequently exploration. More modern exploration techniques make finding smaller reserves more profitable and as
production builds, more transport access is constructed. So there's every reason to expect that the numbers will grow in the future, the more so as more access is available.
It is an article of faith among enviros that oil and gas drilling and production is immensely destructive of the environment. It is an article of faith among oil drillers that they are compelled by regulation to go far beyond what is rational and reasonable to protect the environment. I think the truth is somewhere in the middle to the effect that oil and gas exploration and production is relatively low on the invasiveness hierarchy.
Some of their argument [are self contradictory]. It is true that coal bed methane recovery almost always requires "dewatering" of the coal bed. It is also true that the water is contaminated often with sulfur and heavy metals. Safe disposal is in fact an issue for exploration companies. I have never heard the complaint that this water is part of the potable water system. If it is, than the local water would require substantial treatment before use. I suspect that disposing of water of coal bed methane quality in the vicinity of viable aquifers would be generally proscribed. In any case, if the water is so usable locally, why aren't the farmers and ranchers eager to buy it from gas companies?
I'll send more if I have more reaction.
UPDATE II: Another reader sends this link which has to do with the organization and its funding.
You can't start looking at that "4,000 per day" figure without worrying about the economic implications of immigration reform. The problem is we are running out of prime working-age Americans. (Yes, that's right, this is the Social Security crisis viewed from another angle!). Here raw projected numbers through 2008, size of US male population age 25-54:
What's worrying is these are based on census numbers and, therefore, they already count undocumented immigrants. A pure immigration reform policy of closing the border would generate the following numbers:
Kerry's "4,000 per day," in other words, more than fully accounts for total growth in prime working-age US population. Full border closing would cause an accumulated reduction in this work force of roughly 12% over the entire period.
So what would be the economic impact of such immigration reform? We have a rough answer, but please note this initial qualification. The model's prediction period of seventeen quarters is quite short relative to the immigration reform policy adjustment being modeled, and the hypothetical population adjustment is quite severe compared with its historical values. A better answer to the question would entail back-casting immigration reform and spreading its impact over at least twice as many quarters -- but the post 9/11 recession complicates any interpretation of results using this method.
Results are mixed. Population decline means a decline in the labor force, in spending, and in aggregate income. In this case, real GDP declines by roughly 1.5% -- but the lower population spreads GDP over fewer heads. Immigration reform in this case leads to an approximate increase of roughly $2,400 per working-age member of the population. (The Yale model counts only working-age rather than general population. If immigration reform reduces average family size this result would be slightly magnified.)
Real growth is adversely affected by immigration reform:
The "sawtooth" pattern is almost certainly a figment of the extreme adjustment in population, but notice though growth is affected adversely with an initial quarter of negative growth, no genuine recession is predicted.
Wage impacts appear minor -- a result in opposition to the widespread belief undocumented immigration depresses wage rates. Measured as after-tax wage rate or average hourly earnings rates seem to move slightly up with immigration reform; in real terms the movement is very slightly in the opposite direction.
Hypothetical immigration reform brings about surprising results when it comes to jobs and unemployment. Despite the initial period of negative real GDP growth, the average annual unemployment rate sinks to 4.3% during year 1 of reform, and rises to an average of 4.8% by the end of the period. (The quarterly graph reveals a disturbing "sawtooth" pattern that may indicate the model has been pushed outside reasonable boundaries by a too-rapid exogenous change in population, however.)
And by 2008 the 7 million decline in working-age male population is matched by a far less-severe 3.4 million decline in private sector jobs, a result consistent with the lower unemployment rate.
I suspect those seeking to make a case for immigration reform -- as well as those building a case in opposition -- might find support in the numbers generated by this simulation. So, for the curious, all numbers will be found in the Fairmodel "immigration3" dataset, which you can access using the password "expim."
UPDATE: Cancel that last sentence. Somebody change the data and re-ran the model with crazy numbers. The dataset "immigration3" is now inoperative.
Except for one thing: this year, here in Chicago, one wonders whether it is the halloween season. Where are all the haunted house signs and newspaper advertisements? Who has decorated their house for the season?
UPDATE: As I've said before this sort of behavior seems to confirm markets generally work roughly the way the textbooks say they work. Somebody spent lots of money trying to effect a political end, in other words, but only succeeded at creating a buying opportunity for others.
UPDATE II: The update banner for the Bush Reelection Contract seems down. If past experience is any indication, there's a new polical attack happening at this very moment (approx 8am central time).
Here are the results of hypothetical immigration reform reducing the US male working age population by 365,000 per quarter -- the 4,000-per-day figure cited several times last night by John Kerry. We ran the reduction as an exercise on the Yale econometric model; instructions for examining the run can be found at the bottom of this post, but first here are the results.
Population reduction is not labor force reduction, because not everyone who arrives actually gets a job. Historical numbers suggest 365,000 fewer working age males in the population will induce a reduction in the work force of 328,000. (On a male age 16-55 work force of approximately 56 million, this is a reduction of roughly six tenths of one percent.)
A smaller population means reduced consumer spending and consequently a lower GDP. This effect turns out to be measurable, but quite small -- less than two tenths of one percent.
A smaller labor force may allow jobseekers an easier time finding jobs, and this appears to be the case here. Over the entire prediction period the average unemployment rate would be 5.45% with immigration, 5.40% without.
However: aggregate income has declined, meaning there are fewer jobs overall. The population reduction reduces the total number of private sector jobs by about 182,000 per quarter. A connected figure on which pro-immigration reformers and Buchannanite nativists might sieze is that since the entire workforce reduction of 328,000 consisted of undocumented Mexicans, in net terms the burden of private sector job reduction falls mainly on the Mexicans, not native born US workers. Put another way, the workforce ratio of US to Mexicans has been raised. (But remember -- anti-immigration reformers will be quick to point out this proves in clear numerical terms undocumented immigrants largely create their own jobs!)
Students of simulation: go to Fairmodel and examine my dataset using the username "ireform" and the password "expim." If I've made mistakes or dropped a decimal point, let me know!
Meanwhile, we can draw this conclusion -- 4,000 per day is simply no big deal!!
UPDATE: I know there will be some in the back row who argue the offensively-titled movie referenced above postulates not immigration reform (regulation of population flow) but actual deportation .
True enough, our similation deals only with the former, not the latter. Those wishing to simulate the movie can try it themselves.
UPDATE II: And by the way, all we're reporting are the averages over the entire year 2005-2008 forecast period. The time distribution of the effects isn't uniform over this period. Check out the impact on the unemployment rate for example:
Almost all the effect is felt during the first few quarters, after which time things move pretty much back to what might be called the no-immigration-reform-normal condition.
UPDATE III: Whoa! This was done incorrectly! (Heck, live and learn, right?) The exogenous population variables are truly that -- completely exogenous.
For a baseline forecast, each quarter during the four year predition period is extrapolated in accordance with the long run Department of Census based growth rate of the US population (all immigration, documented and otherwise, presumably included).
But for the counterfactual forecaster, this means each quarter's population number doesn't know anything but (1) its baseline value and (2) whatever adjustment the counterfacutal forecaster allows during that time period alone. It can't take into account any adjustments you've made in previous time periods, in other words. So, to make a long story short, to adjust the exogenous population number to simulate the Kerry debate number of 4,000 per day, you must deduct .365 million from exogenous male working age population during quarter one of the simulation period, .730 million during the second, 1.095 million during the third, 1.46 million during the fourth, and so on.
For now, exams must be graded, eyglasses ordered, you know, basic daily stuff like that.
But soon, in a new post, we'll run the model again -- and then we shall see what we shall see.
UPDATE IV: And for something on a related note, read this. (Please don't just read part and assume you know what's being said. Read it all. Please.)
In last night's debate John Kerry forcefully insisted the number of undocumented crossings from Mexico to the US was 4,000 per day. (I seem to remember he used this number twice.)
Anyway, my lightning-fast computation skills tell me this amounts to a tad under 1.5 million entrants per year, or 365,000 extra members of the labor force per quarter.
Let's run that number through our model to see how wage rates and other variables of interest would be affected if -- by some miracle of policy, military action, supernatural intervention, or whatever -- this number were to move drastically downward over a short period of time.
Milt Rosenberg is now radioblogging. To listen to his recent two-hour post, an interview with Graham Allison entitled "ALL SORTS OF FOLKS CAN NOW MAKE NUCLEAR WEAPONS...IF" you can just click here.
If you don't have two hours to listen to the interview you can at least read a review of the book by clicking here.
The subtext is US-as-medieval-Europe: poor and rich alike stay so indefinitely, and all below the median starve while waiting for for goodies to "trickle down."
Years ago a very good friend -- a distinguished multilingual economic anthropolist -- told me about a bullying, dismissive Paris shopkeeper who pretended my friend's accent was so poor any civilized human could simply not be expected to understand.
After four attempts to communicate, as my friend told the story, he gave up.
"So I told him in German that he could go f**k himself -- and then I ran out of the shop as fast as possible!"
And for some reason, this morning when I read this story my old friend's tale just popped into my mind -- right along with a few words from an old song.
My superspecial Toshiba Satellite laptop has been in the shop for over a week. That's part of the reason blogging has been so light. The machine -- wonderful in every respect with a massive bright screen, wireless detachable keyboard, wireless mouse -- just overheats at a moment's notice. Any continuous disc activity and after a minute or two POP! Off it goes. Too hot.
The repair people called yesterday and explained.
Lint. Yes, there's LINT inside gunking up the cooling apparatus! @@#$&!! Lint. LINT!
Outside the circle of upcoming European economic issues -- Europe being slated to experience even more-severe problems in the very near future -- warnings like this have little economic meaning.
Additional Info:
-- GOVERNMENT DEBT AND PENSION LIABILITIES AS PERCENT OF GDP (1990) ===net conventional debt====net pension liabilities CANADA===52================121 GERMANY==22================157 ITALY====100================259 UK=======27================156 US=======35=================90 ----------------------------------------------------------------------------------------------- Source: Essays on Pension Reform, Max Alier PhD Thesis, University of California LA, 1997; quoted in R.E.A. Farmer, Macroeconomics, South-Western, 2002, p. 162.
...let's be clear: Fannie Mae is not a financial house of cards. It is a highly profitable business with a solid balance sheet and sophisticated risk management. And whatever else you might think about the people who run Fannie -- an executive team rich with Washington, D.C., experience, and outside directors that include a former White House chief of staff, the chief executive of a corporation that barely survived its own accounting scandal and the former dean of the Wharton School -- it is inconceivable they could have watched what happened at Enron and WorldCom and Freddie Mac without making sure that the company's accounting policies were sound...
