Outlawing the truth
Seems reality is too real for some folks. The authorities have shutdown Intrade.
This as a big step back, but not so surprising. As Hugh Hendry has said, governments can’t stand markets, because markets deal in the truth, no matter how unpalatable it may be. The market is like a physician who won’t sugarcoat your diagnosis.
The need to evade overreach by government is growing more acute. Seasteading, or buyout of Kaliningrad. We need a place innovators can flee to. ”Exit not voice”.
Some plots of Canadian prices
Marcus Nunes, Nick Rowe, Scott Sumner and some others have had an interesting discussion on the puzzling lack of disinflation, despite an obvious ‘output gap’ in most advanced countries. The case of Canada, and its lack of sustained disinflation in 2009-2011 being the focus.
I have no strong opinion on the Canadian situation as I don’t know the data well. Still, I am instinctively weary of consumer price indices, as I’ve seen a number of instances were headline and even core CPIs were misleading, either outright (Sweden) or intermittently (U.S., most of the New Sovie European Union’s HCPIs).
Here are some alternative price measures from Canada. Year-over-year % change in the implicit price deflators of a handful of aggregates. Click for a better look.
Note that I am not showing all subcomponents of the GDP deflator. We know export prices crashed. It looks like most of the Canadian GDP deflator mirrored the CPI in the great recession. A run up in prices before the recession, then a snap back to trend, followed by roughly trend price increases until 2012.
I provisionally accept Sumner’s supply side story. For a relatively small trading economy, a nominal shock (bad monetary policy) in a big trading partner (in this case America), is a real shock to the small trading economy. The scope of the proverbial “patterns of sustainable specialization and trade” which Canadians could undertake, shrank in 2008-2009, and then slowly recovered with the limping U.S. economy thence.
The GDP numbers are meaningless
The U.S. government’s statisticians released their second GDP estimate today, showing little revision over the first read. They now tell us nominal GDP grew at a yearly pace of 1%. This is hard to reconcile with other data (as Michael Darda says in this interview), and yes Lars it does get boring always agreeing with Darda!
GDP can move in bewildering ways for all sorts of reasons, at least for a quarter here and there. However, as Scott Sumner pointed out in the first Q4 GDP release, the more reliable GDI components were much stronger. We have about 85% of fourth quarter GDI at the moment, and these components say that AD rose 4.4%. For those not in the know, GDI is just another away of measuring national income/spending. GDP is aggregate spending, GDI is aggregate income.
Why I am writing this post? Because the wretched media report early GDP figures like they are set in stone. In spite of data in the GDP release which call the headline GDP figure into question, we hear stories about how growth slowed to a crawl in late 2012. This would ordinarily not matter, but I want QE3 to be given a fair shake, and that means putting out counter-spin.
It would be better if the BEA would only release those GDP components which it actually has a solid read on. Let the private sector do the estimation to give us an early number. This is not because I doubt the BEA’s abilities, but because then these unnoteful GDP estimates it would lack that sprinkling of magic government dust which seems to bestow them with legitimacy.
Varoufakis on Valve
Check out this Econtalk Podcast with Valve Software’s ‘resident economist’. If you’re reading this blog, you’ll probably find it interesting.
Like Netflix, Valve’s founder, Gabe Newell (who a hero of mine in the late ’90s) realized a while back that the old hierarchical business model was outdated in his industry (making video games). I suspect this is true of an increasing array of industries.
As I’ve been saying lately, it is easy to get depressed when you read the financial media. I feel particularly gloomy when I stand back and fathom how grotesquely authoritarian the European Union has become. Things are better in America, but only by degree (and tempered by having to live with Americans). The left’s big idea is a minimum wage (please), and right…well doesn’t have many ideas as far as I can tell. Anyway, a handful of smart risk takers are quietly rebuilding the world.
Don’t worry so much
If you’re plugged into the world of lawmakers, central bankers and economic journalists, its easy to get a bit depressed. However, things are well in the world of science and engineering.
Surely it would be better if more of our best and brightest found their way into the lab instead of the investment bank (alas there is path dependency). However, there are enough big brains working on the big problems to give me boundless hope for the future. Let the politicians tinker with the societal parameters, while technology and entrepreneurship tear the rug out from under them.
The following interview is with Dr. Doris Taylor. You may have heard of her work before. A few years ago, her team at the University of Minnesota grew a beating rat heart from stem cells. Think about that.
Tissue engineering, Google glasses, 3D printing and driverless cars. All these technologies work today, and they’ll only get better. Throw in the still-speculative, but well funded asteroid mining industry and the staggering volume of newly found oil in 2011/2012, and it becomes clear that we’re in for some serious aggregate supply in the next ten or twenty years. Stay long my friends.
Oförändrad…
Sweden has been amongst the most interesting economies to watch in the last decade. Sadly, things are becoming even more interesting on the monetary policy front. Since about mid-2011, the Riksbank has turned from the bold imposer of negative interest rates, to the timid, fretting institution we know today. Despite most forecasters expecting a steady if not catastrophic rise in joblessness this year, a flatlined CPI and a strengthening currency, the Riksbank chose to leave rates unchanged today. Note that this does not mean that monetary policy was unchanged. Quite the contrary, Swedish monetary policy was tightened meaningfully.
After the news broke, the Swedish krona appreciated about 1% against the euro. Keeping in mind that the euro has rallied lately, on both slightly tighter ECB policy and easier Japanese and American policy, the drop in the euro to below 8.50 is jarring. The “equilibrium” FX rate is probably around 9.20. I’m pressed for time, but I suspect the OMX Stocholm index fell and government bond yields as well.
It is interesting how the krona didn’t strengthen all at once. It first gained about 0.6%, and then it looks like Stefan Ingves started talking to reporters, whereupon the full seriousness of Sweden’s plight became clear.
I’ve now lost nearly all faith in the Riksbank. They’ll cut rates again in 2013 I’m sure, but only after NGDP expectations have waned further. If the U.K. can hire a Canadian as its central bank head, why can’t America hire a Swede? Because Svensson is clearly not appreciated in Stockholm.
How they work it at Netflix
Apparently Netflix (an American movie and TV show distributor) has a remarkably forward thinking corporate philosophy. If you’re an entrepreneur or work for someone, you owe it to yourself and underlings to read every slide. I can’t say I have a strong opinion on each point they make, but I recommend it without reservation:
Classical liberal types like myself tend to overstate the virtues of big corporations. However, unless they are subject to ruthless competition (cars, some electronics) and blessed with bold leaders, corporations become higher efficiency DMVs.
Disruptive companies like Netflix do God’s work. The agglomeration of similarly minded companies in Boston and San Francisco make me hopeful that technology and smart, driven people will more than offset the shortcomings of the median voter.
