The Economic Way of Thinking

Best and Worst of the Decade

CNBC has a new report out that says Ukraine was the best performing stock market between 2000 and 2009; Brazil was the best over the past year:

Ukraine — in spite of the fractiousness of its political elite in recent years — that offered an unbeatable return of nearly 900 percent over the decade, data compiled by Reuters show.

The best performing stock market in 2009 was Brazil whose Bovespa Index surged a blistering 145 percent in dollar terms, fueled in part by the 29 percent rise in the value of its real currency versus the greenback.

According to the same story,

Shares in Bahrain and Slovakia were the worst- performing globally in both local-currency and dollar terms, with losses of some 20 percent.

While many factors influence stock market returns, I wondered about whether or not economic freedom changes may be the source of some of the variation. 

Since 1995, Ukraine's economic freedom ranking has gone from 3.4 to 5.6.  They have gone from being the least free country in the study to 121st of 141.  Bahrain's economic freedom score and relative ranking since 1995, meanwhile, has hardly moved.  Finally, Slovakia has become quite free since 1995, but they have had a miserable decade.

What do I make of this???  (Answer below the fold).

My International Christmas Wish: May Mugabe Jet Out of Office in 2010

 

Here's a story about Robert Mugabe "jetting into" the Copenhagen conference on climate change.  Here's Tyler Cowen talking about Zimbabwe's hyperinflation (via Jason Kottke) earlier this week.  According to an article that Kottke and Cowen point readers to, Zimbabwe's hyperinflation "was a quadrillion times worse than it was in Weimar Germany."

I bring this all up as a prelude to a disgusting and awful report that just came out about the 2008 elections sham that took place in Zimbabwe.

AIDS-Free World, an international NGO, recently released a report titled "Electing to Rape" (story here; full report accessible here).  Here's their main finding:

Our legal team took sworn statements from 70 victims, and documented 380 rapes committed by 241 perpetrators across Zimbabwe's 10 provinces. The report demonstrates without equivocation that Mugabe and his Zanu-PF followers were responsible for the rapes.

The report continues by saying that many of these rapes were committed by people with HIV/AIDS (and subsequently resulted in new HIV/AIDS cases in the victims).  Furthermore, there's no ambiguity about who sanctioned the rapes: Mugabe and the ZANU-PF.  

Since this is some of the worst news I've read about in all of 2009, my one international Christmas wish this holiday season is for Robert Mugabe to resign, be removed from office, or to die.

If you only had one international/foreign policy wish, one which had to be kept simple and specific (i.e., something other than "global peace" or "prosperity for all"), what would it be?  Sadly, there are many candidates to choose from...

The Best Two Sentences I've Read This Morning

We've lost the art of saying no. The economy needs to become less dependent on government.

Those words are from Keith Jefferis, a former deputy governor at the Bank of Botswana, who I met several years ago.  Jefferis was interviewed recently in the Wall Street Journal. 

Botswana's high level of economic freedom, which has been crucial to their success since independence, has been declining in recent years; the court's treatment of indigenous groups has been atrocious; and there's no indication that their politicians are listening to the free market folks like Jefferis (and me!).

When pressed, I've often answered questions about the contradictions in Botswana's economic performance by making a comparative point: "Yes, it's true that Botswana is not an ideal laissez faire story; nor are they perfect on human rights.  But they're pretty darn good compared to most alternatives in sub-Saharan Africa."  (This stance on Botswana has even led to me being called an apologist from time to time!) 

I've grown increasingly tired of leadership's inability/refusal to listen to people like Jefferis and "Just say no."  Perhaps it's time to do something my friend Bob Lawson did several years ago and say, "Sell Botswana."

Castles in the Sand

Here's a before and after picture of Dubai:

That picture is from a set of "12 unrecognizable before and after views of cities" put out by the site Oobject (HT: Freakonomics blog).

Here's a chart of the Dubai Financial Market Index for 2009:

 

Also, give this Bloomberg link a try.  Use the 3 month and 5 year options to get a better sense of the Dubai crisis. 

Finally, here's the Economist magazine discussing Dubai and markets where new bubbles may be appearing. 

The Bots-Zim Contrast Sharpens

Botswana held elections--their 10th round of elections since independence--without incident.  The widely popular ruling party, the Botswana Democratic Party (BDP), maintained control of the government; they have been in control of government since Seretse Khama's rein in the independence period.  More here.

Meanwhile, things are continuing to fall apart in Zimbabwe.  (HT: Bob Subrick). 

For those interested, here's an old paper of mine (the final version came out in Constitutional Political Economy) with Subrick that discusses the relationship between politics and development in Botswana.  The story we tell is that the BDP has remained legitimate by respecting traditional institutions, providing essential public goods, and avoiding excessive military spending in the early years of independence.

Is Californication All They Need?

The Economist magazine has an article this week that downplays the effect California's high state taxes are having on emigration out of the state.  According to the article, 1.73 poor households are leaving California per new household arriving and 1.09 rich households are leaving per new arrival.  Since the poor are leaving more, the article argues that high taxes, which the poor don't pay have to worry about much, can't be the cause of emigration.  Instead, high housing prices in California are playing a far more important role in peoples' choices about where to live.

That high housing prices are driving people out of California is probably true.  Unfortunately, the article does not talk much about why housing prices are high in California, which, of course, has a bit to do with demand and a lot to do with tight zoning policies and barriers to new housing development.  Unlike Atlanta, GA or Houston, TX, where zoning authorities are quite content to go out or go up with new housing in response to demand, cities like San Francisco, San Jose, and Los Angeles are quite restrictive about new building. 

The restrictive policies make it impossible for the poor to afford housing.  The result, then, is for many to "vote with their feet" and run away from bad policy.  And, as this personal and economic freedom index makes clear, there are plenty of bad policies in California to run away from, and they aren't limited to taxes.  People's economic and personal freedoms are being constrained in California on many different margins that matter when it comes to making a decision about where to live. 

The bottom line is this: high housing prices shouldn't be treated as a mysterious, exogenous force.  Whenever an economist is confronted with an absurdly high price, such as those people pay for housing in California, government meddling is a good place to start in trying to explain these high prices.

The Poorer Are Growing Richer

Over 30% of US households in 2006 earned above $75K compared to under 20% in 1980.  Over the same period, the percentage of US households earning under $35K fell from 42.8% to 36.7%.  Fewer households are poor, fewer are middle class, and a hunk more are above $75K.  (And in case you were wondering, those general trends hold for black and hispanic households too - with the percentage of black households under $35K falling by 10.9 percentage points and the number above $75K increasing by 8.9 percentage points, for example.)

That's our friend Steve Horwitz reporting some of the conclusions to a new study.  Read his post over at The Austrian Economists.

The Dirtiness of Development Data

Development data, especially in sub-Saharan Africa, is notoriously dirty.  The margins of error on the broadest measures of well-being, such as gross domestic product, are huge.  In this Economist magazine article, a new tool for checking GDP measurement errors is discussed: light from outer space. 

While using light from outer space to gauge development is not free from flaws (e.g., a country with serious militarization could very well be glowing so to speak), its best use will be to check and put parameters on official GDP statistics.  For example:

Take Myanmar’s economy, which grew at an official but improbable 8.3% a year in the ten years to 2003; adjusting for brightness suggests a more modest 5.8%. But night-light data suggest that official figures may be understating growth in places like Tajikistan or the Congo, perhaps because of rising informal economic activity.

Sadly, there are still a few places where no official statistics or light measurements are needed to know that things are really messed up.  Here's one example:

 

Population Paranoia

EWOT readers are probably familiar with some of the more popular policies that aim at controlling population growth in developing countries.  Condom distribution and one-child policies are two examples that immediately come to mind for me. 

Here's a new approach to the so-called population problem being considered in India.  The health and welfare ministers in India want to make electricity available to all citizens so that Indians can watch television late at night.  Based on some studies by sexologists about TV watching and sex, and assuming that the TV will be filled with boring content instead of porn, the officials believe Indians will stay up late watching TV and will have less sex.  Less sex will then lead to lower population growth, and India as a whole will be better off. 

Now, I'm no sexologist, but I'm pretty sure there's an "It only takes once" issue first introduced to me in my 7th grade sex ed class that is not being addressed in India's population policy.  Putting that minor issue aside, the whole idea is absurd and sounds like something straight out of the Onion.  Sadly, it really is being advanced on the premise that people are irrational and need distractions.  According to one of the leading officials, "It gives a message loud and clear that we need to do something for the people which is people-friendly and which in a way will keep their minds from taking irrational decisions about producing more babies."

Assuming population growth is a problem, which I don't think it is, the most effective way to deal with it is not government intervention, but, rather, economic growth.  Indian officials would be well-served if they put down the writings of sexologists and picked up some Bill Easterly and Julian Simon on this issue. 

HT: Anemone

When in Rome...

...check out Berry College and its outstanding Econ program.

Last night I gave a talk at the world's largest campus, Berry College, which is located in the Georgia highlands (Rome, GA) and seems like it would be a dream location for any professor with a passion for running, biking, or hiking.  One of my favorite bloggers and Berry Department Chair of Economics, Frank Stephenson, coordinated my visit and showed me around campus.  Frank has a great group of colleagues and students working with him, and I had a great time visiting Berry.

In my 5 pm visit with Frank's class we loosely discussed an old paper of mine titled "Look Botswana: No Hands!  Why Botswana's Government SHould Let the Economy Steer Itself."  The paper ended up being a chapter in Benjamin Powell's excellent edited volume, Making Poor Nations Rich.

At 7 pm I gave a more general talk on my research related to Botswana.  As I said at the beginning of that talk, I see my project as one where I'm simply to raise my hand in the development debate to point out this pesky outlier that doesn't "fit" into a lot of our models and stereotypes about sub-Saharan Africa.

Thanks to Frank and his colleagues for being great hosts.  And, thanks also for the Division of Labour coffee mug!!!

Past Performance Is No Guarantee of Future Results

A recap of Pete Boettke's visit will be coming soon.  Here's a note that was in my Inbox this morning from one of my colleagues commenting on Pete's visit: "Pete was simply great.  You have been blessed to have him as a mentor and a friend." 

In the meantime, here's a quote from Pakenham's Scramble for Africa that I will use in an upcoming presentation:

“In the event, what had embarrassed British governments often when the Union Jack was hauled down in the 1960s embarrassed the British in Rhodesia 1980.  The new African electorate paid no attention to their advice.  Muzorewa, tainted by collaboration with Ian Smith, was hooted out of office, and his rival, Mugabe swept the polls.  But Mugabe was not the Chinese-Red Marxist he had been painted.  His creed was pragmatic African nationalism.  On 18 April he told the new nation that the ‘wrongs of the past must be forgiven and forgotten.’

Mugabe was a statesman in the making.  And Zimbabwe had one all-important advantage over most of its predecessors on the road to independence.  Its new African rulers were quite as well educated as the men they replaced.”

                                    Thomas Pakenham, The Scramble for Africa (1991), p. 671