August 28th, 2015
A remarkable experiment is taking place near Mexico City, with the help of federal government funding. Local residents and artists have transformed Las Palmitas, a barrio in crime-ridden Pachuca, into a mega-mural of bright colours.
[T]he community-building efforts sparked by the mural project … have helped foster a new sense of civic pride and peaceful cohabitation. The Germen Crew [in charge of the work] spent months getting to know residents before the painting began, attending town meetings to discuss colours and workshops for children. ….
In Las Palmitas, officials say the programme, of which the mega-mural is part, led to a 79 per cent drop in the crime rate in the first half of this year, compared with levels in 2012. They see such grassroots campaigns as vital in a country struggling with rampant drug cartel-related violence and crime, Indeed, Mexico has thousands of barrios just as depressing and in need of rehabilitation. ….
[There is now] a queue of demands from cities to get the Palmitas treatment, including crime-torn Acapulco, Ciudad Juárez on the US border and Toluca, Ixtapaluca and Ecatepec in the troubled State of Mexico.
Jude Webber, “Mexico neighbourhood paints over troubles“, Financial Times, 27 August 2015 (metered paywall).
See also this ungated article in The Guardian.
For more ungated articles and images, google “Las Palmitas Pachuca Mexico”
August 28th, 2015
Pundits frequently warn us to avoid population ageing, because of its negative effect on economic growth. FT reader Simon Ross, in contrast, sees population ageing as an opportunity to be seized.
An ageing population should encourage us to use the skills and experience that workers have developed during their careers into their later lives. A falling workforce can prompt us to improve both workforce participation among the marginalised, and levels of automation and efficiency.
…. Populations cannot grow forever. A falling population is an opportunity to reduce the cost of living as competition for housing and other resources falls, to reduce emissions and resource depletion, to move to sustainable energy production and to improve biodiversity from today’s low levels. For the individual, what matters is not the overall size of the economy but average per capita income, and how that income is distributed. [Emphasis added.]
Simon Ross, “Use the experience older workers have developed“, letter to the editor, Financial Times, 27 August 2015 (metered paywall).
Mr Ross is CEO of Population Matters, a UK-based advocacy group.
August 26th, 2015
It is a mistake to focus basic education on job-specific skills that a changing world will render redundant in a few years. The objective should be to equip students to enjoy rewarding employment and fulfilling lives in a future environment whose demands we can neither anticipate nor predict. ….
Fareed Zakaria’s book this year defending liberal education — a tradition that introduces undergraduates to a wide range of subjects and approaches to knowledge — is very much to the point. And so is his refutation of philistine Republican governors (just Google Rick Scott, Rick Perry, or Patrick McCrory), who draw cheap laughs at the expense of philosophy and anthropology. A little capacity for reflection might reveal that morality is not simply a matter of common sense or reading a sacred text, and that an understanding of other cultures — or simply an acknowledgment that there are other cultures — might have led to better outcomes in, for example, Iraq.
John Kay, “A liberal education is now more useful than job-specific skills“, Financial Times, 26 August 2015 (ungated link).
Best-selling author Fareed Zakaria’s latest book is In Defense of a Liberal Education (Norton, 2015).
August 26th, 2015
The volatility of the Chinese stock market has affected financial markets throughout the world. FT columnist Martin Wolf writes that concern is justified, not because Chinese stock prices fell sharply, but rather because Chinese authorities have shown an “apparent inability to deal well with the bursting of a mere stock market bubble”.
The Chinese market is not a normal one. Even more than most markets, this is a casino in which each player hopes to find a “greater fool” on whom to offload overpriced chips before it is too late. Such a market is bound to be extremely volatile. But its vagaries should tell one little about the wider Chinese economy.
Nevertheless, events in the Chinese market are of wider significance in two related ways. One is that the Chinese authorities decided to stake substantial resources and even their political authority on their (unsurprisingly unsuccessful) effort to stop the bubble’s collapse. The other is that they must have been driven to do so by concern over the economy. ….
This now leaves the Chinese authorities with three huge economic headaches. The first is cleaning up the legacy of past financial excesses while avoiding a financial crisis. The second is reshaping the economy, so that it is more dependent on private and public consumption and less dependent on extraordinarily high levels of investment. The third is achieving all that while sustaining dynamic growth of aggregate demand.
Martin Wolf, “Why worries about China make sense“, Financial Times, 26 August 2015 (metered paywall).
There is much more in the full column (recommended reading).
August 23rd, 2015
Economists cannot agree on whether asset markets are efficient or not. This has very important policy implications. Freelance writer Anna Louie Sussman interviews New York University economist Paul Romer for a WSJ blog.
Sussman: Are there any areas where research or refinements in methodology have brought us closer to understanding the economy?
Romer: There was an interesting  Nobel prize in [economics], where they gave the prize to people who generally came to very different conclusions about how financial markets work. Gene Fama at University of Chicago got it for the efficient markets hypothesis. Robert Shiller from Yale got it for this view that these markets are not efficient and subject to too much noise. ….
It was striking because usually when you give a prize, it’s because in the sciences, you’ve converged to a consensus. And it was kind of a prize to economics saying, “You know, you can’t really agree what’s going on in asset markets, but we’ll give a prize anyway.”
Anna Louie Sussman, “Q&A: Paul Romer on ‘Mathiness’ and the State of Economics“, Real Time Economics, Wall Street Journal blog, 17 August 2015.
Most of the interview is about the rise of “mathiness” in economic growth theory. In my opinion, this interview of Paul Romer (born 1955) is of general interest, and should be published in the Wall Street Journal.
HT Mark Thoma.
August 21st, 2015
FT columnist John Paul Rathbone uses Brazil and Mexico as case studies to argue that economic reforms cannot bear fruit in a climate of corruption, insecurity and lawlessness.
While Mexico is far ahead of Brazil in the World Bank’s ease of doing business survey (at 39th position, ahead of Chile and Israel, versus 120th for Brazil), the opposite is true on the rule of law. Mexico, for example, ranks 103rd on Transparency International’s corruption perceptions index, worse than China, while Brazil at 69th position is level-pegged with Italy and Greece.
Mexico’s institutional rot seems to extend from top to bottom. The president has suffered a series of conflict of interest scandals involving his wife and finance minister. Journalists who report on disappearances and drug-fuelled violence, such as the presumed murder of 43 students last year, are themselves killed. This week, more than 500 intellectuals slammed Mexico’s “censorship by bullet”. While in Brazil criminals are being jailed, in Mexico drug lords can escape from high-security prisons through tunnels built into their cells’ showers. The government response to outcries after each shameful incident? Muted embarrassment and a business-as-usual attitude emphasising economic reform over the rule-of-law problems that are Mexico’s biggest concern.
What Mexico’s presidential palace does not seem to realise is that insecurity and lawlessness also have financial implications.
John Paul Rathbone, “Brazil cleans up its act, so should Mexico“, Financial Times, 21 August 2015 (metered paywall).
August 17th, 2015
[T]he economist’s standard definition of capital is at odds with business usage, which makes for confusion. For those who deal with balance sheets, capital is the money advanced by shareholders to start a business. This view of capital was common until Smith decided to change its meaning. His was a very physical perception of the economy — he regarded services as inferior to manufacturing — and he preferred to think of capital as machinery, land and buildings, or assets capable of generating profits. That is the basis of the modern economist’s view of capital as a stock of factors of production that can be expected to yield productive services over time. And now, according to [Geoffrey] Hodgson, we have been deluged with such loose terms as social capital, human capital, religious capital and cultural capital to the point where the word is emptied of meaning.
He [Hodgson] would like to confine capital exclusively to its everyday monetary sense and argues that a form of capital that cannot be used as collateral is simply not capital. The obvious criticism, which he acknowledges, is that of Alice in Wonderland: he is making words mean what he wants them to mean. I would argue that terms like human capital are anyway meaningful and useful. The focus of this linguistic purge is too narrow.
Yet it does highlight an important feature of capitalism that is inherent in the different nature of the assets owned by the capitalist and by the worker. Workers cannot use their labour power as collateral ….
John Plender, “Linguistic purge finds inequality Marx missed“, Financial Times, 17 August 2015 (metered paywall).
FT columnist John Pender is reviewing Conceptualizing Capitalism: Institutions, Evolution, Future by Geoffrey M. Hodgson (University of Chicago Press, 2015). Mr Pender is author of Capitalism: Money, Morals and Markets (Biteback Publishing, 2015). He concludes that Hodgson’s 456-page book “is a stimulating, historically grounded exploration of the subject and a rewarding, if occasionally dense, read.”
August 16th, 2015
Brits complain that foreign demand for real estate is driving up the cost of living in London. Canadians complain that wealthy Chinese investors are causing housing prices to skyrocket in Vancouver and Toronto.
Tim Harford, FT undercover economist, explains that these high and rising real estate prices are often a sign of success, a refection of the fact that increasing numbers of people want to live in a specific geographic area. Absentee owners of vacant homes are not common, so have little or no effect on real estate prices.
London’s excruciating price tag is not just a vulnerability but also a sign of success. It is hard to see how the city can be written off when so many people are willing to pay such extraordinary sums to live there. ….
London is not going to become a gigantic holiday park full of second homes for billionaires — there simply aren’t enough billionaires out there to turn a city of more than eight million souls into the equivalent of a weekend hideaway in Cornwall.
Another concern is that international investors will snap up new-build apartments as investments, then leave them empty. But rental property is a much better investment when one actually rents it out, so this makes sense only if one accepts that most international investors are insane.
Tim Harford, “London’s turning …“, Financial Times, 15 August 2015 (metered paywall).
August 15th, 2015
It is difficult to keep up with rapidly changing economic policies in China. Jamil Anderlini’s column on a key player in this unfolding drama is a must-read. Here is an excerpt. Click on the link below to read the full article (free registration required).
In the early 1980s, a promising PhD student from a prominent political family caught the eye of China’s most senior Communist leaders by urging them to lift price controls and allow imports of televisions.
Three decades later Zhou Xiaochuan, China’s longest-serving central bank governor, is still convincing the country’s authoritarian leaders of the merits of economic reform. In persuading them this week to devalue the currency, he may have pulled off the crowning achievement of his long career — by preparing the way for a free-floating renminbi that can challenge the US dollar as the world’s reserve currency.
“It is clear he [Mr Zhou] sometimes pisses people off, including President Xi,” says Christopher Johnson, a former senior China analyst at the CIA now at the Center for Strategic and International Studies in Washington. “But he has never been so important or so powerful. He is going to retire soon so has nothing to lose and he is absolutely determined to achieve the market reforms he has committed most of his life to.”
Jamil Anderlini, “Zhou Xiaochuan, Beijing’s central radical banker“, Financial Times, 15 August 2015 (metered paywall).
Zhou Xiaochuan (born 1948) received a PhD in Automation and System Engineering from Tsinghua University in 1985. He became governor of the People’s Bank of China in December 2002.
Jamil Anderlini is chief of the FT’s Beijing bureau.
August 11th, 2015
FT political columnist Janan Ganesh writes that cities are disliked by anti-liberals – both those on the political right and those on the left.
The city has moral enemies. In ancient times and modern, among religious warriors and secular ideologues, urban life has been scathingly equated with sexual licence, denatured materialism and free inquiry. Babylon was condemned. The Khmer Rouge emptied out Phnom Penh. Al-Qaeda tore into a man-made skyline. ….
If the city is liberalism incarnate, anti-liberals will define themselves against it. This includes the scrupulously peaceful conservatives in modern democracies, whom voting patterns show to be strongest in rural areas and small towns. In their demonology, the opponent is never just the “elite” but the “metropolitan elite”.
Twenty-first century London has many disorienting feats to its name. Among them is the arousal of hostility from the liberal left, too. Screeds against this city are now more common in The Guardian and New York Times than the conservative Telegraph and the Mail. ….
Modern London is liberalism — or “neoliberalism”, to use the mot du jour of every bluffing teenage radical — in excelsis. It has taken the free movement of people, goods, services, capital and ideas to anarchic extremes that might have no precedent. ….
What really piques conservatives of right and left is that a place can be so lax and so successful.
Janan Ganesh, “How the left tired of liberal London life“, Financial Times, 11 August 2015 (metered paywall).