Archive for the ‘Political Economy’ Category

economic exclusion is not exploitation

Saturday, October 10th, 2015

John Authers, Financial Times‘ Senior Investment Commentator, writes from Peru, where he attended the annual meetings of the World Bank and the IMF. His column reminds us that exploitation is preferable to economic exclusion even though, in an ideal world, neither would exist.

At $5,962, [Peru’s] GDP per capita remains far behind the average for the region ($15,568). Many in the agrarian Andean hinterland remain mired in poverty, effectively excluded from the economy.

Note that exclusion is different from exploitation. The exploited create riches for someone. But, to borrow a distinction from the Harvard University economist Ricardo Hausmann, the poverty of those excluded benefits nobody. They are simply no part of the Peruvian or world economy, and the fixed costs that would need to be incurred to include them, in terms of physical and social infrastructure, are too high for anyone with money to pay them.

John Authers, “Peru rebirth illustrates the China effect“, Financial Times, 10 October 2015 (metered paywall).

John Kay on economic controversy

Thursday, October 8th, 2015

I am a great fan of FT columnist John Kay, but his column this week is a profound disappointment. It has deservedly attracted a large number of negative comments. Mr Kay’s errors are serious – serious enough to warrant publication of a corrected version, for the benefit of readers who do not have access to (or the patience to read) online comments at (more…)

adblockers for smart phones

Thursday, October 8th, 2015

Here is a follow-up to Monday’s post. The novelty of this new app is that the software company (Been Choice) plans to pay users a modest sum (US$20 a month) for allowing advertisements and cookies to reach their devices. Been Choice presumably will sell the collected user information and charge advertisers for the privilege of placing ads on selected smart phones.

Apple has approved an app that allows iPhone users to block advertisements in mobile apps for the first time, marking a new threat to internet companies such as Google and Facebook. ….

Been Choice is marketing its new service as a way for consumers to defend themselves against aggressive data collection by apps and advertisers. But it is likely to provoke fierce controversy among the owners of apps that depend on advertising.

“We’re getting into dangerous territory,” said Ciaran O’Kane, chief executive of Exchange Wire, a digital media analysis company. “If app developers can’t make money, there’s going to be a kick back.”

Software capable of blocking ads from appearing in web browsers has been available for years. …. However, mobile apps are unaffected by web-based blockers such as Adblock Plus, Crystal and Purify. ….

To make money, Been Choice plans to allow users to sell their data through the app. The company is offering to pay people $20 a month if they consent to being shown ads and allow Been Choice to collect information about how they use their devices.

Robert Cookson, “Apple approves first adblocker that works within mobile apps“, Financial Times, 6 October 2015 (metered paywall).

Paul Krugman on the TPP

Thursday, October 8th, 2015

Over the weekend, leaders of a dozen Pacific Rim nations reached a final agreement on new rules for trade between nations covering approximately 40% of the world’s economy. Many on the political left, including economist Paul Krugman, have opposed the project, known as the Trans-Pacific Partnership (TPP). The final draft appears to be significantly different from what was initially promised, though, so Krugman now supports it.

I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership …. But the WH [White House] is telling me that the agreement just reached is significantly different from what we were hearing before ….

What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs [Republicans?] in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. …. The TPP looks better than it did, which infuriates much of Congress.

Paul Krugman, “TPP take Two, The Conscience of a Liberal“, New York Times blog, 6 October 2015.

The TPP is still not a done deal, since it will not go into effect until approved by legislatures of the participating countries.

the consequence of blocking ads

Monday, October 5th, 2015

Are you blocking those annoying pop-up ads that appear when you surf the internet? Providers who finance free sites by sale of advertising may soon have the ability to block access to content unless you disable the software that blocks ads. Be forewarned.

Digital advertising … is under attack from … software that enables viewers to block ads on their smartphones and computers ….

Bob Lord, president of AOL [America Online], believes the industry is heading into a “war of technology”. “Content is expensive to produce, so ultimately it is a consumer choice: do they want a subscription-based content model or an ad-supported model?” he says. “Technology will get to the point where those with an adblocker are not going to get free content.”

Matthew Garrahan, Hannah Kuchler and Robert Cookson, “Adblocking unleashes anxiety across the advertising industry“, Financial Times, 5 October 2015 (metered paywall).

the strait-jacket of a presidential system

Tuesday, September 15th, 2015

Brazil’s economy is in a mess, and so is its political system. According the Financial Times, “wholesale political renewal” is needed, beginning with the removal of the president herself, Ms Dilma Rousseff.

Sadly, there is little chance of that until scheduled elections in 2018. Unpopularity is insufficient reason to remove Ms Rousseff: if it was, Fernando Henrique Cardoso, the former president who laid the grounds of Brazil’s now-squandered economic stability, would not have lasted his second term. Brazil’s presidential system also means Ms Rousseff cannot dissolve Congress and call fresh elections.

Known for her hard-headed stubbornness, Ms Rousseff has anyway insisted she will not resign. Nor is there any evidence that she personally profited from the Petrobras scam. True, she might yet be impeached on other grounds, such as false government accounting. But that would only see one mediocre politician replaced by another. In line would be Michel Temer, the vice-president, Eduardo Cunha, head of Congress, or Renan Calheiros, head of the Senate. The last two face corruption charges.

Brazil’s terrible fall from economic grace“, Financial Times editorial, 14 September 2015.

Ms Dilma is unpopular even with members of her own party. With a parliamentary system, there would likely be a vote of no confidence, triggering a general election. With the American-style presidential system, it is very difficult to remove a head of government, who is also head of state, until the end of his or her term of office.

charitable giving as tax expenditure

Sunday, September 13th, 2015

A Financial Times editor reminds us of an important, but often forgotten fact: government in effect provides matching grants for ‘private’ charity whenever philanthropic giving is deducted from taxable income. The technical term is ‘tax expenditure’, revenue that government forgoes because of tax breaks.

Charitable gifts do not invariably replace and improve upon what the state provides. Philanthropists do not mimic public spending, having a lopsided preference for certain causes such as scientific research and the arts. If the UK government devoted as much proportionally to animals as did the charity sector — 8 per cent — £60bn would go to this cause, as much as the entire education budget. Tax reliefs therefore are a real burden on the state, and take the shine off the praise sought by donors to charity.

Philanthropic giving, no matter how ostentatious or well-judged, cannot quell public unease at high inequality. Nor can it lessen the case for using government spending to address its social costs. By all means let us praise the wealthy for acts of generosity, but at a time of fiscal restraint this is quite consistent with the state taking a firm line with charitable tax breaks. There is just as much to be proud of in paying a hefty tax bill.

Charitable giving cannot substitute for the state“, Financial Times editorial, 12 September 2015 (metered paywall).

In the US, a world leader in private philanthropy, donors reveal a stong preference for religious giving and for for university endowments. It is doubtful that government would spend large sums of public money in this manner, if the expenditures were not hidden as tax breaks.

the job of the economist

Sunday, September 6th, 2015

Most business people think that the job of the economist is to predict whether exchange rates will go up or down. Economists are not very good at predicting whether exchange rates will go up or down, with the result that business people have very little regard for economists.

John Kay’s blog, “accessible & relevant economics“, undated.

So very true!

definitions of capital

Monday, 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.”

China’s currency and economic reforms

Saturday, 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.