The Zig Zag

Stingy or Whingy?

Jan Egeland, U.N. Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator, recently criticized the U.S. commitment to the tsunami disaster as “stingy”. This whinge is probably based more on a manufactured perception that the US is not very generous when it comes to aid.

So is it? The table often used to back up this assertion is official aid as a % of GNI/GDP drawn up by the OECD and this does show that the US is the “stingiest” donor in the developed world. However once private aid flows are added, the US looks decidedly average in terms of generosity, as the figure above shows. There are obviously big questions about what “private” aid flows actually are and the OECD figures and definitions seem to me to be rather opaque. For instance, looking at the size of some of the figures, I don't think that they incorporate large donations such as the Bill and Melissa Gates foundation’s 30 billion. Nonetheless, last year 14 billion out of the total of 30 billion of private aid came from the US. Thus despite constituting about a quarter of the world's economy, the US contributed about half of the worlds private development funds. Similarly when we look at private NGO aid flows (shown below), the US is clearly an above average donor.

So overall it seems that while the US is a stingy "official donor" , its a generous private donor making it an average donor overall. So why is the stingy myth so prevalent? Probably because Mr Egeland's wage is paid from official not private aid and so he needs to make sure that the world keeps giving.

data is from the OECD 3 and a more roust defense of the US record is here.

Lessons or Sensors?

From The Economist:

“With the death toll from South Asia’s tsunamis at almost 60,000 and still rising, there have been calls for a system to alert countries bordering the Indian Ocean when undersea earthquakes happen.”

But

““Tsunamis are fairly common in the Pacific, whereas in the Indian Ocean they may occur only once in a century. This makes it harder for the developing countries around the Indian Ocean’s rim to justify spending money on detecting tsunamis and preparing mass evacuation plans, rather than on more everyday life-saving measures such as basic sanitation and health services.”

So

“One rather low-tech way of reducing the casualty toll from tsunamis is to teach coastal dwellers to recognize the signs that one is imminent—such as strong and prolonged ground shaking—and to flee immediately to higher ground. Shortly after a tsunami hit Papua New Guinea in 1998, killing more than 2,000 people, an international team was sent to Vanuatu, a group of Pacific islands, to teach locals to spot the warning signs. When a tsunami struck the islands soon after, it killed only five people. “

This seems about right. One feature about earthquakes as distinct from other acts of God such as storms and asteroid strikes is that their probability of occurrence is not independent; if a large earthquake occurs then the probability that another one will occur in the same spot is reduced, since the earthquake will have relieved the tectonic pressures that were it’s cause.

This suggests that an ealy warning system in the Indian Ocean is almost certainly not a economic propostion now since the earthquake of the 27th occurred in the only part of the ring of fire that could send a tsunami across the Indian Ocean.

By contrast, since South Asia’s tsunamis will have made the world’s costal dwellers willing listeners, the costs of instructing them to recognize the signs have temporarily fallen. Therefore using aid to deliver tsunami safefty lessons in other parts of the world that are more likely to be affected should be a current priority.

Posted by wardx107 at 12:56 PM | Comments (1)

Trade and Aid

While it might sound a little callous to start thinking of the economic fallout of the Asian tsunami, its worth looking how dependent some of the affected countries are on tourism:-

India: 5.6% of jobs 4.9% of GDP,
Indonesia: 8.5% of jobs 10.3% of GDP
Thailand: 8.9% of jobs 12.2% of GDP
Maldives: 64% of jobs 74.% of GDP
Malaysia: 12.7% of jobs 14.7% of GDP

And of course the majority of these jobs are seasonal, poorly paid with workers relying on earnings in the high season to tide themselves over in the low. A lot of people are currently asking about where to send aid. Aid is obviously necessary to combat the risk of disease, feed the destitute and replace ruined capital. But the damage to human capital is perhaps as great if the disaster is followed by a sustained slump in tourism– an unemployed cook looses his skills if out of work too long and an established restaurant may be shut down if trade slumps. And once these go, they are often hard to replace and have spillover effects as they feed into social tensions.

So instead of (or as well as) sending that donation, how about waiting till we know which hotels are still ok and booking a holiday in one or near one of the worst affected areas – even if it is the off season. You also get the added benefit of learning how trade benefits both parties – without the pain of having it explained to you by some droning economist.

Biting the hand that feeds it

"Microsoft will have to pay a record half billion euro fine and share confidential details of its code after a court today upheld European Commission sanctions against the company for abusing its market dominance. The EU's Court of First Instance has dismissed a plea for Microsoft to be freed from the penalties while the software giant fights them on appeal.

In its ruling, the Court noted dryly that Microsoft could afford it. It said: "The evidence adduced by Microsoft is not sufficient to show that implementation of the remedies imposed by the commission might cause serious and irreparable damage."

This judgment is expected but the terms are unusually harsh - possibly imbued with a certain “political” view point. At some point you have to wonder what would be the consequences if Microsoft just stopped selling to Europe. Who’s loose more?

Qui Bono

So a study has found that self esteem is unrelated to academic performance:-

"Some findings even suggest that artificially boosting self-esteem
may lower subsequent academic performance."

doh - but does it make the teacher feel better, that's the key point.

Where Have all the Children Gone?

It’s impossible to understand the Chinese economy without understanding the effects of the one child policy of the 70’s. This produced on of the fastest demographic transitions in history, cutting the Fertilityrate from 6 to under 2.5 in less than 15 years. The result of this rapid change was a “fat” cohort of workers, born just before the policy kicked in, and their biography has tracked Chinese destiny to date; they entered the workforce in the late 80’s and early 90’s and this coincided with, and perhaps caused, China’s recent economic growth miracle.

However, as in Joseph’s dream, the fat years are followed by lean; as Mao’s Fat Cohort enters its 30’s it is being replaced by a much smaller cohort of workers. As the figure shows, in 1995, workers aged 20-30 made up 38% of the working age population. In 2005 they will constitute just 25%. The effects of these changes are threefold; firstly, since 20-30 year olds make up the bulk of the unskilled workforce in the manufacturing sector, a tighter supply will inevitably raise wages and lower profits in this sector. Secondly, as the fat cohort is now older, its productivity has increased and this will appreciate the real exchange rate, placing further pressure on exporter's margins. Thirdly, the current young generation differs from the fat cohort in that most were "only children". The effects of this are not clear, perhaps they’ll find it harder to fit into the faceless factories, perhaps they’ll substitute the industriousness of their predecessors with the profligacy of spoilt only children. Perhaps….. well anyway, the times they are a changin in China.

Oil off the boil

Fascinating piece of research from Louis Vincent Gave lends credence to the possibility of an imminent fall in the price of oil. As he observes the spread between light sweet crude used in US refineries and the heavy sour crude used in Chinese refineries has increased from 3 to 11 dollars this year. This leads to the conclusion that most of the rise in the price of oil this year has been caused by US, not Chinese, demand. On the one hand this may be because of the US is growing faster than the figures suggest, but more likely, most of the demand was driven by refineries buying reserves as a precaution against disruptions in Russia, Venezuela and the Middle East and, perhaps, also as a hedge against the widely anticipated fall in the dollar. However the dollar is unlikely to fall much further, the US winter has been mild to date and, the Middle East aside, the rest of the oil producing world appears more stable, meaning that this stock building demand is likely to evaporate sometime soon. Any evidence from the market? Well it looks like some suppliers are already looking to cut production:-

Al-Qaeda tells fighters to strike Saudi oil targets

Norwegian Blue

Been looking at returns to education recently and here are some results from a paper by Walker and Wooley.

It appears there’s one conistent pattern here – the returns to education are higher for women in every country. Why? Is it the way they’re taught or the way they learn? More likely it’s the old heckman selection problem – women with poor academic results tend to leave the workforce and this bumps up the average for the rest.

But what is most astounding is the difference in the returns, ranging from 2% in Norway to 17% in Northern Ireland. How can this be? At the University of OsloDo they only teach students to tap dance ? Or is it just too dark and cold to study? I think we should be told.

Utility, what is it good for?

From Harry Hutton

“Ireland is the world's most pleasant place to live, according to The Economist's Quality of Life Index (2005), though if you deduct them a point for their plaintive whinging ballads they drop to 19th, just ahead of Portugal.

The whole index is deeply flawed, in my opinion. It seems to be weighted in favour of lame-o Scando-Canadian-style countries, where no one with any self-respect would live. Yes, yes, they are having the mass literacy and the vonderful social spending; but they are even colder and more depressing than Britain, and any realistic assessment of life there ought to take this into account.

But here, for what it's worth, is what The Economist thinks:
1. Ireland
2. Switzerland
3. Norway
4. Luxembourg
5. Sweden
6. Australia
7. Iceland
8. Italy
9. Denmark
10. Spain
11. Singapore
12. Finland
13. USA
14. Canada
15. New Zealand
16. The Netherlands
17. Japan
18. Hong Kong
19. Portugal
20. Austria
Britain comes 29th, which sounds about right until you realise that this is 22 places behind Iceland. Iceland!- if the editors of The Economist had any faith in their own index they would vote with their feet and move to Reykjavik, in search of the good life. But they don't, because it is plain even to them that their index is tosh. Singapore higher than Hong Kong? Ireland higher than Italy? Denmark higher than the USA? What nonsense is this?

Here is my own, far more realistic index:
1. Brazil
2. Italy
3. Hong Kong
4. France
5. Spain
6= USA / Australia (Might have scored higher, but docked points for the brutish ignorance of their inhabitants.)
8. Holland
9. Germany
10. London (Lost points for the trains, and the fact that the people who live there have the manners of baboons.)
Others will have their own ideas.”

I think what this is pushing at is that economist’s despite 200 years of trying still don’t really have any understanding of utility except in the narrowest sense of the world.

The Strange Case Of the Market that Stopped Barking

I posted earlier about the possibility that the price of oil was just a bubble and the evidence is that this was the case is mounting. Despite the fact that the dollar has continued to slide, the price of oil peaked at the end of October and has fallen by about 20% since then. The timing is also interesting – if you look at the the futures market , on 26 October the market abruptly changed direction, taking 4 dollars off the price in a couple of days. The Relative Strength Index ( RSI ) also went from 70 to about 30 in a couple of days indication that the oil moved from being oversold to undersold commodity. Perhaps someone realized that once the global hysteria that accompanied US elections would almost certainly dissipated after November 4, and once calm reason was restored the bubble would burst. Very cunning Mr. Soros!

NB The RSI measure a market’s strength and weak- ness. A high RSI (>70) indicates an overbought or weakening market, and a low RSI (<30) an oversold, bear market

Text Book Prices

Crooked timber is having a discussion about whether text book prices are supply or demand driven. Looking at the figures it seems that the problem is supply – International Economics for instance retails at 125 dollars and is a compulsory text in many undergraduate courses. Its second hand value is 25 dollars, suggesting that the purchasers, undergraduates had little inherent demand for the book and want to offload it as soon as they’ve got their grade. By contrast the spread for advanced or graduate texts is much smaller because most graduates choose to study the relevant subject and therefore have a higher demand for the subject. And this interest effect increases s we move up the ladder – so that books aimed at the faculty or top level can even have excessive demand i.e. where the new price is less than the second hand price –as can be seen for Essays in honor of Murray Kemp.