Posts Tagged ‘Economics’


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Qualifications that still count

By Tim Harford
Published: March 11 2011 22:23 | Last updated: March 11 2011 22:23

The Guardian’s highly respected “Bad Science” columnist, Ben Goldacre, is a doctor and a medical researcher. But The Guardian’s highly respected economics editor, Larry Elliott, has a degree in history. What does this tell us about the state of economics journalism – or about the state of economics?
Elliott is not alone in writing about economics without the obvious academic qualification. The Guardian’s economics leader writer, Aditya Chakrabortty, also has a degree in history. James Surowiecki of The New Yorker has a degree in history too, and studied for some time for a PhD. David Leonhardt, economics columnist at The New York Times, breaks the pattern: his degree is in mathematics. (His Nobel-garlanded colleague Paul Krugman has a greater claim to academic excellence in economics.)
Some financial journalists do have obviously relevant qualifications. Greg Ip of The Economist has a degree in economics and journalism; Neil Irwin of the Washington Post has an MBA. Stephanie Flanders and Evan Davis of the BBC both worked for the Institute for Fiscal Studies. The Financial Times practically has an economics faculty (I have a master’s degree in the dismal science).
Perhaps such educations are a disadvantage. When I had the temerity to raise the subject on Twitter, many replies claimed that formal training in economics was simply brainwashing us into docility. According to this view, the perfect economics commentator should have been carefully protected from academic economics until old enough to see through the nonsense. One celebrated economics columnist told me, off the record, that he sympathised with this view. Larry Elliott was kind enough to dismiss it out of hand. “It would be stretching the point a bit to say an economics degree is an impediment to writing about economics,” he said.
That seems like good sense, but the fact that anyone thinks otherwise should make economists nervous about the sudden diminution in status of their subject. Science journalism provides an interesting contrast: while there are some respected science journalists who lack science degrees, few people would regard that lack as a badge of honour.
Perhaps good journalism has nothing to do with formal academic achievement. “The thing that divides people is not background knowledge, it’s motivation,” says Ben Goldacre. Academic experience can be helpful in reporting a subject, he argues, but if reporters can be bothered to think and do their homework, they’ll do a good job. If not, they won’t.
The challenge for economics journalism, then, is not to send the top journalists back to school for reprogramming; it is to raise the basic economic literacy of generalist reporters who don’t ask the right follow-up question of a politician who spouts some absurdity, or who swallow and regurgitate a dubious press release without carefully chewing over the contents.
“The level of ignorance in the press corps about economics is just enormous,” says Gabriel Kahn, a professor of journalism at the University of Southern California and former Wall Street Journal bureau chief. David Leonhardt goes further: “We need more numerate journalists,” he told me, in an e-mail, “people who aren’t afraid of numbers but who understand their factual power.”
As for the reputation of academic economics, the pendulum swings back and forth. At the height of the Freakonomics boom, merely being an economist conveyed an air of genius, and newspapers were hungry for new tales of economic derring-do. Today, the working assumption is that economics is in crisis and its theories are absurd. Perhaps if academic economists simply wait, they will find themselves fashionable again in due course.
Tim Harford’s latest book is ‘Dear Undercover Economist’ (Little, Brown)
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weOctober 03 2010 7:47 AM GMT
Big Mac index gives more than a taste of true worth

By Steve Johnson

Intervention has kept some emerging market currencies artificially weak, at the same time many have raised interest rates to stem inflation. It is only a matter of time before some allow their currencies to appreciate
Read the full article at: http://www.ft.com/cms/s/0/2736d936-cd89-11df-9c82-00144feab49a.html?ftcamp=rss

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By Albert Edwards, Société Générale, London 

The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious.

The notion that the equity market predicts anything has always struck me as ludicrous. In the 25 years I have been following the markets it seems clear to me that the equity market reacts to events rather than pre-empting them. We know from the Japanese Ice Age and indeed from the US 1930’s experience, that in a post-bubble world the equity market merely follows the economic cycle. So to steal a march on the market, one should follow the leading indicators closely. These are variously pointing either to a hard landing or, at best, a decisive slowdown. In my view we are poised to slide back into another global recession: the data is slowing sharply but, just like Japan in its Ice Age, most still touchingly believe we are soft-landing. But before driving off a cliff to a hard (crash?) landing we might feel reassured when we pass a sign that reads Soft Landing and we can kid ourselves all is well

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OPEC Reaching Comfortable Middle Age, Turns 50 Tomorrow With Oil at $75

OPEC Turns 50 Years Old
A ceremony for the new OPEC headquarters in Austria on March 17, 2010. Photographer: Vladimir Weiss/Bloomberg

The Organization of Petroleum Exporting Countries turns 50 years old tomorrow, having survived a tumultuous history of wars, embargoes and in-fighting. The world’s oldest and largest energy producer group is now enjoying prices close to the $75 a barrel level that its largest member Saudi Arabia considers “ideal.”
OPEC’s Timeline:
Sept. 14, 1960: The organization was born in Baghdad. The five founding members — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela — created the group during a five-day meeting in the Iraqi capital, dedicated to “the coordination and unification of the petroleum policies of Member Countries and the determination of the best means of safeguarding their interests.”
Sept. 1, 1965: The group moved its headquarters from Geneva to Vienna, where its secretariat is now based. Between 1961 and 1971 the following six countries join: Qatar, Indonesia, Libya, the United Arab Emirates, Algeria and Nigeria.
October, 1973: The six-month Arab oil embargo pitted OPEC’s Arab members against the U.S. and Israel in a politically-motivated suspension of exports that pushed prices above $12 a barrel. The Paris-based International Energy Agency was created in 1974 by consumer nations, in response to the oil price shock. Ecuador and Gabon join OPEC in 1973 and 1975, respectively, only to leave the group later.
Dec. 20, 1975: Ilich Ramirez Sanchez, known as Carlos the Jackal, took more than 60 hostages during a raid on OPEC’s Vienna headquarters to protest against treatment of Palestinians by Israel.
October, 1978: Protests and strikes in OPEC member Iran against ruling Shah Reza Pahlavi, deposed the following year in a revolution, cut the country’s oil production within three months to a 27-year low.
Sept. 23, 1980: Iraq invaded Iran in the first war between OPEC members. During the eight-year conflict, with its attacks on oil-tankers in the Persian Gulf, group production plunged to a 20-year low.
October, 1981: OPEC members agreed to maintain oil prices within a range of $32 to $38 a barrel.
August, 1985: Saudi Arabia abandoned the system of “posting” oil prices to one in favor of letting the retail value of refined products such as gasoline determine the cost of crude.
1986: OPEC members switched to a new pricing system in which futures contracts traded on exchanges in New York and London effectively determined the cost of oil shipments.
Aug. 2, 1990: Iraq’s invasion of Kuwait marked the second war among OPEC members. Repelled the following year by a U.S.-led coalition, withdrawing Iraqi troops set fire to Kuwait’s oil wells.
Nov. 29, 1997: At a meeting in Jakarta, OPEC raised production quotas for the first time in four years as the Asian financial crisis unfolds, sending prices as low as $10 the following December. Analysts often refer to the event as “the Ghost of Jakarta.”
June 24, 1998: OPEC was assisted by non-members including Mexico, Russia and Norway in cutting production as demand collapsed, helping revive prices. The coordinated action followed initial talks between Saudi Arabia, Venezuela and Mexico.
March 19, 2003: Aircraft and missile attacks on Iraq begin, followed by a U.S. and U.K. troop invasion that subsequently topples Saddam Hussein’s government in Baghdad.
Jan. 1, 2007: Angola joined OPEC, its first new member since the 1970s. In November, Ecuador re-joined the organization following a 15-year absence.
Sept. 10, 2008: Indonesia exited the oil group after becoming a net importer, leaving the total number of members at 12.
Dec. 18, 2008: OPEC announced the largest production cut in its history as the financial crisis sent prices plunging from a record $147.27 a barrel in July, 2008, to near $30 by the year- end. Oil prices then climb 78 percent during 2009.
Sept. 14, 2010: In happy middle age, OPEC turns 50, with oil prices near $75 a barrel and above $70 a barrel for all but two weeks of this year.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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China: Employment Situation ‘Very Grave’ – Spokesman
September 10, 2010

China’s employment situation is “very grave,” with job seekers outnumbering jobs by two to one in 2010, Chinese Ministry of Human Resources and Social Security spokesman Yin Chengji said Sept. 10, Xinhua reported. Yin said 12 million jobs were available this year for 24 million people, including 6.3 million new college graduates and 6 million high school graduates. Beijing must help shift people from rural areas to cities, Yin said. There is also an issue with structural unemployment, Yin said, adding that Beijing will continue to prioritize employment. At the end of 2009, China’s urban unemployment rate was 4.3 percent, with 9.21 million unemployed, according to a Human Resources white paper.


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America’s public servants are now its masters

By Mort Zuckerman

Published: September 9 2010 22:49 | Last updated: September 9 2010 22:49

There really are two Americas, but they are not captured by the standard class warfare speeches that dramatise the gulf between the rich and the poor. Of the new divisions, one is the gap between employed and unemployed that President Barack Obama seeks to close with yet another $50bn stimulus programme. Another is between workers in the private and public sectors. No guesses which are the more protected. A recent study by the Mayo Research Institute found that “private-sector workers were nearly three times more likely to be jobless than public-sector workers”.

Political tension is bound to grow when jobs disappear faster in the private than the public sector, just as compensation in the former is squeezed more. There was a time when government work offered lower salaries than comparable jobs in the private sector, a difference for which the public sector compensated by providing more security and better benefits. No longer. These days, government employees are better off in almost every area: pay, benefits, time off and security, on top of working fewer hours. Public workers have become a privileged class – an elite who live better than their private-sector counterparts. Public servants have become the public’s masters.

Take federal employees. For nine years in a row, they have been awarded bigger average pay and benefit increases than private-sector workers. In 2008, the average wage for 1.9m federal civilian workers was more than $79,000, against an average of about $50,000 for the nation’s 108m private-sector workers, measured in full-time equivalents. Ninety per cent of government employees receive lifetime pension benefits versus 18 per cent of private employees. Public service employees continue to gain annual salary increases; they retire earlier with instant, guaranteed benefits paid for with the taxes of those very same private-sector workers.

More troubling still is the inherent political corruption. Elected officials tend to be accommodating when confronted by powerful constituencies such as the public service unions that agitate for plush benefits and often provide (or deny) a steady flow of cash to election campaign funds. Their successors will have to cope with the inherited debt burden – and ultimately the nation’s taxpayers are stuck with the bill.

As Governor Arnold Schwarzenegger has pointed out, spending on retirement benefits for California’s state employees is growing at three times the rate of state revenues, now exceeding $6bn annually and growing at the rate of 15 per cent a year. In other states, however, the politics of public pensions appear to be changing. In Michigan, Governor Jennifer Granholm, a Democrat, recently enacted a teacher pension reform that should save about $3bn over 10 years by increasing the amount workers must contribute. Illinois raised its retirement age for newly hired public workers from as low as 55 to 67. Chris Christie, the Republican governor of New Jersey, decided that even if it took bruising clashes with public worker unions, public service compensation reform was essential for the fiscal health of the state. His stance surprised many, but it made him a national figure.

There is no quick fix to deal with the billions in unfunded liabilities. Public service employees are almost impossible to fire, except after a long process and only for the most grievous offences. What is more, the courts have ruled in many states that pension increases granted by elected bodies are vested benefits that must be paid no matter what, precluding politicians from going back and changing past agreements.

The only fair solution is to take the politicians out of the equation and have fully independent commissions in charge, fixing the scale of salaries and benefits for public-service workers and establishing an affordable second retirement tier for new employees. More reasonable retirement ages should be in order, such as 65 for general employees and 55 for public safety employees. This would take nothing away from the existing benefits of current employees.

A fundamental rethinking of the public workforce is necessary. Americans cannot maintain their essential faith in government if there are two Americas, in which the private sector subsidises the disproportionate benefits of this new public sector elite.

The writer is editor in chief of US News & World Report and chairman and co-founder of Boston Properties

FT.com / Comment / Opinion – America’s public servants are now its masters

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Venezuela’s oil exports down 16% in second quarter

Aug 25, 2010

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Aug. 25 — Venezuela’s oil exports dropped 16% in this year’s second quarter, largely due to increased use of domestic fuels for electric power, according to a quarterly report by the central bank.

The report showed the country’s gross domestic product down by 1.9%, led by a 2% drop in oil sector GDP.

“The behavior of this activity in the quarter is mainly due to lower crude output, which was offset by the growth in refined products to satisfy higher demand in the internal market related to the use of thermoelectric plants for energy generation,” the bank said.

The bank’s report coincided with the latest statistics from the Organization of Petroleum Exporting Countries, which said oil exports brought Venezuela revenue of around $54.2 billion in 2009, down nearly 40% from $89.1 billion in 2008.

OPEC blamed the fall in international oil prices across global markets for the country’s drop in revenue, with Venezuela’s basket price for 2009 averaging $57.08/bbl, down from $86.49/bbl in 2008.

However, Venezuela’s export revenues could decline as the country plans to take advantage of its hefty reserves of oil and gas to increase its use of thermoelectric power over hydropower during the next 5 years.

Venezuela now relies on hydropower for 80% of its electricity supply, while thermoelectric plants only supply 20%. Caracas wants to bring that ratio to 50-50 by 2015, according to official media.

Electricity shortage
The Agencia Venezolana de Noticias (AVN) reported the balance is needed as Venezuela faced shortages of electricity earlier this year due to a drought that reduced the power generation at main hydropower plants.

AVN last week reported water levels at the country’s main hydroelectric dam, Guri, are 3.04 m below optimum levels. The Guri plant supplies 70% of Venezuela’s electricity, but a drought brought water levels so low that the government was forced to introduce rationing across the country.

According to AVN, Venezuela aims to install 15,000 Mw of new electricity capacity over the next 5 years, of which 12,000 Mw would be generated by thermoelectric plants, while 3,000 Mw would come from new hydropower plants.

But that plan could create problems of its own. While more thermoelectric power could insulate Venezuela from electricity shortages due to drought, the use of more oil and gas could substantially reduce the country’s exports, its main source of foreign exchange.

In fact, Venezuela depends on oil for more than 90% of its export income, and a continued drop in revenues could affect its ability to meet spending and debt obligations.

PDVSA continues drilling
Meanwhile, Venezuela’s state-owned Petroleos de Venezuela SA this week said it began drilling in the Jusepin oil field with one of the rigs seized from Tulsa-based Helmerich & Payne Inc. earlier this year (OGJ Newsletter, July 12, 2010).

According to Venezuela’s Oil Minister Rafael Ramirez, who also serves as president of PDVSA, costs at the project have fallen more than 50% to $20,000/day from $43,000/day when H&P ran it. PDVSA said the well drilled by the nationalized rig should produce 2,000 b/d of oil.

Contact Eric Watkins at hippalus@yahoo.com

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