1st accurate model of cause/effect in the global economy
[youtube]http://www.youtube.com/watch?v=qybUFnY7Y8w[/youtube]
[youtube]http://www.youtube.com/watch?v=qybUFnY7Y8w[/youtube]
I gave a talk at Gresham College yesterday, drawing on my paper for the Long Finance Foundation on risk and resilience in the UK housing market.
Also on the panel was Channel 4’s Economics correspondent, Faisal Islam. He had a couple of great quotes. This from Gordon Brown’s first budget speech in 1997 (click through to admire the retro styling of the last 1990s Treasury website):
For most people the acquisition of a house is the biggest single investment they will make. Homeowners rightly expect their investment to be protected by sensible policies pursued by Government.
I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s. Volatility is damaging both to the housing market and to the economy as a whole.
So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.
When Brown spoke, the average house cost £75k – about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!
In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.
The second quote is a more recent one – from Mervyn King, the Governor of the Bank of England. Last month, Faisal asked King whether the current re-inflation of the housing bubble was sustainable. Prices are currently only around 7% below their peak and seem overvalued by every measure. Only cheap money – pumped into the markets by the government – and very low interest rates is keeping the market afloat.
Isn’t the market going to deflate very rapidly once government funding is withdrawn? King’s response:
No one can forecast asset prices, so I don’t think you can predict that asset prices will fall back. I don’t see why that should in and of itself lead to a change in asset prices, because we all know this problem is there and that’s already reflected in to current asset prices.
As Faisal points out, this shows confidence in the efficient market hypothesis that is breathtaking given a global financial crisis that was driven by an asset price bubble. In King’s fantasy world, buyers know that there will be much less credit available in the future – so this concern is already included in current market prices.
King’s insouciance – and Brown’s negligence – both beggar belief.

We at GD like to fret about examples of badly joined-up global governance wherever we can find them. Climate change, security, trade… and now religion. The latest English-language edition of Internationale Politik (which happens to contain a small rant by GD’s Korski and Gowan on crisis management) includes an enjoyable piece about how the Pope isn’t using his global leverage. But at least, author Otto Kallscheuer points out, the pontiff formerly known as Ratzinger has global reach…
Even in today’s modern age, there is a strong argument to be made for the Holy See’s active presence in the international arena. Now that the power of the papacy has long since been reduced to a “minuscule and, as it were, symbolic temporal sovereignty,” as Pope Paul VI put it in 1965, the power politics in which earlier popes actively participated for centuries have been replaced by the papacy playing a metapolitical role. Such a presence in the emerging international public sphere could contribute to mediating religious conflicts—not only because the Vatican, in contrast to nation states, is an institution well suited to deal with the demands of globalization, but also because it possesses professional routines and knowledgeable actors trained in normative politics.
One question that must first be answered is whether there are international institutions of transnational “religious policy” other than the Catholic Church. In fact, there is nothing of the sort, in Christianity or in any other world religion. In the 1970s and 1980s, at the high point of the anti-apartheid struggle in South Africa and the peace movement in Western Europe, the Protestant World Council of Churches was able to raise hopes around the world of a “Christian” means of overcoming conflicts. But even in these years, no theological understanding emerged between the Christian West and East—between more liberal Protestantism and the traditional spirituality of Greek, Russian, and Serbian Orthodoxy. In the face of the explosive worldwide growth of Pentecostalism outside the historical established churches, the Ecumenical Council remains rather powerless, outside of the mainline historical churches or denomination.
And outside of Christianity? Is the Dalai Lama a sort of “pope for Buddhists?” As doubtful as an analogy between the many forms of Buddhism and the Christian churches may be, the combined political and religious role of the Tibetan leader creates a parallel to the 19th century Catholic political crisis, when the pope was simultaneously the sovereign of the papal state in middle-Italy and the spiritual head of a world religion. So far, however, the fourteenth Dalai Lama has not clearly decoupled the spiritual authority of the reborn Buddha from his political role as the exiled leader of a nation and culture fighting for autonomy. Should this separation of religious authority and civil power actually occur, the Dalai Lama or his successor in exile could perhaps become the apostle of a global Buddhism.
No institution comparable to the papacy—a universal monarchy with purely spiritual authority but indirect political power—is found in the Islamic world, aside from the Ismailite Shia, an extreme minority of the “party of Ali,” whose world leader is the Aga Khan. The message of Islam, like the Gospel, is geared universally toward expansion, mission, and globalization. But a billion Muslims have no international form of organization that would offer a starting point to relativize their local conflicts and rationalize their political defeats and identity crises.
Come on non-Catholics, get your multilateral cooperation act together.
When I arrived in Sierra Leone six weeks ago and encountered its friendly people, spectacular beaches, lively nightlife and mysterious traditions, I wondered why the country has so few tourists (in our six weeks we have met a total of three, with three or four other possible but unconfirmed sightings).
It didn’t take long to find out. A nation that should be eager to attract tourists seems to be making systematic efforts to keep them out. If you were trying to make it as difficult as possible for foreigners to visit your country, I could recommend the following measures, which all work brilliantly for Sierra Leone:
– Charge an exorbitant sum for visas (£50 for a month, compared to, say, £10 for three months in Turkey, a much more tourist-friendly destination)
– Make obtaining the visa more complicated than for any of your neighbours by forcing applicants to produce a letter of invitation from a Sierra Leone national
– Encourage customs officials in the airport to be as surly as possible, and fail to punish them for extracting bribes from new arrivals for performing the simplest of procedures
– Build your airport thirty miles away from the capital city, on the opposite side of a giant river mouth, forcing visitors to cross either by helicopter, which regularly crashes, or ferry, which often breaks down or sinks. Make sure, too, that the ferry departure times do not coincide with incoming flights, so that your visitors will have to wait for hours in the burning sun (you will of course already have ensured there is no shade at the dock)
– Allow dozens of hustlers to converge on new arrivals as they exit the airport, giving preference to pickpockets and con merchants
– Refuse to harness the torrential rain in the rainy season to provide water and electricity to visitors at any time of year. This will ensure they cannot take respite from the heat with the help of fans, cold drinks, air-conditioning or showers. It will also mean restaurants and food stores will be unable to refrigerate food, thereby increasing the risk that your visitor will fall sick
– In the event that he does fall sick, make sure you spend none of the billiions of pounds of aid you receive on building effective hospitals or recruiting competent doctors to treat him
– Make your public transport system as slow and uncomfortable as possible, by failing to maintain vehicles so that they break down often, waiting until they are full before departing hours behind schedule, and packing two people into seats designed for one
– Enhance the effect of the above by allowing roads paid for by foreign donors to deteriorate and then failing to fill in the hundreds of resultant potholes
– Should a tourist somehow manage to shrug off these obstacles and apply for a visa extension (you have no psychiatric hospitals to house him, of course), redouble your efforts to force him out. To do this, hire the least friendly, most corrupt people to work in your immigration department. Extort money from your visitor for a visa extension that is officially free, then smile smugly at his distress
– As a final punishment for having the cheek to visit your country despite all your efforts to stop him, charge the departing, browbeaten tourist a £50 airport tax
NB: For foreign investors, multiply your efforts tenfold.
Xavier Sala-i-Martin and Maxim Pinkovskiy today published a working paper today that drops the following bombshell (here’s a free version):
Our main conclusion is that Africa is reducing poverty, and doing it much faster than we thought. The growth from the period 1995-2006, far from benefiting only the elites, has been sufficiently widely spread that both total African inequality and African within-country inequality actually declined over this period. In particular, the speed at which Africa has reduced poverty since 1995 puts it on track to achieve the Millennium Development Goal of halving poverty relative to 1990 by 2015 on time or, at worst, a couple of years late. If Congo-Zaire converges to Africa once it is stabilized, the MDG will be achieved by 2012, three years before the target date. These results are qualitatively robust to changes in our methodology, including using different data sources and assumptions for what happens to inequality when inequality data is not available.
Not much reaction yet – but I’m intrigued to see what other economists are going to make of their work…
Update: Xavier Sala-i-Martin has a wonderfully crazy Columbia University website – he likes FC Barcelona, Salvador Dali and Beavis and Butthead.
Update II: These Economist articles from 2004 (one, two) offer useful background. The crux of the matter seems to be that Sala-i-Martin and Pinkovskiy use GDP to measure poverty (working out distribution of income from household surveys) – the World Bank’s figures are derived directly from the surveys themselves.