By Christopher Briem, on January 10th, 2011
Neither hagiography nor its opposite, but note the opening sentence of this story: Low education levels holding Nevada’s economy back, official says. goes like this:
Nevada’s higher education levels are holding the region back from diversifying its economy and the city has become a modern-day version of Pittsburgh or Detroit, which once relied on one sector for its growth to its detriment, the director of a UNLV-based think tank said today. (emphasis added)
…. of what Pittsburgh was maybe??? I guess they kind of sneak in the past tense, but still they need the memo. We have become iconic though, but we knew that already. The region as Warhol… or is it vice versa?
By Winton Bates, on January 10th, 2011
While recently reading Deirdre McCloskey’s ‘Bourgeois Dignity’, Joel Mokyr’s ‘The Enlightened Economy’ and Eric Jones, ‘Locating the Industrial Revolution’ (discussed previously here, here and here) I was pleased to find that these authors have been able to make a strong case that the industrial revolution can be best explained by modern economic growth theory that emphasizes the importance of technological progress, innovation and productivity improvement. It is reassuring that this conceptual framework fits the facts relating to the history of the last few hundred years as well as comparative growth experiences of different countries in more recent times.
In their explanations, however, McCloskey and Mokyr move substantially away from the view that because ‘incentives matter’ the best explanation for everything must be found in changes in economic incentives. This does not necessarily involve moving away from a utility maximization framework. There is no reason why such a framework cannot recognize that inventors may be strongly influenced by the pleasure of discovery and recognition by their peers; innovators may obtain pleasure from seeing scientific knowledge being put to good use; and everyone may gain some satisfaction from acting in accordance with their own perceptions of their identity, whether that involves behaving like a scientist, a gentleman, a tycoon or a mendicant.
In explaining the industrial revolution Mokyr and McCloskey and Mokyr emphasize the importance of beliefs and ideologies – in particular those associated with the Enlightenment. Three inter-related strands of beliefs and ideologies connected to the Enlightenment seem to be particularly relevant:
First, Mokyr argues that the influence of the Baconian program – with its emphasis on research to solve practical problems – extended beyond formal scientific research. He makes a strong case that the ‘legitimization of systematic experiment carried over to the realm of technology’, including through the proliferation of provincial ‘philosophical’ societies discussing practical and technical issues.
Second, as emphasized by McCloskey, there was a bourgeois revaluation – a change in attitudes toward the middle classes, markets and innovation. Mokyr links this to norms relating to politeness and gentlemanly behaviour, and an apparent improvement in social trust which reduced transactions costs.
Third, there is the ideological change stemming directly from the success of the Scottish Enlightenment and, in particular, from publication of ‘Wealth of Nations’ by Adam Smith. As Mokyr writes:
‘The Enlightenment in its different manifestations advocated a set of new institutions that cleared up centuries of mercantilist policies, regulations and social controls, whose objective had been primarily to redistribute resources to politically connected groups and to enhance the interests of the Crown (the best connected group of all). The mercantilist world was unsuitable to a brave new world of continued technological progress driven by free markets, innovative entrepreneurship, and an internationally collaborative effort to advance technology’ (p. 486).
In reviewing Eric Jones book I asked myself whether the industrial revolution could be attributed to economic freedom and suggested that his book had reinforced my view that it could be (even though Jones does not argue strongly in favour of that view). My subsequent reading has not led me to change that view but it suggests that economists interested in economic growth should give more attention to beliefs and ideologies that lie behind the formal rules of the game and their incentive structures.
In writing this I am reminded of comments made by Douglass North in his Nobel Prize lecture in 1993: ‘It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. While the rules may be changed overnight, the informal norms usually change only gradually. Since it is the norms that provide “legitimacy” to a set of rules, revolutionary change is never as revolutionary as its supporters desire and performance will be different than anticipated. And economies that adopt the formal rules of another economy will have very different performance characteristics than the first economy because of different informal norms and enforcement. The implication is that transferring the formal political and economic rules of successful western market economies to Third World and eastern European economies is not a sufficient condition for good economic performance. Privatization is not a panacea for solving poor economic performance’.
The fact that privatization by itself is no panacea does not stop me from arguing in favour of it, but I take the point that economic freedom cannot be sustained unless prevailing beliefs, ideologies and norms are supportive.
By Rok Spruk, on January 7th, 2011
The 2009 PISA test study (link) of students’ proficiency in reading, mathematics and science is a highly successful method of evaluating student performance across countries. In fact, the creation of human capital is the main endogenous feature of the long-run economic growth since the quality of schooling and education system are essential to the creation of human capital. The difference in GDP per capita across countries is both intuitive, theoretical and empirical challenge to search for the causes of the gap between the economic performance of nations.
PISA test scores are aimed mainly at the evaluation of student knowledge at primary and secondary level in the fields of reading, mathematics and science. The assessment of knowledge in a particular field is subdivided into six different proficiency levels, ranging from 1 to 6. For instance, students at the 1st reading proficiency level are characterized by innate recognition of simple ideas reinforced in the text while students at the 6th reading proficiency level are characterized by a full capability of making multiple inferences, comparisons and contrasts and integrating the ideas presented in the text into a coherent conceptual framework of abstract ideas, sound evaluation and reflection. While 98.6 percent of OECD students can perform reading tasks at level 1, only 1.1 percent of students across OECD countries can perform reading tasks at the highest proficiency level. In addition, 28.4 percent of students in OECD countries exceeded the 4th (mid-range) reading proficiency level.
The reading scale has been further divided in reading continuous and non-continuous texts. However, the evidence suggest no systematic difference in reading scores between the two fields. Countries with the highest performance, measured as mean score, in reading rank are Korea (89.8 percent), Finland (89.3 percent) and Canada (87.3 percent). Countries with the largest student populations such as United States, United Kingdom and France were ranked in the upper-middle range while percent, and Israel (79 percent), Luxembourg (78.6 percent) and Austria (78.3 percent) are the lowest-ranking high-income countries on the reading scale in the 2009 PISA assessment. In the field of mathematics, 8 percent of students in OECD countries perform below level 1, 31.4 percent of students can perform mathematical tasks at 4th (mid-range) proficiency level while 3.1 percent of students perform at the highest proficiency level. In the country distribution, the percentage of students in the 6th proficiency level is the highest in Korea and Switzerland (8 percent), Japan, Belgium and New Zealand (5 percent). In a regional distribution, more than 25 percent of students in Shanghai perform at the highest level of mathematical proficiency. The proportion of students in the 6th proficiency level is very high in Singapore, Chinese Taipei and Hong Kong – 15.6 percent, 11.3 percent and 10.8 percent respectively. In addition, performance disparity in mathematics varied significantly across countries. Less than 1 percent of students in Mexico, Chile, Greece and Ireland reached 6th proficiency level A brief overview of the main empirical findings suggests a rather rigorous disparities in country ranking and performance.
The assessment of student performance in science is similar to the distribution of mean scores in the field of mathematics. About 5 percent of students perform below 1st proficiency level. In addition, only 29.4 percent of the students in OECD countries is proficient at 4th (mid-range) proficiency level in science while an average 1.1 percent of students in OECD countries can perform at the highest level of scientific literacy. In addition, the percentage of students below the lowest level of scientific proficiency is highly negatively correlated with country ranking since the proportion of students below the 1st level is the lowest in Finland (8.3 percent), Korea (6.3 percent), Estonia (8.3 percent) and Canada (9.6). Higher country ranking would thus indicate a lower proportion of students below the 1st proficiency level. All of the aforementioned countries ranked in the highest 10 percent of the distribution. If Shanghai, Hong Kong, Macao and Taipei were independent countries, their respective ranking in the field of scientific literacy would be in the top 10 percent of the distribution.
The empirical data on the distribution of mean scores in reading, mathematics and science are highly relevant to the measurement of human capital since the impact of mean scores on economic growth would differ to the certain extent from other measures of human capital. Recent attempts to capture the effect of human capital on economic growth were aimed at the definition of human capital as total years of primary, secondary and tertiary schooling. For instance, Robert Barro and Jong Wha Lee have collected disaggregated data on the total years of schooling for 146 countries between 1950 and 2005 at five-year intervals (link). The empirical evidence from the country panel suggests a strong linkage between schooling and long-run economic growth and institutional country features (link). In addition, Barro and Lee estimated the implicit return from an additional year of schooling ranging from 5 percent to 12 percent.
Gary Becker (link) and Richard Posner (link) recently discussed the 2009 PISA findings and the impact of cultural, genetic and demographic disparities on mean test scores in the United States. United States ranked in the middle of the mean score distribution. The rank of the United States (17th out of 79 countries) is above average in reading and average rank in mathematics (31st out of 79 countries) and science (23rd out of 79 countries). As Becker and Posner indicate, the relative performance of the United States should be evaluated with the consideration of cultural and demographic differences since the mean score of White and Asian students is significantly higher than the mean score of African American and Hispanic students. Disparities in mean scores between different demographic groups are typical in largely heterogenous populations. In Belgium, the regional disparity in mean scores between French and Flemish communities is even more striking. While the mean score in mathematics in 2006 in Flemish community had been above the OECD average, the mean score in mathematics of students in French community had been 18.56 points below the OECD average while the mean score of students in Flemish community had been 30 points above the OECD average. In 2009, such a relative difference would place French community in the rank of Italy, Portugal and Spain. On the other hand, student performance in Flemish-speaking community would reach the rank of Canada, Switzerland and Japan.
In the U.S, the demographic disparities in mean scores in reading, mathematics and science do not reflect the quality of the American education system. While the overall quality of the public and private American high school education system raised considerable concerns in previous performance of U.S. students in international mathematics and science ranking, the ranking of U.S. universities in science, mathematics and social sciences is the highest in the world. The output U.S. universities resulted in the highest number of Nobel laureates in physics, chemistry, medicine and economics as well as into cutting-edge accomplishments in R&D and technology. The emphasis on creativity and innovative thinking embodied in the American education system has enabled the United States to emerge as a world leader in technology, R&D, innovation and entrepreneurship.
The openness of the U.S. education system to international students, ideas and creative thinking could account for the remarkable achievements and academic quality of top American universities. On the other hand, poor teacher quality in American high school system is detrimental to the reading and quantitative literacy of American high school graduates, as a consequence of what Becker calls “teaching-to-the-test” syndrome where many public school teachers teach students topics not relevant to the command of knowledge but to the tests since test scores presumably determine teacher pay. Eric Hanushek of Hoover Institution recently found (link) that replacing bottom 5-8 percent of high school teachers with average teachers could near the United States on top of the international mathematics and science ranking. In addition, the measure is worth $100 trillion according to Hanushek (2010).
In the international perspective, student performance has been viewed as a significant determinant of the difference in cross-country economic performance. Recent paper by Atherton, Appleton and Bleaney (2010) found that higher mean test scores in mathematics, reading and science significantly improve per capita GDP. The authors showed that holding per capita income constant, average years of schooling is less important than mean test scores in predicting the economic growth.
A considerable improvement of primary and secondary education system is vitally essential to the long-run economic growth. International test scores are an important method of evaluating international disparities in student performance and the subsequent impact on economic growth. The evidence from the 2009 PISA study suggests that higher quality of the education system is a necessary condition for higher test scores in reading, mathematics and science. As the evidence suggests, that the quality of human capital is strongly associated with higher standard of living.
 Join the forum discussion on this post - (1) Posts
By Claus Vistesen, on January 7th, 2011
The signs are clear; risk is overloved, overbought and overextended but does this necessarily spell the inevitable correction?
(click for larger image)
Since Augsut 2010 the SPY has barely touched its 50 day moving average. Indeed, it has stayed well clear of it. Those, like yours truly, who entered 2011 fancying some bloodletting have so far been disappointed.
Plan B Economics points to the obvious that often times in the world of investing, a choir chiming for an event to unfold is the best bet that it will not occur.
I’ve had a pretty good sense in the past knowing when the “correction” trade is overcrowded. I gotta say that I definitely sense that now. Bulls are on guard for a correction and bears are calling for one too. In fact, I’ve never seen such a unanimous call for a correction as I do now in a long time. Near the low of the day I saw a headline from bigcharts.com that said some portfolio manager claimed the January correction has started. The market didn’t even go in the red for the year yet and this guy’s already saying the correction has started? Talk about being over-eager. I believe this group think call for a correction means that a correction either won’t happen or will be quite shallow, well below expectations.
As a good friend of mine noted; this is like second-guessing the second-guesser. Market timing is best performed when frontrunning the crowd, not standing in the middle shouting like everyone else. On the technical side, I would like to see two (or three) straight days of declines in the SPY before calling it.
The more interesting point is how deep (or shallow?) it will be. A move to the 50d ma marker would be something like 4.15% and come at around 1221 at current levels. Sounds about right to me.
Join the forum discussion on this post - (1) Posts
By B.P.T., on January 7th, 2011
At 8:30 AM EST, the Employment Situation report for December will be announced, and the consensus for non-farm payrolls is an increase of 160,000 jobs compared to a gain of 39,000 in November, the consensus for private payrolls is an increase of 180,000 jobs compared to a gain of 50,000 in November, the consensus for the unemployment rate is that it will decrease by 0.1% to 9.7%, the consensus average hourly earnings rate is expected to increase 0.1%, and the consensus for the average workweek is 34.3 hours.
At 10:00 AM EST, Federal Reserve Chairman Ben Bernanke will testify before the Senate Budget Committee on monetary and fiscal policy.
At 3:00 PM EST, the Consumer Credit report for November will be released. The consensus estimate is that there will be an increase of $2.0 billion in the consumer credit available from October to November, after an increase of $3.4 billion last month.
Join the forum discussion on this post - (1) Posts
By B.P.T., on January 6th, 2011
As Millennials (those born between 1981 and 2000) enter the workforce in increasing numbers, it has become clear that the lack of employment opportunities in the job market is impacting this generation more than older generations, which could hold them back for their entire career.
Because an employee’s raises over the course of his or her career are generally percentage based increases, a lower starting salary will impact the employee for years, as those who start with a higher salary receive increasingly larger raises in dollars because their higher salary and previous higher raises compound the problem over time.
Of course, many Millennials are unable to find a job in their field, or a job of any kind because a combination of the weak labor market and those over 55 continuing to work in record numbers, which forces many new potential employees to find lower paying service jobs or other employment outside of their desired field to meet their financial obligations. Millennials are also being laid off at a higher rate than older generations, with 14% of them being laid off in 2009 compared to 8% of Baby Boomers, according to a survey by The Futures Company.
This demographic trend will be interesting to watch as Baby Boomers exit the workforce over the next decade, because current long term demographic trends should cause employee shortages in many fields, but will those positions be filled by Millennials who finally get the opportunity they have been waiting for, or by younger employees who would be just entering the job market in the future, leaving Millennials currently in the labor pool permanently under-employed and underpaid?
By Eldon Mast, on January 6th, 2011
Several of the first credible reports on the health of the job growth in the U.S. point to significant additions ahead in the labor market for 2011.
On Wednesday, the ADP employment report indicated a gigantic 297,000 surge for December private payrolls. This gain is far outside even the most high-end of expectations for most economist’s forecasts.
The ADP report came minutes before an additional Challenger Job cut report which showed the best reading in almost 11 years! Fewer layoffs are being announced — the fewest since June 2000 according to Challenger’s count which fell to 32,004 in December vs November’s 48,711. The drop confirms last week’s report on continued improvement in jobless claims where fewer claimants are filing for unemployment benefits.
The news is no doubt welcome for many and underscores the health of a recovery that is delivering on jobs growth more quickly than any recovery in recent history.
By B.P.T., on January 6th, 2011
The monthly Chain Store Sales report will be released today. This report on sales in chain stores gives a look at the health of stores that make up about 10% of all retail sales.
The Monster Employment Index for December was released today, and the index moved down 4 points to a value of 130, but is 13% higher than last December’s value.
At 8:30 AM EST, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 412,000 new jobless claims last week, which would would be 24,000 more than the number released last week, which was unexpectedly low.
At 10:30 AM EST, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM EST, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EST, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
Join the forum discussion on this post - (1) Posts
By Claus Vistesen, on January 5th, 2011
Just before we turned the clock on 2010 I commented on the recent increase in US yields and noted the following simple issue;
How investors perceive and interpret this will [rising yields] determine great many things; is it a reflection of higher growth in the future and thus a sooner than expected normalisation by the Fed. Or is it a result of supply concerns and the continuing double digit budget deficit by the Fed and thus the bond vigilantes attempt to go for the biggest prey in the park.
Obviously, interpretation, animal spirits and sunspots can never be entirely disconnected from real economic activity on the ground, but the underlying point is important.
If rising yields are seen as a reflection of growing concerns over the US authorities’ ability and willingness to control to the deficit it could hamper ability to maneuver for the Fed and the Treasury. If on the other rising yields are seen as a reflection of policy makers’ success in reviving back growth through QE and an extension of tax cuts, it goes together with an altogether more benign narrative about how the deficit will pay for itself as higher growth leads to higher income and more leeway in managing public finances.
So which is it?
Well, a recent piece by Bloomberg’s Daniel Krueger suggests that the latter discourse is emerging and thus that whoever playing the part as bond vigilante these days, he or she has failed in their attempt to drive the conversation (so far).
Quote Bloomberg
The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt.
(…)
Even as deficits remain at almost record highs, the bond market is giving the U.S. time to address structural budget imbalances. A Bloomberg News survey of the 18 bond dealers that serve as counterparties to the Federal Reserve in its open market transactions show they forecast the 10-year Treasury yield to rise to 3.65 percent from 3.30 percent on Dec. 31, below its average of 4.33 percent since 2000. Two-year yields will climb to 1.05 percent from 0.59 percent, holding below the average of 3.03 percent since the beginning of 2000.
(…)
“The market is starting to believe the Fed will be successful in creating growth,” said Ray Humphrey, who manages inflation-indexed bond portfolios in Hartford, Connecticut for Hartford Investment Management Co., which has $161.7 billion in assets. “Nominal bonds are frankly reflecting those higher growth rates.”
This is interesting for a host of reasons. First of all, with an estimated budget deficit of 10-11% of GDP in 2011, it seems that the old adage that the US economy is indeed different still holds true. Consequently, and local government debt/muni ghosts notwithstanding it appears the US economy is getting all the leash other economies in the OECD are not.
Looking at the charts, I would not hold it against you if you thought that this was much ado about nothing though.
(click for larger image)
In general, the US yield curve has steepened considerably since the infamous March-09 low in risky assets mainly as a result of the fact that although short term yields have been kept tightly in check by the Fed’s policies, yields on longer dated bonds slowly crept upward in 2009 with both the 10y2y and 20y2y increasing notably. This in turn, albeit with a lag, has sparked comment from both Fed officials and prominent analysts that the Fed would use additional QE measures to massage the long end of the yield curve especially as it is the long end which determines the rate on mortgages which is a gauge strongly watched by the Fed.
In 2010 and much contrary to the talk about rising yields; both long term and short term yields have actually declined on the year. From December to January it is pretty much status quo on the yield curve measured by the 2y10y though with 2 year nominal yield declining 31.3 basis points and 10 year nominal yields declining 44 basis points.
The action and talk on rising yields come from the fact that in Q4 yields have increased across the board with longer dated bonds taking the worst hit as the curve steepened across all spreads. 10 year yields rose the most from October to December rising 75 basis points while 2 year yields increased by a mere 24 basis points in comparison. As such, what turned out to be a good year for bond investors has turned sour right at the end.
The real important thing going forward is how long US policy makers can benefit from the win-win discourse of rising yields and a strenghtening economy. One would be tempted to say that if only the Fed came out openly and targeted a level of the SP500 then the world would be much more transparent. What I am basically saying is that one key part of the Fed’s current policies is the explicit targeting of equity prices and the subsequent positive wealth effect perceived as well as real.
Fundamentally, it is bit of tighthrope walk since the main condition for the good days to continue is a very fine balance epitomized by the notion of a “mild-goldilocks” scenario. In short, yields can go up as long as they want except if it translates into the actual expectation of an interest rate hike by the Fed. As such, the economy should continue growing but not so strong as to force the Fed’s hand into a more hawkish discourse.
By Christopher Briem, on January 5th, 2011
No, not a full roundup, but here is a press release going out that is a bit curious: Canonsburg, PA Blossoms as Eastern Natgas Capital, NGI Reports
All about how relatively small Canonsburg, PA (population 9,000) is booming because of Marcellus Shale related business. The thing is that it has this one key line describing the town: “The borough is close to the Pittsburgh manufacturing metropolis“.
Manufacturing metropolis?! If that is their description, you have to wonder about the rest of the information in the PR. Someone really didn’t get the memo. That and I will send them my slides on what ‘metropoltian’ means since Canonsburg is certainly in, not near, the Pittsburgh metro area (aka metropolis). I guess they mean they are near the potentially MSC-boycotted City of Pittsburgh, which of course has not had a basic steel operation in what?? 12 years? So it is a datapoint on the persistent legacy of brands.
OK.. it all is pretty vacuous PR really for a web site or something to tracking Marcellus Shale info. So I am doing them a favor by even mentioning it. But it does highlight two things I keep noticing. No doubt there are folks making money supporting the new shale development, and a lot of them are doing quite well at it. There are also those out there trying less substantial ways to make something from the whole play. Not fraudulent or anything (though we have seen some dubious things starting), but just folks trying to get in on the action.
It also points out that a lot of why Marcellus is such news in a lot of Pennsylvania is because it is big relative to how little is going on out there normally. I bet the new shale-induced activity in Canonsburg is a lot for them. Still just one town, but extrapolate that across the state. The center of gravity of the Marcellus play is in some of the least dense parts of the state. Just not many folks living in places where the drilling is happening, and certainly not much export oriented business beyond the hunting-induced or related tourism that has been a mainstay for a long time. The 1,081 square miles (33% more than Allegheny County) Potter County has a total population of 16K. That would be half the population of the South Side on a typical Friday evening. The 1,161 square miles of Bradford County, PA (55% more than Allegheny) has a total population of 61K (or about 1/20th of Allegheny County). So most any new economic activity would seem huge, and in lots of places may be the biggest thing in decades. It’s just one of the things warping the prism on all of this. Just think, in Bradford, PA (not Bradford County) it made news today because a firm laid off 9 workers. So yeah, even one rig crew must feel like a veritable flood.
|
|
Most Popular Posts