Tuesday, October 30, 2012

Latest GFI Report: Illicit Capital Flows Through China

The latest from Global Financial Integrity focuses on illicit outflows and inflows revolving around China (excerpt from press release):

Illicit Financial Flows from China and the Role of Trade Misinvoicing

The Chinese economy hemorrhaged US$3.79 trillion in illicit financial outflows from 2000 through 2011, according to a new report [PDF] released today by Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization. Amidst increased domestic concern over inequality and corruption, GFI’s study raises serious questions about the stability of the Chinese economy merely two weeks before the once-in-a-decade leadership transition…

Monday, October 29, 2012

It Pays To Be Popular

This is a blow to nerds everywhere (abstract):

Gabriella Conti, Andrea Galeotti, Gerrit Mueller, Stephen Pudney

What makes you popular at school? And what are the labor market returns to popularity? We investigate these questions using an objective measure of popularity derived from sociometric theory: the number of friendship nominations received from schoolmates, interpreted as a measure of early accumulation of personal social capital. We develop an econometric model of friendship formation and labor market outcomes allowing for partial observation of networks, and provide new evidence on the impact of early family environment on popularity. We estimate that moving from the 20th to 80th percentile of the high-school popularity distribution yields a 10% wage premium nearly 40 years later.

Friday, October 26, 2012

Eid Mubarak

I’m on a break until Monday. To all Muslim brothers and sisters, Eid Mubarak, and for everyone else, have a good holiday. If you’re driving, stay patient and stay safe.

Wednesday, October 24, 2012

And Now For Something Completely Different…

Happiness is seven apples a day (abstract):

Is Psychological Well-being Linked to the Consumption of Fruit and Vegetables?
David G. Blanchflower, Andrew J. Oswald, Sarah Stewart-Brown

Humans run on a fuel called food. Yet economists and other social scientists rarely study what people eat. We provide simple evidence consistent with the existence of a link between the consumption of fruit and vegetables and high well-being. In cross-sectional data, happiness and mental health rise in an approximately dose-response way with the number of daily portions of fruit and vegetables. The pattern is remarkably robust to adjustment for a large number of other demographic, social and economic variables. Well-being peaks at approximately 7 portions per day. We document this relationship in three data sets, covering approximately 80,000 randomly selected British individuals, and for seven measures of well-being (life satisfaction, WEMWBS mental well-being, GHQ mental disorders, self-reported health, happiness, nervousness, and feeling low). Reverse causality and problems of confounding remain possible. We discuss the strengths and weaknesses of our analysis, how government policy-makers might wish to react to it, and what kinds of further research -- especially randomized trials -- would be valuable.

What can I say? Eat your fruits and vegetables.

I’m definitely saving this one to show my daughter.

Technical Notes

Blanchflower, David G., and Andrew J. Oswald & Sarah Stewart-Brown, "Is Psychological Well-being Linked to the Consumption of Fruit and Vegetables?", NBER Working Paper No. 18469, October 2012

August 2012 Employment Report

Monday’s report on employment shows Malaysia’s labour market shedding 200k jobs (‘000):


Looking at the chart above, I can’t help but think this is just statistical noise – the change in employment series looks suspiciously regular. The feeling I get from this has been made even stronger because of the lack of breakdown in the monthly employment and labour force data. In that sense, the quarterly employment surveys might be a more accurate reflection of the actual state of the labour market.

Having said that, I appreciate having a monthly series to look at, even if it is “noisy”.

Monday, October 22, 2012

September 2012 Consumer Prices

Consumer price inflation continued to slow marginally in September (log annual and monthly changes; 2000=100):


Wednesday, October 17, 2012

The Economist On Inequality

The bastion of free market thinking tackles inequality (excerpt):

Inequality and the world economy
True Progressivism

A new form of radical centrist politics is needed to tackle inequality without hurting economic growth

BY THE end of the 19th century, the first age of globalisation and a spate of new inventions had transformed the world economy. But the “Gilded Age” was also a famously unequal one, with America’s robber barons and Europe’s “Downton Abbey” classes amassing huge wealth: the concept of “conspicuous consumption” dates back to 1899.

Japan’s Lost Decades? Not Quite

From the East Asia Forum (excerpt):

The missing piece in the puzzle of Japan’s lost decades
Ippei Fujiwara

Japan’s average GDP growth rate was around 9.5 per cent between 1955 and 1970, and 3.8 per cent between 1971 and 1990.

But in the past two decades it has dropped to just 0.8 per cent a year. This big drop in the growth rate is synonymous with ‘Japan’s two lost decades’…

Tuesday, October 16, 2012

Teacher Quality: Compensation Or Self-Selection?

Now here’s something that ought to be used as input into the National Education Blueprint (abstract):

Teacher Quality Policy When Supply Matters
Jesse Rothstein

Recent proposals would strengthen the dependence of teacher pay and retention on performance, in order to attract those who will be effective teachers and repel those who will not. I model the teacher labor market, incorporating dynamic self-selection, noisy performance measurement, and Bayesian learning. Simulations indicate that labor market interactions are important to the evaluation of alternative teacher contracts. Typical bonus policies have very small effects on selection. Firing policies can have larger effects, if accompanied by substantial salary increases. However, misalignment between productivity and measured performance nearly eliminates the benefits while preserving most of the costs.

2012 Nobel Prize In Economics

It’s that time of the year again. This year’s award is again shared:

Press Release
15 October 2012

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2012 to

Alvin E. Roth
Harvard University, Cambridge, MA, USA, and Harvard Business School, Boston, MA, USA


Lloyd S. Shapley
University of California, Los Angeles, CA, USA

"for the theory of stable allocations and the practice of market design".

Monday, October 15, 2012

Perspectives On Fiscal Austerity

Businessweek is highlighting the IMF’s nervousness over the impact of fiscal austerity in Europe (excerpt):

More From Olivier Blanchard, the IMF's Dovish Economist

Under Olivier Blanchard, its chief economist, the International Monetary Fund has transformed itself from a strong voice for strict austerity to a strong voice against strict austerity. The latest example is an explanatory box in the IMF’s World Economic Outlook. In it, Blanchard and IMF economist Daniel Leigh present research showing that deficit reduction has harmed growth far more than is commonly understood.

The research (in box 1.1) is technical, but the big idea is that Blanchard and Leigh compared forecasts of nations’ economic growth with what actually happened after countries tightened their belts. They found consistently that growth came in worse than expected, which means that the belt-tightening was more harmful than economists believed it to be—by a lot. Economists have assumed that cutting the government deficit by 1 percentage point cuts about half a percentage point off economic output, but the actual decline is more like 0.9 percentage points to 1.7 percentage points, Blanchard and Leigh write.

OPR Speculation

From the Star today (excerpt):

Will Bank Negara cut interest rates next month?

PETALING JAYA: Will Bank Negara seriously look into cutting benchmark interest rates in November's monetary policy committee meeting given the deteriorating external conditions and moderating domestic front in recent months or will it continue to signal a stable rates outlook?

Most economists expect the central bank to continue keeping the overnight policy rate (OPR) on hold at 3% in November (the last meeting of the year), although a hint of caution has entered into its policy statements since July on the external environment amid signs of moderation on the domestic front…

Friday, October 12, 2012

Everything You Wanted To Know About Qualitative Easing

It took me a minute to realise that this new paper I was reading wasn’t a tract about Quantitative Easing, but about Qualitative Easing.

What’s the difference? Quantitative easing refers to the creation of new money that is then used to purchase risky bonds and other securities, thus expanding a central bank’s balance sheet and injecting liquidity into the financial system. Qualitative easing on the other hand refers to the purchase of risky bonds and other securities with higher quality securities such as government bonds or central bank papers. In this case, there’s no increase in a central bank’s balance sheet, and no additional injection of liquidity into the system.

A Singaporean Mystery (Partially) Explained

Three months back, I highlighted some issues raised by Prof Christopher Balding regarding Singapore’s public finances. Somewhat unusually, the Singapore government has deigned to publish a public rebuttal (excerpt):

Is there something wrong with our Reserves?

From time to time, there are claims that the Singapore Government is covering up losses in our reserves, or that Singaporean CPF monies are not safe. Some recent online postings have even claimed that GIC and/or Temasek are reporting false returns to cover up losses, or that the Government siphons monies from its Budget or from Government borrowings so as to pad up GIC and Temasek’s books.

The Government does not publish the size of assets managed by GIC, although the asset size of MAS and Temasek are published. On the basis of the information that the Government has published, as well as the full system of checks and balances, these recent claims are baseless. Indeed, they are fantastical, but let’s look at some basic facts…

August 2012 Industrial Production

The IPI report is early this month, but that’s not necessarily good news. Apart from mining, the numbers are all looking down (log annual and monthly changes; seasonally adjusted):


Wednesday, October 10, 2012

Changing The Teaching Of Economics

There’s been a lot of criticism about the economics profession in the last 5-6 years. Why didn’t we forsee the Great Recession coming? Why is there continued debate on the best way out of this mess? Why is there such disagreement over specific policies, and for that matter, what has happened and is happening now? Is there in essence, something fundamentally wrong with economics?

There’s a new debate on VoxEU that aims to realise that old adage – physician, heal thyself – especially with reference to the teaching of economics and young economists (excerpt; emphasis added):

What’s the use of economics? Introduction to the Vox debate
Diane Coyle, 19 September 2012

If economics emerges from the Global Crisis unchanged, it will lose all credibility. That is certainly not the view of all economists, but many do think so…

…However, it is not obvious what shape an effective response to even well-founded criticisms could take…

…One starting point…is the teaching of economics, beginning with the undergraduate level…

Friday, October 5, 2012

August 2012 External Trade

As I foresaw last month, the changing structural composition of Malaysia’s imports means that the long-standing statistical relationship between exports and imports has broken down this year.

With capital goods taking on a greater weight in the import breakdown, the export forecasts generated by imports as an explanatory variable is now consistently higher than realisation (RM millions):


Budget 2013: A Head To Head Comparison

This was supposed to come out a couple of days ago, but I was just to busy to write this post. Better late than never I suppose.

In any case, what follows is a look at both the official and opposition budget proposals head to head (hereinafter called OB and AB). First, in terms of revenue:

Monday, October 1, 2012

Budget 2013: Some Thoughts

I’m frankly suffering from budget fatigue. There’s a lot of analysis in the news, and many conflicting opinions based on very different perspectives. For my part, this is more a commentary of the commentary, rather than talking about the budget directly. That analysis I’m planning to look at tomorrow.

One thing in the commentary that’s struck me, is the rather strange expectation that the budget is some kind of policy and strategy platform. You hear people expressing disappointment that industrial and SME development isn’t being touched on, or the absence of strategies to combat corruption, or the lack of info on how we are going to improve education.

This betrays a fundamental misunderstanding of what the budget is and supposed to do: allocate government expenditure for the year ahead.