Nigerian Population Growth

Population projection Nigeria catching up with the United States

While this projection is based on linear growth rates it is still relatively in line with what U.N. reports have suggested. Nigeria is an interesting case, initially the country was seen as the classic case of resource curse, but increasingly it is able to translate its resources into sustained growth and some alleviation of poverty. The projections above are something quite extraordinary in terms of population growth, so I am curious what the economic repercussion will be. Noting the nature of growth projections being quite rigorous in that we have comprehensive data combined with an understanding of time lags.

Between Debt and The Devil – Adair Turner

Adair Turner recently came to speak in the Bristol Festival of Ideas. With his talk being centred around the ideas he explores in his new book “Between Debt and The Devil: Money, Credit, and Fixing Global Finance”

You can find the recording of his entire talk in the link below, as well as an interview done with him which is particularly interesting:

http://www.ideasfestival.co.uk/events/adair-turner/

He highlighted some feasible ideas, and some less so, but overall it was fascinating to see the opinions of someone who was in a position of considerable authority post crisis as he was the chairman of the Financial Services Authority. Below I have highlighted parts of his talk:

Turner outlined two main problems which he believes are facing modern economies

Problem 1

Rising Inequality

  • Problem of secular stagnation
    • Savings of the rich are too high (MPC too low)
    • Capital saturation especially in the US
    • Stagnated Wages
  • Specifically applied to the United States
    • Trickle down economics was invalid
    • Credit was the aspect of the subprime mortgage boom
    • People with low wages were finally able to access credit for toxic assets

The Role of Real Estate

  • Fundamentally ignored by Economics
    • Safe and over credit intensive
  • Turner highlighted that we need to address the credit intensiveness of our economies
    • Namely with suggesting that bank capital ratios should be around 20% rather than 4-5% if progress it to be made in this area.

Global Balance of Payment Imbalances

  • Surpluses are driven fundamentally by credit

Problem 2

“We have run out of ammunition to stimulate our economies”

  • Fall back of the central bank printing money to drive forward inflation and bump the economy
    • Severe deflationary trap can always be solved by helicopter money
      • Certain circumstances which can get us out of this trap
      • Not necessarily producing hyperinflation (smart printing)
    • The problems here are fundamentally political
      • Taboo of Money Finance amongst politicians
        • Once they realise its possible, what will stop them from doing it further
          • Suggesting political policy to moderate such a tool
        • Japan and Eurozone specifically need this
      • Between Debt and the Devil

Two ways to ensure expenditure in aggregate nominal demand

  • Print and Government Spending (Devil)
  • Private financial system to push through purchasing power rejuvenation
    • The free market in this case led to the extreme inequality
    • Markets fail and run out of control, and they were let free and not cared for
  • Choosing between alternative risks – private debt or government irresponsibility

The skeptic in me suggests that most of his proposed ideas were book selling ideas, but there is a valid discussion around the use of helicopter money, and our increasing lack of ability to dictate our economies when needed. We seem to be vehement supporters of free market economies, but then become increasingly frustrated when our targets of growth or inflation are not reached. So if this is to be the case it is clear we need to make some compromises in these areas, namely addressing economic literature and bringing it into use rather than going back to conventional heterodox policy and the shortcomings which have become frequently apparent.

One little area that annoyed me was his reference to how something like tax rebates would work in regards to spurring aggregate nominal demand, as a method of overt monetary finance. As it has been conclusively shown that consumers will not directly translate this into spending, and if so it is purely transitory and has no long run permanent effects. There is some merit in other examples he used of potentially using overt money financing such as introducing large infrastructural programmes. This has often been a go to idea though for trying to prompt long term growth, not saying that it is a bad one but we tend to mismanage our ability to commit to long term projects.

More to come this week, the next post on ‘Corbynomics’ and nationalisation.

 

 

 

 

 

 

The Billionaire Class

Going onwards from my previous post, this 2 minute video really summarises the type of substantial change Bernie Sanders promises.

I favour positive change above all else, there is considerable irony in the fact that we are so averse to change yet evolution is all about us using change to adapt and survive. So the same must be done in economics, and it starts with an overhaul of how governments approach the economy.

 

 

Eurozone Round-Up

No surprises this morning as the Bundesbank has slashed the German growth forecast to 1%. This has followed the past few months where there has been tangible uncertainty about Germany’s macroeconomic vision. With criticism coming from those suggesting that Germany has regularly failed to provide a level of investment, which would lead any kind of recovery, coupled with bullish behaviour in keeping its high trade surplus.

The interdependence of the Eurozone has become increasingly clear since the crises, and it was well understood that Germany maintaining its surplus had constrained the growth of the weaker Eurozone members. The German hopes were that this would still help drive growth, but shown through interdependence the German economy is slumping.

Continuing with the lack of surprises the European Central Bank informed us that the expected inflation for this year would be 0.5% with a forecast of 0.7% for 2015. The last target of the ECB that I can recall was that of inflation being 2%. Germany is clearly causing a whole host of trouble due to its economic weight on the Eurozone, but shows no insight into the potential change of policy as they are still predicting growth to rally to 1.6%. Jens Weidmann throws some spurious figures and he then claims to be surprised by a lack of performance, although nothing has been out of the ordinary for the past two years.

Moreover, it is clear that the only person in the ECB that needs more support is Mario Draghi. I would go as far as to claim that he is the Eurozone’s only hope, with his desire to pursue quantitative easing in a strategic and defined manner in aiding structural reform is essential. With an overall aim of returning the size of the ECB’s balance sheet to that of 2012. It is fair to state that asset purchases do not have defined results, but it would be an improvement in comparison to Weidman’s insistence on a more passive approach. I am not the biggest advocate of quantitative easing, and more in line with structural reform to European labor law and the ease of businesses, but I believe that Draghi is representing an interventionist mixture that will lead Europe to sustained and reliable growth.

It will be interesting to see how the year closes off and what 2015 has to offer in terms to tangible change in our approach to modern economies which no longer fall in line with some of the traditional approaches still used and insisted upon.

Copyright Almog Adir © 2014 · All Rights Reserved · My Website

Cutting The Deficit

As we near the time of elections in the United Kingdom there is a greater focus on the condition of the economy, and what needs to done in order to return the economy to its previous strength. Austerity has been the way forward, and whoever wins the next general election will have to maintain the burden if it is to be effective.

Now austerity is often subject to ferocious attacks as to its actual benefit to society, and that cuts are never made in proportion to the people they are affecting. I am admittedly glad that I am not in the position of the Chancellor of the Exchequer having to make those unbelievably difficult decisions. There seems to be no way to please everyone, but that is not a new concept in the game of politics.

From an economic perspective we can note that in terms of policy its incredibly difficult to decide what extent a cut occurs, and the time frame for it to occur. If you protect the elderly it might mean putting the younger generation at risk of unemployment or a reduction in education. There are insurmountable opportunity costs that we may realise if we start looking at what to cut. The Financial Times have produced a UK budget deficit calculator, which brought me to frustration as no decision seems favourable to any extent (except cutting overseas aid, and freezing elements of the defence budget). I highly recommend having a go at the calculator, because I never cut enough to reach the required amount, with my best effort being £38 billion:

http://www.ft.com/ig/sites/2014/deficit-calculator/

Copyright Almog Adir © 2014 · All Rights Reserved · My Website