Tuesday, June 28, 2011

Puzzles in international economics

If you are looking to revolutionize economics, there was a time when the gold standard seem to be a prediction model for exchange rate predictions. In 1983, Meese and Rogoff argued that all the models we had could not outperform a random walk model(basically using the exchange rate in the previous period and a random shock). From what I heard, there are discussions on whether the problem has been solved, but I don't know about that so that'll be for a later post.

However, if you were afraid of a puzzle drought, no worries. You can also try to predict commodity prices. From a recent New York Fed discussion:
[H]ave economists and analysts made any progress in their ability to predict movements in commodity prices? In this post, we find there is no easy answer. (...) [T]he results warn against interpreting current forecasts of commodity prices upswings as reliable and dependable signals of future inflationary pressure.(...)No easy generalization or pattern emerges, and the results look almost random. In fact, we are unable to generate forecasts that are, on average, more accurate and robust than those based on autoregressive or random walk specifications.

Structural unemployment

I am not quite fond of the theory that there has been a large rise in structural unemployment in the US. For instance, the San Francisco Fed has a structural unemployment rate at 6.25%, only 1 point above the one before the recession, letting at least 75% of the rise due to cyclical factors. However a couple of recent datapoints are worrying:

First, Manpower's recent survey on skill shortage showed that far more firms were reporting problems in hiring:
 52% of U.S. employers are experiencing difficulty filling mission-critical positions within their organizations, up from 14 percent in 2010.
The two next points are less general. The FT had an interview with Siemens' CEO who has problems in hiring people with the right skills
Siemens(...), has around 3,200 job vacancies, and Spiegel says that filling them has been no easy task.
Finally, another case study showed something interesting too. Via Ezra Klein, a recent analysis by EMSI, a consulting company, showed a complete mismatch between the supply and demand of lawyers(admittedly, the data is 2009, so it's hardly linked to the current recession):
across the country, there were twice as many people who passed the bar in 2009 (53,508) as there were openings (26,239).

Monday, June 27, 2011

Sweden, Germany, and robustness

I mentioned in earlier posts the concept of Black Swan introduced by Nassim Taleb, which argues that we need to build system that are robust to strong and unpredictable shocks, instead of trying to prevent those shocks. Neil Irwin has an interesting article in the WaPo today on how Sweden managed to go through the crisis almost unscathed. Let me cherry-pick one of the point to talk about robustness:

Fiscal stimulus can be more effective when it is automatic.Sweden didn’t do much in terms of special, one-off efforts to spend money to combat the downturn. There was some extra infrastructure spending and a well-timed cut to income tax rates, but the most basic response to the government was to do what the nation’s social welfare system — lavish by American standards — always does: Provide income, health care and other services to people who are unemployed.
You probably heard about the Kurzarbeit program in Germany where workers reduced their work hours but keep their wages at the same level thanks to the government funding for the gap. In September 2009, the OECD was saying that the program saved 500,000 jobs(later reports seem to show some limitations to the program though) , while the economy shrank at a faster rate than the US economy in terms of GDP for instance.

In any case, the idea of automatic stabilizers is, I think, the typical example of mechanisms to provide robustness to big shocks. I was looking to translate "amortisseur", because the term reflects the robustness factor. Well, it translates as "shock absorber", so I guess I'll give up on the metaphors.

Sunday, June 26, 2011

The extreme right as a protest vote in France

The CEVIPOF report on the extreme-right in France has some nice insights.

Relative to the link between extreme left and extreme right, the report explains that the moderate right is losing a similar portion of the votes regardless of the level of abstention in the districts, while the left is losing more in districts where abstention is high. For me, this is again evidence of the focal point played by the FN as a protest vote.

Indeed, they have more: there were European elections in 2009 and local elections in 2010. The report reports an interesting report:
The FN attracted numerous abstainer (16 % of the 2009 abstainers voted FN [in 2010]), but if got electors everywhere:  15% of "souverainistes" electors(...), 6% of those who had turned to the "Front De Gauche", 4% of those who voted for the extreme left(...)

Saturday, June 25, 2011

The French political cycle. Literally

I wrote earlier that the criticism of mondialization was happening both on the far left(e.g. Montebourg, Melenchon) and on the extreme right(e.g. well there's only one party on the extreme right). It's not quite new, but the hemicycle is becoming a full cycle. Some evidence in a report about the extreme right in France by the CEVIPOF:

interrogés par l’IFOP du 16 au 17 septembre 2010, 3 % seulement des Français se situent à l’extrême droite de l’échiquier politique. Seuls 34 % des sympathisants du FN se positionnent à l’extrême droite, 28 % choisissant le « ni gauche, ni droite », 16 % la gauche, 12 % la droite et 9 % le centre
I still think that there is a high possibility that the high numbers of the National Front come from two things: first, there is a huge protest-vote pool in France right now. Second, the National Front has a brand, and can be used as a focal point. If you want to do a protest-vote, you want it to be meaningful and so protest-voters should try to coordinate on one party. The FN is probably more focal than any extreme-left party, all the more now that the charismatic Besancenot disappeared and that Melenchon is not really the person to rally like-minded people together.

Seriously, about that gay thing

I blogged about same-sex marriage and adoption in an earlier post, and I feel quite strongly about same-sex rights in general. It just doesn't make any sense to me that we still have debates on this. Most people have agreed that discrimination on race was wrong. Usually before that, most people had agreed that discrimination on gender was wrong. Now, I don't see the difference with discrimination on sexual orientation.

Obviously, the passage of a same-sex marriage law in New York was a great step. The most interesting, because as impressive as it is simple, is the change of mind of Senator Grisanti, a Republican who campaigned against same-sex marriage for his election:
I cannot deny a person, a human being, a taxpayer, a worker, the people of my district and across this state, the State of New York, and those people who make this the great state that it is the same rights that I have with my wife.
That's so simple, and that's so obvious. Anyway.

If you are interested in the issue, you probably want to watch this Ted Talk by Northwestern Professor Alice Dregen. The presentation is amazing. Basically, the bottom line is that the gender classification between male and female is a convention, not a given. You can see this with "intersex" people. People with androgen insensitivity syndrom have XY chromosomes but do not develop outside testicles by lack of testosterone receptors. Who should they marry? Should they be able to adopt? Some people with congenital adrenal hyperplasia have XX chromosomes but overproduce male hormones which create masculanized genitals. Can s/he marry his/her girlfriend?

In any case, the strong conclusion of Dregen's talk is food-for-thought
Nature does not draw the line for us, between male or female, or between male and interesex and female. We actually draw that line

Did the Fed cause the increase in world food prices?

Long and messy post, and I started with an idea that does not seem to be completely the right one. However, it was an interesting research... So here it is:

I mentioned in May a discussion following a Telegraph article arguing that the Fed's easing policy was somewhat a cause of the Arab Spring. This was related to several discussions by Joseph Stiglitz and others that the Greenspan era of low interest rates led to high oil prices. The Lex Column in the FT yesterday argued that
 the expansion of speculative capital is a manifestation of the global increase in cheap money. Food markets are likely to stay messy as long as real interest rates stay negative.

I wanted to check quickly what could be said on commodity prices.

There were two booms in commodity prices, one starting in 07 and the other starting in 09 and crept up in June 2010. Here is the FAO food price index. Interestingly, you can note the recent plateau that has been reached for the last couple of months
FAO price index, 2002-2004=100
First or all, the usual reproach to the Fed comes from the fact that a rise in food prices is seen as bad for the developing world. Food riots were testimonies to that line. The World Bank estimates that "44 million people may have fallen into poverty in low- and middle-income countries due to the rise in food prices since June 2010". Interestingly though, new research qualifies this idea:
A striking feature of the self-reported food insecurity data is that it suggests that global food insecurity went down from 2005/06 (the pre-crisis period) to 2007/08 (the food crisis period). 
That's an interesting question, but not the one I am interested here.(I guess one driver of the qualified result is that farmers' income rises if commodity prices boom, so food insecurity might fall for part of the population)
My  problem with the argument of the recent easing in US monetary policy causing the increase in commodity prices through a weakening of the dollar is that it seems to imply that the two booms were completely different. Indeed, Fed policy actually became stricter in 2005, while the first commodity boom arose in 2007. From a recent paper by Li, Li and Yu, the Fed was extremely accommodating between 02 and 05 due to the 2001 recession, but they came back to a "normal" Taylor rule starting in 2006. 
3-month Treasury yield. Red line is the actual realization. Dark Blue line is pro-active rule, that would respond more than one-to-one with inflation.  Pink one is the accommodating rule, where the response would be less than one-to-one.
And if we look at other measures of a policy easing, it is not clear that anything drastic happened before the first commodity boom, either on the expansion of the monetary base, the 10 year treasury yield or the Fed's balance sheet:
10-Year Treasury Yield, 2001-2011

Adjusted Monetary Base, 2001-2011

Fed balance sheet, 2007Q3-2008Q4
The FT came back on this today, with a column linking the rise in the Commodity Research Board index and Quantitative easing with a nice plot going from August 2010 to Jun 2011. But if you look back, here is the CRB index:
And once again, the monetary policies in 2007 and in 2010 were quite different!

So what could have driven the two booms? First, there are structural factors. For instance, increase in yields are slowing down for various cereals and have fallen short or population growth in the last 20 years
Diets have changed towards more meat, which is more resource-intensive(you need to feed your cows with cereals, e.g. corn...)
In 2000, 56% of all the calories consumed in developing countries were provided by cereals and 20% by meat, dairy and vegetable oils. By 2050, the FAO thinks, the contribution of cereals will have dropped to 46% and that of meat, dairy and fats will have risen to 29%
According to the FT, Goldman Sachs reported in 2007 that India's meat consumption rose 40% in the previous 15 years. In Foreign Affairs, Runge and Runge argue that there are 3 structural factors:

  • The previously mentioned slowing in the rate of increases in crop yields
  • A diminution of research expenditures(e.g. global agricultural aid to developing countries for research "fell by 64% between 1980 and 2003")
  • Global food supplies have begun to fall relative to demand. 

But the steady rise in demand cannot really explain two huge non-steady peaks

So what happened? There are several candidates for the recent booms. First, the production of ethanol has crept up in the past decade. World production of ethanol was multiplied by 5 in the last 10 years.Runge and Runge argue that demand for corn used for ethanol production rose from 200 millions bushels per year in 2005 to 800 million per year between 05 and 09. Steven Rattner in the NYT today provides other numbers relative to the US production of corn(and the US is the top corn exporter, and exports more than 4 times as much as the second-ranked Argentina) and its recent diversion to ethanol:
Eating up just a tenth of the corn crop as recently as 2004, ethanol was turbocharged by legislation in 2005 and 2007
One other candidate, as Joseph Stiglitz evokes, is the rise in oil prices, since this also started to speed sharply only recently. Oil is important mostly for the price of nitrogen fertilizers, even if those mostly use natural gas(yeah, I don't know much about that, but there are some interesting graphs here). And the spike fits perfectly with the rise in food prices:

 Obviously, the main problem is that the correlation is perfect, but the proof of causation is hard: basically, we're just saying that commodity prices moved together... However, I'd take this as a convincing explanation provided one can tell me why oil prices had an impact starting in 2007 and not before, and why monetary policy is to blame for the 2007 and 2008 skyrocketing rise.

Lastly, the more interesting factors, in my opinion, are weather events. First, in 2007. In Australia, a drought led to  a wheat harvest half of forecast(and comparison to forecast is what counts, rational expectations anyone?). There were huge floods in the UK and Northern Europe while an heat wave struck Southern Europe. The NYT reported on August 7h 2007 on a report by the World Meteorological Organization, the UN weather Agency
global land surface temperatures in January and April were the warmest since such data began to be recorded in 1880, at more than one degree Celsius higher than average for those months.(...)South Asia's worst monsoon flooding in recent memory has affected 30 million people in India, Bangladesh and Nepal(...)Heavy rains also hit southern China in June(...)England and Wales this year had their wettest May and June since records began in 1766(...)Germany swung from its driest April since country-wide observations started in 1901 to its wettest May on record(...)Mozambique suffered its worst floods in six years in February(...)In May, Uruguay had its worst flooding since 1959.
For the 2010 boom, the World Bank reports that the increase in food prices has been unevenly distributed, depending on weather conditions
The transmission of higher global maize prices is varied and has depended significantly on domestic harvest conditions. Countries in Sub-Saharan Africa have benefitted from excellent maize harvests, which have led to a sharp fall in prices(...)on average, maize prices were lower in 2010 in comparison to 2009 in Uganda (52%), Rwanda (37%), Kenya (33%), Malawi (30%), Ethiopia (22%), and Tanzania (19%).(...)Several Latin American countries saw the price of maize rise dramatically in the last half of 2010 as dry weather lowered yields—the largest increases were witnessed in Brazil (56%) and Argentina (40%).
Actually, the recent FAO reports do not show strong issues with weather events in the past year. This seems to be in line with some of the differences observed on the impact of speculation during the two booms. I haven't been able to find inventory data, but to check whether speculation plays a role, one needs to look at 2 things, from what I know: whether there is an inventory build-up for commodities, and whether there are discrepancies between marketed and non-marketed commodities. Paul Krugman had a great post at the beginning of the year mentioning a build-up in inventories of cotton and iron ore in China, arguing that this was a main difference with the 2007 commodity boom where there was no hint of speculation. But:
So the case for a speculative component is a lot stronger this time around. But — and this is important — the speculation is not being driven by financialization, by all those index fund investors going long. Cotton hoarding seems to be taking place at the level of individual Chinese farmers and factories, with no indication that they’re being influenced by the futures market. And iron ore hasn’t been available for futures-market speculation: the first futures markets there came into existence just a few days ago.
For at least some commodities, then, we’re seeing a real demand boom, which may be getting reinforcement from speculative hoarding, but with this speculation taking old-fashioned forms rather than involving Wall Street. 

Thursday, June 23, 2011

Incredible video

This video of members of a tribe seeing a white person for the first time is quite amazing, if it is not a fake. Worth your 15 minutes, but you might be disappointed by the music

Monday, June 20, 2011

Absorbing shocks, not preventing them

I've written a couple of times on Russia, and I am going back to it given that last week, President Medvedev gave a lot of interesting statements thanks to the St Petersburg International Economic Forum. The FT got a long interview later on.

What caught my attention was the mention of openness, stability, and the risk of a closed economy. 
Economies are like parachutes: they only work when they are open.(...)If everything starts to work on a signal from the Kremlin (...)it means the system is unsustainable and must be organized around an individual”
The full story seems to be that Medvedev is trying to decentralize the Russian political system in order to make Putin less important in the future. I find it quite important: he's not trying to win the next election against Putin, and he does not seem to try to please voters. He tries to make the political situation more stable and less reliant on a single player, by making the economy less reliant on the Kremlin. He specifically says:
This project should be realized regardless of who occupies which job in our country for the next few years
 All this was already clear when he decided to forbid top ministers to hold a position on corporate boards. He also fired Moscow's mayor. 

This can be linked to a simple idea that emerged recently, though it has probably existed for a while, and that is in my vie extremely important. Nassim Taleb, in his Black Swan book, explains that the question is not to try to prevent a rare catastrophic event from happening. Almost by definition, those events occur with small probabilities, and are quite unpredictable. What matters is to make a system robust to those shocks. The book refers mostly to the financial crisis, but Taleb recently revived the idea in an article for Foreign Affairs, to discuss the autocratic regimes in the Middle East:
Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to "Black Swans" -- that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.
Interestingly, research in political science and game theory already had the idea in mind. Greif and Laitin(2004) have an amazingly interesting paper comparing the parallel history of Venice and Genoa. While both cities thrived  at the beginning of the 12th century, their path diverged  around 1150 when Genoa became embroiled in a civil war while Venice continued its growth. The difference were the consequence of the causes of growth on both cities' robustness to an external shock. In both cities, a fall in central authority led to an organization in competing clans and families. Despite this rivalry, those clans first held together against a common external threat: Genoa was threated by Frederick Barbarossa's Italian campaigns starting in 1154, while Venice was allegedly threatened by the Byzantine empire. While the common threat was present, a difference in political system meant that Genoa increased the clan divisions while Venice made it less salient. When the threats disappeared in Genoa when Barbarossa became concerned with  the civil wars in Germany, the clan divisions became exposed. Meanwhile, Venice had created a robust system where advisory councils were created and a nominating council was electing a Doge to prevent the distribution of rents to different clans. 

The bottom line is that you can have a system that works during a long period of time, thanks to exogenous parameters(external threat, strong demand for housing, term limits for Putin, weak communication technologies for arab countries). But if those parameters are removed, you end up with a civil war, a housing crisis, an autocratic state, or a popular revolt.

This is why it is important. Medvedev might think that he has no chance to stay in power if Putin becomes candidate, but he might also think that by creating change and making Russia less dependent on the central power, his legacy might be preserved because the system will be more stable. Getting rid of Putin won't work. The kings in Morocco and Jordan are making changes in order for their regime to be robust to the change in popular sentiment. Repression won't work. You can consider other examples, like natural catastrophes. This winter in France, the government was blamed for not reacting quickly enough to a cold wave, and the next week, was criticized for taking harsh measures against the circulation of trucks because the cold wave they were expecting did not come. But it should be quite clear that we cannot predict rare events. 

Those things seem probably obvious. Insurance is here for you to be able to take risks and smooth unforeseen events. But the lack of diversification in supply chains show that it does not seem to be taken into account in quite developed areas. A Chinese trawler navigating near Japanese ships is probably happening for a reason, but the day it arrives is hardly predictable. But when 97% of your supply of rare earths come from China, you will not be able to respond quickly to a sudden export ban. Likewise, when the triple disaster hit Japan, we realized that
“lean production” – shaving inventories to the minimum and pushing parts through the system as fast as possible to cope with sudden variations in demand – have made supply chains increasingly susceptible to the kind of disruption seen in recent weeks in Japan.
The graph in the linked FT article showing the market shares of Japan in certain manufacturing component is quite amazing

This led to a change:
But to be safe, circuit board makers are starting to redesign their products so that they can more easily switch components if there is a shortage
But the change could have been done before. The FT takes the example of Acme, a make of castings for cars, and its president's wise decision:
Mr Lovejoy has established three supply chains – each built around Acme’s three factories in Chicago, Brazil and Shenzhen, China. Each is largely autonomous but capable of supplying components to other parts of the business in the event of a sudden, localised disruption.

Bottom line: diversify your supply chain. Construct safety valve in your political system. Buy insurance and throw your ipod on the ground if you like it.

Sunday, June 19, 2011

France is not gay

On this blog, I am far more vehement than in real life. There are a couple of reasons for this. First, this is a blog, and the readership is quite small. I have not a lot of reputation to protect. Second, I am not writing in my native language, which I figured out was quite liberating. I swear far more in English than in my original language for instance. Finally, I also figured out that if I wanted to go at the bottom of some reasoning, I needed to take a stance. Constantly doubting is not useful for the purpose of this blog. But all I write should not be taken as definitive positions or strongly impassioned arguments. I don't know how to do that.

This being said, there is a small number of issues where I feel passionately about, because I do not understand the arguments. In Economics, in social sciences, in politics, I think it is hard to be right. Some data will always be there to contradict you. You cannot be sure of anything, and there is usually no moral argument to make the deal: why would tax cuts be better than government spending or vice-versa? Too many variables, too many unknowns, too complex a subject.
However, I feel that some issues do not face the same problem. One of those is the issue of anything with the prefix "gay" before it. I just cannot understand that there are debates on whether we can discriminate against homosexuals or not. I call discrimination any different in rights or duties of two groups. Homosexuals are discriminated against. They do not benefit, in many countries, from the same benefits accorded to married people, for instance. This is, in my opinion, completely insane. I've always had this feeling that this was a given: any discrimination based on who you are are senseless, amoral, and despicable. That is not the case.

The Socialist party in France proposed a law in the National Assembly on June 9th  that would have made the marriage a contract "between two people from opposite sexes of from the same sexes". The proposition was rejected on June 14th. Here is your list of voters: UMP and Nouveau Centre are against and the Socialists were for. Hopefully, the next proposition will be an amendment to Article 2 of the Constitution switching the french motto to Liberté(unless you're gay), égalité(unless you're gay ahahaah), fraternité(you saw what I meant)

In the US, today's NYT has an interesting article with rumors that Barack Obama is reviewing his opposition to gay marriage. Tidbits:
In 1996, as a candidate for the State Senate in Illinois, Mr. Obama responded to a questionnaire from a gay newspaper. “I favor legalizing same-sex marriages,” Mr. Obama wrote, “and would fight efforts to prohibit such marriages.”
By the time Mr. Obama ran for the United States Senate in 2004, his position had become more nuanced.
Once in the Senate, Mr. Obama maintained the position that his opposition was based on his religious views.
I still can't wrap my head around the religious argument. Discrimination should not be overcome by your beliefs. That should be a given. In the case of Barack Obama, he probably takes as given women equality. But here is what Corinthians 11:3 is saying
But I want you to realize that the head of every man is Christ, and the head of the woman is man, and the head of Christ is God.
And Corinthians 11:8-9
For man did not come from woman, but woman from man; neither was man created for woman, but woman for man
While Timothy argues that " A woman should learn in quietness and full submission". The religious argument is just unusable. It's an easy argument to make, but it won't help you. Anyway. Let's go further.

There are two issues of importance right now: the issues of whether same-sex couples can get married, and the issue of whether they can adopt children.
I cannot understand the first one. Marriage is a choice of those two persons. How is that non-discriminatory? We are saying that same-sex people cannot benefit from the same rights as opposite-sex couples. In France, why a PACSed partner can only get the french nationality after 5 years, and the married partner can get it in 4? In the US, why does a same-sex partner does not have the same Social Security benefits when his/her partner dies? Why do same-sex couples have far less access to family health insurance?   Why are people not allowed the same choices based on their sexual preferences? Why is the state involved in this?

To try to understand the main argument, I looked at the ruling on Proposition 8 in August 2010, in California. Proposition 8 was a ballot proposition to ban same-sex marriage. The ruling was impressive in the difference in the substance of arguments of proponents and opponents of the proposition. The evidence is stocked here

I want to try to understand the argument for discrimination. Interestingly, the initial arguments for a ban on same-sex marriage in this specific case were interpreted as religious and reflecting private beliefs. The main argument, as usual, was "Denial of marriage to same-sex couples preserves
marriage". The court was not ok with that:
A state’s interest in an enactment must of course be secular in nature. The state does not have an interest in enforcing private moral or religious beliefs without an accompanying secular purpose
So the goals have been changed by the proponents of Proposition 8. One argument was that the proposition
Promotes stability in relationships between a man and a woman because they naturally (and at times unintentionally) produce children
which I find to be more convincing, had it been used in the first instance. I disagree on the fact that marriage implicitly implies reproduction, but this seems a far sounder issue than any belief-based argument. But I'll take the reproduction thing as the main argument against gay marriage. On this, I still do not see why the state should discriminate against same-sex couples. The only reason would be if the government wanted a high population growth,  but theoretically, how does this objective surpasses the freedom of choice of its citizens? And practically, since when the US and France's objectives are to have a high population growth?

On the issue of adoption, I felt that there is some small debate to be had, though I am not sure why. I feel that the main reason is that in the case of adoption, there is an externality towards a third human-being, on which couples have "administrative control" for 18 years, where this third person depends on the two others, especially in his/her first years. I still have a problem with this, because it assumes as a given that there is to prove that children bred in same-sex couples are doing as well as children in opposite-sex couples, which assumes that opposite-sex couples are the standard, and that a magical force makes adoption by opposite-sex couples ok, so that if you're doing the same as in opposite-sex couples you're fine. There's an implicit discrimination here, again, that I don't like. But let us have this debate.

Why should we have it even in practice? Nathalie Kociusko-Morizet(NKM), an impressive minister of Ecology and, in my opinion, one of the best politician we have in France, made an interesting argument on gay marriage in a recent interview in Dimanche Soir Politique. In response to a question on whether she favors gay marriage, she explained that
We have to agree on what it means to go further. For instance, I am not really in favor...I am not in favor of adoption by homosexuals. I think that's what is behind the notion of marriage. So no.

She's not the only one there. Le Monde tells us that
"Derrière le mariage se profile l'adoption, l'homoparentalité" a décrypté Michel Diefenbacher, député UMP(...)Le groupe Nouveau Centre a voté "majoritairement contre". "Nous sommes attachés à la famille et aux valeurs qui s'y attachent et on ne peut séparer la question du mariage et celle de la parentalité"

The first thing to say is that I do not know how to make sense out of this one. Those issues are quite distinct, so I don't think you can use that as an argument for voting no on gay marriage. That is a shame, since in the same interview for instance, NKM says that she actually favors gay marriage.
Now, on the substance, she should also explain why she does not favor adoption by gay couples. I have to admit that my preconception on this was also to be against. I don't actually know why, and I am quite ashamed of that. That was probably a status quo bias. But being against adoption does not even seem to rely on any fact. First, we've been through our series of sex scandals. Are heterosexual couples going way better than homosexual couples? Are the impacts on their kids less important? Now, more substantially, the negative impact of gay couples on the children they raised is an issue that has been completely debunked for a while now. As an example, the speech of 19-year-old Zach Wahls, raised by two moms, during a debate in Iowa is your primer

In practice what do we know about same-sex and opposite-sex couples, in practice? A researcher at UC Davis tells us that
the observed similarities between same-sex and different-sex couples are striking
Note that, in particular, the relationships of same-sex couples who are parents seem to be quite stable
Gay or lesbian unmarried parents are twice as likely as heterosexual unmarried parents to be in long-term relationships
Now, on adoption, the fact that a substantial number of same-sex couples have kids in their households should give us some insights. In the US
The 2000 Census revealed that 34% of cohabiting female couples had children under 18 living in the home, as did 22% of male cohabiting couples. By comparison, approximately 46% of heterosexual married couples were raising children (Bennett & Gates, 2004). 
Anderssen et al.(2004) tell us that(with the caveat that the number of studies on gay fathers is small)
Twenty-three empirical studies published between 1978 and 2000 on nonclinical children raised by lesbian others or gay fathers were reviewed.(...) Children raised by lesbian mothers or gay fathers did not systematically differ from other children on any of the outcomes
And Patterson(2006) argues that
Does parental sexual orientation have an important impact on child or adolescent development? Results of recent research provide no evidence that it does. In fact, the findings suggest that parental sexual orientation is less important than the qualities of family relationships. More important to youth than the gender of their parent’s partner is the quality of daily interaction and the strength of relationships with the parents they have. 
What variables are we talking about?

Empirical studies comparing children raised by sexual minority parents with those raised by otherwise comparable heterosexual parents have not found reliable disparities in mental health or social adjustment(...). Differences have not been found in parenting ability between lesbian mothers and heterosexual mothers (...). Studies examining gay fathers are fewer in number (...) but do not show that gay men are any less fit or able as parents than heterosexual men (...).
[E]mpirical studies have failed to find reliable differences between the children of lesbian and heterosexual mothers in their patterns of genderidentity (Perrin & Committee on Psychosocial Aspects of Child and Family Health, 2002) or gender role conformity

So, the theoretical argument is against any discrimination on adoption. The practical arguments argue that there are actually no argument to be made by the impact on the children. There is no reason to discriminate against people with different sexual orientations. And this still strikes me that this has not been settled in the US and in France in 2011.

Protectionism Ahead?

Arthur Goldhammer links to this poll from Marianne on people's opinion on protectionism in France. The title argues that 80% of the French population want a protectionism at the European borders. Spoiler: That's wrong(see below). A couple of comments:

- Protectionis seems to be on the rise, as I mentioned in yesterday's post.
- However, the poll is flawed, and the 80% headline number that Marianne is using is utterly misleading.
Here is what Marianne says:
80% des personnes interrogées dans le sondage IFOP, dont on lira les résultats ci-dessous, sont favorables à un protectionnisme aux frontières de l’Europe.

Here is what the poll has:
Si les pouvoirs publics décident d’augmenter les droits de douane, faut-il le faire... ?
Sondage: 80% des Français pour un protectionnisme européen
So, conditional on increasing tariff duties, 80% of the population say that they should be increased at the European borders, which is hardly a vindication of the protectionism that Marianne seems to prone.
More importantly, there's no way you can use the number to say that 80% of the population is for protectionism! Now, the number Marianne wants to use is not that far off. There's a question asking whether taxes should be increased against India and China, and 65% said Yes. However, the number is not useful, since Marianne decided to bias its poll in the previous question:
Aujourd’hui, les produits importés des pays tels que la Chine ou l’Inde sont peu taxés en France. Etes-vous favorable ou opposé à ce choix ? 
 Yep, this won't give you the results you want. You'd better ask something like "Are you satisfied with the level of taxes on Chinese and Indian Imports" and include an "I don't know" possibility(admittedly Marianne did this in the original question). You'll have quite a different number, I would guess.

In any case: bad headline, misleading number, biased poll, there is not a lot of information to extract there.

Saturday, June 18, 2011

On French and American politics

Note that Segolene Royal is some kind of french Grover Norquist , the leader of Americans for Tax Reform, who managed to have most Republican lawmakers sign a pledge not to raise taxes, or even not to close tax loopholes without parallel tax cuts.

Segolene Royal, in l'Express

La non-augmentation des impôts est-elle pour vous une règle?Oui. Je suis contre la fuite en avant de la fiscalité et je l'ai prouvé dans ma région. Je suis d'ailleurs la seule à ne pas avoir augmenté les impôts depuis sept années, car j'ai eu le courage de mettre un terme à certaines dépenses moins utiles pour redéployer les moyens. 
That's quite funny. (Obviously, there are huge differences between Segolene Royal and Grover Norquist, and this post should be seen as a joke. )

On the National Front. Again

Following the previous posts, I also want to underline the parallel between the Front National policies and what has been happening on the right wing of the Republican party in the US recently. For instance, Tim Pawlenty has been criticizing "fiat money". A lot of the primary contenders are participating in a bus tour co-organized by Gold Standard 2012
Several presidential candidates have agreed to ride along: Former New Mexico Governor Gary Johnson, Minnesota Congresswoman Michele Bachmann, Former Speaker Newt Gingrich, Former Senator Rick Santorum, Herman Cain and former Minnesota Governor Tim Pawlenty.

This is also the case in terms of foreign policy. One striking line in the program is:
Non-ingérence dans les affaires intérieures des autres États 
Without making any judgment on whether that is a good thing or not, there is a movement too in the US where the Republicans have become less pro-war, mostly because the debate in the US currently is about economics and the reduction of the deficit/debt combo. This has led to interesting discussions, for instance in the last republican debate, most notably on the withdrawal of troops in Afghanistan, but also on Libya

In a string of foreign policy exchanges Monday night, Republican presidential candidates seemed notably gun-shy when it came to the war in Afghanistan, the intervention in Libya and other engagements around the world.
Mitt Romney led the way on Afghanistan, saying it's "time for us to bring our troops home as soon as we possibly can."
"Only the Afghanis can win Afghanistan's independence from the Taliban," he said.
Several other candidates broke in a similar direction on the subject of Libya. Asked if the conflict there was a vital American interest, Michele Bachmann responded: "No, I don't believe it is." And asked if cost should be a factor in determining how the U.S. uses force overseas, Newt Gingrich responded: "Sure, the price tag's always a factor."
The traditional fight against the mosques is also present on both sides of the Atlantic. From the FN program:
Fermeture des mosquées sous la coupe d’obédiences intégristes prônant ouvertement le terrorisme et l’islamisme (mouvement salafiste et Tabligh).

This reminded me of the recent controversy that rose when Rand Paul, a self proclaimed libertarian, argued that
if someone is attending speeches from someone who is promoting the violent overthrow of our government, that’s really an offense that we should be going after — they should be deported or put in prison.
And you also saw a  similar thing on the debate on the so-called WTC mosque(e.g. here), when the Imam at the head of the project was criticized for not condemning Hamas in an interview. Is not condemning Hamas similar to "overtly encouraging terrorism and islamism"?

On socio-medical issues, two elements are striking:
The position on stem-cell research:
Une loi interdisant la recherche médicale et la thérapie génique sur l’embryon.
And the position on abortion
l’inscription dans les textes, qui fondent son existence et son développement, du caractère sacré de la vie et l’affirmation du droit de la personne à être protégée par la loi de sa conception à sa mort naturelle. 

The former is not a huge topic in today's American debate, but the latter has been trending quite a lot since the Republicans swept a lot of governorship in November 2010
Ever since Republicans took control of half the country’s statehouses this year, the anti-abortion movement has won one victory after another. At least 64 new anti-abortion laws have passed, with more than 30 of them in April alone.   
It seems that  in Montana, Oklahoma, Alabama, North Dakota and Virginia, state lawmakers are trying to redefine personhood in the state constitutions, which would prevent not only abortions, but probably contraception methods.

All these are all the more interesting that there are some areas where the National Front and the Republican pary are worlds apart. For instance, one leading proposition of Marine Le Pen is to nationalize a lot of public services and sees a strong and central government as an important platform of its economic policy:

Le FN promeut par ailleurs des services publics dignes de ce nom, portés par un Etat fort, stratège, protecteur et solidaire
Energy policy is also completely different. In particular, Marine Le Pen seems to be willing to fight the "lobby petrolier"

  • Imposer la liberté de recherche et de commercialisation sur les carburants de substitution face au lobby pétrolier.
  • Mettre en place un plan de réduction de la consommation d’hydrocarbures avec, à terme, pour objectif la substitution, à hauteur de 10 %, des importations de pétrole par les carburants verts.
  • Créer des aides à la recherche dans les énergies alternatives au pétrole : motorisation hybride, pile à combustible, utilisation du gaz et des biocarburants.

What is the bottom line? I feel that the National Front has a more consistent position than the Republican party. Basically, the National Front wants a strong state that takes a lot of decisions for its constituents, on social and economic issues. The Republican party advocates for a small government, and regulations reduced to their minimum, while advocating for some huge state interventions in social matters.

The National Front's economic policies

I had some fun doing the last post, and it got me through some documents of the Front National's program for the presidential election. The entire program is here, and I have to say, the site looks nice.

Now, the last post was quite long, and there were some things I did not mention.

First, on other policies that are not related to mondialization or protectionism, the justice part is quite striking if you think that France prides itself in being the source of human rights:

  • Réhabiliter la notion de peine prompte et incompressible
  • Rétablir la peine de mort pour les crimes les plus graves
  • abaissement de la majorité pénale, renforcement de la justice des mineurs
  • Expulser les ressortissants étrangers condamnés qui purgeront leur peine dans leur pays d’origine. 

Anyway. I want to go back to the economic program and argue against several things that are said in the FN program

Apparently, Germany is using competitive deflation, i.e. maintaining low wages artificially, and that is bad for France. Germany is doing this because they know we cannot devalue because of the Euro.  That is obviously clear from the fact that wages have grown at the same rate in the past 4 years. And if you look in the past, the numbers are actually against Germany, see the study over 1996-2000 here, table 1.


L’euro ne nous a pas protégés non plus dans la crise. Au contraire : récession ici plus forte et rapide qu’ailleurs (2009 : –4% de récession contre –2,6% aux Etats-Unis). La croissance repart dès 2010 et fortement au Royaume-Uni, pas ici.

That is not clear on unemployment for instance. Given the graph below, from NPR, who did worse in, say, jobs performance?

And as for the comparison with the United Kingdom, well, you don't really want to be there.
Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s. 

As for inflation: this is France
This is Great Britain
Hint: look at the right scale. Note that in another paragraph, we are told that France will not do any austerity program. So where's the comparison with Great Britain? Should we do like them or not? I am lost. Oh, on Great Britain, one awesome sentence:

le Royaume-Uni a dévalué sa monnaie de 20%. Y-a-t-il une hausse de 20% des prix dans ce pays ?

Yeah! Sounds logical, doesn't it? Well, there's no reason at all for the prices to actually move is the UK was in autarky. Now, the UK is not completely in autarky. I don't know where this 20% comes from, but then, if that is true, you can't use it as an argument that prices have not increased in the UK, given the graphs above...


Retrouver la liberté monétaire nous permettra d’utiliser l’arme monétaire face à la crise, comme 95% des pays du monde le font.

Because interest rates at 1.25% are too high for France? What would be the policy of the French Central bank? But monetary policy is a magic wand, because if France exists the Euro and devalues, all other things will be equal:

l’utilisation de l’arme monétaire nous permettra de ré-oxygéner une économie aujourd’hui asphyxiée par l’euro : relance des exportations, de l’investissement, choc de confi ance, relance de la croissance, de l’emploi et donc baisse des défi cits et de la dette.

Apparently, the government's economic policy has reduced France's market share in the world from 5% to 3.5%. This is not due at all to the catch-up growth of emerging markets. Say, the fact that China surpassed Germany as the world's lead exporter in 2010?

The National Front wants a return to the Gold Standard. I gave you a couple of links in the last post. I forgot tu put this graph on:

Before returning to the gold standard, of course, we must exit the Euro. And this will be easy, since the exit of the European Monetary System in the early nineties went smoothly! Thank you Natixis, for an interesting report from last year:

For the “strong” countries (Germany, etc.), the cost of an appreciation of the exchange rate today would be even more dramatic than in 1992; for the weak countries (Spain, Greece, etc.), the cost combined with the rise in interest rates would outweigh the advantage of a devaluation.

For instance, there was large freedom for a fall in interest rate at the time, compared to today:

Note that after the return to the gold standard, good luck with decreasing the interest rate in times of depression.

Baaaah. That's a bad set of pdf that you have there, National Front

The return of protectionism in France

From left and right, politicians in France are positioning for the presidential election, and one recurring theme recently has been the return to some protectionism, arguing that France would be far better with huge import taxes and preference for French products. Arnaud Montebourg and Marine Le Pen, who are basing their policies on some of the same economists(Jacques Sapir, see below), are some of the figureheads. So let us look at some stuff to see where French politics is going.

Arnaud Montebourg published a book called, where he says that
Le monde a fait fausse route, la mondialisation est devenue sa déroute
BOOM! Let's be protectionist, but in a poetic way. That's the French way. In a recent show on France Culture, he mentioned that the 30 Glorieuses happened in an "absolute protectionism". This struck me as incorrect, but I have no source for now, so I can't say anything.

His favorite economist seems to be Jacques Sapir. This economist advocates, for instance, for the purchase by Air France of Airbus planes only. The argument is that Boeing is favored in the US, and this utterly unfairly

L'affaire Air-France KLM est-elle le prélude à un retour du protectionnisme ?

Les gouvernants savent qu'il faudra revenir à des formes de protectionnisme, de patriotisme économique. En même temps, ils ont les mains liées par certains accords relatifs au commerce mondial. Or, ceux-ci ne sont pas symétriques. Dans l'aéronautique par exemple, la notion de libre concurrence cache mal les subventions régulières, faites aux Etats-Unis pour des gros contrats. Sur celui des avions ravitailleurs, le Buy American Act a ainsi été appliqué. Bien sûr, cela n'a pas été dit formellement. Mais à la fin, le groupe Airbus a renoncé à contester encore une fois ces contrats parce qu'il savait que le résultat serait toujours le même. En réalité, les Etats-Unis n'ont jamais appliqué la "two way street" : nous achetons du matériel américain mais vous allez acheter du matériel européen.
Yeah, that's not exactly what happened, and it is REALLY hard to defend Airbus more than Boeing in this case. The WTO ruled that Airbus benefited from huge export subsidies:
Overall, the panel concluded that the United States had established that the effect of the specific subsidies found was (i) displacement of imports of US LCA into the European market; (ii) displacement of exports of US LCA from the markets of Australia, Brazil, China, Chinese Taipei, Korea, Mexico, and Singapore; (iii) likely  displacement of exports of US LCA from the market of India; and (iv) significant lost sales in the same market, and that these effects constituted serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement.  However, the panel concluded that the United States had not established that the effect of the specific subsidies found was (i) significant price undercutting; (ii) significant price suppression; and (iii) significant price depression.  In addition, the panel concluded that the United States had not established that, through the use of the subsidies, the European Communities and certain EC member States cause or threaten to cause injury to the US domestic industry.

Not that the WTO was partial in its findings:
A separate 850-page ruling by the W.T.O. in April found that Boeing had received at least $5.3 billion in improper United States government subsidies to develop the 787 and other jet models, giving it an unfair advantage over Airbus.

And there are solutions to defend against the evil mondialization if competition is unfair, within the WTO framework:
The W.T.O. defines two broad categories of subsidies: those that are “prohibited” and those that are “actionable” — that is, subject to legal challenge or to countervailing measures like punitive tariffs. Prohibited subsidies are those that are specifically designed to promote exports or to encourage production using domestically made components. 

Now, on the question of whether the Buy American Act was actually used, this is not true, or at least it demands far more than a quick quote. If your argument is based on this, you might want to provide facts. Indeed:
William J. Lynn III, the deputy defense secretary, said Boeing was “the clear winner” under a formula that considered the bid prices, how well each of the planes met war-fighting needs and what it would cost to operate them over 40 years.
After weighing all the factors, the Pentagon determined that Boeing’s bid was more than 1 percent below that of its rival, the European Aeronautic Defense and Space Company, Mr. Lynn said. If the bids had been within 1 percent, the Air Force would have considered 92 additional requirements for the plane as a tiebreaker, and some of those were widely thought to favor the larger EADS plane. 

The bottom line is that if Arnaud Montebourg's economic program is based on what Jacques Sapir says, I will look twice to be sure it's credible.  I might make a post focused on mondialization in general later.

Now, let us turn to Marine Le Pen and the Front National's program. First, this article on Rue89 was a really good summary of why the FN program is, well, bad, and probably completely unconstitutional. Pick one, say, on immigration:

  • "Supprimer les « pompes aspirantes » en réservant les aides sociales diverses et les allocations familiales aux seuls Français et en réinstaurant, dans le cadre de nouvelles dispositions législatives, la préférence nationale pour les prestations sociales". This is probably because foreigners are a drag on the economy,  because they contribute positively  to the economy and reduces the deficits on social spending, according to the Drees
  • "Rétablir nos frontières en sortant de l’espace Schengen."

On foreign policy(where it appears that our policies have been "aligned with the US" since 1993):

  • "Sortir de l'OTAN", because as we've seen in Libya, France can do it alone. Actually, this is unfair, since the FN wants to have a non-inference policy, so that makes it consistent. 
  • Retrait de notre participation aux juridictions pénales internationales qui entretiennent les plaies des conflits passés et comportent une part importante d’arbitraire.

And on economic policy, where Jacques Sapir makes an appearance:

  • Exiting the Euro(the document is quite awesome. Apparently, the new Franc would be worth... 1 euro. Because, yes, of course, the franc will have the same value as the Euro. Wow.). 
  • This includes a "competitive devaluation as the USA and China are doing today". And go back to the gold standard. Well, something better: the "polymetal" standard (gold, silver, platinum). On this, a bit more details: the gold standard has done wonders for France before WWII, as all economic historians know(see graph here p28). Eichengreen and Irwin argued that France was part of the reason the Depression lasted so long, because countries remaining on the gold standard took protectionist policies to defend the value of their currency. Liaquat Ahmed, in the critically acclaimed Lords of Finance, describes the asymmetry caused by French protectionist policies Doug Irwin has better: 
France caused the Great Depression France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation.  This “gold hoarding” created an artificial shortage of reserves and put other countries under enormous deflationary pressure

  •  The bottom line is that the gold standard is really bad: the value of your currency depends on random discoveries, in a recession, you typically need to raise rates, etc.... But you know, it's only been shown 70 years ago.
  • Apart from exiting the Euro, the other economic measure(yes, there are only 2, apparently) is to renationalize everything (note also the recent interview of Segolene Royal to l'Express, where she mentions that had she been president "Yoplait would never have been sold to the american financiers", aka General Mills, because yogurt is probably a strategic industry and a public service)

(The others are not relevant to this post, but have fun with Justice(or what it thinks "Justice" means))

The bottom line: I am not confident that the debate is going to be good in the next year. Also, Jacques Sapir.