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Archive for October, 2010

According to a recent study, the United States has more public sector corruption than do many other developed economies. More precisely, Transparency International reports that corruption perceptions are higher for the United States than for 21 other countries. Those nations perceived to be less-corrupt are:

  • Australia, Canada, Ireland, New Zealand, and the United Kingdom;
  • The Nordics: Denmark, Finland, Iceland, Norway, and Sweden;
  • Austria, Germany, Luxembourg, Netherlands, and Switzerland;
  • Hong Kong, Japan, and Singapore;
  • Barbados and Chile; and
  • Qatar.

A more positive spin would be that the United States is viewed as less corrupt than 155 other nations in the study. But many of those other nations are much poorer. For benchmarking purposes, it makes sense to compare the United States to other developed economies. The following chart thus shows the Transparency International measure (in which higher numbers represent less corruption) for all the members of the Organization for Economic Cooperation and Development:

The United States ties with Belgium as the 18th least corrupt member of the OECD.

These findings gibe with what several friends in the international investment community have told me. In their view the United States has slipped in its commitment to the rule of law. At the margin, that makes places like New Zealand, Australia, and the Nordics more attractive places to invest.

About the Transparency International numbers: TI creates its Corruption Perceptions Index by aggregating 13 corruption surveys performed by other organizations (e.g., the World Bank and the Economist Intelligence Unit). As The Economist notes, the TI methodology raises some questions. But it’s still an interesting snapshot of corruption perceptions in the world.

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BEA released its first estimates for third-quarter GDP yesterday. Headline growth was a disappointing, if not surprising, 2.0%.

Here’s my usual graph of how various components of the economy contributed to overall growth:

Housing fell back into the red, while non-residential structures eked out a small gain. Consumers continued to spend at a moderate pace (consumer spending grew at a 2.6% rate, thus adding 1.8 percentage points to growth). But the big stories were the continued boost from inventories, and the continued drag (in GDP-accounting terms) from imports.

The pessimistic take on inventories (see, for example, this tweet from Nouriel Roubini) is that the third quarter build up was unintentional, and thus is bearish for fourth quarter growth. The optimistic take, I suppose, is that maybe businesses see stronger demand ahead. But that feels rather, er, speculative.

For my usual set of caveats about the import figures (and, therefore, all of these figures), see my last post on the GDP numbers.

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Economists often argue that market competition can limit some of the economic inequities from discrimination (this idea goes back at least to Gary Becker’s 1957 treatise The Economics of Discrimination). If some businesses refuse to hire well-qualified women or minorities, for example, that creates an opportunity for other businesses to hire those workers at lower cost. Non-discriminatory companies could then gain a competitive advantage over their discriminating rivals. Over time, the success of the non-discriminators could bid up wages to the disadvantaged group of workers.

The practical impact of such competition depends, of course, on the willingness of some employers to be non-discriminatory in their hiring practices. The week’s Economist reports an interesting example of how foreign multinationals are playing that role in South Korea:

Working women in South Korea earn 63% of what men do. Not all of this is the result of discrimination, but some must be. South Korean women face social pressure to quit when they have children, making it hard to stay on the career fast track. Many large companies have no women at all in senior jobs.

This creates an obvious opportunity. If female talent is undervalued, it should be plentiful and relatively cheap. Firms that hire more women should reap a competitive advantage. And indeed, there is evidence that one type of employer is doing just that.

Jordan Siegel of Harvard Business School [and Lynn Pyun of MIT and B.Y. Cheon of Hanshin University report] that foreign multinationals are recruiting large numbers of educated Korean women. In South Korea, lifting the proportion of a firm’s managers who are female by ten percentage points raises its return on assets by one percentage point, Mr Siegel estimates.

You can find the original working paper here. The money quote from the abstract:

Using two unique data sets from South Korea, we show that in the 2000s multinationals have derived significant advantage in the form of improved profitability by aggressively hiring an excluded group, women, in the local managerial labor market.

Perhaps needless to say, the fact that these firms are earning higher profits indicates that there’s still plenty of room to bid up the salaries of managerial women in South Korea.

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Tim Kane at the Kauffman Foundation is out with his latest survey of economics bloggers (full disclosure: I am both an adviser to the survey and a participant in it).

My favorite feature this quarter is a word cloud of adjectives (and some adverbs) that the respondents offered to an open-ended question about the U.S. economy:

Uncertain, sluggish, weak, and fragile sound about right to me, but I think growing should be a bit bigger. After all, the problem we have is slow, as-yet-unimpressive growth. (I forget what I answered, but I bet uncertain and fragile were on the list.)

Among the more amusing responses from other bloggers: taupe and flirtatious.

You can find the full survey results here.

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Happy World Statistics Day

Collecting and disseminating useful data about the economy, government finances, demographics, health, the environment, etc. can be a difficult business. Survey methodologies and estimation techniques are inevitably open to legitimate criticism and also attract a good deal of not-so-legitimate criticism (for examples of both, see the debate over the “birth death model” in estimating payroll employment). But all in all, I think our official statisticians perform a valuable service.

So in honor of the first World Statistics Day, let me quote from UN Secretary General Ban Ki-Moon:

I commend the dedication that many statistical experts bring to their reports and publications.  They carry out an essential public service — one that promotes peace and democracy by giving citizens reliable and impartial public information about their communities.  Their core values — service, integrity and professionalism — deserve full support in all nations.

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Housing starts and permits usually dominate the headlines on residential construction data day. In September, for example, single-family starts increased a healthy 4.4% (total starts increased 0.3%), and single-family permits rose 0.5% (but total permits declined 5.6%).

Those are certainly important measures, but I also like to look at a third measure of residential activity in the report: the number of single-family houses under construction.

That measure suggests that the housing market has continued to deteriorate in recent months:

The number of single-family homes under construction at the end of September fell to just 269,000, down about 14% from a year ago. I had once hoped that the housing market was putting in a bottom, with homes under construction plateauing at about 300,000. But we’ve now witnessed five straight months of declines.

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The rescue of the Chilean miners was a heartwarming miracle. The miners have both my sympathy and respect – I can’t even begin to imagine what those first 17 days were like, trapped far underground without any hint that rescue was even possible. I wish them the best as they try to return to normal life.

I also thank them for providing an excellent case study for my microeconomics class. According to media reports, the 33 miners agreed to a pact of silence in which none will speak about the details of the first 17 days of their ordeal. In addition, they struck an agreement to coordinate the telling of their story and to share equally the resulting profits.

In short, the Chilean miners formed a cartel. A justified and moral cartel to be sure — they deserve whatever profits they can jointly extract from their ordeal — but a cartel nonetheless.

All of which raises a natural question: Can such a cartel be successful? Or will it succumb to the perennial challenge that confronts all cartels: how to enforce a joint agreement in the face of individual temptations? A unified silence may well maximize the financial value of the story and defend the privacy of those moments that some miners do not want to share with the world. But the media circus will tempt some miners to cheat on that agreement either for monetary gain or to ensure that their individual perspective gets reported.

I wouldn’t want to downplay the solidarity among these men, but over at the New York Daily News, Jaime Urabarri reports that there are already concerns that the agreement may break down. In “Chilean miners may break pact of silence, for the right price,” he writes:

Some of the rescued Chilean miners are apparently willing to tell their story for the right price, despite a promise made between all 33 of them that none would reveal details about the worst of their 69-day ordeal buried underground.

During a special Sunday mass held in honor of last week’s dramatic rescue, miner Jorge Galleguillos said that the pact was non-binding and hinted that he’s entertaining offers to spill the beans on exactly what happened.

“I have to think about myself,” he argued, without going into specifics about what information he’d be willing to share.

There are also rumors that some of the miners have already reached deals to tell their story. El Mercurio reported last week that Victor Segovia agreed to sell the contents of the journal he kept during his time in the mine for $50,000 to German newspaper Bild.

My prediction? Regardless of how this turns out, the Chilean miners will show up in the next edition of many economics textbooks.

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