The GDP horse race

 

 

A Facebook poster writes: “Our GDP growth for the 3rd Qtr was 33.1 percent. We had the best economy ever until COVID and it is recovering well….Thank you Pres. Trump!”

 

At first glance, an annualized growth rate of 33% looks impressive.  It’s ten times the long-run growth rate.  Good news for Central Asian exporters.

 

But most of this growth is catch-up.  The economy tanked by 31% in the second quarter, thanks to the lockdowns occasioned by the pandemic. In the third quarter, as the pandemic slowed down, cities and states reopened their economies.  That’s why gross domestic product shot up.  (GDP is the market value of what the US produces. It’s the usual measure of the size of the economy.) The 33% growth rate is not a typical result for the Trump administration, despite the poster’s implications.

 

Another problem with the 33% figure is that it’s short-run.  It just measures how much growth occurred since the prior quarter.  As we’ve just seen, such growth may owe mainly to temporary events.  (At least, I hope that the coronavirus crisis is temporary.) 

 

To judge the success of Donald Trump’s administration, we’d like to gauge lasting changes in the economy.  We can do this by calculating the average annual rate of GDP growth over Trump’s four-year term and compare it to the performance of past presidents. 

 

Unfortunately, we have data only for the first three years of Trump’s term.  So, for comparison, I calculated the average annual rate of growth in GDP (adjusting for price changes) for the first three years of the first term of Presidents for the past 30 years.  This long-run growth rate was 3.2% for Bill Clinton, 1.9% for George W. Bush, .6% for Barack Obama, and 2.5% for Trump. 

 

The economy grew fastest under Clinton; but Trump did not do badly, if we exclude the pandemic.  Economic growth was weakest under Obama, but of course he inherited the Great Recession when he took office in 2009.

 

My calculations use data from the Bureau of Economic Analysis in the Department of Commerce of the US government.  The BEA is a treasure trove of free statistics.  You can check it out at bea.gov .

 

Of course, no one—not even the President—controls the US economy, so the newscast references to “the Trump economy” are misleading.  Neither is the size of GDP a precise indicator of human welfare.  But all that is fodder for another post. –Leon Taylor tayloralmaty@gmail.com

Cascades and ambush

 

In the United States, truth has fallen out of fashion.  A December survey by National Public Radio asked 1,115 Americans if they thought that "a group of Satan-worshipping elites who run a child sex ring are trying to control our politics and media," as claimed by the alleged government insider known as Q.  About one in six respondents agreed with Q, and nearly two in five said they weren’t sure that Q was incorrect.  Even with a margin of error of 3.3%, these results astound: Less than half of the respondents said Q was dead wrong, although Q's theory is obviously ludicrous.  QAnon believers include two Congressmen. And adherents were conspicuous in the mob that stormed the Capitol on January 6, when the Senate was certifying the Presidential victory of Joe Biden. What gives?

QAnon may owe its success to an "information cascade," a series of decisions that depend on your observations of what other people do rather than on the facts.  Here’s a simple example.  Dmitriy, a high school graduate, mulls whether to go to KIMEP University.  He reads the prospectus and (correctly) decides to go.  Dmitriy’s friend Sonya doesn't read the prospectus and (wrongly) decides not to attend.  Next is Vladimir, who decides what to do based on what his friends do. Dmitriy attends but Sonya doesn't, so Vladimir concludes that the chances that going to KIMEP would be the right move are 50-50.  He flips a coin. It comes up tails, so he decides not to go. Anastassiya sees that only one of her friends (Dmitriy) went to KIMEP and that the other two (Sonya and Vladimir) did not. So she figures that the chances that going to KIMEP would pay off are just one in three.  She decides not to go.  And any other friend observing this growing sequence and basing her decision on what friends do, will decide not to go...although by hypothesis the right decision for everyone is to enroll.  What's curious is that the outcome depended on a random event.  Had Vladimir's coin come up heads, he and his successors would have gone to KIMEP. 

In the same way, Internet users who trust their friends more than they do scholars and journalists may subscribe to the QAnon conspiracy at an ever-accelerating rate although it is a sheer skazka (fairy tale).  The problem is that the social media enable cascades—not only in the US but in Central Asia. In 2014, social media messages falsely claiming that three banks in Kazakhstan were nearly bankrupt led quickly to bank runs withdrawing hundreds of millions of dollars.  –Leon Taylor tayloralmaty@gmail.com

 

Good reading

Anderson, Lisa R., and Charles A. Holt. 1996. "Classroom games: information cascades." Journal of Economic Perspectives, 10(4): 187-193.  DOI: 10.1257/jep.10.4.187

Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. 1998. "Learning from the behavior of others: conformity, fads, and informational cascades." Journal of Economic Perspectives, 12(3): 151-170.  DOI: 10.1257/jep.12.3.151

MacKay, Charles.  1841.  Extraordinary popular delusions and the madness of crowds.  London: Richard Bentley.

Rose, Joel.  2020. “Even if it’s ‘bonkers,’ poll finds many believe QAnon and other conspiracy theories.” Retrieved from https://www.npr.org/2020/12/30/951095644/even-if-its-bonkers-poll-finds-many-believe-qanon-and-other-conspiracy-theories).

Paper chase

Sometimes it might help if journalists wrote between the lines.  A media columnist for The Washington Post reports:

“Fifty-five news outlets have closed for good [in the US] since the pandemic began—and that’s on top of more than 2,000 newspapers that have folded since 2004.”

Margaret Sullivan has buried her lede.  Her figures suggest that on average more than 125 newspapers have closed per year over the past 16 years.  But this year, the rate of closing has roughly halved, despite the economic slowdown.  Is that because the pandemic has raised the demand for news?  Or is it because only profitable newspapers have survived this long?  Even in Kazakhstan, inquiring minds want to know.  --Leon Taylor tayloralmaty@gmail.com

Reference

Margaret Sullivan. 2020.  Bright spots in a touch year for local news.  The Washington Post, December 21, 2020.

   

Belyanin on color revolutions, part 2

 

http://notes-from-the-golden-horde.blogspot.com/2020/08/the-effect-of-color-revolutions-on.html

Why winners curse

 

 

In Karaganda oblast, the government has begun to distribute land plots in the cities by auction.  But the entrepreneurs want the akimat to go back to doling out the land via individual applications, because they find the auctions expensive. 

There’s a reason for that.  In an auction for land plots, each bidder guesses at what the plot is really worth.  If the bidders are fairly well-informed, the average bidder will likely be more or less right. But he won’t win the land:  The highest bidder will.  Since the winner has overestimated the value of the land, he will eventually be disappointed.  Economists call this “winner’s curse.”

The seller, of course, will make out like a bandit, which is why governments like to auction assets off.  –Leon Taylor tayloralmaty@gmail.com

 

Reference

Azamat Danenbaev.  Akimat dolzhen pryznat’ oshybky y ustranyt’ yx.  (The local government should recognize mistakes and remove them.)  Kursiv’ September 12, 2019.

 

Good reading

Avinash Dixit and Barry Nalebuff.  Thinking strategically.  Norton.  1993.

Will a vaccine really stop the coronavirus?

 Around the world, throughout this harrowing year, we’ve chanted a mantra: “This will all end once we have the vaccine.”  Well, it might not end right away. The infection rate depends not only on medical technology but also on behavior.  The announcement of an effective vaccine may cause people to believe that the virus is no longer a threat.  They will take off their masks and put on their party hats.  Such risky behavior may raise the infection rate again. For a while, we may be worse off with the vaccine than we were without it.

While we’re at it, let’s note two more ways that behavior affects the covid-19 disease:

Misinformation.  This summer, people interpreted the government’s rollback of lockdowns as meaning that the virus was no longer a problem, so they abandoned masks and social distancing. That might explain the abrupt surge in cases in the United States (and Kazakhstan?). But this problem might be temporary, because people benefit from correcting their mistakes.  And political leaders gain from providing the facts: In the US, the Democratic contender for President, Joseph Biden, is capitalizing on President Donald Trump’s deliberate understatement of the pandemic’s danger early this year.

External cost.  People are not penalized for transmitting the virus anonymously, so they will take too many risks. They will party without worrying that they might pass on the virus to somebody else, because it is not likely that the transmission will ever be traced back to them.  This is a permanent problem, because people don't have an incentive to resolve it. The government could address it by fining the maskless, but that's a political nonstarter.  However, although the problem won’t vanish tomorrow, it may not always be large.  People do consider how their actions affect their family and friends; the external costs are larger for crowded events, like block parties and (darn!) baseball games.

Let’s look on the bright side: Most epidemics do end after a vaccine appears.  But this time, it may take time.  – Leon Taylor, tayloralmaty@gmail.com

Why Uzbekistan doesn’t go against the grain

 

 

As a regional economy grows, complex production often migrates from the more developed areas of the region to less developed ones. Exhibit A: Central Asian agriculture.  For years, southern Kazakhstan exported flour to Uzbekistan, Tajikistan and especially Afghanistan; Kazakhstan has had hundreds of flour mills.  Now Uzbekistan imports less flour than before from Kazakhstan – and more wheat, which it mills into flour in Shimkent and sells to Afghanistan, elbowing Kazakhstan out of the global flour market.  In fact, by 2019, Uzbekistan had become the biggest importer of Kazakhstani wheat.

 

One reason that countries buy less flour from Kazakhstan these days is that they have imposed barriers on flour imports in order to build up their own mills. In Shimkent, for example, 70% of the flour mills were idle in 2019; so the Uzbek government sought ways to put them to work.  It taxed flour imports but not grain imports; Kazakhstani grain shipping through Uzbekistan was also taxed. True, the high cost of rail transport from Kazakhstan has also cut Kazakhstani exports.  In any case, flour mills in Kazakhstan were unprofitable last year, although planned quotas on wheat exports this year may lower wheat prices for mills in the country.    

 

Wheat exports from Kazakhstan have increased over the long term despite occasional bad weather.  For instance, recent drought withered the harvest in Kostanay Oblast’, pushing up wheat prices in 2019.  Nevertheless, wheat exports from Kazakhstan to Uzbekistan more than doubled from 2014 to 2018, to 2.3 million tons, reports a Kazakhstani business weekly, Kursiv. Over the same period, Kazakhstani exports of flour to Uzbekistan dropped by more than a fourth, to 658 thousand tons. This year Nur-Sultan limited grain and wheat exports to ensure cheap bread for Kazakhstanis during lockdowns.

 

Kazakhstan can offset part of the lost Afghan market by selling to China, but it will face a severe quota. Might the next step be retaliatory tariffs in Kazakhstan on imports from Uzbekistan?

--Leon Taylor tayloralmaty@gmail.com

 

 

Good reading

Laura Kopzhasarova.  Importery nastupaiut na pyatki.  Kursyv. September 12, 2019.  The main source for this post.

 

References

Yevgeny Gan. Mneniy. Kursyv. September 12, 2019. 

Interfax Kazakhstan. President of Kazakhstan’s Union of Grain Milling Companies Yevgeny Gan:

We need to find a new transport route for grain exports to Afghanistan.  September 2018.

Almaz Kumenov.  Kazakhstan introduces wheat, flour export quotas.  Eurasianet.org. March 3, 2020.

Miller Magazine.  Grain and flour market in Kazakhstan.  Undated.