July 13, 2003

From the Economist This Week

A whole bunch of interesting things from the Economist this week:

  • http://www.economist.com/finance/displayStory.cfm?story_id=1908016: ...You might suppose all this to be more than enough to test the faith of believers in the wisdom of the single currency.... Oddly, that faith is burning as brightly as ever. Despite the euro area's weak performance, enthusiasts are still expecting higher growth in the long run, because they think trade within the single-currency area will explode.... Andrew Rose.... Mr Rose's innovation was to add membership of a currency union as a possible influence on trade.... Currency unions should boost internal trade because companies and individuals no longer incur costs for changing money and because uncertainty about exchange rates within the union is eliminated. That said, the costs of currency transactions are small, and previous research has established that exchange-rate volatility reduces trade only marginally. A recent review of the evidence by the British Treasury concluded that joining the single currency would eventually boost Britain's trade with the euro area by between 5% and 50%, without diverting trade from non-euro countries...

  • http://www.economist.com/World/europe/displayStory.cfm?story_id=1908370: ...Making doctors cross may be no bad thing in the producer-dominated NHS. But Dr Bogle has a point. Targets are a crude managerial tool that can lead to perverse outcomes. Too many of them and they provide no clear guidance about priorities. Too few of them and the priorities they highlight overshadow other worthy goals. Too great a stress on them and meeting the targets becomes the overriding goal. Managers are then tempted to "game" the system, improving the figures but not the underlying performance. Mr Neyroud says that he has to grapple with as many as 200 targets. Not only are there too many of them; some are quite unrealistic. He has chosen to set a 5% goal to cut domestic burglary this year in the Thames Valley region because the 11.5% reduction needed to meet the national policing plan is not feasible. He says: "There should be fewer targets and they should be more tightly focused on what can reasonably be delivered."...

  • http://www.economist.com/finance/displayStory.cfm?story_id=1915263: In the 1990s, says the report, income per head fell in no fewer than 54 developing countries, even though these years were celebrated as times of reform and hope--and, in richer parts of the world, prosperity. The Human Development Index--a statistic summarising health, longevity, education and standards of living--fell in 21 countries during the decade, mainly as a result of the effect of AIDS on life expectancy. In the 1980s, the index fell in only four countries. [Note, however, that counting by countries is very deceptive: India and China are 40% of the human race. When India and China do well (as they did in the 1990s), world development does well.]

  • http://www.economist.com/World/na/displayStory.cfm?story_id=1914632: California has stopped building enough houses. The rule of thumb is that you need one new house for every 1.5 new jobs.... Over the past decade, California has drawn in 11m new immigrants, but built only 1.3m new houses.... Predictably, strong demand and weak supply have pushed prices to record levels.... In southern California, the poor are worried about finding anywhere to live. In east Los Angeles, a Mexican-dominated part of the city, there is an average of 2.5 households in each housing unit.... Why haven't more houses been built.... Part of the answer is that there are natural barriers to growth. In southern California, houses are going up 50 miles from where your job is, so that you have to commute four or five hours a day. The 100-mile city can go no further. This is "sprawl to the wall." [Moreover, people are leery of building up in Los Angeles--earthquake-proofing gets expensive as buildings grow taller.]... [T]he constraint on supply also has a political dimension.... Proposition 13, which halved property taxes and constrained their growth... perverse effects on land use.... NIMBYism (not in my back yard), which also found expression in California's initiative process. Between 1986 and 2000, 671 local initiatives concerning growth were put to the vote. Around 60% produced victories for the slow-growth lobby.

  • http://www.economist.com/business/displayStory.cfm?story_id=1914483: OF ALL the good ideas put to bad uses in corporate America, share options are among the very worst. Although in theory compensation tied to a future increase in corporate share value is a sound idea, an award of options is the sole form of compensation that under American accounting standards does not have to be deducted from profits. Thus for many firms it became a way to hide an expense so that, superficially at least, it appeared to come without cost. For over a decade a huge battle has raged around reversing this state of affairs, primarily pitting technology firms against regulators. On July 8th, Microsoft, the biggest tech firm of all, announced that it would forgo share options in the future...

Posted by DeLong at July 13, 2003 08:08 PM | TrackBack


"...the British Treasury concluded that joining the single currency would eventually boost Britain's trade with the euro area by between 5% and 50%..."

Well, that sure narrows things down!

Posted by: Jim Glass on July 13, 2003 11:13 PM

The Economist notes that each 1.5 new jobs requires 1 new house, then goes on to tell us about the number of immigrants that California has drawn, not the number of new jobs. That seems a pretty round about way to make a point, particularly when California actually counts the number of jobs in the state pretty regularly. The writer clearly wants to make a point, but gets off to what seems a pretty rocky start.

Posted by: K Harris on July 14, 2003 04:08 AM

LA has never embraced a regional transportation plan that would ease the pressure on commuters. By failing to establish clear corridors for mass transit, LA has allowed urban sprawl to proliferate and limit future growth. Imposing a mass transit system on top of the sprawl is more expensive after the fact. Establishing the transit corridors and letting housing establish around them is a more efficient model.

Any of the east coast cities that have had light rail for years have commercial centers built around the rail stops. Automobiles are an inefficient means of serving transportation needs in large cities. Brazilian cities have address this problem with busses on existing roads. A problem in the US is convincing people to abandon their cars and ride. This could be accomplished with subsidies and programs designed to increase ridership to the level where service would be frequent. The LA traffic problems can be fixed. They require a massive change in personal behavior. That is almost always a political loser.

Posted by: bakho on July 14, 2003 08:27 AM

Indeed, the American was of life is not negociable, said the President... ;-)

Posted by: Jean-Philippe Stijns on July 14, 2003 08:43 AM
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