Kling on Prosperity, Poverty, and Economics 2.0

Russ Roberts of EconTalk is one of my favourite economic interviewers. In this podcast he talks to Arnold Kling of EconLog on prosperity. Increasing prosperity is a them of The Practical Voter so we listen with interest. Click here for the link to econtalk or here to listen directly.

Arnold Kling of EconLog and the author (with Nick Schulz) of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity talks about the book with EconTalk host Russ Roberts. Kling discusses how modern economists think about growth in both developed and undeveloped countries and contrasts those ideas with earlier views in economics. The focus of the modern understanding is on ideas and the ability of ideas to improve technology, leading to prosperity. Unlike physical capital, ideas can be enjoyed by many people at once, explaining why past models that ignored ideas and focused on physical capital failed to account for the observed magnitude of economic development. Kling also discusses the success of China and India.

The 'war against terrorism'

This post looks to document the long list of so-called 'evidence' that lead the coalition of the willing to invade Afghanistan and Iraq. This list will be updated and re-posted as new information comes along.

How we really got involved.

• Iraq the war card: Orchestrated deception on the path to war
• Little known facts about Afghanistan and Bin Laden
• Top military commander says getting Bin Laden is key to defeating Al Qaeda. Why now, when the government has ignored Bin Laden for the past 8 years?

What do we do now?

• A cheaper and more effective military strategy for Afghanistan
• In 2008, British intelligence concluded that the Afghanistan war is unwinnable... no matter how many troops were sent in.

Another perspective on Climate Change

Well there is no point providing resources about the pro-case for climate change and the need to impose a grand new tax to solve the worlds problems. If you want to know more about the pro-case just follow mainstream media.

For the other side of the story please consider:

• Institute of Public Affairs
• Friends of Science (Canadian)
• Climate Change Fraud
• Global Climate Scam

For an interesting perspective on solving CC (if it exists) without resorting to taxing the populace consider 'Climate Lost on a Road to Nowhere'. Here, Bjorn Lomborg makes the point that it will be more efficient to invest in technologies to lower the cost of alternative energies, than to tax conventional energies (CO2 related) to the current cost of alternatives. You can follow Bjorn here.

And lastly these from Washington's blog:

• Copenhagen framework demands huge amount of spending but allows Enron-style accounting tricks so that carbon isn't actually reduced.
• World's leading scientist fighting against global warming is against cap and trade

Real Global House Prices

The issue of house prices is one that is close to nearly ever citizens heart (and wallet). Whether it is rising house prices (good if you own, bad if not) or falling house prices (bad if you own, good if not) every one has a stake.

The following chart from Mish's Global Economic Trend Analysis as part of a commentary on asset price bubbles is really useful.

The chart shows real (inflation adjusted) house prices in Britain (wow), Australia (impressive), the US (oh dear), Japan and Germany. Looking at the period from 1996 to the 2006/7/8 peaks we see:

• UK prices rises of 149%
• Australian real house price rise of 113%
• US real house price rise of 71%
• Germany real house price rise of -21% (i.e. a fall)
• Japan real house price rise of -31% (i.e. a fall)

The US 30% treasury bond has fallen in interest rate from 7.1% to 4.5%. Assuming a 1.5% margin for home loan rates, mortgage rates have fallen from 8.6% to 6%. Assuming constant real incomes (valid for the US and likely UK and Japan, an approximation for Germany and Australia) we see loan purchasing power rising by 26%. [note calculated with repayments on a $159K loan at 8.6K = $200K loan at 6%].

No obviously mortgage rates will vary somewhat around the world but the trend for the past 10 years has been down. However the practical determinant of changing house prices above these amounts are likely to be government policies (First Home Owner Grants, Sub-prime, etc), financial 'innovations' (option-ARMs, RMBS), and domestic economic strength.

In Australia it seems like the Government is backing the 2/3's of Australian's who own homes against the 1/3 of Australian's who don't (renters and children) by propping up prices at every turn. The next 6-12 months will be very interesting for Australia with the first home grants ending and interest rates rising.

What does this hold for the future? Since the chart Australian house prices have recovered to above their peak, UK and US prices continued to fall but look to have stabilised now around 10% below current levels.

However to the practical voter, it sure looks like unsustainable prices in Australia and the UK. Let's hope the world doesn't go into a 1980-82 style double-dip recession.

Global Prosperity Rankings

In this post we explore a global ranking index on national prosperity called the Legatum Prosperity Index (LPI). From the website we have:

"The Legatum Prosperity Index is the world's only global assessment of wealth and wellbeing; unlike other studies that rank countries by actual levels of wealth, life satisfaction or development, the Prosperity Index produces rankings based upon th every foundations of prosperity - those factors that help drive economic growth and produce happy citizens over the long term."

The LPI considers 9 factors as listed below:

1. Economic Fundamentals. A growing, sound economy that provides opportunities for wealth creation.
2. Entrepreneurship & Innovation. An environment friendly to new entreprises and the commercialisation of new ideas.
3. Democratic Institutions. Transparent and accountable governing institutions that promote economic growth.
4. Education. An accessible, high-quality government that preserves order and encourages productive citizens.
5. Health. The physical wellbeing of the populace.
6. Safety & Security. A safe environment in which people can pursue opportunity.
7. Governance. An honest and effective government that preserves order and encourages productive citizens.
8. Personal Freedom. The degrees to which individuals can choose the course of their lives.
9. Social Capital. Trustworthiness in relationships and strong communities.

So, ... and the winner for 2009 is .... Finland. The top 10 are Finland, Switzerland, Sweden, Denmark, Norway, Australia, Canada, Netherlands, United States and New Zealand. The bottom 10 are Kenya, algeria, Tanzania, Nigeria, Pakistan, Cameroon, Central African Republic, Yemen, Sudan and (not surprisingly last) Zimbabwe.

The following list considers the top countries in each category:

1. Economic Fundamentals. Hong Kong (ranked #18)
2. Entrepreneurship & Innovation. United states (ranked #9)
3. Democratic Institutions. Switzerland (ranked #2)
4. Education. Norway (ranked #5)
5. Health. Austria (ranked #15)
6. Safety & Security. Norway (ranked #5)
7. Governance. Denmark (ranked #4)
8. Personal Freedom. Norway (ranked #5)
9. Social Capital. New Zealand (ranked #10)

Simple observations

1. The most successful countries are OECD countries.
2. The very best performing countries are European countries with emphasis on the Scandinavian countries.
3. The country with the best economic fundamentals is Hong Kong, part of China.
4. African countries and countries with dictators are the worst performing.

So democracy works. There is much more at the LPI site here. We'll look at more from the LPI in later posts.

Why do governments exist?

Okay so why do governments exist? The cynic in me says to enrich the elected officials involved in the business of government but that would be too negative...

In medieval times the role of government was to protect and enrich the king.

More recently, according to the US Constitution the role of Government is to protect the 'natural rights of people'. Just what are the natural rights of people? That appears to be greatly debated between liberals and philosophers through the ages (a topic for later inquiry).

I like a more practical definition based on the fact that government is 'for the people, of the people and by the people'. I think governments should exist to represent and support the people in their pursuit of ever increasing national prosperity.

By national prosperity I don't just mean wealth. My broader definition of national prosperity is:

The degree of peace, happiness, security, health, education, community, wealth, environment, individual freedoms and economic opportunity available to a nation's citizens.

Now I'm not advocating that government be solely responsible for providing and increasing national prosperity (this would likely fail, just ask Soviet citizens how the 1980's went). Rather government's should pursue, facilitate and protect the pursuit of higher national prosperity by the nations citizens.

So in defending the nation against invasion, the government has a role; in ensuring the corner store has milk at 6am, not so. And in between is well, in between depending on your political view of the world...

Welcome to The Practical Voter

Hi and welcome to the practical voter.

This blog is intended as an personal (and sometimes communal) journey of inquiry into what system of government 'we the people' should have. I say 'we the people' because we all know that government is 'of the people, for the people, by the people' but is it?

In exactly who's interest does government govern for? Multi-billion dollar wall street bailouts while main street burns. So it is capitalism right? Government back-stopping of and incentives for failed businesses (GM, Chrysler), so it is corporatism/fascism right? But left wing governments hold power and are increasingly taking over the economy through central planning as well as enhancing the influence of unions. So it is socialism right?

Ideology aside, which sort of government works best? What are governments and politicians actually trying to achieve? What has worked in the past? What is working now? Where will the current style of government take us?

Loads of questions, even more answers. Along the way I (we) hope to learn more about the philosophy and history of thought in political economy. Through knowledge comes the certainty required to take action.

Join in, post a comment, help us all learn and develop our ideas.

But most of all, make yours a practical vote!