Tag: gdp

Venezuela’s Death Spiral, Dollarization Is The Cure

With the arrival of President Hugo Chávez in 1999, Venezuela embraced Chavismo, a form of Andean socialism. In 2013, Chávez met the Grim Reaper and Nicolás Maduro assumed Chávez’s mantle.

Chavismo has not been confined to Venezuela, however. A form of it has been adopted by Rafael Correa – a leftist economist who became president of a dollarized Ecuador in 2007.

Even though the broad outlines of their economic models are the same, the performance of Venezuela and Ecuador are in stark contrast with one another.

The most telling contrast between Venezuela’s Chavismo and Ecuador’s Chavismo Dollarized can be seen in the accompanying chart of real GDP in U.S. dollars. We begin in 1999, the year Chávez came to power in Venezuela.

The comparative exercise requires us to calculate the real GDP (absent inflation) and do so in U.S. dollar terms for both Venezuela and Ecuador. Since Ecuador is dollarized, there is no exchange-rate conversion to worry about. GDP is measured in terms of dollars. Ecuadorians are paid in dollars. Since 1999, Ecuador’s real GDP in dollar terms has almost doubled.

To obtain a comparable real GDP for Venezuela is somewhat more complicated. We begin with Venezuela’s real GDP, which is measured in terms of bolívars. This bolívar metric must be converted into U.S. dollars at the black market (read: free market) exchange rate. This calculation shows that, since the arrival of Chávez in 1999, Venezuela’s real GDP in dollar terms has vanished. The country has been destroyed by Chavismo.

 

Venezuela is clearly in a death spiral. The only way out is to officially dump the bolívar and replace it with the greenback.

That Saudi Sinking Feeling

The rate of growth in a country’s money supply, broadly measured, will determine the rate of growth in its nominal GDP. For Saudi Arabia, the following table presents a snapshot of the relationship between the growth in the money supply (M3) and nominal GDP.

 

The chart below shows the course of M3. Following the oil price plunge of September 2014, the growth in M3 has slowed. The rate of nominal GDP growth will follow.

Why is the money supply growth rate declining? Since the plunge in oil prices, the Saudis’ current account has dipped into negative territory. This has to be financed, and the Saudis have used their stash of foreign reserves to do the financing.

Europe: A Fiscal & Monetary Reality Check

Led by Alexis Tsipras, head of Greece’s newly-elected, left-wing coalition, some other leading political lights in Europe—Messrs. Hollande and Valls in France and Renzi in Italy—are raising a big stink about fiscal austerity. Yet they always fail to define austerity. Never mind. They don’t like it. The pols have plenty of company, too. Yes, they can trot out a host of economists—from Nobelist Paul Krugman on down—to carry their water.

But public expenditures in Greece, Italy and France are not only high, but growing as a proportion of the economy. One can only wonder where the austerity is. As the first chart shows, only five of 28 European Union countries now spend a smaller proportion of national income on government than they did before the current crisis. For example, Greece spent 47.5% of national output on government in 2007 and 58.5% in 2013, an increase of 11 percentage points. 

Government expenditures cut to the bone? You must be kidding. Even in the United States, where most agree that there is plenty of government largesse, the government (federal, plus state and local) still accounts for “only” 38.1% of GDP.

The World Misery Index: 108 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on “misery.”

Below the jump are the index scores for 2014. Countries not included in the table did not report satisfactory data for 2014.

The five most miserable countries in the world at the end of 2014 are, in order: Venezuela, Argentina, Syria, Ukraine, and Iran. In 2014, Argentina and Ukraine moved into the top five, displacing Sudan and Sao Tome and Principe.

The five least miserable are Brunei, Switzerland, China, Taiwan, and Japan. The United States ranks 95th, which makes it the 14th least miserable nation of the 108 countries on the table.

The World Misery Index: 109 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 109 countries based on “misery.” Below the jump are the index scores are for 2013. Countries not included in the table did not report satisfactory data for 2013.

The 95 Percent Rule, Bulgaria, and the New York Times

Recent reportage in the New York Times reminded me of my 95 Percent Rule: “95 percent of what you read about economics and finance is either wrong or irrelevant.” In her piece on the Bulgarian elections, Mariana Ionova wrote:

“[Bulgaria’s] economy is growing at an annual rate of about 1.6 percent, but that is the slowest pace in the union, and about half the European average.”

These alleged facts aren’t even in the ballpark (see the accompanying chart). Bulgaria is neither the slowest growing economy in the European Union, nor is it growing at half the European average. In fact, Bulgaria is growing slightly faster than the European average.

Once again, the 95 Percent Rule rules.

E.U. Austerity, You Must Be Kidding

The leading political lights in Europe – Messrs. Hollande, Valls and Macron in France and Mr. Renzi in Italy – are raising a big stink about fiscal austerity. They don’t like it. And now Greece has jumped on the anti-austerity bandwagon. The pols have plenty of company, too. Yes, they can trot out a host of economists – from Nobelist Krugman on down – to carry their water.

But, with Greece’s public expenditures at 58.5% of GDP, and Italy’s and France’s at 50.6% and 57.1% of GDP, respectively – one can only wonder where all the austerity is (see the accompanying table). Government expenditures cut to the bone? You must be kidding. Even in the United States, where most agree that there is plenty of government largess, the government (federal, plus state and local) only accounts for a whopping 38.1% of GDP.

As Europe sinks under the weight of the State, it’s austerity, not anti-austerity, that should be on the menu.

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