Paul Volcker on Japan

“I don’t know why anyone even expects the overall Japanese economy to grow when its population is shrinking. We should look at GDP per capita, not GDP, in Japan.”

How much can the Japanese economy be expected to grow in coming decades?

In a previous post, I presented a chart showing that real GDP/capita in Japan has continued to increase since 1990, contrary to the idea that the country "lost a decade". Japan has been in the news again recently; this time, in the context of Shinzo Abe's economic reforms, which are designed to spur economic growth. However, in the absence of large changes in fertility or migration, Japan's population is projected to decrease over the next few decades. Therefore, by how much can we actually expect it's total economy to grow? Here, I attempt to answer this question using population projections from the UN. (The GDP data up to 2010 are from the World Bank.)

The first chart shows the projected increase in real GDP required to achieve different rates of increase in real GDP/capita under two UN fertility scenarios: the high fertility scenario, and the low fertility scenario. The second chart shows--for the next two decades--the projected real GDP growth rate corresponding to each of these trajectories. Under the high fertility scenario, total population levels off, meaning that GDP growth of around 2.5% is needed to achieve per capita growth at the same rate. Under the low fertility scenario, total population falls, meaning that GDP growth of around 2% is needed to achieve per capita growth of 2.5%. The GDP growth rates required for 1.5% per capita growth under the two fertility scenarios are around 1.5% and 1%, respectively.

Mind your business

I found out an interesting fact whilst watching an episode of Stossel this evening. The first official US cent coin, the Fugio Cent, had the words "Mind Your Business" written on it. The coin, designed by Benjamin Franklin, was first issued in 1787. It was not until 1864 that the words "In God We Trust" first appeared on US coins.

Civilian casualties from the Obama administration's drone campaign in Pakistan

The US Military has been carrying out drone strikes in North West Pakistan since 2004. As the chart below indicates, these strikes--which function as an alternative to ground-based intervention--have increased in number dramatically under the Obama administration.

According to Obama administration officials, total civilian casualties from drone strikes are in the single digits. What do independent sources have to say? There at least four comprehensive databases on drone strikes in Pakistan: one compiled by The Long War Journal, one compiled by the New America Foundation, one compiled by The Bureau of Investigative Journalism, and one--known as Pakistan Body Count--compiled by Zeeshan Usmani. The total number of civilian deaths estimated by each of these sources is shown in the chart below.

Not one of the esitmates is in line with the Obama administration's claim of single digit civilian casualties. Which one is most reliable? Although it is very difficult to be sure, there is reason to think The Bureau of Investigative Journalism's higher estimate may be closest to the truth. Scholars at the Columbia Law School published a report entitled Counting Drone Strike Deaths, in which they attempted to gauge the number of civilian casualties from drone strikes in 2011 as precisely as possible. They "counted 2300 percent more “civilian” casualties than the New America Foundation, and 140 percent more “civilian” casualties than New America’s “civilian” and “unknown” casualty counts combined". Similarly, the authors of a Stanford/NYU report entitled Living Under Drones concluded that The Bureau of Investigative Journalism's data-sets are "more thorough and comprehensive than both New America Foundation and The Long War Journal." Finally, the government of Pakistani has acknowledged the deaths of over 400 civilians since 2004.

The mismatch between journalistic findings on the one hand, and assertions coming out of the Obama administration on the other, is quite staggering. The Appendix to Living Under Drones documents this discrepancy in meticulous detail. Below is an example of a table from the Appendix, which shows an official government statement on the left together with contrary statements from various news outlets on the right.

One of the principal reasons given by the Obama administration for the use of drones is their alleged accuracy. Ostensibly, targets can be pinpointed and then zeroed-in on with a high degree of precision. If this claim were true, then--given the considerable number of civilians estimated to have been killed--drone strikes should have killed a very large number of putative terrorists. I.e., the ratio of militant deaths to civilian deaths should be very high. What do independent sources have to say? As the table below reveals, the ratio may be as low as 1:4, and is probably at least as low 4:1. (Incidentally, I calculated these percentages myself, based on figures given in the various sources.) And indeed, a recent study argues that drones may be more hazardous to civilians than conventional manned aircraft.

Finally, it is worth mentioning that the Obama administration has been making use of drones not only in Pakistan, but also in Yemen, Somalia, Iraq, Afghanistan and Mali. For several reasons, including the extensive collateral damage they evidently inflict, I do not believe the US should be conducting drone strikes in the Middle East. I may elaborate on my position in a future post.

Plotting the trajectories of the Bush/Obama wars

In this post, I depict the trajectories taken by the US-led wars in Iraq and Afghanistan between 2001 and 2013. In particular, I plot--over time, for each war--US troop deployments, US Military casualties, and civilian casualties. Both wars were started by the Bush administration--the Afghanistan war in October 2001, and the Iraq war in March 2003. During the first term of Obama's presidency, his administration brought the Iraq war to a close and simultaneously expanded the war in Afghanistan. Huge numbers of civilians have been killed in both wars: over 100,000 in Iraq, and over 15,000 in Afghanistan. While the case for Afghanistan was arguably stronger than the case for Iraq, in my opinion the US should not have gotten involved in either war.

Data on US troop deployments in Iraq are from the US Department of Defense. Data on US troop deployments in Afghanistan are from the Brookings Institution's Afghanistan Index. Data on US Military casualties are from iCasualties.org. Data on civilian casualties in Iraq are from Iraq Body Count.org. Data on civilian casualties in Afghanistan are from Brown University's Cost of War project. The first three graphs correspond to the Iraq war; the latter three to the Afghanistan war. (Note that the final graph shows combat-related civilian deaths in Afghanistan; I could not find any figures for total civilian deaths.)

Murphy vs. Krugman debate

The Austrian economist Bob Murphy has challenged Paul Krugman to a public debate on business cycle theory. So far, Krugman has not taken up the invitation. The interesting twist is that Murphy has gotten people to pledge over $100,000, which--in the event of the debate's taking place--would be donated to a food bank in New York City. Therefore, unless Krugman decides to donate $100,000 of his own money in lieu of the debate, he is effectively preventing a charity from receiving a large sum of money (donated by other people). Furthermore, after Paul Krugman debated Ron Paul on television in 2012, he stated quite unambiguously on his blog that the reason he did so was to publicise his new book. One can only conclude that while Krugman is willing to sacrifice an hour of his time for the sake of advancing his career, he is not willing to do so for the sake of helping the needy. More details can be found here.

How has the value of the pound changed since 1750?

Here I provide three graphs depicting how the value of the pound has changed over the last two-and-a-half centuries. The first two graphs are taken directly from the  paper Inflation: The Value of the Pound 1750-2011, which can be found at the House of Commons Library. The third graph uses data from that paper.

As the first two graphs show, prices remained at a more-or-less constant level until the early 20th century, at which time they assumed an upward trend. This upward trend remained relatively gentle until the late 1960s. It then became extremely steep during the 1970s, before shallowing-out again in the 1980s and 1990s. The magnitudes of these changes are illustrated most clearly in the second graph. Prices in 1900 were no lower nor higher than they had been in 1800. But between 1900 and 2000 they increased approximately a hundredfold. This implies that if someone put a pound under her mattress in 1900, it would have lost close to 99% of its original value by 2000.

As is well-known (and as noted above), inflation was particularly rapid during the 1970s. This can be seen most clearly in the third graph. By the end of the decade, the purchasing power of the pound had fallen by an astounding 72%. At this rate of inflation, it would have taken only 4 more years for the pound to lose 99% of its 1970 value.

It is no secret that the changes described above are primarily the result of monetary policy on the part of the Bank of England. For exaxmple, the picture is exactly the same in the United States. Obviously, however, just because the value of the pound has diminished over the course of the 20th century, it does not mean monetary policy has done more harm than good. Indeed, most non-Austrian economists would argue that having some form of monetary policy is sensible--if not essential. My purpose in this post is not to evaluate the merits of monetary policy; just to lay out the historical evidence of price changes in the British economy.