Thursday, August 23, 2012

Euro-envy, the welfare state, and economic growth


Many Democrats wish the U.S. was more like Western and Northern Europe. Good idea?
Asia is set to have the world's wealthiest residents, with city-state Singapore heading the rich list.

Hong Kong, Taiwan and South Korea will do well, too, according to by a new survey that predicts which countries will be home to the wealthiest citizens by 2050. ...

By 2050, the Wealth Report estimates the world's wealthy citizens will be dominated by Asia: Singapore ($137,710), Hong Kong ($116,639), Taiwan ($114,093) and South Korea ($107,752). The only western economy projected to remain in the top five is the U.S., with an estimated per capita income of $100,802. ...

Old World economies will have the worst growth performance in the next 40 years, the report predicts: Spain, France, Sweden, Belgium, Switzerland, Austria, the Netherlands, Italy and Germany are at the bottom of the list. But Japan and its aging population will have the weakest projected growth of all economies, Knight Frank estimates.
In general, the size of a country's welfare state and it's rate of economic growth are inversely proportional, because a cushy welfare state (and correspondingly high tax burden) reduces the incentive to work, invest, and start new businesses.

That said, government spending isn't always harmful. Government capital investment increases economic growth. Governments should favor spending on intellectual capital (education and scientific R&D) and physical capital (transportation and communications).

The late Milton Friedman has a little to say about #2 on the list, Hong Kong:

Tuesday, August 21, 2012

JavaScript cryptography considered harmful?

After coming across an article from Matasano Security titled, "JavaScript Cryptography Considered Harmful," I decided to submit a question to the Security Now podcast to get a second opinion on the security of JavaScript cryptography. Here is Steve Gibson's take on the question of secure JavaScript cryptography in episode 365 of his podcast:

video

Matasano Security seems to be assuming a different use case than I'm interested in. They assume one wants to use JavaScript cryptography as a substitute for SSL/TLS, while I'm more concerned with secure storage of data in the cloud.

Friday, August 17, 2012

Why the prolonged economic slump? Housing.

Economist Dean Baker writes about a recent research paper from the Federal Reserve Bank of Cleveland:
The study goes on to note the extraordinary weakness in housing in this recovery and point out that this weakness could explain much of the weakness of the recovery.

While the study notes that there are questions of causation (a weak recovery could lead to weakness in housing), there can be little doubt that if residential construction had returned to its pre-recession level, as had been the case by this point in all prior post-war recoveries, the economy would be back near full employment.

Of course it is not hard to understand why housing has not recovered. The massive over-building of housing during the bubble years lead to an enormous over-supply of housing, which shows up in the data as a record vacancy rate in the years 2006-10. In the last couple of years the vacancy rate has begun to decline which can explain the recent uptick in housing over the last few quarters.

This housing story explains why we should have expected a long and drawn out recovery. There is no easy way to replace the massive loss in demand associated with the collapse of the housing sector. And, it is hard to blame the collapse on President Obama, since the overbuilding took place in the years 2000-2006 and the collapse was already well underway at the point where he took office. ...

Ultimately we will need an increase in foreign demand, meaning a lower trade deficit, to fill the gap. This will require a lower valued dollar which will make U.S. goods more competitive internationally. Unfortunately, neither candidate seems willing to make the case for a lower valued dollar, which means that we can probably expect a weak economy for many years into the future, regardless of who gets elected.