Archive for year: 2017
IMF Explanations of Declining Labor, Are We Wrong about Chinese GDP, Where the Money is Going
April 20, 2017 /0 Comments/in Uncategorized /by admin
It is all about the hunt, the seeking, the thrill of the chase in this little world of ours. And so after many years, countless hours of research, many false leads, we are ecstatic to announce that we have finally found a bialy worth its name here in the Pacific Northwest, the home of the worldwide headquarters of International Need to Know. Wait, what is a bialy you ask? Ahh, a bialy is like a bagel but a thousands times better–baked rather than boiled and rather than a hole, the middle contains onions or garlic. We sampled bialys as a child visiting family in New York and continued to enjoy them over the years whenever we were in the big city. But outside of New York they are hard to find and almost impossible in the Seattle area. A few local bakeries carry something they claim are bialys but they are virtually unrecognizable from the real thing. But then our friend (the now sainted) Pete Gladhart handed us a bialy from The Bagelry in Bellingham, Washington, and as we bit into it the skies opened and glory (and taste) rained down upon the land. For this was a bialy almost as good as Kossar's on the Lower Eastside of Manhattan. Unfortunately, Bellingham is a long drive from our Seattle headquarters so as we make plans to develop a bialy food truck with a secret method of replicating New York bialys we bring you an explanation for the decline in labor's share of income, ask whether we've been wrong about China's GDP and tell you where the money is going. It's this week's International Need to Know, the new, better, more honest, non-harassing, no-spin zone of international news.
IMF-Splaining of Decline in Labor Share of Income
Earlier this year we pointed out that the global share of corporate income has been decreasing since the early 1980s, noting "it's not just in developed countries like the U.S., Germany and Japan–China is seeing the same trend." We did not hazard an explanation for this trend but just in time for kids and anarchists to dance around the May Day Pole, the International Monetary Fund (IMF) does, arguing that "this trend is driven by rapid progress in technology and global integration." The reasons for the trend differ by type of economy. In advanced economies, the IMF asserts, "half of the decline in labor shares can be traced to the impact of technology. The decline was driven by a combination of rapid progress in information and telecommunication technology, and a high share of occupations that could be easily be automated." In emerging markets, on the other hand, the IMF states, "We find that global integration, and more specifically participation in global value chains, was the key driver of declines in labor shares in emerging markets." The IMF's claim is that such integration is "shifting the production in emerging markets and developing economies towards more capital-intensive activities." We're not sure we buy these explanations for the decline in labor's share of income but since we raised the issue we offer up the IMF's ideas for the cause of this trend.
Are We Wrong About Chinese GDP?
On more than one occasion we have joked about the validity of official Chinese government statistics on GDP growth, asserting they are higher than the actual growth of the economy. But is the joke on us? A new economic paper tells us we are wrong—not that the government's statistics are correct but that the official GDP figure is actually undercounting GDP?!!! The method these three economists used was to count satellite-recorded nighttime lights, something that cannot be manipulated the way GDP statistics can be. To vastly oversimplify, these economists found that they could correlate the increase in these lights to increases in GDP and to other variables which simulate economic growth such as electricity use, freight volume and bank loans. Using the nighttime lights variable they calculate that Chinese GDP figures are actually higher than what was reported by the government. The economists used nighttime light data from 2004 to 2013 before many of us thought China was having economic difficulties. But the paper also examined late 2015 data: " We find that GDP growth in 2015 Q4, a time when the financial press was awash with stories about a hard landing of the Chinese economy, is somewhat higher, but quite close to the officially reported rate, with a 95% confidence interval…" We are curious what nighttime lights show for 2016 GDP growth. This paper does note that the growth seems to be driven by credit which could foretell an economic stall when this credit growth is removed. While we await others analysis of this economic paper that is upending our beliefs, we file it in our increasingly large file labeled "China is complicated."
China's real GDP Growth. You do the math! Or, maybe not, the math the economists used is a bit complicated:
Where the Money is Going
The world seems to be more volatile than usual, at least if you scan the headlines. But even in the midst of the constant churning, money continues to flow around the world. In which places do investors currently have the most confidence? The 2017 A.T. Kearney Foreign Direct Investment Confidence Index tells us the United States is number one for the fifth year in a row. In fact, Canada, coming in at number five, makes North America an investment destination powerhouse. Rounding out the top five are Germany, which rose to second as China fell to third (but the nighttime lights?) and the United Kingdom comes in fourth. The folks at A.T. Kearney were surprised that the UK did so well given the uncertainty of Brexit. A.T. Kearney explains the the U.K.'s investment destination resilience, by noting that, "U.K. Prime Minister Theresa May has promised they will emerge as a 'Global Britain,' one with fewer cumbersome EU-mandated regulations…" We still hope to do a deep dive into Brexit in the coming weeks–in fact, we are assembling our mask and oxygen tanks as we type.
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Who is the World's Superpower, Where Taxes are High and Where Millennials Buy Houses
Earlier this week we spoke at a business event about the so-called Border Adjustment tax as well as about H1B visas. On the latter we noted that many analysts frame the issue as there not being enough talent domestically to fill certain high skill positions. This is certainly true (just as we are sure there are certain abuses in the H1B system–this is the nature of all such systems in this little world of ours). But, we also stressed it is important to recognize that companies are in a worldwide competition for talent. The best talent that is not allowed to work for Microsoft, Amazon or Google, will work for their competitors overseas. Think about our beloved Seattle Mariners baseball team without international players Felix Hernandez, Robinson Cano and Nelson Cruz…hold on a minute! The Mariners are horrible, bad, terrible even with this international talent!* As we search for a different sports analogy, we bring you news about which country is considered the world's economic superpower, which countries tax labor the most and where millennials own houses. It's this week's International Need to Know, not giving up our plane seat as we fly into clouds of international information and data.
Who is the World's Superpower?
If we utilized click bait to gain readership from Marvel Universe readers, that headline would have read, "What is the World's Superpower?" Fortunately we are not so sleazy in seeking eyeballs. But last week in asking whether China is dominant, we concluded: "..for now the world leadership vacuum is exactly that, a dark empty void, for good, bad or between." This week, however, comes news that the world, when choosing between the U.S. and China, now sees the U.S. as the world's economic superpower as you see in the chart below. According to a Pew survey, most countries now rank the U.S. higher than China for economic power. That's very different than in 2012 when countries thought just the opposite, ranking China as the main economic superpower. But, today the world is looking through red-white and blue-colored glasses. "By contrast, in the most recent release of the survey, only three of 16 countries picked China over the US: France, Canada, and Australia." Not sure why the French (and French Canadians and French Aus–, er, uh, Australians) have such a different view of economic power. Regardless, in terms of leadership, there is still a void, perhaps even more so now since the country seen as the greatest economic power in the world is less so a political one.
World Tax Rankings
Most of our American readers are busy preparing to file income taxes next week, well, except for those in perpetual audit. But which countries have the highest tax rates on labor? Among Organization for Economic Cooperation and Development (OECD) countries, the answer is Belgium. The OECD measured "the level of personal income tax and social security contributions in each OECD country by calculating the 'tax wedge' – the total taxes on labour income paid by employees and employers, minus family benefits received, as a percentage of the labour costs of the employer." Interestingly, this tax wedge for the average worker in OECD countries has been falling for a number of years and in 2016 the average fell to 36%. But, the OECD points out that although the OECD average tax wedge decreased slightly in 2016, it actually increased slightly in more countries (20) than it decreased in countries (14), with most of the increases and decreases driven by changes in personal income tax. So some countries have sizably cut their income taxes which lowers the overall average but the majority of countries are increasing their tax on labor. Keeping with the austerity program imposed there, Greece suffered the largest increase in these types of taxes. Regardless of the rate, how many Greeks actually pay their taxes is another matter.
Share of Millennials Owning Houses
As millennials increasingly take their rightful place on the world stage, let's examine where they are most successful, or at least are fulfilling their dream to own their own home. According to HSBC, China has the largest share of millennials who own a home. The percentage in China, 70%, is so high, that we doubt the validity of the HSBC survey. Nonetheless, the numbers provide an interesting comparison. Mexico comes in second which helps to explain the continued net negative immigration of Mexicans into the U.S–there is not as much economic incentive for Mexicans to come work in the United States. France and Malaysia are third and fourth in the number of millennials owning a home. What does the future portend for millennial ownership? Pay particular attention to the second graph below comparing house price growth and salary growth in these countries. In many places, salary increases are not keeping up with housing price increases. Does this mean ownership rates will decrease, salaries increase, personal debt rise or some other factors change? As we go pay our latest mortgage bill, we await the answer.
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Deep Dive into China Plus Changes in World Population
April 6, 2017 /0 Comments/in Uncategorized /by admin
Recently at the gym while exercising, we were watching the Boston Celtics demolish the New York Knicks. It was a rather boring game. We looked across the room and saw a bank of TVs in front of a set of treadmills that were showing a different basketball game. We squinted our eyes to figure out who was playing. Later when we walked over to the TVs we realized the channel was showing a video game of basketball–the treadmillers preferred to watch two people playing a video game simulating a basketball game rather than watch an actual NBA game. I suppose we can't entirely blame them given the poor entertainment value of the Celtics-Knicks matchup. We took two lessons from this: First, even admitting our bad eyesight, it is clear video game graphics have advanced so much that from a distance it is difficult to tell reality from virtual. Second, we are near a new era when it will be impossible to distinguish real life from artificial. Of course, if the recently popularized theory is true that we are all just a software simulation, then we are building imaginary worlds on top of illusions. Speaking of imaginary worlds, from time to time we will take deeper dives into issues and places, and this week, in honor of President Xi Jinping's visit to the U.S., we look at the always confusing, confounding, complex China, including China's role in the world and the state of its economy, finishing up with global population changes. It's this week's International Need to Know, using our game controller to keep you apprised of our massively multiplayer online role-playing world.
Is China Dominant?
Is China Dominant? That giant sucking sound you hear? Many people claim it is the United States abandoning its 70-year role as a global leader. Into that void many people assert (their voices are at least powerful enough that they reach our tender ears) strides China. They are asserting this is true for trade, the environment and the world economy in general. And it is true that China is much more important than it was twenty years ago and even ten years ago. But, as we noted in this space at the beginning of the year, it is difficult for China to be the leader of free trade when its borders remain mostly closed to trade and investment. China is working to clean up its environment and deserves credit for what they have accomplished, but China's laws and practices have a long ways to go before they reach the standards of developed countries. And finally there is finance. China's formal and shadow banking systems are murky and we're not certain anyone, perhaps even the Chinese themselves, completely understand them. And when we look at global financial payments, China still lags far behind the U.S., the EU (the Euro is not gone yet!–soon we will dive deep into the roiling English Channel of Brexit and the EU) and even the British Pound. For that matter, though close, the Renminbi is still behind the Japanese Yen and Canadian dollar in its share of global payments. Barring catastrophe, we expect over the next two decades that China may become a leader in any number of these categories. But for now the world leadership vacuum is exactly that, a dark empty void, for good, bad or between.
China's Economy is…?
As President Xi sits down to a meatloaf sandwich in Mar-a-Lago, what is the state of his country's economy? By many measures, the economy is doing fine. After some worries last year, the economy appears to have stabilized. The government has launched a variety of initiatives including a new Silk Road initiative and a new Special Economic Zone in Hebei Province. On the other hand, we have warned before that official data in China is like a cable company saying it will be at your house between noon and three, not always to be trusted. A year ago, we looked at beer sales to see what was really going on in China's economy and as we often do, we turn to beer again, and noodles. Reuters reports that "Tsingtao Brewery Company, China's number two brewer, posted its steepest drop in net profit in 20 years last week, blaming tough competition and weak demand. Noodle maker Tingyi saw profits drop by a third." The stable economic growth also appears to be built on credit which has grown at a much faster rate than the economy. Much of recent investment in China is by state owned companies. For how long can China goose its GDP with credit? Finally, perhaps most relevant to the host at Mar-a-Lago and as we noted in the post above is that China's economy is still very much closed in many ways. For example, as you see in the graph below, China ranks as the second most restrictive major economy in the world. Or, as former Treasury Secretary Henry Paulson says, China's market is far more closed today than it was a decade ago when he was negotiating with the Chinese. So China's ship is doing well but has some rocks and treacherous islands (not necessarily in the South China Sea) to navigate ahead.
Sixty some years ago in 1950, China, India and the U.S., in that order, were the largest countries in the world by population. The same is true today but many of the other top populous countries are very different. As you see below in the graph courtesy of Robert Ward of the Economist Intelligence Unit, Russia has fallen from fourth to eighth, Japan is barely in the top ten and Britain and Italy are nowhere to be found. Meanwhile places like Indonesia, Nigeria and Bangladesh have climbed into the top ten. If current trends continue, always an iffy proposition, India will be larger than China and Nigeria larger than the U.S. in 40 years. To give a sense on how long ago 1950 was and at the same time how much constancy there is in certain parts of life, this year is the first baseball season without Vin Scully or Connie Mack working in some level of it since 1885. Now graph that!
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Where Tech Workers Should Live, Where Inequality is Decreasing and Where the Flying Taxis are
March 30, 2017 /0 Comments/in Uncategorized /by admin
We have a rich history dealing with customer service representatives, so much so that we even made a movie with our friend, Mike Williams, about them called Please Hold. But today's customer service representatives appear to be influenced by the current political landscape, asserting up is down and black is white, literally. We offer an illustration. The INTN better half recently gave her parents the gift of a DNA test so they could learn more about their genealogy. Our father-in-law is African-American and our mother-in-law is white. But the results they received from the company asserted that our father-in-law's background is western and northern European. So our mother-in-law called the company and said there must be some sort of mistake. Ahh, but the customer service representative asserted their test was completely accurate and offered a meandering and strange history of whites bringing blacks to America and the mixing of the two. Our mother-in-law patiently explained that the test results asserted her husband had less than 1 percent African heritage in him despite the fact both his parents are African-American. The customer service representative, not unlike a White House spokesperson, stood her ground saying the test results are always correct, telling our mother-in-law that her husband must indeed be white. Our mother-in-law, whose husband was standing next to her, and who knows empirical evidence when she sees it, said, "If you look at the person I'm looking at now, you wouldn't say that." But today's customer service representative creates her own facts and refused to admit there was something wrong with the test results. So as we adjust to our new world where black is white and white is black, we dive into where tech workers should live, examine where inequality is declining and tell you which country is the latest to test flying taxis. It's this week's International Need to Know, giving the Japanese-American perspective on our upside down world.
Where to Live as a Tech Worker
Tech workers can write their own ticket we are often told. Computer programmers and others of their ilk are in such great demand by technology companies that these workers can choose where they want to live. So where are the best places for such workers to lay their weary heads after a hard days night's coding? The global real estate firm, Savills, gives us to two criteria to look at: commute time and rent costs. Among the tech cities Savills examined, tech workers in Austin had the shortest commute time. But in recent years the South by Southwest city has seen rents go north and is the sixth-most expensive city for rent among those examined by Savills. The cheapest tech city for rent is Seoul; followed by Santiago, Chile; and Berlin. We note that our city, Seattle, is both expensive and has lousy commutes. Of course, the same is true of other top tech cities in the world such as San Francisco and Boston. Will these disadvantages eventually affect these urban region's prowess for being tech leaders or are there other factors that will continue to driver their success? We guess, at least for the mid-term, the latter. We note that Chinese cities are not even examined. in the study. We plan on soon updating you on China's technological and innovation prowess, which continues to be underrated.
A Region Becoming Less Equal
Inequality has become a big topic nowadays, with evidence of growing inequality in the United States, Europe and other parts of the world. But over the last decade, one region has seen inequality decrease: Latin America. Most countries in Latin America, according to a new study, saw their Gini Coefficients (a measure of inequality–but also a great name for a character in a science fiction story) decrease from 2002 to 2012. Only in Honduras did inequality go up during that period. You might think because a number of these countries elected socialist governments during that period, that government transfers are the main reason for the decline in Gini coefficients. But that same study found that government transfers only account for a quarter of the decline. Other factors, including growing economies coupled with rising education levels, are the main factors for the decrease in inequality in Latin America. Of course, in Venezuela everything is now equal—equally catastrophic. Better to grow your economy and increase your education levels than to implement disastrous economic policies.
Singapore Flying Taxis
It is true that we have been waiting for an opportunity to write a headline about flying taxis, especially in Singapore, but this is also news well worth sharing. As long time INTN readers know, we have a soft spot for innovative transportation solutions. In fact, last month we reported from an Autonomous Vehicle conference that we attended in Santa Clara. And we recently reported on a flying taxi initiative in Dubai. So we read with interest about Singapore's efforts in this technology. In fact, one of the prototypes the Singapore government is examining is the same Ehang 184 autonomous aerial vehicle that Dubai is planning to start testing this summer. Singapore is taking a more cautious approach than Dubai. Pang Kin Keong, the Permanent Secretary for the Ministry of Transport recently told an audience that "In 2030, you bet your money that aerial transport will also be a means of urban mobility." 2030 is not this summer but it is also not that long from now. Singapore is already working with Delphi Automotive to test and soon launch a fleet of self-driving taxis (the ground variety) and is investing in a variety of other innovative transportation options. We expect places such as Singapore, with an advanced economy, and a proactive assertive government, will lead the way in the initial use of new transport technology, ahead of Europe and the United States with their more stodgy bureaucracies. And we expect flying taxis to be far safer than taxi drivers in New York, where we have often nearly lost our life due to crazy cabbies.
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Canada First, Hello China from India and Where the Forests Are
In recent months, thanks to a client providing us a bus pass, we have been taking the bus more frequently into downtown Seattle. Specifically we have been riding the notorious E Rapid Ride which travels down Aurora Avenue and whose ridership is not, shall we say, the type of people who are members of the Bellevue Club (where we had a meeting yesterday–more on that, perhaps, in the future). In fact, we are fairly certain on one mid-day ride a few weeks ago that we were the only rider not on meth. On various rides, we have had to roust the passenger next to us who was passed out, broker a fight between a homeless woman and the bus driver and walk by a passenger brandishing a sword. At first we were a bit snobbish about all of these rumblings on the bus but now we accept them and welcome them (as long as the sword is not brandished on us or anyone else). We realize these rides are one of our few exposures to people outside of our socio-economic class. A book we are reading, which we highly recommend, The Complacent Class, talks about how the U.S. is more segregated than ever: economically, educationally, socially and racially. We do not agree with everything in the book but its assertions and data are thought provoking. Even as we continue reading the book, we are not complacent about immigration in Canada, or about how China and India measure up on the Internet or even upon discovering some surprising data about forests. It's this week's International Need to Know, integrating data, analysis and information as best we can.
Canada First
We have witnessed revolts against immigrants in parts of Europe and have seen it up close here in America as well. Now Canada, the apparently mild mannered country to the north (having been to hockey games I've never understood that stereotype), might be joining the raucous fray. A new poll shows a "plurality of Canadians disapprove of the way the Trudeau government is handling the recent illegal border crossings." 48 percent of those surveyed say those migrants crossing illegally from the United States into Canada should be sent back. One might think these Canadians are merely worried of American blue state refugees wandering into their country with glasses of roséand quinoa kale wraps* (and who wouldn't be?), but the survey question clearly refers to people "from the Middle East and Africa" as you see in the graphic below. In addition, 46% of respondents disapprove of the way the Trudeau government is handling the refugee issue. In refugee matters, Canada is not an outlier but following other countries attitudes. As we have written before, we live in a new age of fear, and like all such ages, the risks of giving in to such an emotion are ripe for trouble and danger. .
*Full disclosure: in the last two weeks we too have sipped rosé and munched quinoa (but not in a wrap!)
Hello India? This is China
Twenty years ago there was a debate about who would develop faster, China or India. China won that argument as easily as Gonzaga will defeat West Virginia later today. China, until recently, averaged higher GDP growth and built up much better infrastructure. It is also way ahead in the digital economy. As you see in the graph below, far more Chinese use the Internet than those in India—71% to 21%. Not coincidentally, Chinese are also far more likely than Indians to own a smart phone—68% to 18%. As the Pew Research Center reports, this digital advantage is due to China building a larger middle class with more wealth, "Between 2001 and 2011, the share of middle-income Chinese, those making $10.01-$20 a day, jumped from 3% to 18%. In India over the same decade, the middle class share of the population grew from 1% to 3%." Of course, today China's economy is growing more slowly (probably slower than official China government reported figures of 6.7%) and India's economy is growing faster, around 7%. And since all those Chinese on their smart phones will be distracted playing video games and hanging out on WeChat, India's economy, and digital sphere, may catch up more quickly than we think.
Seeing the forests through trees of new data
We have all read stories about the loss of forests, including the catastrophic loss of rain forests, but did you know in some countries there has been a gain of forest land in recent years? China, Russia* and India all have more forest land today than twenty-years ago, according to the World Bank. There have been huge losses in South America, especially in Brazil which since 1990 has lost 531,000 square kilometers since 1990. Large parts of Africa have also lost forest land. But many countries, especially developed ones, are gaining forest land. In fact, this data provides evidence for a pet (buffalo, as you will see) theory of ours that as more and more people huddle in mega cities, country sides will return to the way they were 200 years ago since no one, or at least few people, will be living in those areas. This will happen in many large countries, including in large swathes here in the U.S. In the future, we may again be singing about where the buffalo roam.
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Spanish Recovery, Crediting the Chinese and Where Women Dominate the Internet
Regular readers of International Need to Know are aware we are unafraid of controversy, willing to tackle the big issues, able to buck convention when convention needs a good buck. So we report to you that last week while in the Valley of the Sun we tried, for the second time, an In-N-Out Burger, fries and milkshake. When we first tasted the famous Los Angeles based chain's burger a number of years ago we posted on our Facebook page that we far preferred Five Guy's burgers and fries. This was before our new political age of rage, back when Facebook was a platform for earnest debate on such matters (as well as for kitten videos and photos of food–it was a more innocent, joyous time). Our post caused much consternation, counter-attack and disbelief. But we stuck to our guns. However, we also believe in second chances and so eagerly ordered our food at In-N-Out last week. After this rigorous, fully scientific study we are eager to report that we stand by our original assertion no matter how many INTN readers it may cost us: In-N-Out is not worthy to carry Five Guy's lettuce. But even as we dip another Cajun fry in ketchup, we serve you Spanish success, Chinese worries and information on where women rule the Internet. It's this week's International Need to Know, the fast food of international information only more nutritious.
Spanish Recovery
A number of years ago we had our cell phone pick-pocketed while on the subway in Barcelona. We chalked it up to the struggling Spanish economy and our careless ways. But amidst continued Brexit worries (more on that soon), Dutch election uncertainty and our continued angst over Italy, today we find European rays of light in Spain. The country's economy was one of the hardest hit in the EU crisis, but last year its economy grew 3.2%, the third straight year of relatively robust growth.The Spanish economy continues to grow at the same rate this year. Deleveraging has occurred in Spain with household debt decreasing from over 120% of GDP to 97% of GDP over the last six years. Non-performing bank loans have fallen sharply too. There are, of course, still great challenges. Unemployment has fallen from 27% but it's still high at 18%. And youth unemployment, although it's fallen too, is still crazy high at just over 40% causing a lost generation of Spaniards. Also worrisome is that productivity is not only not growing but has decreased as you see in the chart below. Nonetheless, Spain, unlike Italy and Greece, has shown signs of life. That is a good and needed boost for the EU.
Crediting the Chinese Economy
If you want to look for positive signs in the Chinese economy, you can do so. If you want to look for negative ones, they're easy to find too. China, as always, is complicated. Given that the rain pounds our window as we write, today we look for stormy weather in China and find it like Lena Horne humming a lyric. One worrisome barometer is that credit continues to grow at a faster pace than the economy. According to the chart below provided by the French financial firmNatixis, aggregate financing is growing 12.8% year over year. China is trying to transition from an export/infrastructure investment economy towards a more domestic consumer driven one. But, as you see in the second chart below, retail sales growth, although still increasing at a pretty good rate, has been steadily trending downwards since 2011.These two trends don't seem sustainable. Of course, this is not to say China is about to crash, but it bears (wait, is that a pun?) watching.
Where Women Use the Internet More
We are not surprised but we were also unaware that in general men use the Internet more than women. Ten jokes immediately come to mind regarding men dominating Internet usage, none of which are suitable for a high-brow, sophisticated venue such as INTN. But, courtesy of the World Bank, we learn of 13 countries where women are on the web more than men. Almost all of the top five are fairly predictable coming from Northern progressive countries, including Finland, Denmark, Sweden and the Netherlands. But we never would have predicted that Bahrain would take the top spot. The full list of countries where women use the Internet more than men is below.
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An Argument Worth Having, Economic Winning Streaks and the Best Passports
March 9, 2017 /0 Comments/in Uncategorized /by admin
We are on the road again this week, this time coming to you from the greater Phoenix area where we are keeping a close eye on our beloved Seattle Mariners. When we booked the trip many months ago, we forgot about the World Baseball Classic which started this week. In this tournament, countries play against each other with the winner earning a true world championship. This means some of the Mariners' best players are off playing for their home countries–Venezuela, Dominican Republic, Canada–and not here for our viewing pleasure. One would think that someone writing something called "International Need to Know" would have kept up to speed on such a world event. But even as we bow our head in shame, take a sip from our beer, watch bright young prospects play in the sun and prepare to bite into a hot sausage sandwich, we bring you an argument worth having, inform you about the country that has the longest economic winning streak and issue information on which country's passport you would be lucky to have. It's this week's International Need to Know, aiming to be at least a .300 hitter in the game of international affairs.
An Argument Worth Having
People fight about just about anything nowadays, often on social media platforms and even more often vociferously and angrily. So we were gratified to recently come across an argument worth having. Early last year, three economists–David Autor, David Dorn and Gordon Hanson– published a paper asserting China did indeed take away large swathes of jobs from the U.S. from 1990 to 2007. The paper, which was full of data, complicated equations and analysis, forced a re-thinking on trade issues by at least some. However, last week, George Washington University economist Jonathan Rothwell published a paper taking issue with Autor, Dorn and Hanson's data. He asserts that the loss of jobs to China is not as significant as the original paper claimed. The three authors of the original paper have now shot back at Rothwell, stating, "The main methodological critique provided by Rothwell is unfounded. The critique provided does not follow from his own logic." We do not have the chops to determine which side is right, but will note that the original paper, as we understand it, claims the negative trade effects were localized. That is, loss of jobs to China might have been very harmful to certain local communities, but the paper does not assert an overall loss of American jobs. In fact, as Kevin Drum recently illustrated, American, German and other countries' manufacturing job losses have been remarkably steady over the last 50 years (see the chart below). Plus, China is now also losing manufacturing jobs–the U.S. is no longer siphoning jobs on net to China if it ever was (depending on which economist you believe). The economists' argument regarding how many job were lost to China is definitely worth having but the squabble falls into the category of fighting the last war.
Connecticut Women's Basketball Team of Countries
The Connecticut women's basketball team has won more than 100 straight games as it heads into the NCAA tournament. That's darn impressive for any team not playing the Washington Generals. Australia's economy has an impressive streak of its own going, having gone more than 25 years without a recession. That's the current longest streak without a recession in the world. Poland comes in second with 86 consecutive quarters without a recession followed by South Korea (proving I guess that you don't need an active president to have a successful economy and that a dangerous neighbor next door armed with nuclear weapons can't stop you either). The mighty Slovak Republic is fourth. These are four fairly disparate economies so there's probably no big lesson to learn from them as a group. But it should be noted that of the longest economic win streaks since 1970, these four current streaks all rank in the top ten. That so many of the hot streaks are taking place today may, or may not, say something significant about our current world economy. Is the economy better, more resilient, propping itself up artificially or is it just statistical noise? Let's get Autor, Dorn, Hanson and Rothwell fighting about this.
Passport to Freedom
At the airport last week while standing in the TSA pre-check line, which was longer than usual, passengers pulled out their passports and other IDs. I saw identification papers from many countries which leads to the question: which countries' passport is the best to have? Nomad Capitalist, a consulting firm that helps people move around the world and pay reduced taxes, offers their Nomad Index which provides one perspective of which is the best passport. Its rankings are based on which countries allow the most visa-free travel, are most lax about collecting taxes overseas, have the best perception, provide the ability to have dual citizenship and provide the most overall freedom. Under those criteria, Sweden tops the index mainly because someone with a Swedish passport can travel to 176 countries without having to get a visa. It is also easier for a Swede living overseas to avoid paying Swedish taxes. As you can see in the table below, all of the countries in the top ten are in Europe. For those of you curious, the U.S. ranks only 35th in this index due to the taxes, perception and freedom categories. Afghanistan comes in last.
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Uncertainty, Investing for the Long Term and Manufacturing Costs
This week INTN is on the road in lovely Santa Clara, California where we are attending the Autonomous Vehicles Conference. It was a little awkward talking with the Lyft driver on the way to the conference hall telling him we were attending an event that aims to put him out of a job. In fact, a Lyft executive was on one of the panel discussions we attended and we thought about bringing the driver in to ask a question. Just a few years ago such a conference would have been regarded as one focusing on speculative technology and indeed there are still challenges to achieving fully autonomous vehicles–one company told of an Australian partner who informed them the car would need to be able to distinguish between a cow and a kangaroo (they hopped right to the task). But all the companies we talked with agreed that the two main challenges are not building autonomous vehicles that can truly drive on their own, but instead the triple threats of regulatory issues, cultural barriers and hackers. In fact, the existence of the conference itself is testament to the arrival of autonomous vehicles–it is your basic trade show, with networking, trade booths, and rubber chicken for lunch. We might as well be at a vacuum cleaner convention. But even as we prepare to shift into our autonomous vehicle future, we still bring you the results of a global uncertaintly index, information on where to invest for the long term and the big changes in manufacturing costs around the world. It's this week's International Need to Know, discarding envelopes from Warren Beatty even as we open up the world to your inquisitive eyes.
May You Live in Uncertain Times
Last week we presented an economic uncertainty index for China developed by three business professors. It should be taken with a grain of South China sea salt since it was based on tracking the frequency of articles about policy related economic uncertainty from only one newspaper, the South China Morning Post. But the three profs also track global economic uncertainty and for that they have a more rigorous method: they track articles on economic uncertainty from a variety of newspapers, as well as changes in tax codes and Fed predictions. As you see in their graph below, the global economic uncertainty index is at its highest level since 1997, when they began tracking the data. The previous peak of global uncertainty took place right after the Brexit vote. It's surprising that both today's uncertain times and Brexit led to a higher score in the index than the fall of Lehman Brothers and the global financial crisis. Does this say something about what is happening today or about newspapers and the Fed? We are uncertain (darn, will that increase the index even more?).
Investing for the Long Term
We are told to invest for the long term. So which country's stock market has performed the best over the last 117 years? Credit Suisse provides the answer in their 2017 Global Investment Returns Yearbook. There they document the returns of stock markets all over the world dating back to 1900. Surprisingly the country with the highest rate of return over that 117 year period is South Africa, followed by Australia. The U.S. comes in third with a real annualized rate of return of 6.4% (which we note worriedly is below what many pensions plan for). For stock market returns, it's good to be a resource rich country such as South Africa and Australia. In fact, Credit Suisse notes, "A common factor among the best-performing equity markets over the last 117 years is that they tended to be resource-rich and/or New World countries." Of course, stock markets are not economies. South Africa has had a great stock market for the long run but it's economy is problematic. One last historical point of interest: note in the pie charts below which stock markets dominate today as opposed to 1899. A century's time leads to lots of changes. What will China's and India's stock market's relative sizes be 117 years from now (assuming there are still stock markets in the AI dominated future)?
The Cost of Manufacturing
For all the current concerns about China's economy, its success over the last 20 years, especially compared to other economies, is remarkable. Take the increase in wages, for example. Manufacturing wages have increased since 2005 from $1.20 per hour to $3.60 per hour. That means Chinese manufacturing wages are above the rates of Mexico, Thailand and Brazil, to name just a few. That's one of a number of reasons China is attempting to transform from a mainly manufacturing exporting economy towards one more reliant on services and domestic demand.
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China, India Solar Power and Good News
We are amused when people trumpet hardline positions such as "I hate cats," (fine, don't get one), "Star Wars is better than Star Trek," (don't watch it) or "Rhianna is better than Beyoncé"–(hey, wait a minute!) We are also amused when politicians have to walk back tough stances. So imagine our glee at the President of Iceland's remarks "that he'd ban putting pineapple on pizza if only he had the power to make laws" only to have to walk it back a few days later after an outcry on social media (is there any other kind of cry on social media?). On his Facebook page, the President recanted: "I like pineapples, just not on pizza. I do not have the power to make laws which forbid people to put pineapples on their pizza. I am glad that I do not hold such power." While we ponder whether this was actually a clever Icelandic attack on the U.S. political situation, we bring you China in all its connectedness, India in all its solar power and the world in all its better, improved ways. It's this week's International Need to Know, putting our pineapples wherever we darn well please (but not on pizza) while bringing you the world in all its strange and wondrous ways.
All the Pieces Matter in China>
We present three bits of data and news from China that are actually connected in one way or another. As the great (greatest?) TV show, The Wire, used to say, all the pieces matter. First, is a perhaps weak piece of data but interesting nonetheless. Three economics professors walk into a bar and create an Economic Uncertainty Index for China (more next week on their global uncertainty work). It's based on the frequency of articles about policy-related economic uncertainty in the South China Morning Post (SCMP). As you see below, the index leaped up the last few months, apparently because of a certain loud U.S. president and a rise in worldwide protectionism talk that could damper China's export economy. But, fortunately China is trying to transform to a domestic consumption driven economy. Yes, but the Shanghai Daily reports that "China's expenditure on fast moving consumer goods in 2016 grew 2.9 percent, marking the slowest growth in the last decade and also a further slowdown from a 3.5 percent growth a year ago." Finally we reported earlier this year that Chinese are trying to get their money outside of the country and using Bitcoin as one avenue, but that the Chinese government was trying to curtail this. We noted that is easier said than done. Sure enough, Quartz reports that peer-to-peer marketplaces are picking up the slack, particularly LocalBitcoins: "Yuan volumes on the marketplace have exploded in the past week. Trading on LocalBitcoins currently accounts for about 6% of the total trading volume in yuan, according to data source Crypto Compare. China is complicated. Not even McNulty and Bunk could crack it.
Solar Continues to Stalk the World
We told you of the continued advances of solar in China last month but don't forget about India. The second largest country in the world is now the third-largest solar generator. Yes, India is now behind only China and the U.S. for solar generation. And it aims to generate much more in the future with a goal of 100 GW by 2022. Transforming to solar generation is important because India now has some of the most polluted cities in the world, more polluted than China's. More solar generation is possible because of the continued fall in prices and increase in efficiency of solar power. Rooftop solar system costs, for example, have fallen 12% per year since at least 2012. Of course, it's not just clean energy that India needs since 400 million people in India have no electricity at all. But, India has a "Power for All" program that aims to provide electricity to everyone in the country by 2019. That's an ambitious target and we'll be surprised if it's met. But we aren't surprised that solar is playing a larger role and India's solar advances provide more evidence that regardless of changes in U.S. energy and climate change policies, Moore's Law of solar will prevail.
The Continuing Case for Good Times
In our continuing effort to remind you that despite the dark clouds forming, despite the loud clamoring of doom and gloom, we live in the most peaceful and prosperous time in history, we point you to the graph below. It shows the rapid decrease in the number of deaths worldwide of children under five years of age. In 1990, 12.1 million children under the age of five died around the world. In 2015, less than half that number of young children died, 5.8 million. As financial advisors like to say, past performance is no guarantee of future results but it's important to recognize we have been in a boom time for humans. Let's hope it was not a bubble.
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Myth of Chinese Nationalism, More Trouble in Greece & Drone Flying Cars
There have been many great clutch performances in history. Michael Jordan's push-off shot against the Utah Jazz to win a sixth NBA Championship, Edgar Martinez's double down the line to send the Seattle Mariners to the American League Championship and the clutch in my 1987 Toyota Corolla not giving out until we exited I-95 some 20 years ago. But while watching the Grammy's earlier this week when Adele flubbed the beginning of her tribute to George Michael we were reminded of the greatest clutch performance in history–Jennifer Hudson singing "I Will Always Love You" at the 2012 Grammy's. Remember the circumstances: Whitney Houston had died less than 24 hours earlier. She was one of Hudson's idols. The Grammys are watched by millions of people around the world. In a few short hours Jennifer Hudson with no prior warning had to prepare to sing an iconic song by an iconic singer–and she killed it. Completely. The greatest clutch performance in history. So we try not to fumble when telling you about the myth of Chinese nationalism, remind you of the continued troubles in Greece and announce the first operational drone flying car. It's this week's International Need to Know, not taking orders from Russia or anywhere else as we tell the story of our mixed-up, muddled world.
The Myth of Chinese Nationalism?
In a time of apparent increasing nationalism in Europe, the U.S. and other regions, the Chinese apparently didn't get the memo. No, not the government which certainly has nationalistic tendencies, but the people themselves. Foreign Policy magazine points to a new paper by Alastair Iain Johnston, a professor at Harvard (with his name it was either Harvard or Cambridge, possibly Oxford, maybe, just maybe Ball State) that shows Chinese, especially Chinese youth, are becoming less nationalistic. Since 2002, Johnston, in partnership with Peking University, has been conducting surveys asking questions such as "Would you prefer to be a citizen of China?" and "Is China a better country than most?" The number of people responding yes to those two questions and others has actually declined between 2002 and 2015, suggesting a less nationalist bent. This is especially true of younger Chinese, "In each instance of the survey since 2002, respondents born after 1978 were markedly less likely to 'strongly agree' with any of the nationalist survey prompts than were their older peers. Perhaps most striking, by 2015, the proportion of older Chinese strongly agreeing to support their country 'even when it is wrong' was more than twice the proportion of youth who felt that way." As always, the world is more complicated than we realize.
Among your worries, keep worrying about Greece
That kit bag* you keep your worries in? You've probably ordered a new one off of Jet.com or Amazon what with all that has been going on lately. But don't forget to save a large compartment for Greece, which though it hasn't been in the news much lately, continues to be in a lot of trouble. The IMF recently called Greece's debt "explosive" and "highly unsustainable" (adding the word "highly" in there is in this case not gratuitous). Greece's debt to GDP ratio has increased from 159% to 183%. The IMF, of course, believes the only realistic solution going forward is debt relief. Germany, however wants continued austerity. And given upcoming German elections it is not realistic that they will change their tune on this issue. But, it's also not realistic that Greece will need only one more bailout and then all will be good. This can is already at the end of the street. One more kick brings it to the corner. What's around it?
*World War I allusions are all the rage nowadays and who are we to buck the trend?
Drone Flying Cars
There are many things we all need to know this week but none more important than the drone flying car being tested in Dubai that according to Popular Mechanics will start carrying passengers this summer. When you say "drone flying cars" we check our Straddle Bus skepticism at the door and are all in. The drone, the Chinese-made EHang 184, can carry a passenger weighing 220 pounds plus a small bag. According to Popular Mechanics, "After buckling into its race-car-style seat, the craft's sole passenger selects a destination on a touch-screen pad in front of the seat and the drone flies there automatically." We, of course, point you to video of the drone which has a half-hour of flying time and a range of 31 miles. So make sure when you punch in your destination, it's not too far away. We await possible debunking and technical problems, but in the meantime–go to Dubai and get in your drone flying car!
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