Monday, March 11, 2024

Problems with Canals

Excellent piece in the Wall Street Journal entitled "Two Canals, Two Big Problems —One Global Shipping Mess".

Of course, we've covered the problems with the Houthis and the Suez Canal.


 

This map was included in the article, and shows routes on which ship traffic has increased from 12/23 to 12/24. Note that the route through the Red Sea is barely shaded, while the routes around Africa are bright red. 

I believe the red routes from our Gulf coast to southern Europe are largely our exports of liquefied natural gas (replacing shipments that are no longer being made from Russia).

Also note the traffic around the southern tip of South America. Even in the 21st century, this is a stormy route that ships try to avoid. But if they can't get through the Panama Canal, that's the only way to go.

The problem with the Panama Canal is drought: there isn't enough water sometimes to move the ships.The article contains an animated infographic explaining the problem.

Has the State Failed in Haiti?

Haiti is the poorest country in the Americas. It has not had much of a viable state for the last 2 generations.

But, it really seems to have come apart over the last month, with armed gangs apparently taking over the country.

The Prime Minister is currently in Puerto Rico. It's unclear if any part of the state is actually functioning. The Dominican Republic, which has done quite well economically over the last 30 years, refused to let the Haitian Prime Minister land there and drive across the border.

The U.S. has evacuated nationals, and added troops to the embassy.

Here's the Google search page for Haitian news.

In the language of Chapter VI in the Handbook, the country still exists, the nation of Haitians still exists, but the state is barely holding on.

Macroeconomically ... expect a humanitarian crisis in Haiti over the next several months.

Update 1: the Prime Minister of Haiti did promise to resign the day after I posted this. He has yet to return to Haiti or even to the island of Hispaniola (that Haiti shares with the Dominican Republic). And he set conditions on his resignation having to do with the transfer of the Haitian state to its next leader.

Update 2: Haiti has not even had what one could call a coup (where the leader of a state is forcefully replaced with a new leader). Instead, gangs are just running rampant. The apparently strongest gang leader goes by the name "Barbecue". I am not confident of the willingness of someone who goes by Barbecue to observe the polite and formal transfer of power proposed by a former Prime Minister with little or no power base in the country.

Wednesday, March 6, 2024

Bab-al-Mandeb Sinking / Possible Environmental Disaster

So the Houthis have been firing missiles and drones at cargo ships for a few months now. But cargo ships are big, and the Houthis are a bare-bones outfit with limited weapons.

But, they did repeatedly hit, and sink a British owned freighter (under a flag from Belize, with a mostly Asian crew) last week. This is the first cargo ship sunk as an act of war since the 1980s. 

Allegedly traffic through the strait was down before this, but I haven't seen a measure of this. No doubt it will decline further.

***

No sinking is a good thing for the ocean. But this one may be particularly nasty.

First off, the Red Sea is not a particularly healthy body of water to begin with: long, narrow, closed at one end, with limited circulation through the other end ... and, at least historically, lots of traffic.

Secondly, the ship that sank was carrying fertilizer. Twenty-one thousand tons of it. Yeah, work out the math ... about a million of those bags they sell at stores.

Third, in the U.S. we have a problem with waterways with agricultural runoff. Basically, fertilizer washes off the ground into waterways ... and causes excessive plant growth in the waterways rather than in the fields. If you've seen a lake filled with algae, you know what I mean. Keep in mind that this problem is just from runoff. What's going to happen to the Red Sea when a million bags of fertilizer are dumped into it?

Saturday, February 10, 2024

(Not Required) I Was Not Making It Up When I Mentioned This In Class

From the Financial Times this past week "'Enshittification' Is Coming for Absolutely Everything".

And here is a story on the choice from the American Dialect Association

Here is how platforms die: first, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die. I call this enshittification.

The source was an article in Wired about Tik Tok by Cory Doctorow, who was a founder and still is a co-owner of the tech site Boing-Boing.

Here is the press release from the ADA listing the vote totals of other nominations for word of the year for 2023 (including rizz).



Monday, January 29, 2024

Not a Macroeconomic Worry Spot: Ukraine

Ukraine is another place for which there are reasonable political and military worries. 

But at this point, it is not seen as likely to create macroeconomic issues. It certainly was when the war started. 

If you're curious, you can go to the archives on the right hand side, and open up the link for February 2022. The posts about Russia and Ukraine occupy the top third of the month, and most of the posts for the following month too. I think it's fair to say that, back then, politicians were quite sure that the macroeconomic connections Russia had made with the rest of the world over the last 30 years were so important that Russia would back down. Apparently not.

Two years on, what we're left with is an ugly, money pit of a war, with no end in sight.

***

This is probably a good time to introduce you to two college level words.

Revanchism is the name given to a country's policy of attempting to recover lost territory. Russia has demonstrated a revanchist policy towards parts of Ukraine for the last 10 years or so, and has succeeded in conquering parts of their neighbor. Revanchism is about getting back what used to be yours.

A related ideas is irredentism. This is the belief (rather than the more active policy) that parts of your country or nation are outside your current borders, and should be united with it. The first round of Russia biting off parts of Ukraine back in 2014 was about acting on irredentist views that the Crimean peninsula should be part of Russia. Russia has also pushed this idea about a region called Donbas over which some of the current war is being fought (although the claim to Donbas is shakier).

Not surprisingly, revanchist and irredentist positions can have macroeconomic consequences. Venezuela bringing up what everyone thought was a settled claim on part of neighboring Guyana is an example.

***

One of the things that puzzles me about (national) states and their leaders is their interest in acquiring territory.†

Of course, there's a lot of historical precedent for this. And if you took me for principles, I mentioned that what is animating policies is often nothing more than "we've always done it this way".

But, what I wonder (and this definitely is pushed along by the fact that we've developed ways to measure the value of regions over the last century) is whether or not it's worthwhile to pursue territorial ambitions. For example, consider the U.S. It isn't that hard to envision some states as being a net drag on the rest of the country. Say ... Mississippi. Other states of roughly the same GSP are more likely to be net contributors to the rest of the country. Say ... Utah.

I think it's pretty clear that if somehow Mississippi was conquered by a foreign power, the U.S. would adopt a revanchist position to get it back. But I think it's a reasonable question to ask whether or not that would be worth it.

Now come full circle back to Russia and Ukraine. Are the parts of Ukraine that Russia wants to take back ... worth it? Further, are they still worth it after they've been wrecked by war?

Of course, if the answer is "no", then why start the war? But it seems like humans have a bias towards thinking the answer must be "yes", and then they find out the hard way that it is not. There is some game theory on this with something called all-pay auctions, where theoretically no one should overbid, while in practice just about everyone does.‡

 

† Do note that you need to recognize in posts like this whether I'm writing about "states": a name for the potentially infinitely-lived government of a country; or "states": a name for the the subdivisions of some countries. In this post I write about both. Sorry about that.


‡ Not every semester, but frequently, I touch on all-pay auctions in my micro principles classes when talking about high fixed costs, natural and/or platform monopolies, and network externalities.


Not a Macroeconomic Worry Spot: Gaza

Sure, I think that the war in Gaza is a political worry spot this year. But it is not one that I expect will lead to macroeconomic issues.

In short, what I post here isn't about current events, but rather current events filtered through a macroeconomics lens.

***

One macroeconomic sideshow is that some would take the quasi-Marxian position that because Israel is rich, and its neighbors are not, Israel must have somehow exploited them.

First off, as we've seen in lecture last week, and will continue to see this week, diminishing marginal productivity tells us a lot about how macroeconomies should behave. Exploitation arguments hark back to Marx, who wrote most of his stuff before diminishing marginal productivity was widely recognized. It is one of several principles associated with the "marginal revolution" in economics (from 1870 to 1890) that superseded Marx (at least amongst economists) because they offered better answers to outstanding problems. In this week's lectures we'll take that further and show how some technologies can help us explain situations like this.

Secondly, it's important to have some historical perspective. Israel was economically comparable with its neighbors 75 years ago. Since then, it has pulled away. Even if the exploitation argument is correct, it leaves a lot of loose ends in the region: 1) how did Israel pull away both from countries it is alleged to have exploited, and also those it could not have exploited, and 2) if Israel has been exploitive the whole time, how come it has only pulled away over roughly the second half of that period?

Thursday, January 25, 2024

Two More WEF Critics

MV came to class this week, and wanted to know if I'd heard about Javier Milei's incendiary speech at the WEF.

In response, I asked if he'd seen what the president of the Heritage Foundation had said at the WEF.

***

Milei is the recently elected President of Argentina. Argentina is every macroeconomists best example of how government's pursuit of bad policies for long periods of time can immiserize a country. Milei ran under a platform for a radical change in direction that Americans might call libertarian. He's worked as an academic macroeconomist, and has a decent research record. In public events he's known for being ... Trump-like.

The Heritage Foundation is one of the big, conservative, think tanks in Washington D.C. I would describe it as more economically-oriented than most D.C. think tanks. It's current president is Kevin Roberts, a historian. I don't know much about him: he's been very low profile.

***

Here's a Newsweek piece entitled "Two Conservatives Challenge the Davos Divas", which quotes from both speeches.

***

FWIW: Print magazines are fading away, but for decades, Time and Newsweek were the big two current event magazines. Many households got one or both. Historically, they've both been centrist, with Time leaning towards the Republic Party as it was before Reagan (much less Trump), and Newsweek leaning toward the conventional Democratic Party view that has faded a bit over the last 10 years. Newsweek has always covered conservatives and their views a bit, but I've rarely seen anything as glowing as this piece. I guess they also liked the hammering of the WEF that everyone seems to be doing this year.