September 27, 2011

Does Democracy Stifle Economic Growth?

This is not my title and not my lecture.
Rather it is the title of a TED lecture by Mr. Yasheng Huang.
If you listen to this lecture, and I highly recommend it, you will be convinced that Democracy does not stifle Economic Growth.
That's a very good thing to be convinced of.
But you will also be convinced (I hope) that Economic Growth comes from an interplay of many factors, and that is a point I have been trying to make for the last few posts.
Only Yasheng Huang does it better.
Go watch, Seriously.

September 20, 2011

International GDP per capita comparisons - a wonderful way to get a headache

Seriously, I thought I understood at least where my country stood as far as international GDP per capita considerations were concerned, at least until I took a serious look at this chart.
This chart compares the GDP per capita of four countries from 1960 to 2009.
The countries are: Israel, UK, France and the US.
Until I looked at the chart, I thought I had it all figured out: we were a developing country, slowly gaining acceptance and status, and improving our GDP, and GDP per capita. One day we will catch up with Europe and the US, and in the past we were much farther away from them then we are now.
Right? wrong!
This chart says that in 1960 UK, Israel and France were all in the same spot! Roughly one half of the US GDP per capita at the time.
Wait, there's more. According to the chart that (1960) was the last time Israel was doing so well at least compared to the UK and France. And these two grew faster than Israel, almost catching up with the US recently.
What is the meaning of this? How can this make sense?
After looking at the chart there are still more questions such as:
Is the UK doing better than France recently? If so is 2009 just a blip? Can blips be really this big?
Why was France doing so much better than the UK in 1980?
Why the same in 1994?
I bet that there are great explanations for all of these questions.
A good starting point is that since 1960 Israeli population has more than tripled, whereas UK and France almost did not grow.
But that leads us to what I wanted to say from the beginning: GDP per capita is just one number, if you look only at one number you will be confused, and you will not be able to tell the whole story!

September 13, 2011

The First Computer I really Bought

The first computer I really had was a ZX Spectrum, the year was 1984, and the future looked bright if you only knew how to program in BASIC. but I didn't buy this computer, my parents bought it for me, I was only 14 at the time, so stands to reason.
The first computer I bought was a Pentium 90, top of the line model for 1995. I just finished my BA and moved to Haifa. It had cost 6,500 NIS, thus a bit more than 2,000$ at the time. I really couldn't afford it, but I needed a computer. I did some serious work using Word 5 (Word 6 was too hard to obtain at the time), and I played on it. Little big adventure.
So what's the point of this astounding confession? that 2,000$ bought you a lot less computer then than 84.95$ can buy you now. Obviously some guys in Israel at the time made some money from assembling my computer. I hope thay found another job they can do by now, because it pays A LOT less nowadays.
To sum it all up, If you try to measure a computer as a part of GDP you will get nonsense, because the numbers are meaningless as prices keep going down all the time...

September 6, 2011

About GDP and Real Estate

Let's say this right away: the value of real estate is not a part of GDP. That is because the entire value of real estate was not produced in just one year.
However, the Change in the value of real estate is a part of GDP - at least as far as new housing construction and services on exiting housing is concerned.
Which leads us to the following question: Suppose I bought a house in a town in Israel in 2003 (I did), and suppose the value of the house now, a mere eight years later, is three times what it was before, what does it mean?
To tell you the honest truth, I can ask the question - but I don't know the answer. What can possibly change in the same floors, and the same walls and the same ceiling that would make it worth three times as much in just eight years?
It's true that the train now gets not very far from my house, and the number of residents in the town has increased, but the house also got older.
It all boils down to this - the price of houses is determined by supply and demand, and thus supply and demand for houses have a very clear effect on GDP.
So I hope that the lesson from this example is clear - GDP is to a large degree determined by 'psychological' factors.
This means two things:
  • GDP is hard to predict
  • It is not clear what it measures in the first place.