Environmentalists are conservatives













A funny definition of the resource curse

If you’ve got some natural resource within your borders, one that lots of people want to buy, then you end up getting lots of foreign money being changed into your local currency as people buy that resource. That drives your exchange rate up and thus strangles everything except that natural resource.

That isn’t the resource curse, that’s Dutch Disease, so named because after the Dutch discovered Gas all their other businesses became uncompetitive. The resource curse is more complex than that.

Currency appreciation may be bad for producing and exporting things, but it is very good for consuming and importing things. Both of these things are good things to do, it is all about degree. To call either circumstance a curse is a misnomer. Consuming things is the point of economics, were it not why invest in a gamble to consume more in the future?

No, I think currency appreciation is a significantly smaller part of the resource curse than is the fact that the presence of valuable resources make it more profitable for elites of one shade or another to seize political and economic control of a country’s institutions.

Acemoglu and Robinson have a blog all about this.

Having an overvalued currency might depress output in a few exporting sectors a bit, having competing meglomaniacs try to take over your country will crush economic activity everywhere.

The most important thing a developing country can do is to enforce fair rules in a predictable way, natural resources and the super profits available from their sale, make it incredibly easy for one group or another to evade, subvert or supplant the law.


On abortion, no, just no:










When there is a shortage of safe assets it is easy to sell safe assets


We’ll never sell those gilts back. The IFS says we have £280bn of new gilts to sell over the next three years to fund the deficit. There is not a hope we’ll add £350 billion of resale of gilts on top of that. The only likelihood is in fact of more QE: over that period there is no way the market can absorb £280 billion of new debt.

From Richie via Tim.

If the UK can issue safe assets in the form of Government debt (which judging by our interest rate we can), then we categorically will be able to sell it. There is a global shortage of safe assets as this graph illustrates and large global demand for them.

Asians save lots, but don’t have robust enough state or financial institutions to produce safe assets. That is, they want to be able to transfer consumption from now into the future but lack an infrastructure capable of delivering this at prices which are satisfactory.

The UK can issue lots of debt so long as people believe it will pay it back in full in a currency still worth more or less how much they expect. There is no danger of not finding buyers so long as those conditions hold, and they look like they will for the foreseeable future.

The same is true of nearly all developed economies with their own currency. Look at the US, belching out debt and facing record low interest rates and a market hungry, begging, ravenous for more (via Delong).








This strengthens Richie’s case for larger budget deficits but weakens his case for unwinding QE by monetising the debt. I do not know how he can hold both opinions simultaneously.

Smack Down Watch: Tim Worstall versus Brad DeLong

Much as it pains me to say, Timmy comes out on top. Brad DeLong lauds the Neville Champerlain that dragged Britain out of the Great Depression:


Tim is confused and I share this confusion:

Our Neville became Chancellor in 1931.

Whereupon he got us off the gold standard and cut government expenditure.

It was a couple of years later, when the currency devaluation thing had done its stuff that he started to expand spending again.

I’ve not got the numbers for the deficit or national debt in those years. But the idea that Our Nev did “fiscal expansion” in 31, 32, seems very strange indeed. Anyone know?

So, was Neville Chamberlain to the left of Clegg and Co or is Timmy correct and Brad DeLong doing economic history wrong?

Luckily I don’t have to adjudicate this – I’ve brought the cavalry for Tim, someone even Brad will not snark at – Nick Crafts has the answer (via). There was fiscal stimulus from 1935 as rearmament kicked in, but from 1932 onwards taxes were raised, spending cut and debt stabilised:

Over fiscal years 1932/33 and 1933/34 the structural budget deficit was reduced by a total of nearly 2 per cent of GDP as public expenditure was cut and taxes increased, the public debt to GDP ratio stopped going up while short term interest rates stabilized at about 0.6 per cent. Yet, from 1933 to 1937 there was strong growth such that real GDP increased by nearly 20 per cent over that period…Fiscal stimulus was not a factor in the UK recovery until after 1935 when rearmament began.

The secret was no secret at all, and is alluded to by Tim. It was unconventional monetary stimulus to raise the price level back to pre depression trends. This raised inflation expectations, pushed down interest rates, and promoted consumption and investment, et voila, the UK grew 20% over 4 years in the face of fiscal contraction.

Something similar today from the Bank of England, like price level targeting or NGDP level targeting would get some life into the British economy, and save us all a lot of bother and suffering.

PS: Other quotations from this paper to warm the cockles of Timmy’s heart include…

A major way in which [easy money] stimulated the economy was through its favourable impact on housebuilding in an economy without strict planning rules; the private sector built 293000 houses in the year to March 1935.