LOSING CONTROL (31 page)

8.
According to the 2009 WIR, the top ten non-financial multinationals ranked on the basis of foreign assets were General Electric, Vodafone Group plc, Royal Dutch/Shell, British Petroleum plc, ExxonMobil, Toyota Motor Corporation, Total, Electricité de France, Ford Motor Company and E.ON AG.

9.
Source: World Bank,
World Development Indicators
.

10.
The calculation is remarkably simple: (X
_(n,t)
– X
_(n,t–1)
)*100/X
_(g,t–1)
where X
_(n,t)
denotes exports to country n at time t and where X
_(g,t–1)
represents total exports a year earlier.
Adding up all the percentage point contributions in any one year provides total export growth in that year.

11.
A press statement released by US Senators Charles Schumer and Lindsey Graham on 17 May 2005 said, ‘By rigging its currency between 15 and 40 percent below its appropriate
value, China is giving a subsidy to its imports to the United States and imposing a direct cost on U.S.
exporters to China.
This unfair advantage has hurt U.S.
manufacturers, workers, and farmers and contributed to the U.S.
trade imbalance with China growing by 50 per cent since 2001, to a record $120 billion.’
See
http://schumer.senate.gov/new_website/record.cfm?id=261020
.

12.
The US bilateral trade deficit with Japan has persistently expanded in dollar terms although, since Japan’s stagnation in the 1990s, there has been a gradual narrowing of the deficit as a share of US GDP, largely because Japan’s economy as a whole has been shrinking as a share of US GDP reflecting Japan’s ongoing economic stagnation.

13.
Nominal GDP basis.

14.
China and other Asian economies fit this pattern very well, but not all emerging economies do so: some, like Russia, are dependent on a limited number of commodities while others, like India, have bypassed manufacturing altogether and have moved straight to the provision of services.
In general, though, the picture is correct.

1.
Plenty has been written on this period of international financial history.
Barry Eichengreen,
Globalizing Capital: A History of the International Monetary System
(Princeton University Press, Princeton, 1996) contains a useful summary.

2.
The speech can be found at
http://www.federalreserve.gov/boarddocs/speeches/2005/ 200503102/
.

3.
In every year since 2000, the consensus forecast for US Treasury yields has been too high, suggesting that the link between domestic economic performance and interest rate levels has altered.
Source: Consensus Economics and HSBC.

4.
That, at least, was the conclusion reached at the time.
The sub-prime crisis and credit crunch that followed ten years later suggests this was not solely an issue for Asia specifically or, indeed, for emerging economies more generally.

5.
In its semi-annual
Report to Congress on International Economic and Exchange Rate Policies
, the US Treasury typically berates China for its exchange-rate policies, even though at the time of writing it had yet to make the charge that China was a ‘currency manipulator’.
The October 2009 version of the report can be found at
http://www.treasury.gov/offices/international-affairs/economic-exchange-rates/ pdf/FX%20Report%20FINAL%20October%2015%202009.pdf
.

6.
Source: HSBC global currency research.

7.
The yield on Ukrainian debt had dropped back to around 14.3 per cent by the summer of 2009, but this still implied a big loss in relation to the halcyon pre-credit crunch days.

1.
It’s not easy for policymakers to ‘re-think’ policy.
In 1999, at the annual central bankers’ symposium organized by the Kansas City Federal Reserve at Jackson Hole in Wyoming, leading central bankers discussed the merits of targeting asset prices under the umbrella title of ‘New Challenges for Monetary Policy’.
The broad conclusion was that a focus on inflation as conventionally measured was good enough for ongoing economic stability.
Economic events in the following decade suggested otherwise.
The proceedings of the symposium can be found at
http://www.kc.frb.org/publicat/ sympos/1999/sym99prg.htm
.

2.
Despite the focus on macroeconomic ‘demand management’, the key source of friction between Keynesians and Friedmanite monetarists ultimately focused on the extent of market ‘failures’ and the likely success of any state intervention to prevent or offset these failures.

3.
Labour Party Conference, 1976.
These words were probably written by Peter Jay.

4.
The UK Office for National Statistics has a webpage that allows people to calculate a ‘personal’ inflation rate.
The details can be found at
http://www.statistics.gov.uk/pic/
.
In my view, it is an unhelpful idea: if inflation is seen to define the value of money, a personal inflation calculator suggests that the value of money varies from person to person, which is a ridiculous proposition.
That people become richer or poorer as a result of changes in relative prices says nothing about the value of money itself: the same effects could happen in a barter economy where money did not exist.

5.
In homage to Jonathan Swift.

6.
In the modern era, the first country to adopt an explicit inflation target was New Zealand in 1989–90.

7.
From ‘The Federal Reserve System: Purposes and Functions’.

8.
The letter, dated 22 April 2009, can be found at
http://www.bankofengland.co.uk/ monetarypolicy/pdf/chancellorletter090422.pdf
.

9.
The first reference to the ‘Great Moderation’ was in James H.
Stock and Mark W.
Watson’s
Has the Business Cycle Changed and Why
?, Research Working Paper No.
W9127, National Bureau of Economic Research, Cambridge, MA, 2002.
The term was popularized by Ben Bernanke in a speech in February 2004 when he was a Governor at the Federal Reserve.
His speech is available at
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm
.

10.
Purchasing power parity assumes the cost of a non-tradable service is the same in all parts of the world.
The opportunity cost of providing a haircut in Beverly Hills, however, is likely to be higher than in, say, Kunming in China.
The American hairdresser might have foregone a career as a movie star whereas the Kunming barber might only have had the option of being an underemployed rural worker.
A haircut is, therefore, more expensive in Beverly Hills, even in the absence of highlights.

11.
See
http://www.imf.org/external/pubs/ft/weo/2006/02/pdf/c5.pdf
.

12.
See ‘The Challenge of Central Banking in a Democratic Society’, December 1996, available at
http://www.federalreserve.gov/boarddocs/speeches/1996/19961205.htm
.

13.
The comment comes from John Maynard Keynes’s
Economic Consequences of the Peace
(Macmillan, London, 1919).
‘Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency .
.
.
Lenin was certainly right.
There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.
The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.’
(pp 220–1) No one can be sure that Lenin actually said anything of the sort, but Keynes, a member of the British Peace Delegation at Versailles, may well have heard stories about the Soviets saying such things and was happy to make the claim that the words had come from Lenin’s lips.

14.
Of the largest countries in the emerging world, both China and Russia have managed exchange rates against other currencies.
China’s renminbi is no longer linked to the dollar alone but, instead, to a basket of currencies which, in my view, appears to mimic the performance of the European monetary snake of the 1970s, retaining a heavy bias towards the US dollar.
Plenty of other emerging economies follow similar models.
Russia’s currency regime is explicitly linked to a US dollar and euro basket.
Countries and regions that, at the time of writing, still had an explicit dollar peg included the Caribbean nations, Cuba, the Democratic Republic of Congo, Ecuador, Equatorial Guinea, Hong Kong, Liberia, Malaysia, Nigeria, Oman, Panama, Saudi Arabia, Singapore, Syria and the United Arab Emirates (source: Bloomberg).

15.
Bela Balassa, ‘The purchasing power parity doctrine: a reappraisal’,
Journal of Political Economy
, 72 (1964), pp.
584–96; Paul Samuelson, ‘Theoretical notes on trade problems’,
Review of Economics and Statistics
, 23 (1964), pp.
145–54.

16.
The minutes and transcripts of FOMC meetings can be found at
http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
.

1.
Remarks made in Heber Springs, Arkansas, at the dedication of Greers Ferry Dam, 3 October 1963

2.
From speech given to the GMB Union on 5 June 2007

3.
In
The Bottom Billion
Paul Collier discusses four traps which leave nations facing abject poverty: the conflict trap, the natural resource trap, the ‘landlocked with bad neighbours’ trap and the ‘bad governance in a small country’ trap.

4.
China’s Income Distribution Over Time: Reasons for Rising Income Inequality
.
Department of Agriculture and Resource Economics Paper 977, University of California, Berkeley.

5.
The US Census Bureau calculates that the percentage of the US population with a bachelor’s degree or above stood at 4.6 per cent in 1940, rose to 7.7 per cent by 1960, was at 16.2 per cent by 1980 and by 2000 had risen to 24.2 per cent.
See
http://www.census.gov/population/socdemo/education/phct41/table2.csv
.

6.
Inequality and Institutions in 20th Century America
(MIT Press, Boston, 2007).

7.
Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
(Center for Research in Security Prices, University of Chicago Graduate School of Business, July 2007).

8.
In an earlier draft of this book, Tiger Woods was my chosen example.
As Mr Woods discovered in November 2009, global admiration can quickly evaporate.

9.
In strict balance of payments terms, the increase in recorded exports from the analyst would be offset by lower profits made by the overseas affiliate of the company which would now be paying for the analyst’s consultancy services.
If – and it’s a big ‘if’ – the profits of this affiliate were routinely brought home, the overall impact on the balance of payments would be neutral.
Nevertheless, the point of my argument is simply that activities considered to be domestic are, in reality, often international.

10.
Francis Jones, Daniel Annan and Saef Shah, ‘The distribution of household income 1977 to 2006/07’, Office for National Statistics,
Economic and Labour Market Review
, 2.12 (2008), pp.
18–31.

11.
Some emerging economies, notably those in Latin America, have always had high levels of income inequality: political systems have allowed the middle classes to extract reasonable incomes even though rates of economic growth have often been poor.

12.
Simon Kuznets, ‘Toward a theory of economic growth’.
in Robert Lekachman,
National Policy for Economic Welfare at Home and Abroad
(Doubleday, Garden City, NY, 1955).

13.
Source: UN Food and Agriculture Organization.

14.
Source: Prabhu Pingali,
Westernization of Asian Diets and the Transformation of Food Systems: Implications for Research and Policy
, ESA Working Paper No.
04–17, Rome, September 2004.

15.
United Nations Environment Programme, ‘The Environmental Food Crisis: The Environment’s Role in Averting Future Food Crisis’, Norway (February 2009), p.
27.

16.
I personally won’t be: I suffer from a nut allergy.
More seriously, scientists have been investigating the possibility of creating synthetic meats.
See, for example,
http://www.timesonline.co.uk/tol/news/science/article6936352.ece
.

17.
Andrew Leicester, Cormac O’Dea and Zoë Oldfield,
The Inflation Experience of Older Households
, IFS Commentary No.106, London, October 2008.

18.
Rob Pike, Catherine Marks and Darren Morgan, ‘Measuring UK inflation’,
Economic and Labour Market Review
, 2.9 (2008), pp.
18–25.