Top 10 Country GDP Ranking History 1960 – 2017

Here’s a fascinating dynamic animated graphic from the The Visual Capitalist website.

It shows the GDP ranking history of the top ten countries for 57 years, fro 1960 to 2017. The GDP [Gross Domestic Product] data is from the World Bank.

The points I note from this graphic are that the UK, and France jockey for position over the years. The absence of Germany in the early years is due to them only providing their GDP data to the World Bank from 1970.

The rise of and fall of Japan is to some degree a reflection in currency movement. All the data is in dollars. China’s rise in the ranking in is such a short period is staggering. It’s similarly intersting to see India rising up the ranking, and also to see Italy’s fall.

Apologies for a recondite post to start the week

I’m curious about the world of economics and finance and find myself occasionally reading the most recondite of articles. My interest was piqued by a comment in the FT Alphaville blog about an economics research report by Willem Buiter of Citi Bank, when they said that it was “enticingly aggressive and highly readable 17-page note”.

Sadly, that 17-page note is proprietary, to read the research note from the link in the blog you’ll need to subscribe to the FT Alphaville. Any way, here’s Willem Buiter’s introduction to his note on Forward Guidance.

There are two reasons for this post. First the word pleonasm is a new word to me, secondly I wanted to understand the latest tool of central bankers on setting interest rates. Here’s the punchy introduction,

‘Forward guidance’ had a poor start in life. It was born as a pleonasm – afflicted with a severe case of redundancy. ‘Guidance’ would have sufficed, as all guidance relates to the future and is therefore inevitably forward. Perhaps some idiosyncratic historians call their subject ‘backward guidance’, and maybe the odd tourist has signed up for instantaneous or simultaneous guidance around some ancient site, but we doubt it. Redundancy as a rhetorical device tends to be used when it is deemed desirable to inflate the importance of someone or something beyond what is fundamentally warranted. Our view is that this also is the case with forward guidance.”

Buiter’s conclusion is,

“The best approach to signaling longer-term policy intentions in an operational manner typically has three components.

First, commit to the regular publication and updating of longer-term forecasts of the target variables, of any additional nominal or real thresholds, knockouts or triggers that define the central bank’s reaction function for each of its instruments, and of the instruments themselves.

Second, reach an agreement that at most one member of the monetary policy making committee, presumably its chair, speaks or writes publicly about the likely future paths of the policy instruments – rates, QE, or whatever. The other members can of course still discourse in public about the principles of monetary policy and the history of central banking.

Third, give the central bank skin in the game by requiring it to issue or purchase material amounts of financial instruments on which it will lose money if interest rates depart from the forward guidance-consistent levels – financial hostage instruments. If possible, link the pay of the monetary policy makers at least in part to the performance of these instruments.”

As I say, recondite stuff.

Allister Heath’s economic arguments are well-expressed

I like well expressed economic arguments. Particularly ones that are succinct and easily understood by the general public.

I’ve no hesitation in directing you to editor of City A.M. Allister Heath’s article Why governor’s monetary revolution will eventually backfire.  It’s a critical assessment of the bank of England’s new monetary policy.

One part of Allister Heath’s critique is the use of unemployment rate as the new target for setting interest rates, being “a decent, easy to measure proxy for spare capacity”. It’s his description of the spare capacity in the economy where I fully agree,  when he says,

“I don’t think there is much spare capacity that would be put to use even if demand were to be buoyant, especially in our open economy. Much capital – human and physical – isn’t lying idle but has been destroyed. There is a mismatch between people and jobs. The lost output and potential growth is gone forever.”

Where I disagree is not so much in terms of economics, but in in the power human nature, when optimism and confidence take hold.

While I agree that the spare capacity in the economy is gone. I disagree that the majority of supply-side growth will come from imports. Sure, our addiction to imported goods will continue.  There’s reasonable evidence that there’s some rebuilding of capacity occurring in the UK. John Lewis repatriating textile manufacture back to the UK, being one such example.

The aim of the ‘forward direction’ on interest rates is aimed at boosting confidence in all aspects of the economy. Optimism and confidence are the vital underpinnings to rebuild the lost capacity in the economy. The shape of our economy has changed forever, we’re in a post industrial phase of development. It’s the services sector, including media and high tech parts that will provide the balancing export wealth to pay for the imports.

I agree that the new policies of the Bank of England contain risks. But the twin focus on employment rate, and interest rate should be given a chance to work.

Emerging economies not so healthy

For the last few years there’s been considerable talk about the strength of emerging economies, and how they’re the saviour of the world’s economy.

It’s true there has been startling growth in the BRICS economies [Brazil, Russia, India, China, and South Africa]. While I believe this optimism has clouded certain realities about the nature of the societies in those countries, where there remain unresolved huge cultural and structural issues.

As the world’s first post-industrial economy, I think we should be combining that experience with our trading relations. Not in condescending way, but from painful experience. Look back to Victorian times where we overcame pernicious things like child labour exploitation, and developed local government. Education is always part of the answer. Maybe we should think about establishing branches of our colleges and universities overseas, in addition to attracting overseas students here.

Let’s look at each of the BRICS:

• In Brazil growth has stalled, while issues around sanitation, and housing remain unresolved.
• Russia ranks poorly for innovation, and its institutions are sclerotic, although that hasn’t stopped Germany stealing a march on the rest of the western economies in building strong trading relations.
• India’s growth is faltering held back by endemic corruption, bureaucracy and indecision.
• China is hostage to finding employment for its huge population. Maintaining growth is proving difficult.
• Even South Africa provides no rosy outlook. Unemployment blights the economy. Collective bargaining is immature leading to paralysing strikes.

Optimism is fine. Realism is its fairest check.

Capital conomics win the Wolfson Economics Prize

Lord Wolfson, chief executive of fashion chain Next, put up £250,000 for the Wolfson Economics Prize in November 2011. The aim of the competition was to ask economists around the world to produce a workable solution to the following question:

“If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?”

Why is the question important? In the design of EMU no mechanism was created for any member to leave. The aim of the prize was to suggest a solution to this problem.

Roger Bootle and a team from Capital Economics were declared winners of the prize on Thursday. The winning entry is HERE.

Geopolitical intelligence on France

I’ve said before that I’m a reader of the Zero Hedge blog. The cautions when reading this blog are it’s all about finance and the world economies, a lot of which is arcane, and a good many of the posts are about financial Armageddon.

Given that, they leaven this focus with snippets of information garnered from interesting sources. Here’s one succinct nugget, from Stratfor, see HERE for a video about France’s geographic challenge.

UK debt position: work in progress

This report by McKinsey Global Institute on Debt and deleveraging: Uneven progress on path to growth, shows how the  UK has work to do to reduce debt. This graph for the report shows just how much more work we have to do.

Now for some serious stuff

Over the Christmas and New Year break I looked for alternative financial blogs to feed my appetite for interpretations of the state of the world economy.

The reason was that the FT’s Alphaville team stopped posting on December 23rd, only to return to work today. Therefore, I’ve found some seriously good financial websites and blogs. Here’s my short selection,

1. Zero Hedge – unquestionably, this is a must visit site for coverage on the world economy.
2. Abnormal Returns – a twice-daily linkfest of the key financial news
3. The Epicurean Dealmaker – oh, how I wish I could enliven my blog posts as this blog does with such wonderful quotations and images to die for. 
4. FT Alphaville – hadn’t the heart to exclude them from my list.

There are others that I dip into occasionally, such as The Big Picture, and The Oil Drum for all things oil related.

Index of Economic Freedom

Perhaps a bit heavy for a gloriously sunny Friday, but here’s an interesting index – Index of Economic Freedom – about our national performance on economic freedom, relative to other nations.

Looks like we’re moving in the wrong direction, which the Index sees as mostly resulting from high taxes and excessive government spending.

Fascinating to see even though the UK is 16th that Germany are 23rd, and France a lowly 64th.

Time for tin hats

Markets are currently extremely volatile. So, definitely time for tin hats. There’s not a lot of good news around, and continued bad news erodes market confidence. Four big issues overhang the market, each of which have no immediate signs of being resolved.

They are in no particular order,

1. The weakness of many countries economies, where the level of sovereign debt is too high coupled with unaffordable social policies where national spending is greater than national income.
2. The fiscal and economic policies of the USA, or perhaps we should say the vocal and divergent views on what these policies should be. Economic policy weakness in the world’s largest economy isn’t good for market stability.
3. Doubts over the  future of the Euro. The market is applying pressure to resolve the essential unresolved policy failure at the time of its creation – that of no mechanism to allow any member of the Euro area to use its own monetary policy to regain lost market competitiveness by devaluing its currency.
4. The failure to introduce effective global banking and market regulation.

I think volatility is set to remain, primarily because of political weakness. Where politicians show courage in facing up to unaffordable social  policies, as in Ireland, then the economy shows signs of improvement. The Irish Economy has a link to a super Google data visualisation – worth a look HERE [play around with the bottom slider].

My solution for Friday is Keep Calm and Carry On. I’ve pinched The Reformed Broker’s recent idea to offer up Crosby, Stills, Nash, and Young’s great song – Carry On.