Monthly Archives: April 2008

Transportation costs and local manufacturing

A question from Yahoo! Answers:

Will higher fuel prices lead to more manufacturing and agriculture in the US.?

For decades cheap transportation has made globalization possible. Quality manufacturers were always global. You still have to go to Italy to get the best shoes. At one point do risk combined with fuel costs make it cheaper to have it made locally again?

You seem to be under an impression that in the recent years there has somehow been less manufacturing and agriculture in the U.S. than before. This is simply not true. There is more manufacturing and agriculture in the U.S. today than ever before. However, both manufacturing and agriculture in the U.S. are increasingly mechanized and automated, so expansion in manufacturing and agriculture is accompanied by job loss. Since early 1960s, the contribution of manufacturing to GDP remains stable (16-17%), while the percentage of workforce employed in manufacturing fell from 27.7% in 1962 to 11.5% in 2002. Agricultural employment has shrunk even more dramatically. In 1870, half of the U.S. workforce was employed in agriculture. By 1920, the percentage dropped to a quarter. Now, it’s about 3%.

The process is global and affects both high- and low-income countries. Between 1995 and 2002, the world’s manufacturing output increased 30 percent, while the number of manufacturing jobs worldwide has decreased (the number of manufacturing jobs fell by 11% in the U.S., by 12% in both Russia and South Korea, by 15% in China, by 16% in Japan, and by 20% in Brazil).

To return to your question, to have something “made locally again” would generally require more transportation. You brought up shoes, so let’s think about shoes. Right now, shoes are transported internationally. The alternative is to transport internationally cow hides, plastics, and glue, which weigh more than shoes… In the long-run, local supply chains could re-emerge in response to rising transportation costs (beef slaughter and leather tanning could become local again, thus enabling local shoemaking), but that would be a process that can easily take decades… One thing to think about though is that the centralization of beef slaughter has occurred all the way back in mid-19th century, when transportation costs were way higher than today, so in order for the centralization to reverse, transportation costs must rise to pre-1850 levels.

Swapping images dynamically

In response to a question from Yahoo! Answers, here’s a little JavaScript snippet that dynamically (and randomly) swaps images:

For those who want to see how it works, here’s an HTML file with relevant code.

Paul Krugman’s backstory of “Limits to Growth”

Paul Krugman writes:

I’ve been getting some correspondence asking me where today’s resource concerns fit with the old “Limits to growth” stuff that received a lot of publicity 30+ years ago. Actually, there’s a bit of a backstory there.

In 1973-4, my junior and senior years in college, I was Bill Nordhaus’s research assistant, working on energy issues. (This is the same Bill Nordhaus who warned back in 2002 that the cost of the Iraq war would probably be a lot higher than the Bushies were letting on.) I spent much of the summer of 1973, in particular, in Yale’s wonderful geology library — though the real import of what I learned there didn’t sink in for a while, as I’ll explain in a bit.

Nordhaus, among other things, wrote a hostile review of Jay Forrester’s World Dynamics, which led to the later Limits to Growth. The essential story there was one of hard-science arrogance: Forrester, an eminent professor of engineering, decided to try his hand at economics, and basically said, “I’m going to do economics with equations! And run them on a computer! I’m sure those stupid economists have never thought of that!” And he didn’t walk over to the east side of campus to ask whether, in fact, any economists ever had thought of that, and what they had learned. (Economists tend to do the same thing to sociologists and political scientists. The general rule to remember is that if some discipline seems less developed than your own, it’s probably not because the researchers aren’t as smart as you are, it’s because the subject is harder.)

As a result, the study was a classic case of garbage-in-garbage-out: Forrester didn’t know anything about the empirical evidence on economic growth or the history of past modeling efforts, and it showed. The insistence of his acolytes that the work must be scientific, because it came out of a computer, only made things worse.

All this is old history. But there’s something else I learned from that summer, which is important.

Much of what I did back then was look for estimates of the cost of alternative energy sources, which played a big role in Nordhaus’s big paper that year. (Readers with access to JSTOR might want to look at the acknowledgments on the first page.) And the estimates — mainly from Bureau of Mines publications — were optimistic. Shale oil, coal gasification, and eventually the breeder reactor would satisfy our energy needs at not-too-high prices when the conventional oil ran out.

None of it happened. OK, Athabasca tar sands have finally become a significant oil source, but even there it’s much more expensive — and environmentally destructive — than anyone seemed to envision in the early 70s.

You might say that this is my answer to those who cheerfully assert that human ingenuity and technological progress will solve all our problems. For the last 35 years, progress on energy technologies has consistently fallen below expectations.

I’d actually suggest that this is true not just for energy but for our ability to manipulate the physical world in general: 2001 didn’t look much like 2001, and in general material life has been relatively static. (How do the changes in the way we live between 1958 and 2008 compare with the changes between 1908 and 1958? I think the answer is obvious.)

But anyway, while the Limits to Growth stuff of the 1970s was a mess, the history of energy technology doesn’t support extreme optimism, either.

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Making WordPress Private

Every once in a while, it may be necessary to build a WordPress-powered site only accessible to registered users. Interestingly, a very simple theme hack can take care of this. All you need to do is to include the following PHP code into the current theme so that it is executed before the output begins:

global $user_ID; 
get_currentuserinfo(); 
if ($user_ID == '') { 
  header('Location: ' . 
    get_bloginfo('wpurl') . 
    '/wp-login.php?redirect_to=' . 
    rawurlencode($_SERVER["REDIRECT_URL"])); 
  die(); 
}

Generally, a good place to put this code is the header file, although this will ultimately depend on the theme.

Essentially, this snippet checks if the user is logged in and if not, redirects the browser to the login page, while also telling the login page what page the user wanted to retrieve, so that the user could be redirected there after successful login.

A later addition: Sure enough, someone actually created a plugin that addresses this very problem…

Dani Rodrik on financial innovation and financial crises

Dani Rodrik writes:

Carmen Reinhart and Ken Rogoff’s new paper (summary here) makes the obvious but important point that financial globalization and financial crises are related. In their words, “Periods of high international capital mobility have repeatedly produced international banking crises, not only famously as they did in the 1990s, but historically.” Here is the picture that is words a thousand words.

[expand_image: http://www.myvirtualdisplay.com/wp/wp-content/uploads/2008/04/cm_bc_small.png http://www.myvirtualdisplay.com/wp/wp-content/uploads/2008/04/cm_bc.png]

Now what is important about this conclusion is that it runs counter to a growing piece of conventional wisdom in the academic literature, namely that there is no relationship between propensity to financial crisis and openness to foreign capital flows. Rogoff himself (with co-authors) wrote in an earlier survey: “In sum, there is little formal empirical evidence to support the oft-cited claims that financial globalization in and of itself is responsible for the spate of financial crises that the world has seen over the last three decades.”

I think the difference may be between cross-sectional and historical evidence: the latter shows a close correlation, but this does not mean (perhaps) that the countries that experience the most crises during periods of high capital mobility are necessarily those that are financially the most open.

There is also a possibility that we are observing what essentially amounts to learning by trial and error; in newly liberalized nations, both market participants and regulators are new to the game they are playing, so they make the same mistakes over and over again and for a while get away with them, simply because the environment is forgiving, until something changes abruptly and the forgiving environment is no longer there.

In mid-1990s Russia, for example, both the banking sector and the central government carried a lot of dollar-denominated liabilities, but their assets were largely ruble-denominated. When oil prices fell, the government lost a substantial part of its revenue and had to both default on its bonds and devalue the ruble, with the latter instantly rendering the banking sector insolvent.

In retrospect, maintaining currency neutrality should have been one of the goals of banking regulation, but there was a competing agenda: Russian regulators actively sought to prevent capital flight, so requiring banks to carry foreign assets to offset their exposure to foreign liabilities would require wholesale abandonment of not only a large body of law, but also of institutions created to enforce it.

Outsourcing to India: the other side

About two years ago, Brad DeLong mused about outsourcing to India:

So what will the U.S.’s comparative advantage be? And how will it use that comparative advantage as a base to keep upgrading the productivity of America’s workers?

To which I thought I had an answer:

The answer to the last question, I think, is rather obvious: capital goods. India needs a massive infrastucture upgrade almost in every area imaginable: from water and electricity to air traffic (except, perhaps, telecommunications, where India has made enormous strides in recent years). Add to it a badly undercapitalized agriculture, and the picture is complete.

Well, this just in:

U.S. Ex-Im OKs $2.2B Indian Facility

Apr-21-2008 | Source: Trade Finance

U.S. Ex-Im has approved a $2.2 billion Indian Infrastructure Facility that will support U.S. exports to Indian projects in sectors such as power and renewable energy generation, oil and gas development, small aircraft, airport development and health care.

Under the facility, eight Indian financial institutions provide their guarantees to expedite processing of U.S. Ex-Im-backed medium-term and long-term financing for Indian buyers of U.S. exports. Each financial institution has an underlying pre-approved credit line of $50 to $250 million, and one lender, Power Finance Co., has a pre-approved line of $800 million. Financing provided under the facility is denominated in U.S. dollars.

The Indian financial institutions participating in the facility are Power Finance Co. (PFC), Infrastructure Development Finance Corp. (IDFC), Industrial Development Bank of India (IDBI), India Infrastructure Finance Co. Ltd. (IIFCL), State Bank of India (SBI), Infrastructure Leasing & Financial Services (IL & FS), India Renewable Energy Development Agency (IREDA) and Punjab National Bank.

“There is a rising demand for U.S. goods and services in India because of their high quality and competitive prices,” says U.S. Ex-Im chairman and president James Lambright. “This new facility will help Ex-Im Bank to work with major Indian lenders to provide dollar-denominated financing for U.S. exports to India’s current and future infrastructure projects.”

India’s Ministry of Finance has estimated that more than $500 billion will be needed to finance development of India’s infrastructure. To facilitate financing for U.S. exports for Indian projects, Ex-Im Bank has been working to establish partnerships with business, government and financial institutions in India. In October 2007, U.S. Ex-Im chairman Lambright participated with U.S. Treasury Secretary Henry Paulson in the U.S.-India CEO Forum Infrastructure Investment Conference in Mumbai. Last month, U.S. Ex-Im board member Diane Farrell and staff conducted business development meetings, focusing on small and medium-sized enterprises, with officials in Hyderbad, Pune, Mumbai and New Dehli.

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Capital goods indeed…

Paul Krugman wants to be a songwriter

Paul Krugman writes:

Oh my God. How could I have missed the fact that Suzanne Vega is blogging for the Times?

In my next life I want to be a songwriter — precisely because I can’t imagine how it’s done. I’d give up the whole first page of my Google Scholar listing to have written “The Queen and the Soldier.”

Well, the song may well be worth it:


This particular performance is from the 1997 Das Fest in Karlsruhe.

Eugenics and evolutionary theory

A question from Askville:

Is eugenics rooted in and inspired by evolutionary theory?

The New Oxford American Dictionary defines eugenics as “the science of improving a human population by controlled breeding to increase the occurrence of desirable heritable characteristics. Developed largely by Francis Galton as a method of improving the human race, it fell into disfavor only after the perversion of its doctrines by the Nazis.”

I would say that eugenics is rooted in misunderstanding evolutionary theory…

Evolution theory postulates that only the fittest (meaning, the best adapted to the surrounding environment) survive. Human beings, however, inhabit many natural (and quite a few artificial) environments, so there is no single set of traits that ensures survival in all circumstances. So for the human race to survive, it must remain diverse, if for no other reason, then simply because its habitats are diverse. Eugenicists never understood it…