Friday, July 31, 2015

How hard is it to start a business in the US?

The Financial Times laments the fall of America, from 7th to 46th on the ease of starting a business:

One important reason for this dismal position is that in America entrepreneurs need, on average, to navigate six different legal and regulatory hurdles to start a company. In New Zealand and Canada, which top the league, there is just one procedure. The complexity faced by Americans means that it takes them on average about six days to create a start-up; in many other countries the process is much faster and cheaper.

I give credit to President Obama for flagging the issue in regards to occupational licensure,

Five decades ago, occupational licences were required only in specialist arenas such as nursing. But, in recent years they have proliferated so dramatically that a quarter of all American workers must secure one from individual states. Sometimes this is justified: airline pilots need licences. But often, as in the three years of training needed to become a security guard in Michigan or the thousands of hours required for hairdressers in Utah, the rationale is less clear.

but wish he were more aware of the many regulations he has promulgated that have the unintended effect of making it more difficult to do business.

Friday, July 24, 2015

What's up with emerging markets?

The WSJ reports on an interesting puzzle:  While emerging market currencies have fallen, ...

The Brazilian real has lost one-third of its value in the past 12 months, and is just above a 12-year low. Indonesia’s rupiah hit a fresh 17-year low against the dollar Thursday, while Thailand’s baht accelerated its recent slide, hitting its weakest in more than five years. Earlier this month, the Malaysian ringgit hit its lowest level since 1999; it is down 13.6% since the start of 2014.

...their exports have not picked up.  A weaker currency is supposed to make exports cheaper, and imports more expensive, so the "current account balance" (exports-imports) should improve, and stimulate the domestic economy.

The answer to the puzzle is declining demand in China:

These countries, especially those reliant on export-led growth models, “are being forced to adjust to weak external demand, low commodity prices and a rebalancing in China,” said Alex Wolf, an emerging-markets economist at Standard Life Investments.

Remember that causal statements in economics, like "a weaker currency implies an increase in exports," are sometimes masked by other causal forces. In this case a slowdown in China, a major trading partner, has led to a decline in demand for their exports, which has more than offset the increase in demand caused by a weakening currency.

When describing causality, economists sometimes use latin jargon (to make us sound more learned than we really are) "ceteris paribus," meaning "holding everything else constant." In other words, if China demand for emerging country exports had not declined, we would have seen emerging country exports increase.

Tuesday, July 21, 2015

Finland: the cost of using the euro

NY Times reports that Finland’s economy has faced a number of shocks:  the collapse of its biggest trading partner (Russia); a decline in demand of its biggest export (trees); and the decline in demand for the product of its largest employer (Nokia).

 This has resulted in 11.8 percent unemployment rate and with contracting G.D.P. in each of the last three years. If Finland had its own currency, the markka, it would have fallen relative to the Eurozone, made its exports cheaper and its imports more expensive, which would have cushioned the shocks.
Suddenly other Finnish industries would have had a huge cost advantage over, say, German competitors, and they would have grown and created the jobs to help make up for those lost because of Nokia and the paper industry and Russian trade.

Renminbi's rise against the dollar

FT has a nice article on the rise of the yuan against the dollar:
The renminbi’s rise also helped China’s trade surplus to fall, easing tensions with other countries, notably the US, and slowing its accumulation of dollars.

Wednesday, July 8, 2015

Moody's weighs in on Nashville Mayoral Race...

...albeit indirectly, when they downgraded Nashville's debt last year. (It is as if Moody's had been reading my blog posts on Nashville's unfunded pension problems).  In any case, David Fox seems like the only candidate interested in addressing the issue.

TRUTH IN BLOGGING DISCLOSURE:  I am leaning towards Fox, and his wife is a former student.

Friday, July 3, 2015

Why are all the productive people leaving Puerto Rico?

Its the incentives:

For those who stay, rich welfare benefits provide a disincentive to work. A household of three can receive $1,743 per month in food stamps, Medicaid, utility subsidies and welfare compared to minimum-wage take-home pay of $1,159.

So the generous safety net makes it more profitable to not work.

Employers are required to provide 15 days of vacation and 12 sick days annually and a $600 Christmas bonus. Government employees make up a quarter of the island’s workforce.

In addition, the employer mandates raise the cost of employing people so there employers are leaving the island as well.