Thursday, October 3

Retirement planning, may your eyes glaze over

We release this report every year. And it scares me every year..I quote:

Our findings reveal that 39% of UK respondents who are retirees think that they failed to prepare adequately

In this report we can see how a new retirement landscape is slowly emerging. The desire to live a full life after work can be seen in the widely held aspirations for healthy and prosperous retirement. People also aspire to leave a positive financial legacy for their children and grandchildren, during retirement and through inheritances.

Yet such goals are being put at risk by a failure to prepare adequately. Indeed, many of those in retirement regret not having saved more when they were younger, or having retired too soon, and in this report they share the impact those decisions are having on achieving their retirement aspirations.

At present, large numbers of people in the UK are doing nothing about the potential shortfall in their retirement. But by taking the first steps, by planning for the future and getting financial advice, you can build towards the type of retirement you want.

You can click here to test how you did compared to your peers.

This worries me tremendously, so that’s why we have started a small pension pot for the kids now. Who knows what they will end up in 60 years but as the quote goes, I am planting an acorn now for my grandkids to play under the shade.

Wednesday, October 2

How can one of the richest nations be so poor?

Spain is a strange country, at least from an economic perspective. It earned tons of money, had high education, etc. etc. See here, here and here for some more information on this.

But still ended up in comparative poverty. Why? This article explains a bit more on the history behind this issue.

The timing of and reasons for Spain's decline have been subjects of ongoing debate since Earl Hamilton's seminal contribution, and attempts have been made at quantifying Spain's relative position over time.2 It has recently been suggested that Spain had attained affluence prior to its American expansion, and that this increased throughout the sixteenth century, so that by 1590 it was among the top countries in Europe in per capita income terms.3 This finding raises the crucial question of when, and why, Spain achieved such early prosperity.

This article provides a tentative answer by examining Spain's comparative performance over the half-millennium between the end of the Reconquest (1264) and the beginning of modern economic growth by the mid-nineteenth century.4 It proceeds, first, by estimating trends in output. Specifically, movements in agricultural output are drawn using an indirect demand approach (section II), while those in industry and services are proxied through changes in urban population not living on agriculture (section III). Thus, trends in per capita output over the period 1280–1850 are obtained (section IV).5 A re-examination of Spain's relative position within western Europe closes the article.

From our quantitative exercise we conclude that two distinctive regimes appear to exist in preindustrial Spain. The first one (1270s–1590s) corresponds to a high land–labour ratio frontier economy, largely pastoral, trade-oriented, and led by towns. Wage and food consumption levels were relatively high. Sustained per capita growth took place from the 1270s, after the de facto end of the Reconquest (figure 1), until the 1340s, when the Black Death (1348) and the Spanish phase of the Hundred Years War (1365–89) interrupted it. Growth resumed, then, only interrupted by late fifteenth-century political turmoil. The second regime (1600s–1810s) corresponds to a more agricultural and densely populated, low-wage economy, with growth occurring along a lower path.

Thus, Spanish relative affluence by 1492 can be tracked down to the pre-Black Death era. Unlike most of western Europe and the eastern Mediterranean, where the highest standards of living of the pre-industrial era were achieved after recovering from the plague by the mid-fifteenth century, in Spain the peak level of output per capita was reached in the 1340s. In pre-plague Spain, Malthusian forces were mostly absent except for a few, if any, areas along the Mediterranean coast. Sustained progress took place after the Reconquest in the context of a frontier economy, urban expansion, and openness to trade. Although its death toll was lower, the plague had a much more damaging impact in Spain than in western Europe since, far from releasing non-existent demographic pressure on land, it destroyed the equilibrium between scarce population and abundant resources. Pre-Black Death per capita income levels were temporarily recovered by the late sixteenth century, but were only exceeded after 1820.

Thus, the fall in output per capita in the late fourteenth century and, again, in the early seventeenth century represent two major steps in Spain's (absolute and relative) decline. Later, in the early nineteenth century, although demographic expansion was paralleled by an increase in GDP per capita, paradoxically the relative decline of Spain deepened.

So the plague was to blame for some of Spain’s issue with economic growth. Still no clear answer and needs much more analysis, I am afraid.

Tuesday, October 1

How India lost the cotton war to the British

First the paper.

During the early modern period, India was the world's main producer of cotton textiles, with a substantial export trade. Indian textiles were exported to Britain on a large scale from the seventeenth century.2 By the early nineteenth century, however, Britain had become the world's most important cotton textile producer, dominating world export markets, and even exporting to India.3 This dramatic change in international competitive advantage, which must surely rank as one of the most important developments of the industrial revolution period, is often described entirely in terms of developments within Britain, without any reference to India, and with little or no reference to factor prices.4 This paper attempts to redress the balance.


As early as the seventeenth century, an unskilled labourer earned four to five times as much in Britain as in India.10 In the middle of the nineteenth century, an unskilled labourer earned less than twice as much in America as in Britain.11 Similarly, the British unskilled silver wage during the second half of the eighteenth century was also less than twice as high as in much of western Europe.12 The Anglo-Indian factor price comparison is of particular importance in cotton textiles, where India was Britain's major competitor. ………However, there appears also to be a second reason, arising from a reluctance to characterize Britain as a high-wage economy during the industrial revolution, a period where the focus has been on the slow growth rather than the high level of British wages…….The story of Anglo-Indian competition in cotton textiles begins with the growth of cloth imports into Britain via the East India Company from the seventeenth century. The new cloths, patterns, and designs became increasingly fashionable and thus threatened the livelihood of domestic producers of fine woollens and linens, which were the closest substitutes for printed cottons from India.17 The pressure from these groups led to protective legislation that remained in force between 1701 and 1774, and opened up new opportunities for British manufacturers via a strategy of import substitution.18 However, high silver wages in Britain meant that cotton textiles produced domestically using labour-intensive production methods could not compete with Indian goods in third markets. This stimulated a two-stage process of technological change.

First, high wages led to the adoption of a more capital-intensive technology in Britain. Second, this choice of technology resulted in a faster rate of productivity growth in Britain, because of the greater incentive to devote resources to improving technology where capital intensity is higher. This is consistent with the positive relationship between capital intensity, resources devoted to research and development, and the rate of technological progress, highlighted in Schumpeterian models of economic growth.19 This effect can be explained partly by the greater learning potential on capital-intensive technology.20 In Britain, however, the effect was amplified by the existence of an effective patent system.21

There was thus a stronger incentive to devote resources to innovation in the machine-intensive industry of Britain, compared with the labour-intensive industry of India. As productivity increased in the machine-intensive British cotton textile industry and stagnated in India, a shift in competitive advantage occurred. However, the shift was delayed in international markets during the late eighteenth and early nineteenth centuries by a temporary rise in raw cotton prices in Britain, as the increase in production put pressure on factor markets. The shift of competitiveness in the Indian market was delayed further by transport costs, which prevented the British from breaking into the Indian market on a large scale until after 1830

And this is again a rather salutary lesson about how one has to keep running after productivity, invest in people, equipment and technology improvements. Also interesting, and something not quite discussed, is how the import protection works. As it did in the 18th century UK.

India does the stupid thing, it has import protection, but doesn't do anything to invest. So the opportunity costs increases all the time and we become poorer and poorer. At this moment, China is eating India’s lunch…guess the old adage, people who do not learn from history are condemned to repeat it.

Monday, September 30

Red Ed – read this

When I read about Ed Milliband doing a Khrushchev by promising price controls, I winced. The economic illiteracy of these people is shocking. More importantly, the entire great unwashed herd of morons who applauded it are also part of this shock. It is true that you can fool some people all the time.

Here’s a fascinating dissertation review which I read recently. I quote:

Berg captures an episode in postwar agrarian politics that is little known to non-specialists: the 1950-51 collective farm amalgamation campaign in which the number of soviet collective farms shrank from 252,146 to 99,400 farms. The significance of this campaign to the central administration of collective farms was immeasurable. While until 1950 the vast majority of collective farms were organic village communities, which Sheila Fitzpatrick calls “collectivized villages” (Stalin’s Peasants: Resistance and Survival in the Russian Village after Collectivization [New York: Oxford University Press, 1994], pp. 10-16, 103-127), most post-amalgamation farms (87.4%) consisted of two to four former farms and some combined as many as ten farms. The new amalgamated collective farm stretched for kilometers on end, often with swamps, forests and rivers separating communities within the same farm. Berg writes of collective farms stretching for four hundred kilometers (p. 165), chairmen who complained that the terrain of their newly constructed farms was impassable in spring and fall and they could not acquire information about the other villages, let alone visit them (p. 194). Needless to say these new collective farms could no longer hold general meetings, discuss and make decisions as one community. Farm chairmen governed populations they did not know and field brigade leaders acquired responsibility over workers working in distant fields.

What brought about this strangely destructive policy? Berg uses James Scott’s concept of authoritarian high modernism to explain the drive to amalgamate collective farms. According to Scott modern states simplify the complexity of the real world in order to make societies governable. Indeed, Berg shows that as early as 1935 district officials complained that the enormous number of collective farms per district made governance impossible. Some were attempting to administer as many as four hundred collective farms (pp. 40-41). Berg shows that until 1950 provinces lacked coherent maps of the districts’ agricultural lands and regional leaders did not know the number of cattle of each farm. Planners designed the amalgamation campaign to render the countryside more “legible” by correcting boundaries between farms, reducing the number of farms and thus the amount of paperwork, and making surveillance of collective farm administration easier. Moreover, a modernist vision propelled the Bolsheviks since the early 1920s to push for larger farm. After all, larger farms were thought to be more prosperous for they used agricultural machinery more efficiently, the state could provide services such as schools, postal deliveries, electricity and radio cheaper. Of course, a smaller number of farms also allowed the state to send “reliable leaders” from the center rather than relying on local chairmen which collective farmers preferred. Berg shows, however, that a combination of political intrigue, lack of resources and collective farmers’ resistance made the amalgamation campaign less than successful.

Having voted Labour 4 times, I very regretfully and holding my nose voted for the Tories last time. And if this moron Red Ed keeps on making such stupid pronouncements and having a policy that has come out of the proverbial backside of an equine, then next time as well the Tories will get my vote.