The recovery in trade by The Economist‏

Artículo sobre la recuperación del comercio mundial. Leer también comentarios.

Defying gravity and history

Despite dire predictions of a repeat of the 1930s, trade is bouncing back

DURING the Great Depression, America’s protectionist Smoot-Hawley Act of 1930 raised tariffs on more than 900 goods. A series of retaliatory actions by other countries followed. The effect on global commerce was devastating. In the three years to June 1932, the volume of world trade shrank by over a quarter. No wonder, then, that the spectre of the worst recession since the Depression led many to fear another descent into protectionism and a similar decline in trade.

At first, the recession did hit trade hard. Global GDP fell by 0.6% in 2009 while the volume of world exports dropped by 12.2%. But whereas the Depression saw trade decline for at least four years, this time the rebound has been quick, and sharp. By May this year, emerging-economy members of the G20 were importing and exporting around 10% more than their pre-crisis peaks (see chart). Rich-world trade has recovered from the trough too, though it has not yet made up all the ground lost since the credit crunch began.

Trade has not been devastated by the raft of protectionist actions taken during the downturn. According to the World Bank, the rise in tariffs and anti-dumping duties explains less than one-fiftieth of the collapse in world trade during the recession. For the most part, the fall in trade reflected a drop in demand.

There is even some evidence that activity has rebalanced from the lopsided trade pattern that existed just before the crisis. Then, the share of emerging-world imports that came from rich countries had been on a steadily declining path. But now demand from emerging economies is helping to prop up rich-world exports to a larger degree than is commonly realised. According to IMF figures, of nine emerging markets in the G20, seven got a higher share of their imports from rich countries in 2009 than they did a year earlier. Just 59% of China’s imports came from rich countries in 2008, but this rose sharply to 66% in 2009. India obtained 42% of its imports from rich countries in 2008, but last year this rose to 47%.

That mutually beneficial pattern points to the importance of both rich and poor countries keeping their markets open, so that growth in one part of the world can help stimulate a recovery elsewhere. Yet the pressure to protect domestic industry and jobs will only grow as unemployment remains stubbornly high. At the moment, countries have plenty of room to raise tariffs without falling foul of their multilateral commitments.

Reducing this wiggle room means reviving the Doha round of trade talks, which began in 2001 and collapsed in a bout of finger-pointing in July 2008. At the most recent G20 summit in Toronto, the commitment to conclude the deal by the end of 2010 was quietly dropped from the leaders’ communiqué.

Despite this, the WTO’s chief, Pascal Lamy, remains upbeat. On July 27th he said that “after some months of impasse in the negotiations…we are beginning to see signs of a new dynamic emerging.” He is not alone in sensing a change for the better. Christopher Wenk of the US Chamber of Commerce, which represents American business interests, reckons that “there really has been a shift in the mood.” That partly reflects a change in America’s stance. It took Barack Obama until April this year to appoint Michael Punke as America’s ambassador to the WTO. “Until recently, it was difficult for business to say with a straight face that the administration was serious about trade,” says Mr Wenk.

Yet whatever the mood music, the gaps between what different countries expect from further negotiations seem only to have grown wider. America believes that inking a trade deal that results in little fresh liberalisation is pointless. But India’s recently-departed ambassador to the WTO, Ujal Bhatia, says that the focus should be on “capturing liberalisation that has [already] happened autonomously”, rather than striving for further opening. China’s position is pretty similar.

Without tangible benefits in terms of new market access, however, America’s administration will find it difficult to sell any deal on Doha back home, particularly given a stuttering economic recovery. It is said to be urging the likes of China and India to commit to much deeper cuts in their tariffs on manufactured-goods imports than were proposed earlier. One Indian official suggests that some flexibility might be forthcoming.

A deal could actually be made easier by bringing other industries into the talks. Mr Punke argues that “services need to be a bigger part of the discussions,” which have so far largely concentrated on agriculture and manufactures. Aaditya Mattoo, a trade economist at the World Bank, believes that offers on services could help break the deadlock in the Doha talks. For instance, India’s thriving outsourcing industry relies on access to the American market. An offer to firm up the legal status of that access might make India more willing to compromise on matters like agriculture: its intransigence on farm trade was blamed for the collapse of the talks in July 2008.

Unfortunately success also depends on an end to the impasse between America and China, whose trade relations seem stuck. Mr Punke is downbeat, saying “there are no suggestions from China for a fruitful mechanism, only the same talking-points repeated.” If the bounce back in global trade since the crunch has been surprising and encouraging, the sheer slog involved in trade negotiations is all too familiar and depressing.

Religious attendance by The Economist‏

Noticia sobre la atención a ceremonias religiosas en paises europeos.

Europe's irreligious:

In which European countries are people least likely to attend religious services?

Aug 9th 2010

THE proportion of people who regularly attend religious services has declined steadily throughout Europe in recent years. But habits vary widely across countries. According to the latest European Social Survey conducted in 2008 and 2009, over 60% of Czechs say they never attend religious services, with the exception of “special occasions” such as marriages and christenings. France, Britain and Belgium are also secular nations, with over half of respondents never going to services. The most regular attenders among the 28 countries polled are in Cyprus and Greece, where only 2.4% and 4.9% respectively say they do not go to church.

Agents of change by The Economist

Artículo sobre modelos para predecir crisis económicas.

Destaco:

Critics tend to agree on what is wrong with current macroeconomic forecasting. A hearing of the House of Representatives Committee of Science and Technology on July 20th targeted the “dynamic stochastic general equilibrium” (DSGE) models used by the Federal Reserve and other central banks. The hearing aimed to “question the wisdom of relying for national economic policy on a single, specific model when alternatives are available.” The Institute for New Economic Thinking in New York, which had its inaugural conference in April, has attacked many of the assumptions, including efficient financial markets and rational expectations, on which these models are predicated. These assumptions were clearly too simplistic. But there is less agreement on what should replace the old ways.

One of the most promising options was the topic of a workshop in Virginia at the end of June. The workshop was funded by America’s National Science Foundation and attended by a diverse bunch that included economists from the Fed and the Bank of England, policy advisers and computer scientists. They were there to explore the potential of “agent-based models” (ABMs) of the economy to help learn the lessons of this crisis and, perhaps, to develop an early-warning system for the next one.

At the workshop Andrew Lo of the Massachusetts Institute of Technology presented a model of the American housing market, inspired by ABM approaches, which showed how a fateful conjunction of rising house prices, falling interest rates and easy access to refinancing created an awesome burden of debt.

ARTÍCULO:

Conventional economic models failed to foresee the financial crisis. Could agent-based modelling do better?

MAINSTREAM economics has always had its dissidents. But the discipline’s failure to predict the financial crisis has made the ground especially fertile for a rethink.

Critics tend to agree on what is wrong with current macroeconomic forecasting. A hearing of the House of Representatives Committee of Science and Technology on July 20th targeted the “dynamic stochastic general equilibrium” (DSGE) models used by the Federal Reserve and other central banks. The hearing aimed to “question the wisdom of relying for national economic policy on a single, specific model when alternatives are available.” The Institute for New Economic Thinking in New York, which had its inaugural conference in April, has attacked many of the assumptions, including efficient financial markets and rational expectations, on which these models are predicated. These assumptions were clearly too simplistic. But there is less agreement on what should replace the old ways.

One of the most promising options was the topic of a workshop in Virginia at the end of June. The workshop was funded by America’s National Science Foundation and attended by a diverse bunch that included economists from the Fed and the Bank of England, policy advisers and computer scientists. They were there to explore the potential of “agent-based models” (ABMs) of the economy to help learn the lessons of this crisis and, perhaps, to develop an early-warning system for the next one.

Agent-based modelling does not assume that the economy can achieve a settled equilibrium. No order or design is imposed on the economy from the top down. Unlike many models, ABMs are not populated with “representative agents”: identical traders, firms or households whose individual behaviour mirrors the economy as a whole. Rather, an ABM uses a bottom-up approach which assigns particular behavioural rules to each agent. For example, some may believe that prices reflect fundamentals whereas others may rely on empirical observations of past price trends.

Crucially, agents’ behaviour may be determined (and altered) by direct interactions between them, whereas in conventional models interaction happens only indirectly through pricing. This feature of ABMs enables, for example, the copycat behaviour that leads to “herding” among investors. The agents may learn from experience or switch their strategies according to majority opinion. They can aggregate into institutional structures such as banks and firms. These things are very hard, sometimes impossible, to build into conventional models. But in an agent-based model you simply run a computer simulation to see what emerges, free from any top-down assumptions.

Although DSGE models are also based on microeconomic foundations, they accept the traditional view that there exists some ideal equilibrium towards which all prices are drawn. That this is often approximately true is why DSGE models perform well enough in a business-as-usual economy. They do badly in a crisis, however, because their “dynamic stochastic” element only amounts to minor fluctuations around a state of equilibrium, and there is no equilibrium during crashes.

ABMs, in contrast, make no assumptions about the existence of efficient markets or general equilibrium. The markets that they generate are more like a turbulent river or the weather system, subject to constant storms and seizures of all sizes. Big fluctuations and even crashes are an inherent feature. That is because ABMs contain feedback mechanisms that can amplify small effects, such as the herding and panic that generate bubbles and crashes. In mathematical terms the models are “non-linear”, meaning that effects need not be proportional to their causes.

These non-linearities were clearly on show in the credit crunch. At the workshop Andrew Lo of the Massachusetts Institute of Technology presented a model of the American housing market, inspired by ABM approaches, which showed how a fateful conjunction of rising house prices, falling interest rates and easy access to refinancing created an awesome burden of debt. John Geanakoplos of Yale University explained how the debt cycle in remortgaging—high amounts of leverage during booms, low amounts during recessions—can act like an out-of-control pendulum to create instability. Sujit Kapadia of the Bank of England is trying to model the web of interdependencies created by the use of complex derivatives. These “network-based vulnerabilities” are just the kind of thing that ABMs are good at capturing.

Model behaviour

Another big lesson of the crisis is the role of interactions between different sectors of the economy—housing and finance, say. Although conventional models can incorporate these, ABMs may be better tailored to modelling specific sectors. The organisers of the Virginia workshop—Doyne Farmer of the Santa Fe Institute and Robert Axtell of George Mason University—wanted to explore the feasibility of constructing an immense ABM of the entire global economy by “wiring” many such modules together.

What might be required for such an enterprise? One vision is a real-time simulation, fed by masses of data, that would operate rather like the traffic-forecasting models now used in Dallas and in the North Rhine-Westphalia region of Germany. But it might be more realistic and useful to employ a suite of such models, in the manner of global climate simulations, which project various possible futures. In either case, the models would need much more data on the activities of individuals, banks and companies.

Such data-gathering raises privacy fears but is essential. Seismologists may not be able to forecast earthquakes precisely but it would be deplorable if they were to resign themselves to modelling just the regular, gradual movements of tectonic plates. Instead they have developed ways of mapping the evolution of stress patterns, identifying areas at risk and refining heuristics for hazard assessment. Why not do the same for the economy?