Saturday, January 5, 2013


Unemployment, in the way that it is currently define, is a modern scourge. Almost by definition  if someone earns his (or her) subsistence by being a farmer, it is hard to be unemployed.
The modern world, that assumes large population in cities, and mostly belonging to the services sectors, depends on demand, either by customers, or by the government.
Alas that demand is not always present, and thus unemployment increases.
Unemployment varies widely in the world, and even within countries. Also unemployment is notoriously hard to measure, but there are some European countries that suffer from high levels of unemployment.
The fact that some European countries have high levels of unemployment, and other European countries do not, make the united Euro currency harder to manage.

Saturday, December 29, 2012

The State Of Germany

As a Jewish Israeli from a European descent, I'm not necessarily too fond of the Germans. This, however, does not prevent me from saying that currently Germany is probably in the best economic state in all of the European Union, and that this has at least two good reasons.
Before I go into the reasons making Germany into the economic success that it is (IMHO), let me state two reasons why Germany could have been an economic failure:

  • WWII and the war reparation that Germany had to pay severely lowered its capital assets, and thus its ability to produce industrial goods.
  • The 1990 reunification of Germany required substantial investment and 'realignment' on the part of the East Germans, not an easy thing to do. For example, besides East Germany not other 'former soviet bloc' country enjoys western levels of economic output.
On the other hand there are at least tow reasons why Germany did succeed in its steady economic growth:
  • In the 1950s and 1960s Germans invested many efforts in regrowing their capital assets. They have succeeded in this as Germany is currently the great 'manufacturing plant' of the European Union.
  • The low Gini coefficient allows Germany to grow without creating some of the economic rifts associated with such growth in other countries.
In short, I wouldn't like to be a German, but there are some undeniable advantages to the proposition...

Wednesday, November 28, 2012

The Gini Coefficient

When I studied for my Economics BA in the early 1990s at the Hebrew University in Jerusalem, we devoted some time and effort to the following four economic variables:

GDP growth.

The theory back in the day (as we studied it) was that if GDP and GDP growth were high, and if inflation and unemployment were low, then everything was fine. The economy was great, and there was nothing further to improve.
Today I come to realize the enormous importance of the Gini Coefficient that measures economic inequality.
The Gini Coefficient is a number between zero and one. If it is zero then income is perfectly equal, if it is one, then one person in the economy has all the income.
As we can see from the map above, some countries (for example in Southern Africa) have very high Gini Coefficients, and some countries (particularly in Northern and Western Europe) have very low Gini Coefficients.
This could help explain why some of these countries are doing so well. We will discuss some of them starting next week.
But for now, and not for the faint of heart, here is an explanation of how to calculate the Gini Coefficient:
Let's say we map the income distribution in a country, we take the income of the lowest person, and then the next one, up to the person with the highest income. This curve, is known as the Lorentz curve.
If income was distributed equally among all people, it would be a straight line with a 45 degree angle:

The Gini coefficient is a measure representing how far is the actual Lorentz curve for the economy  from total equality. If it is far, the Gini Coefficient is large, and if it is close, the Gini Coefficient is small.
The Gini coefficient is a ratio between the teal area in the drawing above, and the area of the triangle below the line of equality.

Tuesday, November 20, 2012

The State of France

The state of France as we speak is probably less glowing than the picture above. For example the Moody rating agency just downgraded the French bonds, meaning that they think the the debt of the French government is less secure, or, in still other words, the government of France will have more trouble paying back its debts than was considered by the same rating agency about a week ago.
Why is that?
Turns out France's GDP is not growing as fast as it did in the past, and according to some the French economy may be contracting in 2012, and also possibly in 2013.
Why is that?
Here is a quote from the wikipedia article about the economy of France:

With 39 of the 500 biggest companies of the world in 2010, France ranks 4th in the Fortune Global 500, behind the USA, Japan and China. Paris is the second most important location in the world for the headquarters of the world's 500 largest companies: there are more Fortune Global 500 company headquarters in Paris than in Beijing, New York, London or Munich, but fewer than in Tokyo.
AXA is one of the world's largest insurance companies; Air France is the world's largest airline company in incomes; L'Oreal is the world's largest cosmetic company; LVMH and PPR are the world's largest and second-largest luxury product companies respectively; GDF-Suez is the world's largest energy company; EDF is the world's largest utility company; Areva is a large nuclear-energy company; Veolia Environnement is the world's largest environmental services and water management company; VINCI, Bouygues and Eiffage are respectively world's 1st, 2nd and 4th building and public work companies; Michelin is the world's pneumatic leader; Lafarge is the world's largest cement company; JCDecaux is the world's largest outdoor advertising corporation; BNP Paribas, Credit Agricole and Societe Generale are respectively the world's 1st, 6th and 8th biggest banks in assets in 2010;
From looking at the biggest French companies, it would seem that many of them depend on trade with other countries, or on the economies of other countries, particularly other countries in the European Union itself.
So if all of the European Union is not doing well, neither will France.
Of course the situation of the French economy is more complex. For instance these huge companies represent only a small part of the French economy, but in order to better understand France, we need to examine other European countries first...

Monday, November 12, 2012

What is GDP?

GDP which is the acronym for Gross Domestic Product, is probably the single most important variable in any economy.
GDP measures the sum total of all goods and services produced in an economy in one year. GDP per Capita is the GDP divided by the number of people in a country (or state, or area, or whatever).
GDP is a rough and ready measure for the total economic power of any nation, and GDP per capita is a rough and ready measure for the standard of living in a country.
of course there are many problems with the measurement of GDP:
  • If GDP is measured in terms of the local currency, inflation, or the change in local prices might effect it.
  • If GDP is measured in US dollars (in any place besides the USA), it is effected by the exchange rate. For example the GDP of China (People's republic of) when measured in dollars might change because of the Yuan Dollar exchange rate, and that might change for reasons having nothing to do (directly) with China.
  • GDP only measures the legal and official economy. One student helping another in school is not measured by GDP, the quality of drinking water is not measured by it, and money paid for illicit drugs is also not measured.
Furthermore, if we were to measure GDP across very different times, we might get puzzling results (more about this next week). But despite all of the qualifications above, GDP is the single most important variable in any economy.

Wednesday, October 31, 2012

Europe Does Not Have One History

As we may see from the map above, there are many European countries, and each one has its own particular history.
In my humble opinion, asking whether the Euro will survive is close to asking whether the many flavors of European history could merge into a single history.
Thus my exploration of this question will jump from place to place in European History, and go backwards in time, all the while trying to explain basic economic concepts along the way.
Sounds confusing, right?
I hope I won't confuse myself.
So now that I've sort of explained what I plan for the future, let me apologize about the irregularity of posting in the recent past:
I have started this blog several months ago, posted in it some general comments about what it is going to be like, and then suddenly stopped.
The reason for this is that I pretty much had to change my whole life around in the past few months.
Suffice it to say that I had a pretty steady income writing curricula for the US education system, and now I more or less work as a teacher in Israel, and studying to get my Israeli teaching licence.
On the one hand that makes me very busy.
On the other hand I do much less writing on a regular basis, so that should leave some more 'writing time' for this blog...
I think I'll be able to post more regularly here, at least in the coming few months.

Wednesday, September 12, 2012

Thoughts About The Euro Crisis

The Jewish calendar will denote the beginning of a new year in only a few days (on Sunday evening, because the Jewish day starts in the evening, but that is not our topic here, at least not for now...).
When celebrating the new Jewish year it is customary to say that: 'The curses of the past year are over, let the new year start with its blessings'.
Certainly one of the curses of the past year was the Euro Crisis, this crisis caused recession that is likely to go on for a while in all of Europe, and has certainly not improved the economic situation in Israel, that has the European Union as its closest trading partner.
At the time of writing this, it's hard to say if the new Jewish year will indeed bring 'blessings' to the Euro zone and to the Euro currency itself.
I tend to be pessimistic about it, but a close friend of mine who has been living in France for a while, tends to be more optimistic.
It's hard to give good economic predictions about anything at all, and the future of the Euro is included. However, I think that the euro crisis is such a complicated crisis that trying to analyze it will illustrate just how complicated true economic analysis really needs to be.
I'll start with this next week, already in the new Jewish year.