At the current time of asking, this would appear to include the Uzbek secret police, so long as a police officer above the rank of inspector (!) acting on orders from a more senior officer, or the authorised agent of either secret service, GCHQ, SOCA, or the Inland Revenue says so. There is a clear hierarchy of priorities here; the fee is no problem so long as the compulsion doesn’t get in, and although obviously evil, the data-trafficking is considerably less problematic if the compulsion doesn’t get in.

So, time to write to them; remember that the scheme will be compulsory for anyone who ever wants to leave the country, which is another way of saying there is no choice; remember that the system is wildly insecure, that the biometrics have been hacked repeatedly, and that the Government wants to use the Chip-and-PIN infrastructure as a major part of it, and some Chip-and-PIN terminals mysteriously contain GSM radios that call numbers in Pakistan; remember that it will cost a fortune; and remember that many of the supposed “allied” intelligence services who will be able to ask for data from it have demonstrated that they cannot be trusted not to torture British citizens.

If you’re scared of the whips, vote for the fees regulation and maybe the data sharing one if you’re desperate and they’ve shown you the photos; but whatever you do, vote down the Information and Code of Practice on Penalties Order. It’s secondary legislation, so it just takes one loss in the Commons to kill it.

The texts are here, here, and here.

We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

So what follows is more like a stream of consciousness than a post. The global recovery is going to take much longer in coming than most seem to recognise, and meanwhile Sweden still needs to eat. There can be first mover advantage here, and I don’t see why others should play at “sour puss” if they simply didn’t see this. At the end of the day, is our system a competitive capitalist one, which rewards innovation and smart thinking (and state of the art monetary policy), or isn’t it? Sweden seem to be going for Lars Svensson’s ideas, and I am with them, so why shouldn’t they get the benefit of listening fo what a good economist has to tell them, rather than get all the rubbish which comes your way in a country where the government doesn’t bother to take this kind of advice. I think Svensson knows what he is doing in this regard, and bravo!

I also think we need to consider time horizons here. So many people are so busy trashing Keynes, that they forget that his greatest insight was into time horizons and policy, and not about fiscal deficits and stimulus. In the long run devaluation goes nowhere, but in the short run it can be life and death for a patient on the operating table.

So we need to consider short term dynamics here, and not long run “equilibrium” settings. Look at the depth of the Q1 contraction in Sweden. But, while everone else is sitting back and waiting (look at the mess in Japan and Germany, countries with some similarities) Sweden is reacting. Good for Sweden is all I can say.

This kind of move need have no long term implications for whether you do high value or low value work, since it is only about how to kick start an economy. Yesterday’s decision by the Swedish National Bank is equivalent to a significant fiscal stimulus, and Svensson knows this very well, and at a time when people are becoming increasingly nervous about rising fiscal deficits, then good old fashioned devaluation can get the same sort of result by different means.

Also, it is important to bear in mind that the principal objective here is to avoid deflation.

Obviously, I am not in favour of “beggar thy neighbourism”. But look, what we are testing day in and day out here are economic theories. Some said that having your own currency and having your own monetary policy didn’t matter, and those people went off and joined the euro. Economists in the UK and Sweden did not agree, and they maintained some control over their own affairs, are they now to be told by the others that this is unfair?

Basically, Latvians have decided not to devalue. That is their democratic right. But Latvians do not have the right to tell Swedes they are “disloyal” when they do devlaue, I do not follow the logic here.

Latvians are running an experiment, which will need to be followed by many other euro member countries - that of internal devaluation - we need to follow the experiment to see if it can work.

Sweden is making another experiment, people need to keep their minds more open, and be empirical. Let’s see what we can learn.

People at the ECB do not think European economies are headed for deflation. They maintain the interest rate at one percent, and do not want to practice quantitative easing. That is their right. But the Swedish National Bank do not agree with them. They think there is a significant risk of deflation in Sweden and they wish to take measures to try to protect themselves. They have the right to do that.

US citizens - according to the opinion polls - are very worried about the fiscal deficit, more worried than they are about low economic growth. That is their right. But this - and the growing concerns from Germany - means that fiscal strategies are going to be very constrained to get us out of this. So the Swedes want to know, what do we do? Answers please.

Basically our economies are stuck - weighted down by all the accumulated debt - in the absence of other adequate instruments, periodic devaluation can work like a kind of implantable cardioverter defibrillator (ICD). An ICD is basically a small device placed in the chest or abdomen. This device uses electrical pulses or shocks to help control life-threatening, irregular heartbeats, especially those that could lead the heart to suddenly stop beating (sudden cardiac arrest). If the heart stops beating, blood stops flowing to the brain and other vital organs. This usually causes death if it’s not treated in minutes. Economic biorhythmns may be remarkably similar.

Basically, this our economies are on the critical list right now, and we need some equivalent of that constant electrical stimulus to keep them afloat while we sort out the problem of what to do with all that accumulated debt in the longer term.

I was lead to think about what has happened in Sweden in this way, and about the monetary and fiscal easing potential of rotating devaluations by reading this piece from Barry Eichengreen and Douglas Irwin, where they suggest that the so called “competitive devaluations” carried out in the 1930’s may well have had the (positive) and inintended consequence of making much looser monetary conditions available than would otherwise have been the case. My principal argument though is that devaluation can serve as a kind of “short sharp shock”

Countries that remained on the gold standard, keeping their currencies fixed against gold, were more inclined to impose trade restrictions. With other countries devaluing and gaining competitiveness at their expense, they adopted restrictive policies to strengthen the balance of payments and fend off gold losses. Lacking other instruments with which to address the deepening slump, they used tariffs and similar measures to shift demand toward domestic production and thereby stem the rise in unemployment.

In contrast, countries abandoning the gold standard and allowing their currencies to depreciate saw their balances of payments strengthen. They gained gold rather than losing it. As importantly, they now had other instruments with which to address the unemployment problem. Cutting the currency loose from gold freed up monetary policy. Without a gold parity to defend, interest rates could be cut, and central banks No longer bound by the gold standard rules could act as lenders of last resort. They now possessed other tools with which to ameliorate the Depression. These worked, as shown in Figure 3. As a result, governments were not forced to resort to trade protection. his relationship is quite general, as we show in Figure 4. It also carries over to non-tariff barriers to trade such as exchange controls and import quotas.

Basically, the analogy here is that monetary policy is becoming increasingly weaker to have an effect, fiscal policy is either unpopular or unsustainable, and in the absence of either of the former, devaluation can act as something of a surrogate stimulus. Well, that’s it. Sorry this is a stream of consciousness. It needs more thought, but my stomach is calling, and I must rush for lunch.

02/07 14:39 Mårten Wierup: 1st meeting went well-the most exciting thing that happened was that Latvia’s excessive budget deficit was added to the Ecofin agenda (7/7)

One’s first reaction might be to be glad that there’s someone in the world who finds Ecofin agenda items exciting.  One’s second reaction might be to wonder: what’s the need for yet another rap on the knuckles for Latvia?  Our twitterer is indeed correct that Latvia did not appear on the original draft agenda, so what’s the urgency?  Well, Edward had the relevant background a few days ago.  The IMF and the European Commission appear to be not on the same wavelength regarding the Latvian rescue program, not least on the role of the exchange rate peg therein.  If there is a split (especially within the European institutions), it might well be the kind of thing that would get sent to the ministers to sort out.   One thing this suggests: since Ecofin doesn’t meet till next Tuesday, don’t hold your breath waiting for the next installment of the IMF loan to Latvia.

Sweden’s central bank cut its key interest rate by 25 basis points to a new record low of 0.25 percent in a surprise move on Thursday, and said it would offer one-year loans to banks to foster lending. The Riksbank said it expected interest rates to remain at that level until late 2010. Deputy Governor Lars Svensson disagreed with the decision and advocated a cut to zero. Nearly all economists in a Reuters poll had expected the Riksbank to keep rates on hold at 0.5 percent, in line with a previous central bank forecast that suggested rates would stay around that level at least until early next year.

“The repo rate is expected to remain at this low level until autumn 2010,” the central bank said in a statement. “The Riksbank’s assessment is that after cutting the repo rate to 0.25 percent it will have reached its lower limit in practice, and that the situation on the financial markets is still not completely normal. “Supplementary measures are necessary to ensure that monetary policy has the intended effect.” Those measures entailed offering 100 billion crowns’ worth of loans to the banks at a fixed interest rate and a maturity of 12 months. “This should contribute to lower funding costs for the banks and lower interest rates for companies and households,” the Riksbank said.

The reaction on the Krona front was swift:

The Swedish krona fell against the euro after the country’s central bank unexpectedly cut its main interest rate. The krona weakened 0.6 percent to 10.7868 per euro as of 9:32 a.m. in Stockholm. The Swedish currency depreciated 0.9 percent to 7.6527 against the dollar. The Riksbank lowered its main rate by a quarter of a percentage point to 0.25 percent. All but one of 17 economists surveyed by Bloomberg forecast no change.

Some people have been saying in response to warnings that this recovery will be export lead, “exports what exports”? What a load of tripe! Without exports there will be no recovery. The next lesson in abc economics: in times of crisis relative currency values matter more. And to prove it, Swedens PMI just poked into the growth zone, 50.5, following 43.7 last month. The 17% odd devaluation with the euro would have nothing to do with this, would it? Welcome Sweden, the worlds fourth 50+ PMI.

The principal factors weighing down on the level of the PMI in June were declines in new orders, employment and inventories. However, rates of contraction in new work and employment eased to their weakest for thirteen and eight months respectively. Looking ahead, the new orders to inventories ratio – which tends to move in advance of the production cycle – rose for the sixth month running to its highest since April 2004. Only 4 PMIs - those for China, India, Turkey and Sweden posted growth readings in June (although Sweden is not included in the JP Morgan survey). There was a general easing in the rates of contraction recorded elsewhere. The next two to three months will now be critical in order to decide whether the sector is going to move over to expansion mode, and if it does, at what pace?

Two general themes seem to stand out in this months PMI report. Firstly the key role being played by some emerging market economies, and secondly the important nudge upwards that some national industrial sectors have received from currency devaluation - with the UK and Sweden being the most obvious cases.

Sweden

Some people have been saying in response to warnings that this recovery will be export lead, “exports what exports”? What a load of tripe! Without exports there will be no recovery. The next lesson in abc economics: in times of crisis relative currency values matter more. And to prove it, Swedens PMI just poked into the growth zone, 50.5, following 43.7 last month. The 17% odd devaluation with the euro would have nothing to do with this, would it? Welcome Sweden, the worlds fourth 50+ PMI.

Here’s a twelve month chart for the Euro vs the Swedish Krona.

UK

I don’t have a nice chart here, but the UK manufacturing PMI figure rose for the fourth consecutive month to post its highest reading in over a year, and was up more than anticipated to 47.0 in June from 45.4 in May. Still contraction though, and the relations between output levels and destocking have still to sort themselves out.

Eurozone

Activity in the 16-nation euro zone’s manufacturing sector continued to fall in June, but contracted at the slowest pace in nine months, according to the Markit manufacturing purchasing managers index released Wednesday. The PMI rose to 42.6, up from 40.7 in June and slightly higher than a preliminary estimate of 42.4. The PMI has been in negative territory for 13 consecutive months, the longest stretch since the survey began.

Germany

Germany’s manufacturing sector shrank for the 11th month in a row in May, but the severity of the contraction was the least marked for any month since October, and the PMI at 40.9 was up from 39.6 last month, and better than the flash reading of 40.5. This still represents a very strong contraction, however, and Germany has a long road ahead before it returns to expansion.

France

The decline in French manufacturing activity also eased in June, although firms reported they continued to slash jobs at a rapid pace. The final Markit/CDAF manufacturing purchasing managers’ index rose for the fourth straight month in June, hitting 45.9 compared to 43.3 in May. Much better than Germany, but not as good as the UK. UK industry is evidently benefiting from the devaluation effect at this point.

Spain

One of the great mysteries for people in Spain is why the German economy seems to be doing even more badly than theirs is. In this sense June was not a disappointment, since the Spanish PMI, which rose to 42.8 from 39.8 in May, the highest reading since May 2008 and well off December’s record low of 28.5, also was above Germany’s 40.9, and Germany has no housing bust.

Ireland

Irish manufacturing PMI data for June pointed to another sharp deterioration of operating conditions. However, the rates of decline of output, new orders and employment all eased over the month. The seasonally adjusted NCB PMI rose to 42.5 in June, from 39.4. Although the sector continued to deteriorate at a considerable pace at the end of the second quarter, June’s contraction was the slowest since last September. Even so this was the sixteenth month in a row that output at Irish manufacturers has decreased.

June’s fall was driven by fragile demand (particularly from domestic sources) and the negative impact of this on new orders. New export business decreased at a weaker pace than overall new orders, although the reduction was still solid. The relative strength of the euro against sterling made new orders from the UK harder to secure, according to the report.

Greece

Greece’s seasonally adjusted Markit Manufacturing PMI came in at 47.7 in June, up from 46.1 in May, the PMI rose further from March’s record low to its highest position since October 2008. Employment, however, fell for the fourteenth successive month, by far the most sustained period of workforce reduction in the survey history.

Eastern Europe

In Eastern Europe, the Polish manufacturing PMI rose slightly to 43.0 in June, from 42.5 in May. This is still quite a weak performance for an economy which, in theory, is holding up rather well, and was below consensus expectations for a rise to 43.2. Still, the PMI was at its highest level since October 2008.

Czech Republic

The Czech PMI also inched up to a nine-month high in June but still registered its 12th straight month of decline. The reading rose to 41.9 from 40.5 in May and a record low in January. The Czech economy shrunk by 3.4% in the first quarter from the previous three months but the PMI has now been for for five months in a row. May industrial output fell 21.7% y-o-y, and new orders fell 27.6%.

Hungary

Hungary’s contraction is more or less moving sideways at the moment. The June PMI came in at 45.8 in June, a slight uptick from 45.4 in May. The output improvement is almost all due to the export sector. Hungary is in deep recession but June exports offer a slight positive sign. The government projects that GDP will contract this year by nearly 7% as Germany also contracts. Germany and central europe are in lockstep.

Russia

Russia’s manufacturing industry shrank last month at the slowest pace since September, and VTB’s Purchasing Managers’ Index advanced to 47.3 in June from 45.3 in May. Russia’s industrial production has now stabilized at between 15 percent and 17 percent below last year’s level, according to Prime Minister Vladimir Putin last month. The government currently expects an 8.5 percent GDP contraction this year.

Turkey

Well Turkey is the fourth in the 50+ growth group since PMI data surprised positively – reading 53.9 up from 51 in May. This result is good news for Turkey following yesterday’s very disappointing GDP numbers, which showed that the Turkish economy contracted by a whopping 13.8% y/y. The immediate future looks a bit more promising than Q1.

Asia

Japan

The pace of contraction in Japanese manufacturing activity slowed for a fifth straight month in June, a survey showed on Tuesday, as companies gradually recover from Japan’s deepest postwar recession. The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 48.2 in June, the highest since 48.6 in April 2008, from 46.6 in May.

However, the figure remained below the 50 threshold that separates contraction from expansion for the 16th straight month. The current output component of the PMI index gained for the fifth straight month, to 50.6 from 47.9 in May, edging above the boom-or-bust line for the first time since February 2008. The index for new export orders rose to a seasonally adjusted 51.2 in June from 49.8 in May, also the fifth month of improvement. That also marked the first growth in export orders in almost a year and a half as global trade recovered from last year’s sharp declines.

China

China’s manufacturing expanded in June, adding to signs the world’s third-largest economy is rebounding from the collapse in global trade, but few new jobs were created, according to both the Chinese PMI surveys. Brokerage CLSA Asia-Pacific Markets said its purchasing managers index rose to 51.8 from May’s 51.2. The government-sanctioned China Federation of Logistics and Purchasing said its own PMI edged up slightly to 53.2 from May’s 53.1.

India

Manufacturing activity in India slowed slightly in June but still expanded for a third straight month, reflecting strong local demand, according to the survey, even as exports showed some creeping signs of improvement. The Markit PMI fell back slightly - to 55.34 in June from May’s 55.7, the highest in eight months. The Indian PMI hit a trough of 44.4 in December and has steadily risen since.

South Africa

South Africa’s industrial output continued to fall sharply, although the PMI gained for the second month in a row in June. The seasonally adjusted index increased to 37.9 from 37.3 in May, Kagiso Securities said in the statement released in Johannesburg today. The index has now been below 50 since May 2008.

Americas

United States

The U.S. manufacturing sector shrank once more in June, but again at a slower pace than in May.The Institute for Supply Management said its index of national factory activity edged up to 44.8 to in June from 42.8 in May. This was slightly above Reuters economists median expectation for a reading of 44.5. So we continue to improve, but the next 3 months will still be critical to confirm or otherwise the improvement.

Brazil

Well, just about to wind the day up on the PMIs now. Brazil is in and posted 48.1 in June. That was the highest reading for nine months, and means the Brazilian industrial sector is nudging its way back towards expansion. However, the index rose only 0.3 points from 47.8 in May, so the recovery rate which we have seen since the end of the first quarter stalled somewhat in June.

Methodological Note

The Global Report on Manufacturing is compiled by Markit Economics based on the results of surveyscovering over 7,500 purchasing executives in 26 countries. Together these countries account for an estimated 83% of global manufacturing output. Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease.

Another factor that has clearly influenced events is the spread of education –in particular the number of college students.  This recent paper suggests that educated people (Socrates aside) are far more likely to support democracy.  But again, that may not be the full story.  This paper suggests that there is no link between growing education rates and transition to democracy.  Given the rapid global advance in school enrollments, alongside growth in access to communications technologies, that suggests we may see more and more dissatisfied democrats living in authoritarian regimes.  And falling sales of hemlock.

Furthermore, the good Reverend Malthus’ model just doesn’t fit the facts.  No country worldwide exhibits the characteristics that Malthus suggested –stagnant output, rising populations leading to income decline and rising income fostering population growth.   Only one country in the World has seen domestic product grow more slowly than 0.5 percent a year since the 1960s.  Fertility rates are declining and health is improving almost everywhere.   And populations have expanded in counties slow and fast-growing alike.  The global spread of a range of technologies and innovations, fostered by an unprecedented rollout of education, has broken the link between land area and limits to output as much as it has improved the quality of life worldwide.

And in rich countries, a little bit of recession can actually be good for the health, as people eat better and substitute cheap entertainments like a walk in the park for expensive entertainments like drag racing.  Maybe Bernie Madoff is just a misunderstood miracle worker.

Estonia’s fiscal deficit under European Union terms more than doubled in the first quarter from a year earlier, indicating the Baltic country may not be able to adopt the euro in January 2011. The deficit, including social security and state and municipal spending, rose to 5.57 billion krooni ($502 million) from 2.06 billion krooni a year earlier, according to data published on the statistics office’s Web site today. The gap corresponds to 2.5 percent of gross domestic product, according to Bloomberg calculations based on the Finance Ministry’s forecast for Estonian GDP for 2009.

The first-quarter figure means the government will have to keep the deficit at 0.5 percent of GDP for the rest of the year to meet euro-entry criteria. Finance Minister Jurgen Ligi has said he sees no improvement in the economy before the third quarter. The minority Cabinet of Prime Minister Andrus Ansip has cut the 2009 budget deficit by 16 billion krooni, or 7.3 percent of GDP, in recent months to avoid depleting state reserves and keep the fiscal deficit at last year’s level of 3 percent of GDP, the same as the EU’s budget-deficit threshold. This would allow Estonia to adopt the euro in January 2011, the government’s main economic goal.

So why a “Latvian-style” noose? Because these countries have built for themselves a sort of “paradox of fiscal thrift” connundrum, whereby the more you cut, the more GDP falls, the more revenue rises, the more spending grows, the more the fiscal deficit goes up, the more you have to cut, and so on. In the end, as Kenneth Rogoff said yesterday, it simply becomes too painful. There seems no way Estonia can achieve a 3 percent deficit this year at this point. And remember what IMF First Deputy Managing Director John Lipsky said last week.

“If there is a solution it begins with macro policies,” Lipsky said. “No single exchange rates solution, or exchange regime represents a solution to these kinds of problems. What is important is that the currency regime is credible and coherent”.

Estonia now has no exit strategy, at least not to join the euro in 2011 it doesn’t And then we have Lithuania and Bulgaria to think about. Basically, the ECB and the European Commission should never have drawn a line in the sand across the original Maastricht criteria. But it’s too late for that now.

For Background Reading and Arguments on All This, See:

Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake
Why Latvia Needs To Devalue Soon - A Reply To Christoph Rosenberg
Latvia - Devalue Now or Devalue Later
The Long And Difficult Road To Wage Cuts As An Alternative To Devaluation
Why You Need Devaluation - An Open Letter To The People Of Estonia<
Devaluation, Euro Membership And Loan Defaults - Some Thoughts For My Critics

And For Why It Is The Baltics Have The Problem In The First Place, See

Is The Latvian Economy Running Out Of People?

The Clock Is Ticking Away Under Latvia
Taking Solow Seriously - Does Neoclassical Steady State Growth Really Exist?
Latvian Population Dynamics
Hard or Soft Landing in Latvia?
Latvian Fertility

So far, the CDC estimates that there have been a million infections and 127 deaths in the US.  That’s a pretty low death rate, of around one per ten thousand.  The US rate for measles in the 1970s was almost ten times as high.  In turn, that suggests a comparatively low benefit-cost ratio compared to other vaccine programs.

The good news is that even more expensive vaccine programs are amongst the most cost effective health interventions.  The flu vaccine only costs between $5-9 a dose, for example.  And they are comparatively easy to roll out.  Not least, thanks to vaccinations sold at a dollar a pop, almost no one gets measles in the US any more.  In the first half of this year, there were only 25 cases in the whole country. 

The even better news is that, thanks to expanded vaccination coverage, dramatically fewer people die of measles the world over.  Measles deaths in Africa fell by 91% between 2000 and 2006 alone, from an estimated 396,000 to 36,000.  Keep on going at this rate, and measles might be the next smallpox. 

Other simple health solutions that have saved millions include hand-washing and antibiotics.  Their spread lies behind a dramatic global convergence in health outcomes discussed in this book I’m plugging.  And there’s still scope for cheap solutions to make a big difference to global health outcomes.  One third of the remaining ten million child deaths each year could be prevented if parents worldwide breast fed, used sugar-salt solutions to treat cases of diarrhea and put their children to sleep under insecticide-treated bed nets.  Breast feeding is free, sugar-salt packages cost pennies, and bednets perhaps $5. 

The big problem now is to create demand –informed parents who understand what to do when their child has diarrhea, for example.  In the Indian state of West Bengal, fifty percent of parents think you should give a child less to drink –absolutely the wrong thing to do.  Child mortality in the state is three times higher than in the state of Kerala, where only five percent of parents suggest that response.   And not all parents understand the importance of a vaccination program, especially when their state governors are telling them it is part of a plot to sterilize their children, as it might be –this particular piece of insanity helped delay the global eradication of polio. 

Of course, as the recent flap over MMR in the UK demonstrates, the demand side isn’t just a Third World problem.  Let’s hope we don’t face the same issues with swine flu vaccination.