Hundreds of millions of men and women all over the world have been tuned to their television sets and clued to their computer screens as they followed the Olympic extravaganza in Beijing. The pride taken by people of different countries in their own athletes as they compete against the best from other countries is truly remarkable. To Americans, the main interest this year has been Michael Phelps' pursuit of a record setting 8 gold medals in swimming-which he accomplished- the gold and silver medals won by two young American girls in the all around gymnastic finals, and the new basketball "dream team" that so far has easily won against China, Spain, and elsewhere. The Chinese have been thrilled by their successes in gymnastics and diving, the Australians by their swimmers, and the Rumanian's by the victory of their 38 year old mother in the women’s marathon. Pictures were shown of how in 2004 the almost all black country of Zimbabwe with a history of significant racial conflict gave a wildly enthusiastic parade to a white Zimbabwe swimmer who won a gold medal during the Athens Olympics. And so it goes in other countries whose athletes have won medals.

All the accolades given to Olympic medal winners-especially to those who get gold- provides plenty of incentive for young and talented athletes to train hard for the Olympics in the hope of becoming a medal winner. When practically all participants in the Olympics are working hard in their training regimes, and since various random factors, such as illness, injuries, and psychological state are extremely important, it becomes difficult to predict individual winners in many of the competitions. Yet it is rather easy to predict quite well the total number of medals won by different nations.

The article "A Tale of Two Seasons: Participation and Medal Counts at the Summer and Winter Olympic Games", published in 2004 in the Social Science Quarterly by Professor Daniel Johnson of Colorado College and a co-author, examines the determinants of how many medals were won by different countries in the summer and winter Olympics since the end of World War II. Their regression analysis shows that two very important variables are the total population and per capita incomes of different countries. Also important are whether a country has an authoritarian government-such as communism- a country's climate, and whether a country is the host country for a particular Olympics. These five variables taken together predict closely the total number of medals won by different countries in the winter as well as summer Games.

It is surely no surprise that population matters a lot since there are many more athletes to choose from in large countries. This is why the breakup of a big country, such as the Soviet Union, had a large effect on the number of medals won by Russia, if Russia is identified with the Soviet Union. Climate is also no surprise since, for instance, the warm climates of African nations makes it highly unlikely that they will be contenders during the winter Olympics in skiing and other cold weather sports. Yet countries with colder climates, such as Russia and Scandinavian countries, do well, given the other variables, in summer as well as the winter Games. Host country effects are somewhat more surprising, but they might be explained by greater familiarity of host athletes with the weather and other conditions of the Games, by the extra incentives provided by the cheers of their fans in attendance, and possibly by the greater preparation efforts of host country athletes.

It is further entirely reasonable that countries with higher per capita incomes, other things the same, do better in Olympic and other international competitions. Parents of promising athletes have more resources to hire coaches, buy equipment, and get other help in their quest to improve the performances of their children. High schools and colleges have more resources to spend on their athletic programs. Private groups establish Olympic and other committees with generous resources to help in the training of the most promising athletes. Companies sponsor athletic programs and offer other incentives- such as the $1 million that Speedo promised Michael Phelps if he succeeded in winning 8 gold medals at the Beijing Olympics.

The importance of communist and other single party countries on the surface is more surprising. It is not that these countries send more athletes to the Olympics than other countries with similar populations, etc- they do not- but authoritarian countries do better per athlete that they send. The reason appears to be that governments of these countries spend considerable resources and energies in finding young promising athletes, and in providing systematic training and equipment in centralized facilities. According to the NY Times' editorial of August 17th, China has spent billions of dollars on its state sports program since the 2000 Sydney Games. These countries also can sometimes use their authoritarian structure to force parents to let their children be taken to centralized facilities, and have refu'ed to allow athletes who win medals to retire. Such activities clearly help explain China’s rapid rise to athletic prominence, but the same considerations were behind East Germany's success in earlier Olympics, and in the great success of the Soviet Union prior to its breakup.

Democratic governments would not be able to employ some of the techniques used by authoritarian governments, but still must decide on the proper role of their governments in preparing athletes for Olympic and other international athletic competitions. The strong interest of countrymen in cheering on athletes representing their countries seems like a positive "externality", especially from Olympic success. However, in private market economies, these so-called externalities from Olympic and some other international athletic achievements are internalized to a considerable extent by endorsements, requests for well-paid speeches, job offers, and other private advantages given to successful athletes. Many of these private advantages are not possible in government-controlled economies, which might explain why their governments are much more active in financing and training athletes.

Perhaps some externalities remain that justify considerable government involvement in democratic countries. Indeed, recently countries, such as Germany, have indicated that they plan to spend more in preparing their athletes for future Olympics. The Times' editorial opposes further government spending on the US Olympic program mainly because the government budget is in deficit and the economy has slowed down. I believe there are much better reasons for opposition to a much larger government involvement. The highly decentralized, mainly but far from entirely, privately financed approach to athletics found in countries like the United States and Great Britain is the right way to attract and train Olympic and other athletes in democratic countries with strong decentralized private economic and philanthropic sectors.

The contrast between the ECB’s mandate to achieve price stability and the Fed’s “dual mandate” to balance the goals of price stability and employment is not just an accident of legislative history but a reflection of fundamental differences between the two economies. Those differences make it more difficult to tame inflation expectations in Europe and therefore require the ECB’s tougher policy.

 

The role of trade unions is the most important difference. Only 7.5 per cent of US private sector employees are union members and they are concentrated in automotive, airline, construction and other depressed industries. In contrast, more than 25 per cent of employees in the European Union are members of trade unions and in some EU countries the wages set in union contracts are automatically extended to other companies in the same industry.

Because of this union power, the ECB must persuade union members and their leaders that it is determined to bring inflation down to its target level of less than 2 per cent. The ECB’s tough stance and exclusive emphasis on price stability is crucial to shifting inflation expectations and persuading unions to accept the rise in food and energy prices without pressing for offsetting wage gains.

In contrast, the Fed does not have to worry in the same way about union power and collective bargaining. Wage setting is decentralised and wage contracts do not have the formal links of wages to inflation that intensified the wage-price spiral of the 1970s.

Finally, the ECB recognises that it is still a very young institution that must prove to the European public that it will follow the successful anti-inflation tradition of the German Bundesbank. But a decade of relatively good performance is not a reliable guide to the future. The ECB is only now facing its first challenge of imported high inflation and the expanding membership of the European monetary union is bringing new voting representatives to the ECB whose views are yet to be tested.

…What happens if collectivist societies, especially those in Asia, rise economically and come to rival the West? A new sort of global conversation develops. The opening ceremony in Beijing was a statement in that conversation. It was part of China’s assertion that development doesn’t come only through Western, liberal means, but also through Eastern and collective ones.

Since the reform 30 years ago, China’s economic takeoff has been anything but collectivism. The most famed and much researched agricultural reform, the so-called Individual Contract and Responsibility System, like many more reforms followed, has a distinct feature of letting people take more individual responsibilities and providing them with more incentives, which was a great breakaway from former collective farming and state-planned economy.

As Wu Jinlian, a prominent economist in China, famously said, “Wherever you see more private businesses, you see more prosperity”. Several Nobel winners in economics also called China probably “the most capitalist” country in the world. Astonishing comments to many observers, initially.

Make no mistake that China still remains not free, and the government also plays a relatively big role in the economy. But if you look back at China’s development in the past 30 years: it’s less and less government control and more and more free-market. Most people simply compares China’s level of government control with theirs, and reached the conclusion that it’s China’s government who made the real difference. This can’t be more wrong.

I suggest they look at China’s development dynamics, and do not compare statics. This is an easy mistake by confusing superficial correlations with fundamental causes.

Indeed, during the Olympic opening ceremony, 2008 drummers playing like one easily left people with easy impression that Chinese society values collectivism over individualism. But don’t be fooled.

"Any changes to BBA Libor should be in response to market evolution and not as a result of a knee-jerk reaction," the BBA said in a report, which it issued following consultation with banks and Libor users such as central banks, derivatives traders and exchange operators. The BBA began the consultation in early June, when it announced its intention to find ways to boost confidence in Libor.

The decision to reject changes, the report said, stemmed in part from concerns that altering Libor could sow confusion in the market and cause legal problems, given the vast number of contracts based on the current Libor definition. Libor, which is set every day in 10 different currencies and 15 maturities, forms the basis for payments on some $350 trillion in loans and other financial instruments.

At the end of June, Hong Kong residents held 77.6 billion yuan, or about US$11.34 billion at current exchange rates, in Hong Kong bank accounts, three times the amount they were holding a year earlier.

 

 

 

 

 

 

 

 

China's well telegraphed, gradual upward adjustment of the yuan against the dollar has made the Chinese currency seem one of the few sure bets in global financial markets and it isn't just Hong Kongers latching onto it. Many investors and businessmen see it not only as a good trade, but as a matter of survival.

The yuan has risen 7.1% against the dollar this year. China's government maintains firm control over the range and direction of the exchange rate. The appreciation has slowed in recent weeks, but the broad direction is still clear. Forward markets price in another 4.4% gain in the next 12 months.

The flood of outside money pouring into the yuan helps explain why China's reserves have grown by an average of $1.6 billion a day this year. At the end of June, they stood at $1.81 trillion, up about 18% from the beginning of the year — even though the country's trade surplus, long the main source of its foreign currency, is down 12% from a year earlier.

Recessions don’t usually look like this, at least when it comes to productivity.

In the six U.S. recessions since 1970, worker productivity, or output per hour, grew a sluggish 0.8%, on average. But since the end of last year, even amid economic weakness, productivity is estimated to have grown an average 2.5% at an annual rate.

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Productivity’s path isn’t just an academic debate. That productivity is staying strong even in bad times has important implications for economic growth, inflation, employment and, ultimately, living standards. For example, strong productivity growth, by countering inflation pressures from energy and commodities, allows the U.S. Federal Reserve to keep interest rates lower than it otherwise might, helping it stoke the economy.

But “it’s a bit of a two-edged sword,” said Chris Varvares of Macroeconomic Advisers, since efficiency gains could mean that companies can get by with fewer workers, exacerbating unemployment in the short run.

Some economists say the current healthy growth in productivity reflects a shift in the economy from less productive domestic sectors like home building and into exporting industries, which tend to be highly efficient. That shift has been aided by the weak dollar, which has made U.S. exports more competitive.

“It’s a compositional story,” said Dale Jorgenson, a productivity expert at Harvard University in Cambridge, Mass. Productivity, he explained, is “languid” in construction, so the decline of building as a share of the economy in recent quarters “is certainly going to be positive for productivity” on average.

full articles here.

The market has taken on a distinct chill…with funds looking to sell oil futures outnumbering those seeking to buy for the first time since early 2007, and most of the long-term money betting that oil prices will continue to sink.

Perhaps the best glimpse of the changed sentiment can be seen in traders' prices for oil far into the future. In late May, contracts reaching out to 2016 were all selling for more than the then-current price, which was around $130 a barrel. That trend held until the middle of this month.

The curve has since sharply reversed, so that contracts for oil four or five years from now are going for less than the current price. Trading on the Nymex has tilted toward short sellers, or those betting that prices will go down, according to the most recent report by the Commodity Futures Trading Commission.