Monetary policy and its effectiveness were not the source of difference, nor was business optimism (especially since forecasts for UK growth, not just the MPC’s, surprised on the downside). Credit was more poorly allocated in the UK, producing less investment for a given pound of credit or financing issued. The spillovers of risk from the euro area on the UK financial system, inherently much less of a problem for the US financial system, also distorted the cost of capital and risk taking behaviour.......Deleveraging by households was not a major factor, given the comparable state of US and UK balance sheets........Fiscal policy, however, played an important role as well. Cumulatively, the UKgovernment tightened fiscal policy by 3% more than the US government did – taking local governments and automatic stabilizers into account – and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households. The fact that British real incomes were hit harder than American households’ incomes by energy price increases could be ascribed in large part to the past depreciation of Sterling, which also hit real incomes directly. All combined, these factors significantly dampened consumption growth in the UK, with knock on effects on investment and stockbuilding....Going forward, most of these factors causing the difference between UK and US behaviour will recede. Inflation is only a temporary difference, and the national rates are now converging on their long-run targets. On official forecasts, fiscal policy is likely to remain more contractionary in the UK than the US for a couple of years to come, but the difference will shrink significantly from both ends over the next couple of years. Monetary policy is continuing to support recovery of investment in both economies, and must continue to do so. A longer-term troubling difference is in the apparent relative inefficiency of the British domestic finance system in allocating capital to businesses. While some of that should recede when the banks build up their capital buffers, and if and when euro area risks themselves recede, there remains a clear structural agenda for the UK to deal with in its financial system.
Thursday, March 29, 2012
Friday, March 09, 2012
I have been doing some comparisons and calculations ever since the World Bank came out with this release. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:23130032~pagePK:64257043~piPK:437376~theSitePK:4607,00.html
This division implies that the bottom 69% of India earns (at most) 28% of India's income and the top 31% earns (at least) 72% of India's income. This is an extremely simplistic piece-wise linear representation of the population-income Lorenz Curve, but it provides an implied lower bound of the Gini. The area under the curve (with coordinates of (0,0), (0.69, 0.28) and (1,1)) is 0.295, implying a Gini of ((0.5-0.295)/0.5) = 41%. To reiterate, this is just the lower bound. The World Bank Gini coefficient for India in 2010, however, is just 37.
If you separate the population into four distinct sets - at the world bank lines of $1/day (17% of India's population below this), $1.25/day (33% below this) and $2/day (69% below this), you get a lower bound on the Gini of 51!
If India's poverty stats are indeed correct, then we'd be almost as unequal as Brazil and much more unequal than China. But India's inequality stats belie that. Which of these numbers is incorrect? My hypothesis suggests the $2/day figure of 69% is over-stated, but there could be other reasons.
Incidentally, I've mailed the World Bank about this. Let's see if they get the time to reply.