An intriguing, much more equal rivalry out West. But both California and Texas can learn from each other

AMERICA’S recent history has been a relentless tilt to the West—of people, ideas, commerce and even political power. California and Texas, the nation’s two biggest states, are the twin poles of the West, but very different ones. For most of the 20th century the home of Silicon Valley and Hollywood has been the brainier, sexier, trendier of the two: its suburbs and freeways, its fads and foibles, its marvellous miscegenation have spread around the world. Texas, once a part of the Confederacy, has trailed behind: its cliché has been a conservative Christian in cowboy boots, much like a certain recent president. But twins can change places. Is that happening now?

It is easy to find evidence that California is in a funk (see article). At the start of this month the once golden state started paying creditors, including those owed tax refunds, business suppliers and students expecting grants, in IOUs. California’s governor, Arnold Schwarzenegger, also said that the gap between projected outgoings and income for the current fiscal year has leapt to a horrible $26 billion. With no sign of a new budget to close this chasm, one credit agency has already downgraded California’s debt. As budgets are cut, universities will let in fewer students, prisoners will be released early and schemes to protect the vulnerable will be rolled back.

They paved paradise and put up the parking taxes

Plenty of American states have budget crises; but California’s illustrate two more structural worries about the state. Back in its golden age in the 1950s and 1960s, it offered middle-class people, not just techy high-fliers, a shot at the American dream—complete with superb schools and universities, and an enviable physical infrastructure. These days California’s unemployment rate is running at 11.5%, two points ahead of the national average. In such Californian cities as Fresno, Merced and El Centro, jobless rates are higher than in Detroit. Its roads and schools are crumbling. Every year, over 100,000 more Americans leave the state than enter it.

The second worry has to do with dysfunctional government. No state has quite so many overlapping systems of accountability or such a gerrymandered legislature. Ballot initiatives, the crack cocaine of democracy, have left only around a quarter of its budget within the power of its representative politicians. (One reason budget cuts are inevitable is that voters rejected tax increases in a package of ballot measures in May.) Not that Californian government comes cheap: it has the second-highest top level of state income tax in America (after Hawaii, of all places). Indeed, high taxes, coupled with intrusive regulation of business and greenery taken to silly extremes, have gradually strangled what was once America’s most dynamic state economy. Chief Executive magazine, to take just one example, has ranked California the very worst state to do business in for each of the past four years.

By contrast, Texas was the best state in that poll. It has coped well with the recession, with an unemployment rate two points below the national average and one of the lowest rates of housing repossession. In part this is because Texan banks, hard hit in the last property bust, did not overexpand this time. But as our special report this week explains, Texas also clearly offers a different model, based on small government. It has no state capital-gains or income tax, and a business-friendly and immigrant-tolerant attitude. It is home to more Fortune 500 companies than any other state—64 compared with California’s 51 and New York’s 56. And as happens to fashionable places, some erstwhile weaknesses now seem strengths (flat, ugly countryside makes it easier for Dallas-Fort Worth to expand than mountain-and-sea-locked LA), while old conservative stereotypes are being questioned: two leading contenders to be Houston’s next mayor are a black man and a white lesbian. Texas also gets on better with Mexico than California does.

American conservatives have seized on this reversal of fortune: Arthur Laffer, a Reaganite economist, hails the Texan model over the Gipper’s now hopelessly leftish home. Despite all this, it still seems too early to cede America’s future to the Lone Star state. To begin with, that lean Texan model has its own problems. It has not invested enough in education, and many experts rightly worry about a “lost generation” of mostly Hispanic Texans with insufficient skills for the demands of the knowledge economy. Now immigration is likely to reconvert Texas from Republican red to Democratic blue; Latinos may justly demand a bigger, more “Californian” state to educate them and provide them with decent health care. But Texas could then end up with the same over-empowered public-sector unions who have helped wreck government in California.

Second, it has never paid to bet against a state with as many inventive people as California. Even if Hollywood is in the dumps (see article), it still boasts an unequalled array of sunrise industries and the most agile venture-capital industry on the planet; there is no prospect of the likes of Google decamping from Mountain View for Austin, though many start-ups have. The state also has an awesome ability to reinvent itself—as it did when its defence industry collapsed at the end of the cold war. Perhaps the rejection of tax increases will “starve the beast” and promote structural reform. A referendum on a new primaries system could end its polarised politics. Mr Schwarzenegger’s lazy governorship could come to be seen not as the great missed opportunity, but as the spur for reform.

Fifty laboratories, one magic formula

The truth is that both states could learn from each other. Texas still lacks California’s great universities and lags in terms of culture. California could adopt not just Texas’s leaner state, but also its more bipartisan approach to politics and its more welcoming attitude towards Mexico. There is no perfect model of government: it is America’s genius to have 50 public-policy laboratories competing to find out what works best—just as it is the relentless competition of clever new firms from Portland to Pittsburgh that will pull the country out of its current gloom. But, to give Texas some credit and serve as a warning to Mr Schwarzenegger’s heir, at this moment America’s two most futuristic states look a lot more like equals than ever before.

Source: The Economist ( Jul 11 -17 )

無定向風 (30-7-09)
始料不及定律

因海耶克的「始料不及的後果」（ unintended consequences）而得名的「始料不及定律」（ Law of Unintended Consequences）真的不可思議。印尼大海嘯後，國際救援組織本?「工欲善其事，必先利其器」的信念，為漁民購置全新漁船、配以先進設備。不幸，魚獲不升反跌，皆因新船連魚苗亦一網成擒；斷子絕孫，魚獲焉能不跌？

儘管用心有別，這個故事跟大躍進時代毛主席下令趕盡殺絕麻雀的經驗有點類似。在毛主席眼中，麻雀吃穀物，是害鳥；由是發揮其過人的領袖魅力，動員全國人民 24/7打鑼打鼓，嚇得麻雀整天亂飛，終致筋疲力盡致死。麻雀是少了，可是害蟲的煞星也少了，結果穀物的收成大跌。

再又如愛爾蘭、澳洲及台灣的膠袋稅；開宗明義是寓禁於徵，叫人少用膠袋以促進環保。抽膠袋稅後，這些「先進」地方的膠袋用量卻不降反升。效果適得其反，一方面因為少了可供循環再用的購物膠袋，人們要另外買膠袋裝載廚餘、垃圾；另一方面，方便顧客的預製膠袋包裝無循環再用之效。此消而彼長，膠袋用量由是增加了。

處處都在、無處不在

新近在 BBC聽澳洲最是當紅的經濟學家 Joshua Gens（ 1968-）說教仔經，那又是另一種「始料不及的後果」了。為了鼓勵大女戒尿片，每趟她成功上廁所，他都以朱古力為獎賞。尿片是戒了，女兒可卻頻頻上廁所。為了讓女兒學曉合作扶持，每一趟她幫弟弟上廁所，姊弟倆都有朱古力吃。結果？姐姐不斷灌弟弟飲水。

從促進穀物收成般的家國大事，到幫小孩子戒尿片般的瑣屑小事，「始料不及定律」不斷發揮威力；處處都在、無處不在，自然得跟地心吸力不相上下。這當然又不是個上有政策、下有對策，你有張良計我有過牆梯的博弈現象。像《信報》社論說的，這一切都是主事者「思慮不周」之過，而這又跟 地心吸力那樣，是走不掉的。

寒天飲冰雪、冷暖心自知

坦白從寬。起初看海耶克說「始料不及的後果」，我其實如墮五里霧中，完全不知道他什麼葫蘆賣什麼的藥。盡人皆知，官僚做不做都支三十六；獎罰規則如此，要官僚想清想楚一切政策的所有後果又豈非強人所難？那麼「思慮不周」，引發這種、那種「始料不及的後果」，不又如水之往低流般平常？一切理所當然，那又值得一代泰斗，一而再、再而三掛在嘴唇邊說個不停嗎？思考了好一段日子，才給我明白了過來。

明白了什麼？須知海耶克致力於學術研究凡七、八十年（各位沒有看錯，海耶克以九十三歲高齡去世，到最後一刻依然著作不絕），他用功的基本目的只有一個——上下古今，從可以找得到的角度觀點案例反覆證明執權者不應多所干預。

在海耶克來說，執權者「思慮不周」並不單純是官僚惰性使然；更要命的是資訊先天便是獨特而分散的；寒天飲冰雪，冷暖心自知。每個人對自己眼底的境況自有一番跟別人不大一樣的掌握體會。境況有變，體魄、資質、性情、嗜好、口味……不同的人亦有大不一樣的反應。對這一切，執權者又焉能一一考慮，在政策上統統加以照顧？問題也不單純是官僚們是否有這個心，力亦有所不逮也。

搔不著癢處

有見於放牧導致非洲的草原加速沙漠化，以致全球氣候有進一步暖化之虞，挪威政府盡其地球之友的世界公民責任，斥資幫肯雅牧民轉業捕魚，讓草原得以休養生息。果然，轉業捕魚改善了肯雅牧民的收入。

收入多了，換作是挪威人，容或會置業以提升家居環境。肯雅人可不來這一套，他們增置牛隻放牧。挪威政府無私之舉非但沒有改善草原沙漠化，反而令情況惡化。好心做壞事，表面看亂子出在挪威政府沒有了解清楚肯雅人的投資、消費取向便貿貿然助其轉業，那當然是「思慮不周」了。

然而要扭轉沙漠化的不堪局面，要克服的可又不止於肯雅人置業取向這道資訊鴻溝而已。更重要的是搔著癢處，照顧肯雅人的切身利益——牛隻是私產，草原則為公有——那是一道更大的資訊鴻溝。

處處資訊鴻溝

不管你是阿當‧史密斯的追隨者還是馬克思的信徒，你都不能否認世間上到處都是這樣、那樣的資訊鴻溝（或者父母子女之間，「你不明白我的苦心」、「你不了解我」的代溝；以至曾蔭權那「我代表香港人」的認知障礙）。鴻溝處處，那不是互相尊重、細心聆聽便解決得來的。解決不了，那怎麼辦？海耶克的對策簡單不過：有權在手的人，少作干預，以免引發大大小小「始料不及的後果」，甚至反效果。

為什麼針對有權在手的人？沒有權在手，要人們環保也好，要小孩子戒尿片也好，便得動之以利，照顧他們的切身利益。儘管這樣做還是免不了引發這種、那種「始料不及的後果」；然而各取所需、互惠互利，整體而言，大家的境況都得以提升，那又豈不快哉？

政府插手干預市場運作則是另一回事了。人皆生而平等，一些人騎在另一些人的頭上指指點點、作威作福，無論是在倫理或道德的層面都說不過去。然而倫理、道德都是主觀得很的準則，難有共識。（環保分子站立的道德高地令人望之生畏、噤若寒蟬，那可不表示大家都同意其手段。）
「始料不及定律」可不同了，那是個客觀得很、「科學」得很、可以量度檢定的現象，大家可以來個擺事實、講道理，用共同接受的準則來判斷誰對誰錯。那又怎不省口水得多？

你說抽膠袋稅的目標是保護環境嗎？沒有問題，可是你知得道開徵新稅會引發什麼後果嗎？若然始料不及的後果之一，是膠袋的用量不跌反升，那不又證明抽膠袋稅的手段跟環保目標背馳了嗎？

政策在明、對策在暗

出現這始料不及的反效果，不是人們不環保或蓄意跟地球之友過不去。只是抽膠袋稅之舉踐踏「與人方便」這個「普世價值」，那麼生意人以至消費者扭盡六壬以為對付，又豈非正常不過？政府的規條、稅律在明，人們的計仔、對策在暗，出現這種、那種始料不及的後果，殺官僚們一個措手不及，又豈不理所當然？

讓我在此再說一遍，「始料不及定律」不是盲目地反對執權者干預市場運作，亦不是鼓吹教條主義的放任無為，而是擺事實講道理，指出罔顧人們切身利益的干預，往往引發始料不及的後果，甚至是跟政策初衷背馳的苦果。當中的教訓是什麼？不用說了吧。

轉載: 第 1012 期 香港壹週刊

Uncertainty over the size of the output gap complicates the task of central banks

HAVING raised the alarm on deflation, the Federal Reserve has now begun to sound the all clear. The statement it released after its policy meeting on June 24th notably omitted the warning from its three prior meetings that “inflation could persist for a time below rates that best foster economic growth and price stability”. To be sure, with the economy gradually finding a bottom and the rate of decline in home prices slowing, the chances of a downward spiral of deflation and economic activity have diminished. Yet it seems premature to write off the threat as long as a large output gap persists. The output gap is the difference between actual economic output and the most the economy could produce given the capital, know-how and people available. When actual output exceeds potential, demand for products and labour bids up prices and wages, fuelling inflation. When actual output falls short, competition for scarce sales and jobs puts downward pressure on inflation.

Estimating how big the output gap is, and how much of a deflationary threat it still poses, is not easy. The Congressional Budget Office (CBO) estimates that the gap topped 6% in the first quarter of this year and will average more than 7% in 2009, which would be the largest figure on record. Given that core inflation was so low when the recession began, it is not a stretch to believe that, with so much slack in the economy, it could yet turn negative. But this view has been challenged in a note by John Williams and Justin Weidner of the Federal Reserve Bank of San Francisco. Rather than follow the conventional route of deriving an inflation forecast from an estimate of potential output, they do the opposite: they infer the output gap from the behaviour of inflation. As in the euro zone, where consumer prices fell for the first time ever in the 12 months to June, and Japan, where inflation excluding perishable food was -1.1% in May, inflation in America is now negative because of a drop in fuel prices last year. But core inflation is 1.8%, within its range this decade. The authors take this as evidence that the output gap may have been only 2% in the first quarter, implying little or no threat of deflation.

NAIRU’s non-alignment

This divergence in estimates highlights the biggest problem in relying on the output gap: it is a slippery thing to measure. How do you really gauge a firm’s capacity, especially in services? How many of those not working could work? How fast is productivity growing over time? Economic shocks make the task even harder. They may render big chunks of the capital stock obsolete: many idle car factories, for example, may never reopen. Workers thrown out of a shrunken industry like finance or construction may take years to retrain for another. Some may never succeed. Although unemployed, they are not really competing for the jobs that fall vacant and are thus not putting much downward pressure on wages. That means the “non-accelerating inflation rate of unemployment”, or the Nairu, may have risen. In other words, when actual output falls, it can drag potential output down with it—the main reason why Mr Williams and Mr Weidner believe that the gap is smaller than the CBO’s estimates.

That recessions can reduce potential output is not controversial. The question is: by how much? In its latest Economic Outlook, the OECD concludes that the collapse in business investment will cause potential output to grow more slowly in America this year and next but that it will not fall. It does think the Nairu will rise measurably in the euro area, where relatively rigid labour markets mean someone who loses a job will take much longer to find another, during which time his skills atrophy. But in the United States, whose job market is more flexible, the Nairu will barely rise (see chart).

If Mr Williams and Mr Weidner are wrong and the output gap is large, then there are other explanations for why American inflation has not fallen further. The simplest is that not enough time has elapsed. Chris Varvares of Macroeconomic Advisers, a forecasting consultancy, thinks that core inflation will fall to close to zero in 2011. While it has been firm so far this year, he argues it will fall noticeably later this year as residual seasonal factors recede.

Even if inflation were to fall to between zero and 1.5%, say, that would be a small drop given the CBO’s estimate of the output gap. A comparable gap in 1981-83 produced a drop in core inflation of six percentage points. But in the early 1980s, inflation had fluctuated so much for so long that workers and firms quickly adapted their wage- and price-setting behaviour to the latest trends, so inflation responded more swiftly to falling demand. Since then, inflationary expectations have stabilised at around 2%, which means that inflation responds more sluggishly to demand (as the recessions of 1990-91 and 2001 demonstrated). The OECD notes that when Finland and Canada experienced large and persistent output gaps in the 1990s, inflation fell quite far but did not become deflation, which it attributes in part to the success of central banks in anchoring expectations with inflation targets.

Such expectations may rise if investors worry that central banks will print money to finance governments’ rising fiscal deficits. But even if they remain well anchored, expectations alone do not explain why inflation does not respond more to economic slack. A large and persistent output gap in the 1990s eventually tipped Japan into deflation in 2000; inflation expectations also turned negative. As long as the gap persisted, deflation should have accelerated. It did not, ranging from -0.3% to -0.9% between 2000 and 2003. According to Ken Kuttner, an economist at Williams College, Japan’s output gap may have been smaller than thought; workers may have resisted pay cuts; and perhaps most important, at low rates of either inflation or deflation firms may change prices less frequently, reducing the impact of output gaps.

If so, this would provide a buffer to deflation in the rich world today, despite the presence of large gaps. But the thought is not entirely comforting. It also means that if inflation does fall to zero or turns slightly negative, it could be difficult to get it back up. The best cure for deflation remains prevention.

Source: The Economist ( Jul 4 - 10 )

Source: The Economist ( Jul 25- 31 )

In the first of an occasional series on the reform of finance, we look at the European Union’s proposals

GIVEN its history of financial meltdown and subsequent recovery, Sweden, which assumed the presidency of the European Union on July 1st, is the ideal country to orchestrate the reform of Europe’s financial landscape. Its reputation for levelheadedness will come in handy too. The EU remains riven by two deep divides on the regulation of finance.

The first is an ideological one over the degree of freedom that should be afforded to markets. It pits a weakened and distracted Britain, whose appeal as a financial centre in less troubled times was enhanced by its “light-touch” regulation, against countries such as France and Germany, which feel their long-standing distrust of freewheeling markets has been vindicated. “There is a large body of people who say that the Anglo-Saxon model has failed,” says a person involved in the new regulations. “Now they see the chance to bury it.” Tougher regulations may also peg London back in its rivalry with other European centres such as Frankfurt or Paris.

The second divide is between countries that want large cross-border banks to be overseen by a single European supervisor and those that want them to stay under the control of home regulators. The question of who is in charge cuts to the heart of Europe’s problems. Its banks operate in a largely borderless market but are often closely watched only at home.

The opening shots on supervision were fired on June 18th and 19th when European leaders agreed to establish a European Systemic Risk Board, which is intended to sound the alarm over the build-up of risk, and to create new European supervisory authorities to keep an eye on big cross-border financial institutions. The promise to create new European authorities was hailed by proponents of centralised regulation as a victory over Britain. Nicolas Sarkozy, the French president, called Britain’s agreement to their establishment a “complete change in Anglo-Saxon strategy” on financial regulation.

The new structures may not live up to his expectations. The risk board, for instance, has only the power of its voice. In good times its warnings may well be ignored and during a crisis it may have to hold its tongue for fear of sparking panic. Moreover, it seems likely to duplicate work being done globally by the newly christened Financial Stability Board, an international body which held its first meeting on June 26th and 27th.

The new supervisory authorities are also hamstrung. They cannot compel countries to do anything that might cost money (“burden sharing” in the jargon), such as propping up banks with more capital. Nor can they wind up cross-border banks in an orderly way to ensure that all depositors are protected, something that is needed to stop countries from simply grabbing what assets they can when big banks fail. The danger is that national supervisors in Europe could well end up ignoring the new authorities and erecting barriers to foreign banks instead. “If we stick with national supervision we will end up with national banks,” says Dirk Schoenmaker of the Duisenberg school of finance.

The other major regulatory proposal to have come out of Europe recently inspires even less confidence. The commission has proposed heavy-handed regulation of hedge funds and private-equity firms. The principle of bringing all important institutions into a regulatory net is sound. But the directive clumsily lumps together hedge funds and private-equity firms when imposing disclosure rules and limits on borrowing. The Swedes are well aware of the problems and are likely to ensure that what eventually emerges is acceptable for both industries. Yet the focus on alternative-investment managers, which played a small role in contributing to the financial crisis, suggests that rules are being drawn up to satisfy domestic audiences.

There is another danger. In general the wheels of European policy turn slowly. Proposals on the central clearing of derivatives and bankers’ pay, among others, have been twice delayed in recent weeks and are now expected to emerge later this month. Revisions to rules that will force banks to hold more capital will not be released for months and certainly not agreed before next year. Yet by the time Europe has agreed on a set of common rules, many countries will have already revamped their own.

Britain’s Financial Services Authority, for instance, has already proposed measures to force subsidiaries of big banks operating in Britain to hold more capital. It also wants to use a loophole in European law that gives it the power to impose liquidity requirements on the local branches of banks from elsewhere in Europe. These are moves that appear to undermine the principle of Europe’s single market in banking.

Centrifugal forces

National governments have bailed out their banks in exchange for an explicit or unspoken promise to keep up lending to small businesses in their home markets (although some have supported continued lending in troubled eastern European and Baltic countries). The European Commission’s competition watchdog, which is policing the aid, also appears to be contributing to fragmentation, albeit unwittingly. Axel Weber, the president of the Bundesbank, Germany’s central bank, recently complained that it was forcing banks to focus their lending and borrowing in their home markets, a charge the commission has hotly denied. Those most keen to reform European finance may yet find their principal sin is tardiness. For even as they write new rules, the market they want to regulate is fragmenting before their eyes.

Source: The Economist ( Jul 4 -10 )