The end of Poverty by 2030 (it’s been halved in the last 20 years)

Some truly uplifting news for a change.

In 1990, 43% of the world lived in extreme poverty (then defined at $1 subsistence a day). By 2010, extreme poverty came down by a half to 21%   (defined now at $1.25 subsistence a day). Can poverty be reduced to 1% by 2030?

For all the issues it has caused such as growing inequality and cultural degradation,the economic liberalization of the 90s in India lifted a vast number of Indians out of poverty. But the real driver of change has been the staggering reduction in poverty in China from 84% in 1980 to 10% by 2010 through economic growth.

IN SEPTEMBER 2000 the heads of 147 governments pledged that they would halve the proportion of people on the Earth living in the direst poverty by 2015, using the poverty rate in 1990 as a baseline.

It was the first of a litany of worthy aims enshrined in the United Nations “millennium development goals” (MDGs).

Many of these aims—such as cutting maternal mortality by three quarters and child mortality by two thirds—have not been met.

But the goal of halving poverty has been. Indeed, it was achieved five years early.

Read more here.

The full Brookings study here

Increase in store vacancies in Manhattan

Perhaps I’m blind (or biased) but some how I don’t see the sort of crisis being talked about in this New York Times article when I walk around the city.

The storefront vacancy rate in Manhattan is now at its highest point since the early 1990s — an estimated 6.5 percent — and is expected to exceed 10 percent by the middle of next year, according to data gathered by Marcus & Millichap Research Services, a national real estate investment brokerage based in Encino, Calif.

And those numbers do not capture the full story. Some of the more desirable shopping districts are littered with empty storefronts. For example, Fifth Avenue between 42nd Street and 49th Street, the stretch just south of Saks Fifth Avenue, has a vacancy rate of 15.3 percent, according to the brokerage Cushman & Wakefield.

In SoHo, from West Houston Street to Grand Street and Broadway to West Broadway, among the high-end boutiques, art galleries and restaurants, 1 in 10 retail spaces are now empty or about to be.

Stores Go Dark Where Buyers Once Roamed

The story of the US credit binge (it’s shorter than you think)

Came across this very good analysis by Jeffrey Grundlach, Chief Investment Officer from TCW, on Barry Ritholz’s blog The Big Picture .

The analysis is written for people reasonably unfamiliar with finance. There’s just a lot of common sense lines in the story. If we ran our own finances like the US govt, we’d be in debt for our lifetime and a generation more perhaps, and still borrowing. The govt debt is at 350% GDP right now and growing. I don’t even want to know how many multiples it might be of US revenue (such as taxes). From reading the possibilities of US monetization of debt and the resultant inflation, one understands why the emerging countries are beginning to clamour for a new global currency standard.

What some of us may not realize is that the debt burden of the country, and the individual, really began from the 80s with Reagan’s administration. So the story is a lot shorter than you think. Jeffrey’s theory is that the US credit story is a tragedy in 3 acts. And we’re just beginning Act 3.

No, it’s not over yet.

Letter from Jeffrey Grundlach

What India must do if it is to be an affluent country

There’s the usual media brouhaha after the annual budget presentation, and Pranab’s budget has provided enough fodder for naysayers and pundits.

Separately, there seems to have been a public debate in Delhi and Mumbai recently on the occasion of the release of a report sponsored by the Asian Development Bank (ADB).

Martin Wolf writes more about in the FT. He makes a statement at the end of the excerpt below which, to me, sums up in one line the change I see between the India of the 80s and India today.

Since 1980 the average living standards of Chinese and Indians have, for the first time in the histories of these two ancient civilisations, experienced a sustained and rapid rise. In one generation, India’s gross domestic product per head rose by 230 per cent – a trend rate of 4 per cent a year. This would seem a fine accomplishment if China’s had not increased by 1,090 per cent – a trend rate of 8.7 per cent. Yet even if India has lagged behind, the change has been large enough for aspiration to replace resignation as the ethos of a large and rising proportion of Indians.

The report mentions what I feel should be a top priority issue to fix in India today – ineffective justice in the lower courts.

The problems in the Indian judiciary, police and internal security apparatus are well known. The judicial system is plagued with vast under capacity resulting in huge backlogs of cases and very long delays in resolving cases as well as elements of corruption, especially at lower levels (but also in higher courts).

At the same time, the judiciary is increasingly getting involved in certain aspects that are clearly in the domain of the executive branch of the government.

Until India can make it citizens feel assured that grievances at every level can be resolved in court, the country will never reach a state where more of its citizens work towards the national interest rather than petty individual interest.

The full article here:
What India must do if it is to be an affluent country

The report here:

Real estate – Not a time to buy

I’m told quite often by friends that this is the time to buy real estate in New York. I disagree. The way I see it, next year is a better time to buy.

Why? (and I’m not being poetic)

Robert Shiller, of the S&P/Case-Shiller Home Price Indices, writes a compelling piece on why home prices have still some time to go.

HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time.

Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter.

But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline.

There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan’s major cities fell every single year for 15 consecutive years.

In New York, rentals are falling. The fall in rentals is further aggravating the severely imbalanced price-rent ratio, one of the key housing indicators mentioned by Prof Shiller in his article. A fall in rents is generally followed by a fall in rents.

Besides, most of the job losses in New York city were from Q3 2008 to Q2 2009. Severances are only just going to start running out. The impact of the job losses on real estate are going to be felt in the latter half of 2009, preparing the way for a correction of home prices for 2010 and later.

Full link to the Prof Shiller’s article in the New York Times
Why Home Prices May Keep Falling

Economics from a thermodynamics point of view

The Week In Review section of the sunday New York Times had an article about considering an economy as a machine, and hence applying the laws of thermodynamics as one would to any machine.

The concept was pioneered by Nobel Laureate Frederick Soddy.

He offered a perspective on economics rooted in physics — the laws of thermodynamics, in particular. An economy is often likened to a machine, though few economists follow the parallel to its logical conclusion: like any machine the economy must draw energy from outside itself. The first and second laws of thermodynamics forbid perpetual motion, schemes in which machines create energy out of nothing or recycle it forever. Soddy criticized the prevailing belief of the economy as a perpetual motion machine, capable of generating infinite wealth — a criticism echoed by his intellectual heirs in the now emergent field of ecological economics.

A more apt analogy, said Nicholas Georgescu-Roegen (a Romanian-born economist whose work in the 1970s began to define this new approach), is to model the economy as a living system.

Mr. Soddy was “roundly dismissed as a crank”.

But this is a very interesting idea. We know that nature is excellent at self regulation. A simplistic example is that of the natural predator cropping up to regulate the growth of a species.

We have also copied nature, consciously or unconsciously, in various technology designs. The helicopter resembles a gnat, subway trains resemble earthworms.

So why shouldn’t an economy, built out of the transactions between products of nature i.e. humans, be subject to laws of nature? It’s not such a far fetched idea. We apply Newton’s third law of equal and opposite reaction when we preach on how to treat others. We apply the law of inertia when justifying our own resistance to change.

More recently, there has been a convergence of science, specifically quantum physics, and “esoteric” mystical concepts such as omnipresence, omniscience, higher vibrations, pranic theories and so on. Although yogis such as Paramahansa Yogananda, Swami Satyananda. Swami Rama and Dr. Ramamurti Mishra among others quoted scientific theories and cited empirical evidence to expound on yogic concepts, the convergence gained steam with books such as the The Tao of Physics by Fritjof Capra.

Mr. Soddy’s Ecological Economy