Weekend reading links

1. Very good Livemint oped by V Praveen, an economics student, on the disconnect between economists and the markets.

2. Sweden is perhaps the epitome of generous and compassionate social democracy, a society where everyone lives a dignified life, gender inequality non-existent, sustainable development a cornerstone, and so on. Its economy is among the most competitive and it does more in terms of helping poor countries than almost anyone else. But next Sunday Sweden faces an election which threatens to disrupt the status quo. The center-left Social Democrats, who have come first in every election since 1917 and ruled the country, faces the prospect of losing power after more than a century. 

After receiving 163,000 asylum seekers in 2015, the highest proportion of any country, Sweden has been facing a growing populist backlash, led by the right-wing Sweden Democrats party. A spate of shootings, grenade attacks, and burned-out cars have gripped the country and fuelled the rise of populists. This has been coupled with the strains on the famed Swedish welfare state, Folkhemmet, which is financed by a 60.1% marginal tax rate. Rising waiting times in hospitals and deteriorating school results have become the lightning rods for this discontent. The consequence, as outlined, in a nice article in FT,

Scarcely a day has gone by in the past few years without a shooting, burned-out car, or even a grenade attack being reported in one of the cities. That has upended the usual political calculus in Sweden. Conventional issues around the state of the economy and jobs have seemed less important than normal, to the detriment of the ruling Social Democrat government and prime minister Stefan Lofven. Into the breach has stepped... the Sweden Democrats. Rooted in Sweden’s neo-Nazi movement, the party has tried to shed its racist image, entering parliament in 2010 and becoming the third-largest group four years later with 13 per cent of the vote. A stronger performance than that awaits this time as the party challenges for second — or perhaps first — place... The Sweden Democrats’ long-term core message is that Sweden needs to make a choice between immigration and guaranteeing the Folkhemmet.

3. Chris Balding argues that the new US trade pact with Mexico, with its 75% local content requirements and 40-45% content come from factories paying more than $16 per hour, and strict intellectual property rights regime, is also aimed against China and likely to curtail the use of Mexico as a trans-shipment or assembly location using Chinese inputs. He writes,

The Mexico accord tightens rules of origin on automobiles, so that 40 percent to 45 percent of their content must be made by domestic companies whose workers earn at least $16 an hour. This limits the scope for assembly in Mexico with Chinese components, favoring higher-value parts from manufacturers covered by the agreement... In digital services, the draft limits a government’s ability “to require disclosure of proprietary computer source code and algorithms,” something China has mandated for most IT providers. This section also targets prohibitions being applied to “digital products distributed electronically,” such as Facebook and Twitter. The data and financial-services obligations even prohibit local data-storage requirements: Beijing has declared the audit records of Chinese firms listed in New York off-limits to U.S. regulators, for example. If doubts remained, consider the environment section: Mexico and the U.S. agreed to prohibit “shark-finning,” the practice of cutting the fins from sharks and leaving them to die. China is a major consumer of shark fins. The two sides also agreed to prohibit illegal or unregulated fishing. The labor section of the accord requires “worker representation in collective bargaining.” While independent unions in Mexico and the U.S. have varied challenges, they don’t face the level of official intimidation of labor activists in China.

As Balding writes, Trump can now achieve his objective of reining in China as no other US President if he can now use this opportunity to strike similar pacts with Canada and Europe.

Even if the real impact of the local content requirement is less than the hype, taken together the deal turns the tables on China's remorseless unilateral trade policy actions.

4. Nice article on the transformation of Seattle. The rapid growth of Amazon in particular has transformed the City for the good and the bad - traffic congestion, unaffordable housing, homelessness, and gentrification. The strong resistance to change zoning laws to allow greater density exacerbates these problems.

The role of Microsoft co-founder Paul Allen's construction company, Vulcan, which alone has developed properties worth over $6 bn in Seattle and occupies a fifth of the city's prime office space, bears resemblance with the role of DLF in Gurgaon.

It is one more reminder about the dangers of rapid urbanisation. To quote Greg Nickels, Seattle Mayor from 2002-10, “One of the big challenges with growth is to not allow it to overwhelm you.”

5. Gillian Tett looks back at the Global Financial Crisis and asks whether lessons have been learnt. I am inclined to answer mostly in the negative.

6. The Economist captures the delicious irony of the academic economist shoving aside his own theory when faced with the real world challenge of running a central bank.

Imagine if Milton Friedman had been put in charge of a central bank, only to lose his job for expanding the money supply too quickly. Or if Robert Shiller, the Nobel-prizewinning author of “Irrational Exuberance”, were given a similar post, only to depart having allowed a stockmarket bubble to inflate. That is the kind of irony that attended the resignation under pressure of Federico Sturzenegger as governor of Argentina’s central bank on June 14th, a casualty of deepening turmoil in emerging markets. Mr Sturzenegger's most-cited paper showed that stated currency policy was often a poor guide to actual policy. Many countries claim to let their currencies float freely but in fact “intervene recurrently to stabilise their exchange rates”. Their deeds often belie their words. Mr Sturzenegger lost his job for much the same thing... After Argentina agreed on a $50bn loan from the IMF, he said he would intervene in the foreign-exchange market only in “disruptive situations”. But when the peso soon came under renewed pressure, he resumed selling foreign-exchange reserves, which fell by $665m on June 12th-13th. He gave up the fight on June 14th, allowing the currency to drop by 5.3% against the dollar on a day that ended with his departure.

7. Another article captures this decline in use of public transport in the US,

The American Public Transportation Association’s figures show that the number of journeys in the country as a whole has fallen in each of the past three years. In 2016-17 every kind of mass public transport became less busy: buses, subways, commuter trains and trams. New Yorkers took 2.8% fewer weekday trips on public transport and 4.2% fewer weekend trips in the 12 months to April 2018, compared with the previous year. In Chicago and Washington, DC, the decline in public-transport trips has been even steeper.

This broad trend is mirrored, even if with less strong decline, in European cities. In the 2007-13 period, Madrid metro, for example, lost 19% of its commuters. One reason for the decline is the rise of ride-hailing services,

In San Francisco public transport accounts for 16% of all weekday trips, ride-hailing for 9%. People mostly seem to use Uber and Lyft to get to places well-served by mass transport (see map). One study of the city by five Californian academics asked ride-hailing customers how they would have made their most recent trip if the service did not exist. One-third replied that they would have taken public transport. In a study of Boston, 42% said the same thing. Self-driving taxis are likely to steal even more riders in future, because they will be so cheap.

The article also points to other potential sources - economic weakness and e-commerce make less people venture out, changing work habits as more people work remotely as well as in co-working spaces near their homes, increased use of bicycles, the boom in office development around transit stations reduces last mile commutes, and cheaper driving costs due to fuel efficiency and cheaper fuels.

8. Finally, a good story in Indian Express narrating the challenges faced by India's cleanest railway station. Two things stand out. First, cleanliness comes with a significant fiscal cost. The station awarded its cleanliness contract in 2016 to a new contractor for a three year cost of Rs 8.7 Cr, a near doubling from the earlier Rs 4.8 Cr. This cost is fiscally unsustainable when replicated across the country.

Second, the increased cleaning and enforcement of fines appears not to have had much impact on the generation of waste itself or the habits of rail passengers. The real success will be to reduce the generation of waste and ensure more responsible disposal by those generating waste.