The dangerous politics of central banks

Market turmoil; the consequences

AUGUST does seem to specialise in episodes of market turmoil, whether one looks back to 2007 (when the subprime crisis really started to bite) or 2011 when the eurozone debt crisis seemed to spread to Spain and Italy. The fact that so many traders and investors are on holiday must make a difference. Liquidity is low; juniors are in charge of investment funds and may be unwilling to act as buyers when prices fall.

On return from his holiday, your blogger sees a number of implications of the market move. The fundamental rationale was that markets seemed to catch up with a theme made repeatedly in previous posts; that the slowdown in world trade growth (particularly Asian exports) and falling commodity prices indicated there was a problem with growth in emerging markets, particularly China.

But many investors will have been struck by the sheer ferocity of this week's moves, which saw the Dow Jones Industrial Average open more than 1,000 points lower on Monday and blue chips like GE and Pepsi fall more than 20% at this stage. Some were reminded of the flash crash of 2010, when markets...Continue reading

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Was the crash that big?

HOW big was China’s stockmarket crash? Dubbed “Black Monday”, August 24th ended with Chinese equities down 8.5%, wiping out hundreds of billions of dollars in market capitalisation. Like many things about China, this sounds massive. But is a one-day drop of this magnitude that unusual? 

Answering this question requires an understanding of China’s historical market volatility. In the last 25 years, the Shanghai Composite, China’s benchmark stock index, has closed within one percentage point of the previous day’s close on just 56% of all trading days, with an average movement of 0.09% (see chart). The standard deviation of the Shanghai Composite’s daily returns—a measure of market volatility—was 2.6 percentage points.

The stockmarkets of rich countries during this period have been considerably less volatile. In the last 25 years, the S&P 500 index has moved by...Continue reading

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The Bank of England will follow the Federal Reserve

Core concern

AFTER two years of remission, Japan seems likely to sink back into the “chronic disease” of deflation, as Haruhiko Kuroda, the governor of the Bank of Japan (BoJ), calls it. New data are expected to show on August 28th that core CPI, the central bank’s preferred indicator of inflation, turned negative in July for the first time since the bank launched a big programme of quantitative easing (printing money to buy bonds) in April 2013 (see chart). At the time, it pledged to lift inflation to 2% in two years.

The news will heap further pressure on the BoJ to ease monetary policy yet more this year, as will worries about Chinese growth. The fact that Japan’s economy shrank by 1.6% in the second quarter on an annualised basis adds to the concerns. The central bank is currently buying about ¥80 trillion ($670 billion) of long-term Japanese government bonds (JGBs) a year, or twice the annual issuance. It now holds over ¥300 trillion of JGBs, or nearly a third of all outstanding bonds.

Mr Kuroda’s excuse for deflation’s apparent return is that the falling oil price has pushed down core CPI, which excludes fresh food but...Continue reading

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Non-profit paradise

Frond management

JUST off the west coast of Florida lies the sun-drenched island of Little Bokeelia. It is blessed with cascading waterfalls, tennis courts, pools and a Spanish-style villa. Despite such enticing features, the island languished on the market for three years, before selling in July for a mere $14.5m—half the original asking price.

Little Bokeelia is not the only island that is proving hard to shift. In the Bahamas, where prices per acre are among the world’s highest, hundreds of atolls lie unbought. The price of undeveloped islands, which make up around 80% of the market, has dropped roughly by half since the financial crisis, says Farhad Vladi, a private-island broker.

In the early 2000s private islands were the trophy of choice for millionaires but the recession sapped demand. Building on an island is much pricier than on a mainland plot, and there are many potential pitfalls. It is not for the faint-hearted, says Edward Childs of Smiths Gore, an estate agent in the British Virgin Islands. Mega-yachts and private jets are seen as more predictable investments. As a result private islands can...Continue reading

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Wheelbarrows to the rescue

YOU might think Godwin Emefiele, the governor of Nigeria’s central bank, had problems enough. The collapsing oil price has slashed Nigeria’s export earnings. Foreign reserves have fallen from more than $40 billion early last year to just over $30 billion now. In response Mr Emefiele (pictured) devalued the local currency, the naira, in November and again in February. The devaluations are stoking inflation. Like many other central bankers in commodity-exporting countries, he is faced with the unenviable choice of raising rates despite the damage to an already faltering economy, or leaving them be despite rising inflation and a swooning currency. Unlike other central bankers, however, Mr Emefiele has decided to compound the awkwardness of his position by getting involved in industrial policy as well.

In June the central bank said it would not provide foreign exchange for 41 categories of imports, ranging from wheelbarrows to private jets. The idea, Mr Emefiele says, is both to conserve dollars and to stimulate local manufacturing. “Central banks in developing countries like ours cannot sit idly by and concentrate only on price and monetary...Continue reading

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The kindness of neighbours

Turning his back

IN THE semi-arid lowlands of Mufindi, in southern Tanzania, water is hard to come by. Villagers rely on irrigation to grow maize, potatoes and spinach. Informal and often woolly codes govern how much water each farmer diverts to their own fields, and how much they leave for their neighbours downstream. Some farmers, naturally, turn out to be more grasping than others. Economists typically see such decisions as irreducible: there is no accounting for individuals’ values and preferences. But a new study* investigates why there is such variation in generosity among Mufindi’s farmers.

The researchers asked other villagers to rank each farmer’s social status on a scale of one to four. Then they invited the farmers to take part in a game in which participants had to decide how much water they would take under different scenarios. Participants were paid small sums, which varied according to how well they did in the game. They received more money if they reaped a bigger harvest by taking more than their share of water, for instance, but less if the other villagers fined them for violating water-sharing...Continue reading

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Off the block

THE first item sold on eBay, an online marketplace, was a broken laser pointer, which was snapped up for $14.83 in September 1995. By 2002 eBay had hosted nearly $15 billion of transactions and had more registered users than Britain had people. Yet the fad for online auctions faded almost as quickly as it appeared. Only 20% of sales on eBay, which turns 20 on September 3rd, now involve auctions.

At eBay’s inception, users could sell things only by auction. This was tremendously exciting for economists, who love the things for their ability to magic prices out of thin air and to allocate goods efficiently by determining who values them most highly. The main obstacle to holding auctions is the cost of bringing together enough interested buyers and sellers. But eBay made connecting buyers and sellers cheap. Without it, that broken laser pointer may well have languished unsold.

EBay also benefited from a first-mover advantage. Buyers want to go where there are lots of competing sellers, and sellers will flock to wherever they can find the most eager customers. The size of eBay’s network was its own, self-perpetuating engine of...Continue reading

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Building works

IT IS hard to exaggerate the decrepitude of infrastructure in much of the rich world. One in three railway bridges in Germany is over 100 years old, as are half of London’s water mains. In America the average bridge is 42 years old and the average dam 52. The American Society of Civil Engineers rates around 14,000 of the country’s dams as “high hazard” and 151,238 of its bridges as “deficient”. This crumbling infrastructure is both dangerous and expensive: traffic jams on urban highways cost America over $100 billion in wasted time and fuel each year; congestion at airports costs $22 billion and another $150 billion is lost to power outages.

The B20, the business arm of the G20, a club of big economies, estimates that the global backlog of spending needed to bring infrastructure up to scratch will reach $15 trillion-20 trillion by 2030. McKinsey, a consultancy, reckons that in 2007-12 investment in infrastructure in rich countries was about 2.5% of GDP a year when it should have been 3.5%. If anything, the problem is becoming more acute as some governments whose finances have been racked by the crisis cut back. In 2013 in the euro zone, general...Continue reading

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How natural resources breed violence

AFRICA is home to a tenth of the planet’s oil, a third of its mineral reserves and produces two-thirds of its diamonds. High prices may pep up the continent’s short-term economic growth, but scholars have long suspected that its plentiful natural resources also breed instability and violence. Politicians and their cronies cannot resist skimming off some of the huge profits, the theory goes, which enrages those who are left out. Struggles over these wealths have played a part in many African troubles, from militias in the Democratic Republic of Congo to Sudanese civil wars. However, identifying a systematic link between natural resources and violence in Africa has proven tricky for economists, who must usually work with small or insufficiently detailed datasets.

A new paper from four academics at Swiss universities tries to get around the problems faced by previous studies.* For each year from 1997 to 2010, the authors gathered detailed data on the location of hundreds of mines and thousands of conflict events (including riots and...Continue reading

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Tinkering around the edges

AT FIRST sight, it was a triumph. After months of negotiations Ukraine and a committee of its creditors (which include Franklin Templeton, an American investment house and BTG Pactual, a Brazilian one) reached a deal this week to restructure the country’s international bonds, as well as a smattering of other sorts of debt, worth about $18 billion. Payments have been pushed back, meaning that the government will not need to cough up any principal or interest on the debts in question until 2019. The principal on the bonds will also be cut by 20% on average.

This is a better deal for Ukraine than many were expecting. It is rare for a country to get a haircut on its debts without also defaulting (one exception is Greece). When the negotiations began, the creditors had refused even to consider writing off any of the country’s debt, arguing instead that delaying repayment alone would be enough to right Ukraine’s finances. The Ukrainian government’s repeated threats to declare a moratorium on debt repayments—a default by another name—may have helped soften their stance. (That it did not have to follow through will help Ukraine...Continue reading

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How exposed are American households to the stock market?

Should the Federal Reserve worry about tanking stock markets? One reason for calm is that they do not much affect household finances. Just over half of Americans say they are invested in the stock market, but their direct stock holdings are small, making up only 14% of household balance sheets (see chart). That means the effect of this week's stock market falls on household spending, and on the American economy, is probably limited.

Stocks tend to be held by high earners, who are less likely to cut spending in response to falls in their wealth. Mom-and-pop investors are also unlikely to fund their investments with borrowing. That is in contrast to household investments in houses, which are levered by mortgages, magnifying losses when prices fall. In 2009 collapsing house prices, rather than tanking markets, did for household finances.

Nosediving markets and panicking traders are, of course, a worry: market turmoil might make it harder for companies to raise money and invest, or might itself be a result of worsening growth forecasts. Gloomy headlines can be enough to cause anxious consumers to tighten...Continue reading

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China's boom gone bust

China's stockmarket keeps plunging but cooler heads prevail

EIGHT is an auspicious number in China, because in some dialects it sounds like the word for prosperity. Negative-eight, it seems, means just the opposite. After two consecutive days of 8% losses—the Chinese stockmarket’s biggest two-day plunge in nearly two decades—the fortunes of those punters who are still holding shares are decidedly smaller than they were at the end of last week. Big falls have become the norm for Chinese shares over the past two months, but Tuesday’s tumble was especially notable.

The Shanghai Composite Index, the country’s main index, has now broken below the 3,000 level. Shares may well have quite a bit farther to fall, for they are still up by a third over the past year. But to be back into the range of the 2,000s, the level at which they had languished for the previous half-decade, is to mark a remarkably rapid crash back to earth. China’s stockmarket is, of course, hardly the first to experience a violent, destabilising swing from euphoria to despair. But few others have condensed the wild ride from trough to peak to trough into a tidy 12-month (more or less) package.

What was most striking...Continue reading

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Ukraine’s debt negotiations are reaching a conclusion

AFTER months of talks, markets are expecting an announcement soon about the resolution Ukraine's debt crisis. On August 24th news leaked that Ukraine and its creditors had agreed to a 20% haircut on $19 billion-worth of debt (the rumours have not been confirmed). If true, is this good news for Ukraine?

For months, Ukraine’s creditors, which include Franklin Templeton, a global investment firm that owns about $9 billion of the country’s bonds, and BTG Pactual, a Brazilian rival, refused to consider writing off any Ukrainian debt. More recently, traders have reckoned that a 10-15% haircut was most likely. So to get to 20% looks like a win for the Ukrainians.

However, in a crucial way Ukraine could lose out. As part of a four-year, $17.5 billion bail-out agreed to in March, the IMF set out three important conditions. In return for the money, it assumes that: first, Ukraine will reduce debt repayments in any given year to no more than 10% of GDP by 2019-25; second, that the government in Kiev will write off $15.3 billion in debt and interest by 2018; and third, that it will have reduced its public-debt-to-GDP ratio to about 70% of...Continue reading

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Graduate stock

DEBATES over how to fund higher education never lie dormant for long. In Britain, recently, there have been reforms about twice a decade; the last one, which hiked tuition fees, all but killed off the Liberal Democrats, members of the previous coalition government. In America, concerns abound over soaring costs and towering student debts. As a result, presidential candidates have been weighing in with plans to overhaul the system.

Why should the state support students in the first place? One argument is that society benefits from educated citizens, who pay more taxes, generate more jobs and help to advance human knowledge. Typically, such social gains justify subsidies. But the private returns to many degrees are juicy enough to encourage would-be students without a subsidy. The New York Fed reckons that a bachelor’s degree provides a 15% return on investment.

A better argument is that a purely private market for funding college would probably struggle. Despite the rosy averages, not all graduates succeed, so borrowing to pay for college is a gamble. Students do not know what job opportunities they will have later on; lenders must guess...Continue reading

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Nice gig

But what’s in the bush?

BANK of Bird-in-Hand sounds like a prudent name for a lender, perhaps suitably for the first bank to be founded in the aftermath of the financial crisis. Its name is no marketing ploy, however; it is merely taken from the southern Pennsylvania town that is home to this one-branch outfit. What really marks the bank out is the clientele it caters to, the local Amish community, a religious group sceptical of modern technology and, it turns out, a rather good credit. Since opening in 2013, Bank of Bird-in-Hand has never had to write off a loan.

Bill O’Brien, one of its founders, claims this is no coincidence. Though he is not Amish himself, Mr O’Brien has been lending to farmers in this traditionalist community since moving to the area 26 years ago. Many know his phone number and call him directly when they need a loan (phones are forbidden inside Amish homes, but communal phone shanties can be used to conduct business). Others prefer to use the bank’s drive-through window, large enough for a horse and carriage.

Losses are rare because loans extended to the Amish community are well...Continue reading

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EU hypocrites!

BLACKLISTS have been a feature of tax diplomacy ever since an internationally co-ordinated assault on tax havens began in the late 1990s. One of the first lists, produced by a global anti-money-laundering body, included, among others, Panama. The Central American country rattled the only sabre it had—its canal—and was promptly taken off the list after some Western governments squealed that their companies might lose engineering contracts.

Politicised though blacklisting may be, it is no less popular today. Pressure to name and shame is high in a time of post-crisis austerity. The latest such list, published in June by the European Union (EU), points the finger at 30 countries it views as “non-co-operative” on tax.

The targets (see table) have cried foul. Far from being exhaustively researched, the list is an aggregation of national lists: it includes any country blacklisted by ten or more EU members. Not only does that strike many as arbitrary, but the criteria for inclusion differ from EU state to state: some consider a low tax rate alone sufficient grounds, others require secrecy and opacity too. The most avid...Continue reading

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Nafta naphtha

WHEN the economics textbooks of the future are written, America’s ban on crude-oil exports will be a fine example of the perverse effects of protectionism. Similarly, a decision by Barack Obama’s administration on August 14th to allow American firms to swap some oil with Mexico, so easing the restraint, will earn an honourable footnote in the story of the ban’s inevitable demise.

Geology, engineering, economics and politics are all at play. In 1975, just after the first oil shock, America banned crude-oil exports in order to stabilise domestic prices. The country’s oil refineries are still configured to deal with the heavy, sulphur-laden crude oil it used to import. Now, thanks to the shale revolution, oil imports have plunged as production has soared. Oil from shale is lighter and less sulphuric. There are not many refineries in America that can deal with it efficiently. Yet the ban means it cannot be exported, either.

This archaic rule now keeps the price of domestically produced oil, signalled by the West Texas Intermediate (WTI) benchmark, at a hefty discount to the world price—currently over $6 per barrel. That has become...Continue reading

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Forking hell

“FEDERAL Reserve deeply split. Renegade group of board members to create separate American dollar.” Such a headline seems highly unlikely, but this in essence is what is happening in the land of Bitcoin, a digital currency. On August 15th two of its main developers released a competing version of the software that powers the currency. With no easy way to resolve feuds, some are warning that this “fork” could result in a full-blown schism.

The dispute is predictably arcane. The bone of contention is the size of a “block”, the name given to the batches into which Bitcoin transactions are assembled before they are processed. Satoshi Nakamoto, the crypto-buff who created the currency before disappearing from view in 2011, limited the block size to one megabyte. That is enough to handle about 300,000 transactions per day—suitable for a currency used mainly by geeks, as Bitcoin once was, but nowhere near enough to satisfy the growth aspirations of its boosters. Conventional payment systems like Visa and MasterCard can process tens of thousands of payments per second if needed.

By how much and when to increase this limit has long...Continue reading

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Goodbye to all that

IT WAS only a decade or so ago that Scotland was hit by the “Great Drain Robbery”, the disappearance of 50 manhole covers in Fife. It gave an inkling of the emergence of a new era in commodity markets, spurred by insatiable demand from China. Scrap-metal prices—and so scrap-metal thefts—soared. Africa was over-run by Chinese engineers; Australia elected a Mandarin-speaking prime minister; and emerging markets from Argentina to Zambia relished the rising values of their farmland and mines. The boom was fanned by a weak American dollar, the currency in which most stuff that comes out of the ground is priced.

The gears have now gone into reverse. A resurgent dollar has hammered commodity prices: many have recently fallen below their levels of a decade ago. That is a fate not shared by other tradeable assets: not since the late 1990s have commodity prices been so weak compared with shares (see chart 1). The American economy is strengthening, but by no means enough to encourage thieves to filch bronze bells from Chinese temples to send as scrap to the United States. The impact of its recovery is dwarfed by slowing demand in China, which still consumes...Continue reading

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Advantage: doves

THE combination of weaker-than-expected CPI inflation and some dovish comments in the minutes of the Federal Reserve’s July meeting have caused the dollar, and yields on Treasury bonds, to fall. The traders are hopefully forecasting that the chance of a September rate rise is receding. The case for tightening monetary policy next month looks increasingly frail.

Consumer prices are only 0.2% higher than a year ago. Inflation continues to languish close to zero due to cheap oil and the effect of a strengthening dollar on import prices, both factors which the Fed regards as transitory. However, if the world economy is slowing—as others fear—they can be expected to persist. Weak demand overseas will weigh on both commodities and foreign currencies.

In any case, there is no significant inflationary pressure, on today’s reading or looking at expectations. The Fed’s staff project that inflation will remain below its 2% target over 2016 and 2017, and market measures of inflation expectations remain weak. A tightening in September would cause these expectations to sag further, because a rate rise is currently viewed as a possibility, not a certainty.

The main argument of the hawks is that spare capacity in the labour market is disappearing as unemployment falls. Indeed, expectations of an interest rate rise surged following satisfactory job numbers...Continue reading

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Trying to count China's jobless

Not so hot commodities

COMMODITIES take a further dive which has impacted inflation globally and America finally eases its ban on crude oil exports

How governments should help those on the dole

ALTHOUGH Britain and America can feel smug about their unemployment rates of 5.6% and 5.3%, other countries are still fire-fighting. The Spanish and Italian governments are grappling with rates of 22.4% and 12.7% respectively, and in June the euro-zone average was 11.1%. But what works when people are not working? A new NBER Working paper* offers a guide for governments desperate to reduce the ranks of the unemployed.

“Active labour market programmes” are schemes meant to help people to find work. They grew out of the American public works programmes of the 1930s, where the...Continue reading

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The falling yuan, tax inversions and college debt

THIS week's print edition has an array of economics articles that may be of interest. The following have particularly caught our eye:

The devaluation of the yuan: The battle of midpoint (Finance)

Tax inversions: All my bags are packed (Business)

College debt: More is less (United States)

And don't forget to take a look at this week's Free Exchange column, which looks at three new papers about how automation affects the economy.

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A third bail-out gets the green light

A MONTH ago Greek membership of the euro was in peril, as Wolfgang Schäuble, Germany’s powerful finance minister, argued that Greece should leave the monetary union for at least five years in what he euphemistically called a “time out”. Any such exit, which would almost certainly have turned out to be permanent, would have undermined a founding principle of the monetary union—that those joining the euro do so irrevocably. Even after euro-zone leaders meeting at a crucial summit managed to agree upon a framework for a bail-out agreement on July 13th the chances of it actually being concluded and avoiding a “Grexit” seemed slim. Mr Schäuble made clear in the following week that he still thought Greece should be temporarily expelled from the euro while Alexis Tsipras, the Greek prime minister, said he did not believe in the agreement he had just made at the summit.

Yet, on August 14th, the Eurogroup of euro-zone finance ministers gave the green light to the bail-out, the third since May 2010, in which Greece will get up to €86 billion ($95 billion) in rescue funding over the next three years. The next hurdle is getting the consent of...Continue reading

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Losing momentum

TODAY’S figures for GDP in the second quarter of 2015 from Eurostat are disappointing. The consensus among economists was that the 19-strong currency club would grow by 0.4%, the same as in the first quarter. Instead the pace of quarterly growth slowed a little, to 0.3%, leaving output 1.2% higher than a year ago.

The French outcome was the main setback. Output had been expected to rise by 0.2% following growth of 0.7% (revised up from 0.6%) in the first quarter. Instead it stagnated mainly because of an abrupt slowdown in consumer spending. Italian GDP continued to expand but by only 0.2% compared with 0.3% in the first quarter, leaving output only 0.5% higher than a year ago.

The feeble economic performance of France and Italy is the principal reason why the overall recovery of the euro area since the spring of 2013 has been a pallid affair. Given the stimulus from lower energy prices and the policy of quantitative easing (purchasing assets by creating money) pursued by the European Central Bank (ECB) since March, the renewed weakness in the euro zone’s second- and third-biggest economies is troubling.

Their unsatisfactory performance contrasts with the strong upswing in the Spanish economy, the fourth-biggest in the euro area. The pace of quarterly growth strengthened from an already strong 0.9% in the first quarter to 1.0% in the second quarter,...Continue reading

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In jeopardy

Progress is glacial

“NO SOONER does the Japanese economy raise its head from the mat than it falls down again.” So wrote one longtime Japan-watcher last month on the news that, after zooming along at a real annualised rate of 3.9% in the first quarter, GDP may well have contracted during the second. Preliminary data will be released on August 17th.

This is the year that the economic plan of Shinzo Abe, the prime minister, should be taking wing. The negative effect on consumer demand of a rise in the consumption tax in April 2014—the economy tipped into recession afterwards—is by now safely past. Meanwhile a drop in oil prices has been a boon for household budgets.

Yet the economy’s performance has been underwhelming. The problems have been weak industrial production, thanks to a slowdown in exports to America and China, and anaemic household consumption. In a recent report on Japan, economists at the IMF attributed some of consumers’ reluctance to open their purses to their worries about how Japan’s dire fiscal position—debt now stands at 246% of GDP—could affect their future income. Companies and...Continue reading

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Asset-rich, cash-poor

IT WAS not a hard sell. On August 10th Saudi Arabia issued bonds worth 20 billion riyals ($5.3 billion). Local banks, the only institutions allowed to take part in the sale, have lots of spare cash. The price was appealing, too: the ten-year bonds (there were also five- and seven-year issues) will yield almost half a percentage point more than their American equivalents.

The government did not publicise the sale, but it was hardly a surprise given its deteriorating finances. To maintain spending despite falling oil revenue, it has been cashing in foreign assets at a rapid clip: $60 billion in the first six months of the year. In July Fahd al-Mubarak, the head of the Saudi Arabian Monetary Agency (SAMA), the kingdom’s central bank, announced the government had raised $4 billion selling bonds to state-owned institutions, and talked of more sales to come.

Saudi Arabia does not like borrowing—the last time it issued bonds was in 2007—but the books are not balancing. Oil makes up 90% of government revenues, and its price, roughly $50 a barrel, is less than half what it was in June last year. That is partly Saudi Arabia’s...Continue reading

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Third time lucky?

JUST one month ago Greece was on the verge of leaving the euro. Germany had raised the prospect of a “time out” lasting at least five years, following a breakdown in trust between euro-zone countries and the Greek government. Even when an acrimonious weekend summit in Brussels ended on July 13th with a tentative plan for a third bail-out, providing up to €86 billion ($96 billion) over three years in return for further austerity and reforms, there was widespread pessimism about whether a more detailed agreement could really be reached. Yet on August 11th the Greek government settled the specific conditions of the rescue with the four institutions representing the interests of creditors: the European Commission, the European Central Bank (ECB), the IMF and the European Stability Mechanism (ESM), a rescue fund for the euro zone.

The new proposals were due to be passed into law by the Greek parliament on August 13th, after The Economist had gone to press. The hope among Greek officials was that euro-zone finance ministers would endorse the deal the following day. That could in turn pave the way for a release of funds from the ESM...Continue reading

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A new contract for growth

BUSINESSES have been disappointingly slow to invest since the financial crisis. Global capital expenditure by non-financial firms is expected to fall by 1% this year, according to Standard & Poor’s, a rating agency, and by a further 4% in 2016. If those predictions are right, that will be four straight years of decline (see chart) despite the adoption of very low interest rates throughout the developed world, a policy seemingly designed to encourage companies to borrow and invest.

Admittedly, the latest decline is highly concentrated in the energy and industrial-materials sectors, which have been hit by falling commodity prices. Excluding them, capex will rise by 8% this year. But that is of only limited comfort; investment in energy and materials has been hugely important in recent years, comprising 39% of all capex in 2014.

Falling commodity prices reflect worries about the outlook for the global economy. Those worries help explain not only why interest rates are so low, but also why companies are reluctant to invest. Why expand capacity if extra demand is unlikely to materialise?

On top of those cyclical reasons...Continue reading

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Whom to trust

AMERICAN banks typically drum up new borrowers by bombarding anyone with a decent credit score with junk mail offering credit cards and ignoring everyone else. A host of new competitors, however, are much more imaginative about how they recruit new customers.

Take Kabbage, a startup based in Atlanta which began lending to small companies online in 2011. A third of their applicants did not qualify for business loans because they had not yet started operations, had insufficient revenue or no formal legal structure. Many of them, however, did qualify for personal loans. So in September Kabbage launched a subsidiary called Karrot to give personal loans of up to $30,000 at interest rates of 6% to 26%.

Karrot worries less about borrowers’ credit history—the conventional approach—than about their cash flow. Customers must allow Karrot to monitor their current accounts and other financial data, such as credit-card bills. A big decline in income prompts an inquiry about an extended payment plan (to pre-empt a default); an increase prompts an offer of more credit. The initial evaluation takes only four minutes. Growth has been impressive: Karrot expects to lend $1 billion this year. Its default rate is 5%.

Upstart, based in Palo Alto, is another firm learning to look beyond the credit record, in this case to borrowers’ educational history—an...Continue reading

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Yuan thing after another

THE cloud hanging over emerging markets seemed to darken in the past week. As it was, fears that the Federal Reserve is about to raise rates, pushing up debt-servicing costs and sucking capital out of emerging markets, had been weighing on currencies and stockmarkets from Brazil to Turkey (see chart). Now a fresh worry is blotting the horizon. On August 11th China engineered a small devaluation of the yuan, prompting concerns that, with growth sputtering, its government was ready to risk a global currency war.

The angst about the state of the world’s two biggest economies is understandable. China’s economy has slowed markedly: it is likely to grow by 7% this year, its most languid rate in a quarter-century. In addition the government has been trying to reorient the economy from investment to consumption. For emerging markets that had been catering to China’s investment binge—those selling it coal and iron ore, copper and bauxite—the past few years have been little short of brutal. The economy’s slowing and rebalancing explain much of the 40% fall in commodity prices since their peak in 2011 and, by extension, the travails of...Continue reading

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Automation angst

The battle of midpoint

TRICK question: did China’s central bank intervene over the past week to weaken the yuan or to strengthen it? Given all the headlines about devaluation, weakening would seem the obvious answer. In fact, the opposite is true: it first tried to stand aside, giving the market more say in the yuan’s value, and then backtracked, intervening to stem the ensuing decline. The volte-face reveals much about both the oddities of China’s economy and the difficulty of reforming it.

Every morning, marketmakers such as the big state-owned banks submit yuan-dollar prices to the People’s Bank of China (the central bank). It then averages these to calculate a “central parity” rate, or midpoint. Over the course of the day, the PBOC intervenes to keep the exchange rate from straying more than 2% above or below the midpoint.

In theory, it is the marketmakers, not the central bank, that set the midpoint and thus the trading band. In practice, the PBOC gets marketmakers to submit rates that will yield its preferred midpoint, irrespective of market sentiment (state-owned banks are pliant, after all). Critics in America and elsewhere have long alleged that...Continue reading

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Stop cheering, Keynesians

THE appeal of Jeremy Corbyn, the likely Labour party leader, is said to be that he offers an alternative to austerity. Indeed his rise has been championed by Keynesians such as Paul Krugman. And there is plenty of scope for arguing about whether the British government has placed too much emphasis on deficit-cutting in recent years. 

But is that what he is really offering? One of his key supporters, John McDonnell, wrote in the Guardian this week that

Labour under Jeremy Corbyn is committed to eliminating the deficit and creating an economy in which we live within our means.

The Keynesian approach would be to allow economic growth to bring the deficit down gradually, via higher tax revenues and lower benefit spending (as unemployment fell). Instead Mr McDonnell says

Our cuts will be to the subsidies paid to landlords milking the housing benefit system, to the £93 billion in subsidies to corporations, and to employers exploiting workers with low wages and leaving the rest of us to...Continue reading

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Silver linings

SINCE the recovery gained speed, opposition politicians in Britain have taken pleasure in accusing the government of overseeing an economy based on long hours and low pay. Between 2008 and 2014, the number of Britons in work rose by 2m. But average weekly earnings fell by 8% in real terms, in spite of a rise in working hours. Economists have labelled this the “productivity puzzle”, referring to the fact that, in spite of an otherwise strong recovery, output per worker per hour has fallen.

But there are now signs that these job-market trends are going into reverse. At first glance this may not appear to be unalloyed good news. After several years of rapidly falling joblessness, figures published by the Office for National Statistics on August 12th showed that unemployment grew by 25,000 in the three months to the end of June, to 1.85m. Worse, the number of people in work fell by 63,000 over the same period. That decline, which started in January, has lasted longer than any since the recovery began.

Yet there was better news on the wages front. After years of stagnant earnings, Britons are now getting a pay rise....Continue reading

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Google Hathaway

GOOGLE rebrands as 'Alphabet', Warren Buffett's Berkshire Hathaway makes its biggest ever deal and two telecoms rivals merge in Italy

The primary effect

THE primary effect is a long-established problem in American politics. Candidates must tack to the extremes in order to win the support of the committed enthusiasts who vote in primaries, only to shift back to the centre in the Presidential election. One adviser to Mitt Romney called this the "Etch-a-Sketch" strategy under which you

kind of shake it up and start all over again

The problem with this approach is twofold. First it increases voter cynicism and adds to the temptation for them to support extreme candidates who seem less likely to retreat. A second problem is that politicians are stuck with their promises and feel unable to abandon them. The elder Bush, a more pragmatic figure than most, dropped his "Read my lips, no new taxes" pledge. But modern Republicans feel they have to sign up to Grover Norquist's  pledge against tax increases. On the other side, Democrats struggle to agree to cost reforms of Social Security or Medicare. All this makes it more difficult for Congress to reach compromises on economic issues. And important subjects, like the slowdown in US productivity growth, get unexamined amid all the...Continue reading

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The curious case of China's currency

A book with too much information?

Last month, we reviewed in the print edition a recent book called “Why Information Grows”, by César Hidalgo, at the MIT Media Lab. Here, one of our other economics contributors gives his opinion about the volume.

WHEN an author poses a question in a book title, the reader might reasonably expect an answer. Sometimes the reader is left in exhilarating suspense, like after Philip K. Dick’s “Do Androids Dream of Electric Sheep?” (which left the readers knowing little new about the inner thoughts of celestial bodies). But expect no easy answers in “Why Information Grows”, a recent book by César Hidalgo, a professor at the MIT Media Lab. Indeed, like its title, the book reads like an unfinished sentence.

In his book, Mr Hidalgo tries hard to pretend that he is not trying to explain why some countries are rich and others are...Continue reading

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Spain's economy, manufacturing in India, and how to set interest rates

THIS week's print edition has an array of economics articles that may be of interest. The following have particularly caught our eye:

Spain's economy: Back on its feet (Finance)

Manufacturing in India: Stuck on the runway (Business)

And don't forget to take a look at this week's Free Exchange column, which looks at how how central banks should set interest rates.

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Disappointing figures probably won't put off the Fed's rate rise

AS THE American recovery accelerates, its central bankers are getting itchy fingers. Interest rates have not moved from their rock bottom 0.25% since the beginning of 2009, and a rise is nearing. July’s employment report, out today, revealed an economy that was not quite as buoyant as markets expected. But it was probably not bad enough to make the central bankers postpone the rate hike.

The economy churned out 215,000 extra jobs in July, not as many as the 225,000 expected, nor the 246,000 average over the previous 12 months. But it is still respectable. Unemployment stayed put at 5.3%, tantalisingly close to the 5-5.2% range that the Federal Reserve has labelled as “full employment”. Average wages rose by 5 cents per hour (0.2%), in line with expectations, and by 2.1% relative to the same month last year. Presidential candidates are falling over themselves to present their ideas for how to boost wage growth, and this month's sluggish performance marks no...Continue reading

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Who's holding up Moldova?

WANTED: well-connected fraudsters who pulled off a $1 billion bank heist that robbed Moldova of an eighth of its GDP. Moldova, a small country wedged between Romania and Ukraine, is the poorest country in Europe. The theft, which happened in November, led in turn to the bankruptcy of the country's three major banks, a currency crisis, and a sharp economic slump. Government tax revenues had already taken a hit, but then came the political woes: all major parties had members implicated in the heist. Accusations of corruption flew not only at politicians, but also at the judiciary, central bank, commercial banks, and the state prosecution service. Amid evidence of deeply embedded corruption, Moldova’s major international funders (the EU, IMF, World Bank and European Bank of Reconstruction and Development) froze their support, leading to the withdrawal of some hospital services, and impending problems for paying government salaries. Last week, the Moldovan parliament voted in a new prime minister after...Continue reading

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Rule it out

SHOULD experts in the public service follow rules, or rely on their own judgment? The answer is crucial for many areas of public policy, including criminal sentencing, immigration and education. It is also of pivotal importance to monetary policy.

Central bankers usually have discretion over how to use interest rates to achieve their goals. Yet it is easy to see the problems that result, as analysts pore over every word any central banker utters and markets see-saw in response. This tendency is becoming more frenzied as America’s Federal Reserve prepares to raise rates, issuing tantalisingly vague statements along the way. Some Republicans in Congress think it would be better if the central bank’s actions were more predictable. Jeb Hensarling, who heads the committee that oversees the Fed, frequently urges it to set interest rates using a simple formula.

The debate about rules versus discretion is an old one. In 1977 economists Finn Kydland and Edward Prescott—who went on to win the Nobel prize for their work—showed how too much tinkering with interest rates can be...Continue reading

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Explaining "Super-Thursday"

TODAY has been upgraded in Britain, by many commentators, from a normal Thursday, to 'super-Thursday'. In times of old, on a Thursday each month the Bank of England's monetary-policy committee (MPC) would publish its decision on whether to change interest rates (they have remained at 0.5% for nearly 80 months). But pundits would have to spend two weeks on tenterhooks before learning why that decision had been reached, since that was when the meeting's minutes were released. And the quarterly inflation report, a detailed economic assessment, would usually be published six days after the initial decision (though only once a quarter).

 

In the new order, the bank is pumping out all the information in one go. Analysts get treated to the monetary-policy decision, the meeting minutes, 43 pages of the inflation report (excluding the title and contents pages) and a press conference where journalists are allowed one question each (pity the poor hack who almost used up his slot by asking how many questions he was allowed).

 

Thursday's barrage of information was more dovish than the...Continue reading

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Back on its feet

AMID the drama of the past few months over a possible Grexit, it has been easy to overlook that other parts of southern Europe have been recovering—just as Greece itself would have done if politics had not got in the way. The revival of Spain’s economy is especially important because it is the fourth-biggest in the euro area and the one whose troubles seemed most likely to prompt a break-up of the single-currency club only three years ago. For some, the Spanish rebound is proof that structural reforms pay off. Yet so deep was the downturn that Spain is still far from regaining all the ground it lost. Moreover, it is not clear how much the recovery has to do with Spain’s vaunted policy shifts.

The Spanish economy has been growing for two years, following the extended double-dip recession in 2008-13 (see chart). The recovery was initially lacklustre but it picked up in the spring of 2014 and has sparkled particularly this year, with growth of 0.9% in the first quarter (an annualised rate of 3.8%) and 1% in the second quarter. Unemployment remains troublingly high, at 22.5% in June, but has fallen sharply from its peak of 26.3% in early...Continue reading

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Hurricane warning

Rainy days ahead

IT WAS barely a month ago that Alejandro García Padilla, the governor of Puerto Rico, first asserted that the American territory’s $72-billion public debt was unsustainable. At the time, his warning that the only alternative to a comprehensive restructuring was a “unilateral and unplanned non-payment of obligations” was seen by most as a spur to negotiations with creditors. But on August 3rd Puerto Rico’s Public Finance Corporation (PFC), a government agency, failed to make a $58m payment to bondholders. “We don’t have the money,” explained Víctor Suárez, the governor’s chief of staff.

The PFC depends on the island’s legislature to appropriate funds to service its debts. But following a decade of uninterrupted recession, lawmakers were unwilling to extract more revenue from taxpayers. A loss of faith among investors, meanwhile, has left them unable to tap the capital markets. As a result, the PFC only managed to send off $628,000. Moody’s, a rating agency, promptly announced that it considered the bond in default.

The PFC’s missed payment is unlikely to set off an...Continue reading

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Hard LIBOR

You could keep a brothel, deal in firearms and engage in “wanton or furious driving”, all at the same time, and still end up with a shorter prison sentence than that received by Tom Hayes, a former investment banker who on August 3rd got 14 years for market-rigging.

Mr Hayes was found guilty of eight counts of fraud by a court in London. The judge, Jeremy Cooke, called him “the hub of the conspiracy” to rig LIBOR, a benchmark interest rate. The nature of his offence is less easy to explain than, say, burglary, making explosives or cannabis-peddling—other offences that carry 14-year sentences in Britain. He made his employers—UBS and then Citi—hundreds of millions distorting LIBOR to suit his trading positions. Interest rates on lending worth trillions, from mortgages to corporate loans, were swayed by Mr Hayes’s schemes to bolster his bonus.

The sentence is steep by financiers’ standards, too. Beyond Bernie Madoff, the Ponzi-schemer who copped 150 years in American jail, few white-collar criminals spend more than a year or two behind bars. Other crooked traders, including Kweku Adoboli, a former colleague of...Continue reading

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The Tarullo show

The book of Daniel

IT IS the job of the Federal Reserve, according to the law that created it in 1913, to supervise banks and “to furnish an elastic currency”, among other things. Those tasks, it turns out, are quite elastic themselves. The Dodd-Frank act of 2010, which overhauled America’s financial regulations in the wake of the crisis, requires the Fed to write no fewer than 58 new regulations. It gives the Fed a say in everything, from how much collateral firms trading certain derivatives should provide their counterparties, to the “diversity policies” of financial institutions.

Dodd-Frank also creates a new position within the Fed, a vice-chairman responsible for regulation, to oversee many of those new rules. The president has never nominated anyone to fill that post, perhaps for fear of the awkward debate that would doubtless ensue during confirmation hearings in the Senate, about how appropriately the Fed was exercising its new powers. In fact, two of the seven seats on the Fed’s board are currently vacant. In the meantime, the administration of the Fed’s ever-expanding powers has fallen, more often than...Continue reading

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Plunging like it’s 1998

NOT since Bill Clinton was president and Barack Obama was a law professor with a sideline in local politics have the beaches of Bali and Langkawi looked so inviting to Americans. Four years ago, a dollar fetched just over 8,500 Indonesian rupiah, and just under three Malaysian ringgit. Today a dollar is worth nearly 14,000 rupiah and almost four ringgit. Both currencies hit 17-year lows this summer, and kept falling (see chart).

In one sense, Indonesia and Malaysia are far from unique: declining commodity prices, the slowdown in China and the growing likelihood of an interest-rate rise in America have combined to make 2015 a miserable year for emerging-market currencies. Brazil and Russia are in recession, sending the real and the rouble falling. Turkey, with its slowing economy, huge current-account deficit and growing political instability, has seen the lira decline steeply; the Chilean, Colombian and Mexican pesos have all drooped.

But in Asia the rupiah and ringgit lead the race downwards, having fallen by 8.4% and 9.8% against the dollar this year—much further than the Thai baht (6.4%) and the Philippine peso (2.2%)....Continue reading

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The dreamboat next door

DO FRIENDS of the opposite gender distract teenagers, hampering their academic performance? It may seem obvious, at least to paranoid parents, and yet it is hard to prove. Simple analysis of a survey of American schoolchildren conducted in 1995, for example, suggests no link between the proportion of a girl’s friends who were boys and her grades. Boys with lots of female friends actually achieved better results than those with fewer.

A new paper* by Andrew Hill of the University of South Carolina, however, digs deeper into the data, and comes to a different result. Friendship groups are not random, which makes it tricky to isolate the effect of fraternising with the opposite sex on school performance. Pushy parents, for instance, may both encourage after-school activities (hotbeds of hobnobbing across the gender divide) and help out with homework. By the same token, the sort of boys who do not find it embarrassing to join a clique composed mainly of girls may also be more studious.

Mr Hill gets around this by looking at the proportion of schoolmates of either sex living near each student. He reasons that parents do not choose where to...Continue reading

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Advancing, not retreating

BIG crises can lead to big political upheavals. Think of the Depression and the subsequent rise of fascism in Europe and the New Deal in America. What is remarkable about the financial crisis of 2008 is the limited nature of the reaction.

Protest parties of the left and right have gained ground, but only in Greece have they gained power. The biggest policy change has been the introduction of quantitative easing, a technical shift that arouses few passions on the street.

This lack of action is a source of frustration on the left, for whom 2008 seemed to herald capitalism’s collapse. Some, including Paul Mason, the author of a new book called “Postcapitalism”, still hold out that hope. They view the “sharing economy”, in which outright ownership of goods is less important (think car clubs and “freecycled” furniture), as a sign of capitalism’s impending demise. Jeremy Rifkin, in his book “The Zero Marginal Cost Society”, talks about “the internet of things, the collaborative commons and the eclipse of capitalism”.

However, if you define capitalism as the interaction of individuals with a market economy, the system is...Continue reading

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The ups and downs of capitalism

EET your TEE, George

ELECTION promises, they are so hard to keep, aren't they? On April 11, the Conservative party said in a pre-election briefing that

we believe that the pensions tax relief system will be fair and affordable and we will not propose any further changes to the system during the next
Parliament

But times change. The election came and went and three whole months elapsed before the Budget on July 8, when George Osborne consulted on a massive change to the pensions tax system. Given that the consultation document must have taken a month to prepare, George's conversion was positively Damascene. The proposed change would be to remove upfront tax relief for pensions contributions. That kind of change will doubtless come under fierce attack from, er, the Conservative party which said in February that

the principle that the vast majority of pensions contributions should be free of tax is fundamental to our whole pensions and savings system and changing that would do huge damage to our savings culture and our economy

To call recent British pensions policy a dog's breakfast would be an insult to canine palates. Governments have struggled to reconcile a desire to encourage saving for retirement, particularly among poorer workers, with a desire to control the cost. In 2006, pensions simplification was...Continue reading

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China knocks on the reserve-currency door

RARELY in their 46-year history have Special Drawing Rights commanded quite so many headlines. SDRs play a mostly arcane role in the global financial system. Technically they constitute an international reserve asset that helps maintain balance between countries with big external liabilities and those flush with cash. In practice, they are more marginal, as countries largely rely on capital markets and hard currencies to cover their obligations.

Now China, eager to make the yuan go global, has placed SDRs in the spotlight. The International Monetary Fund, which manages the SDRs, is conducting a five-yearly review of the basket of currencies that form its value. China wants it to bring the yuan into the basket.

That would be a big decision, meaning that the IMF has in effect recognised the yuan as a reserve currency, despite China’s extensive capital controls. It would not suddenly turn the yuan into a rival to the dollar (as we lay out in this week’s issue, that is still a long time off). But it would be a symbolic boost to its international standing, giving countries more confidence to add the yuan to their currency reserves. In a newly published Continue reading

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LIBOR prison blues

A TRADER is sentenced to 14 years in prison for rate-rigging, armoured cars enter the luxury goods market and the British government sells down its stake in Royal Bank of Scotland

The people's QE and central bank independence

ENTHUSIASM for political outsiders is not confined to Donald Trump, Greece's Syriza or France's Marine Le Pen. In Britain, a formerly obscure leftwinger named Jeremy Corbyn seems on course to be Labour leader and thus potentially the next prime minister. There is plenty to be said about his foreign policy views, such as withdrawal from NATO; read this profile in Labour's in-house magazine, the New Statesman, for the details. 

But the enthusiasm for Mr Corbyn seems driven by his economic policies, notably his opposition to austerity. His maths look shaky as has been pointed out by Jolyon Maugham; he thinks the 50% tax rate would raise £5 billion when £3.5 billion is the maximum even if one assumes there are no effects on behaviour from the higher tax rate. And he assumes that £120 billion can be collected in higher taxes by eliminating evasion and avoidance when £34 billion is the theoretical maximum if one assumes, heroically, the government could collect all potential revenues (this "tax gap" has fallen, not risen, in recent years).

Perhaps the most interesting policy is that of...Continue reading

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Is mining as bad as asset-stripping?

We received the following response from Professor Paul Stevens of Chatham House, a think-tank, about a recent article in The Economist

On January 10th 2015, The Economist published an article entitled "African economic growth: The twilight of the resource curse?" The article argued that the economic outlook for many African countries looks promising despite falling commodity prices. This, it was claimed, reflected growing economic diversification by these countries away from dependence on commodities, and lessons learned about the power of good governance. It was argued that, "with better education systems, investment in infrastructure and sensible regulatory reforms, the continent could completely break the spell that has held it back so often in the past". The article concluded that countries with natural resources should encourage their development and not be concerned about the threat of "resource curse".

This view reflects a growing consensus away from the idea that...Continue reading

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Why aren't companies spending?

ONE of the justifications for low interest rates and quantitative easing is that reduced borrowing costs will encourage companies to invest more money - building plant, buying equipment and hiring new workers. But the record has been pretty disappointing. A survey by Standard & Poor's funds that global capital expendiure by non-financial companies is likely to decline in 2015 for the third year in succession, even though the corporate sector has an estimated $4.4 trillion on its balance sheet, earning very little.

Admittedly, the problem this year is focused on one particular sector - energy and materials. Falling commodity prices have led to big cutbacks; S&P estimates the decline will be 14% this year. If you exclude commodities, the rest of industry will grow capex by 8%. But that is only of limited comfort. The commodity sectors were helping to keep global capex propped up - they accounted for 39% of the total in 2014.

S&P is dubious of the view, taken by Andrew Smithers and others, that the cash has been diverted to share buy-backs; this is a largely American phenomenon. In 2014, North America was the only region delivering capex growth. This year, it is the only region expected to report a decline and...Continue reading

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How weak regulation is helping to build corporate kingdoms in America

"IF WE will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life." So said Senator John Sherman, who proposed the first American law against monopolies in 1890. Merging firms, however, argue that they will rule benevolently and lower prices. They claim that savings made from combining their efforts will be passed on to customers. The problem for regulators is that it is difficult to tell how much firms are fibbing. Prices can change for many reasons—higher costs, tariff changes, consumers’ tastes—and a price rise after a merger might not directly be the result of price fixing by a newly crowned monopoly.

A new paper published earlier this summer in the RAND Journal of Economics tests whether regulators made the right call in the American beer industry. The paper looks at the 2008 merger of Miller and Coors, the second and third largest brewers at the time in the United States. Miller and Coors argued that a merger would combine their distribution networks, thus reducing transportation costs. Regulators worried that the merger would...Continue reading

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Switzerland's central bank makes a massive loss

ON FRIDAY, the Swiss National Bank (SNB), Switzerland’s central bank, reported second quarter losses of 20 billion Swiss francs ($20 billion). Following an equally bad first three months of the year, the SNB’s losses so far for 2015 now amount to a whopping 50.1 billion Swiss francs, equivalent to 7.5% of Switzerland's GDP (see chart).

The SNB's losses were large but not unexpected. For years, the Bank has intervened in foreign exchange markets to prevent the Swiss franc from appreciating above its euro exchange rate cap, set at 1.20 francs per euro in September 2011. In January, the SNB abruptly abandoned its currency peg as the European Central Bank geared up for its €1.1 trillion quantitative easing programme. That caused the franc to immediately jump in value by more than 20% against the euro.

Scrapping the currency peg has had two nasty consequences. First, the appreciation of the franc made Swiss exports more expensive for foreigners, prompting the Swiss economy to start shrinking in the first quarter of 2015. Second, the depreciation of the euro against the franc led to significant currency losses on the SNB’s $550 billion foreign-exchange reserves, of which some $230 billion is held in the single currency. This alone accounted for 94% of the central bank's losses in the first half of the year.

The SNB must now strike a delicate...Continue reading

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Moldova's bust banks, renewable energy and Turkey's flightless economy

THIS week's print edition has an array of economics articles that may be of interest. The following have particularly caught our eye:

Moldova's economy: Gutted (Finance)

Renewable energy: Puffs of hope (Leaders)

Turkey's economy: Flightless (Finance)

And don't forget to take a look at this week's Free Exchange column, which looks at how ways of fighting poverty.

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