Sunday, 23 June 2013

Should you take your vitamins or not?

Earlier this month, an article appeared in the New York Times entitled Don't Take Your Vitamins. The article described a number of recent studies which have found that vitamin supplementation may be harmful, rather than helpful. For example, as the article reports, a 2005 Cochrane review of randomised-controlled trials documented that regular supplementation with vitamins A, C and E may increase the risk of mortality. This finding should obviously be qualified by saying that the direction of the effect of supplementation on mortality will depend on dosage, frequency of use, and overall nutritional status. For example, provision of vitamin A supplements can be invaluable for preventing child deaths in developing countries. And, as I've argued before, there's really no such thing as an unhealthy food (or vitamin).

Furthermore, my impression is that most people who supplement with vitamins in developed countries do not to take vitamin A or vitamin C individually, but instead take a multivitamin. Compared to individual-vitamin supplements, these contain much smaller quantities of a much larger number of micro-nutrients. So what does the evidence say as far as multivitamins are concerned? Might taking them regularly also be dangerous for people in developed countries?

In a paper published this year in The American Journal of Clinical Nutrition, Macpherson et al. set-out to answer the above question. They carried out a meta-analysis of 21 randomised-controlled trials, each of which had looked at the impact of multivitamin supplementation on one or measures of mortality. Their total sample comprised >91,000 people. Overall, they found no effect; the risk of mortality among those taking multivitamins was 98% of the risk among those taking placebos, and the 95% confidence interval around the estimate included 1. They also considered mortality from cancer and mortality from heart diesase seperately, and--again--found no effects. Their conclusion is that "the level of alarm" generated by "highly publicised reports from several recent epidemiological studies" may be unwarranted.

Tuesday, 4 June 2013

Did Japan lose a decade?

It is widely (though not unanimously) asserted that, following the bursting of its asset bubble in 1991, Japan "lost a decade", i.e., underwent 10 years of economic stagnation. (According to some versions of the argument, Japan actually lost two decades.) I am certainly not qualified to provide a comprehensive analysis of the recent Japanese experience. Nevertheless, it is instructive to look at how the standard of living (as measured roughly by per-capita production) has changed in Japan over the relevant time-period. (Data are from the World Bank, Statistics Japan and OECD.)

The first graph (below) plots nominal per-capita production in Japan between 1980-2010. And it supports the conventional account; in nominal terms, per-capita production has simply drifted up and down since the 1991 crash.

The second graph (below) plots the relative price level in Japan between 1980-2010. It indicates that, since the early 1990s, prices have stagnated or even declined--an abrupt change from their pre-1990s trend.

The third graph (below) plots real per-capita production in Japan between 1980-2010. It shows that, once adjustments are made for changes in the price-level, the Japanese standard of living has continued to rise over the last two decades, albeit at a somewhat slower rate since 1990.

Monday, 3 June 2013

What is politics?

"Politics is the art of redistributing resources in such a way that the benefits are visible and the costs are hidden."
––Milton Friedman

Saturday, 1 June 2013

Inflation and deflation traps, just deflation traps, or neither?

In this short article for The Economist, the author discusses the so-called deflation trap. In particular, the author states that, "runaway deflation [...] can be much more damaging than runaway inflation, because it creates a vicious spiral that is hard to escape." The author goes on to explain that, under deflation, since consumers expect prices to be lower in the future, they tend to postpone consumption. As a result, producers tend to cut prices, which increases expectations of deflation on the parts of consumers, causing them to postpone consumption further. In other words (if I understand the argument correctly), expectations of deflation may give rise to a self-reinforcing process whereby prices continually fall. The author also points to a couple of other potentially damaging consequences of deflation, which I will come back to at the end.

My question is: why doesn't similar reasoning apply to the case of inflation? In particular, why isn't the following argument also sound? Under inflation, since producers expect prices to be higher in the future, they should tend to postpone selling. As a result, consumers should tend to offer more money, which should increase expectations of inflation on the parts of producers, causing them to postpone selling further.

An objection I've heard to this argument is that, in fact, a (non-catastrophic) equilibrium will be reached because consumers will raise the amount they offer to producers to such an extent that producers will be made indifferent between selling goods now and selling them later. And this makes intuitive sense to me. But if it is a valid objection, why doesn't it also apply to the case of deflation? I.e., under deflation, why don't sellers lower their prices to such an extent that consumers are made indifferent between purchasing goods now and purchasing them later? I am genuinely interested to know the answer to this question, or––indeed––whether I have misunderstood the author's original argument.

As I mentioned at the beginning, the author points to two additional consequences of deflation: first, it increases the real burden of debt; and second, it may render monetary policy ineffective. Unless I am mistaken (which I very well could be), the first of these two consequences should not result in a large and rapid fall in prices, and the second should only do so via the process outlined above. In conclusion then, if deflation traps are theoretically possible, why aren't inflation traps also theoretically possible? I should emphasise that my aim here is not to so much to defend a conclusion as to pose a question for those who know more about macro-economics than I do.