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2012-07-30

Alternative ways for CO2 capturing?

Comments on Fron Jackson-Webb "Clue to carbon storage in the Southern Ocean" 30/07/2012 https://theconversation.edu.au/clue-to-carbon-storage-in-the-southern-ocean-8490

If ocean can absorb CO2 in that way, then instead of the current research on much more costly CO2 capturing and storing underground technologies, perhaps studies should be undertaken to explore how make the CO2 (from power generations or large concentrations of some other CO2 producing processes) pass through water to be captured and and stored in water to be either put into the ocean or used in irrigation.

Would that be a feasible project or idea to deal with CO2 emissions?

Moral hazard must be avoided in euro


Comments on Karen Maley "First shots in the battle for Spain?" 30/07/2012, http://www.businessspectator.com.au/bs.nsf/Article/European-crisis-ECB-Mario-Draghi-Spain-bailout-pd20120730-WNUMH?OpenDocument&src=sph&src=rot
It will not work as long as there are diverse interests and responsibilities that have been running so deep and wide between the Germans and the others.

It will be irresponsible to bail out some the troubled euro economies without them paying a real price for their troubles.

A middle way is to bail them out on the condition that they pay a higher than the ECB rate or possible potential euro bond rates to other more better shaped euro member economies.

But no one is saying that yet so far.

Until that is clear, then the euro is doomed to see some of its weak members to exit it.

Alternatively, a possible dual euro currency system may also work that would afford the flexibility of currency adjustment to their fallen international competitiveness.

US monetary policy has lost its power


Comments on Robyn Harding "Bernanke is running out of magic bullets" 30/07/2012 http://www.businessspectator.com.au/bs.nsf/Article/US-Fed-Reserve-Bernanke-stimulus-eurozone-pd20120730-WNSLX?OpenDocument&src=sph&src=rot


Conventional monetary policies have done its appropriate jobs in managing the US economy and it is highly unlikely for it to be capable of doing more as long as the US economy is concerned.

Any further QE or lower the 0.75% rate will not produce any measurable effects on the economy, apart from benefits the banks and those financial institutions to make money by pushing the stock market higher.

It is now for fiscal policy to take its responsibility to put the US economy in a long term path to health.

Besides, the US and EU all have to adjust to the challenges out of the rise of large emerging economies and that means their relative living standard will not be as higher than the emerging economies as in the past.

That also means the real wage in those countries have to fall further to be internationally more competitive vs the emerging economies.

2012-07-27

Abbott's foreign adventure

Comments on Craig Mark "Abbott’s stance on China needs to evolve with the times" 27/07/2012  https://theconversation.edu.au/abbotts-stance-on-china-needs-to-evolve-with-the-times-7975#comments
Abbott is unlikely to be as successful in dealing with China as he has so effectively opposed to the ALP government since he became the opposition leader. 

China is no Gillard nor Rudd.
If Abbott hopes his hardlining tactics may work, the US would have China measured long ago, given that the US has been and is still much much more powerful than Australia and there have been many harks there who are at least as good as Abbott in global leadership and skills.
So yes, his stance on China has to evolve with time.
Just see how American presidents changed their attitudes towards China from their campaigns once they came to the White House and began to deal with China.
Rhetoric is one thing and reality is another totally different one all together.

2012-07-26

Academic scholars in Australia shouldn't be Chinese-scholars bashing on climate change

Comments on Justin Norrie "Rich nations should do more on climate, say Chinese" 26/07/2012,  https://theconversation.edu.au/rich-nations-should-do-more-on-climate-say-chinese-8417#comments
It seems the tone of this article appears a little biased against China and Chinese scholars.
For example, the article states "It (China) produced 8.3 billion tonnes of carbon dioxide in 2010 – an increase of 15.5% on the previous year".

Readers with a rational mind would naturally be surprised how an increase of that magnitude could occur in China at the current economic environment and at the current high level of emissions.

Then you have the more obvious first and second paragraphs:
"Greenhouse gas cuts pledged by developed countries will not be enough to stop temperatures rising by 2 degrees by 2100, according to Chinese researchers who argue wealthy nations should bear greater responsibility for tackling climate change.
The controversial assertion is contained in a paper published today in the US Proceedings of the National Academy of Sciences. The paper, produced by 37 Chinese climate scientists and statisticians, says that two types of modelling show developed nations were responsible for 60% to 80% of the global temperature rise, upper ocean warming and sea-ice reduction until 2005."

Why is that argument or viewpoint a controversial assertion? Is that because it was made by Chinese scholars?

Why in academic fields like the Conversation should people bash China and Chinese scholars?

2012-07-21

A dual Euro currency is likely to work to save the Euro in the long run


Comments on Michael Pettis "Breaking up (the euro) is hard to do", 21/07/2012, http://www.businessspectator.com.au/bs.nsf/Article/European-debt-crisis-market-reaction-policymakers--pd20120718-WB9E7?OpenDocument&src=sph&src=rot
I personally believe in neither the conviction of a single currency Europe nor the complete break up of the Euro - something in the between is likely to emerge sometime in the next couple of years and to last.
Some problematic and weak Euro members may exit the Euro, but the majority may stay.
It is possible that instead of a single euro currency in the euro zone there might be 2 currencies, that is, a dual currency system to provide some flexibility.
At the same time, they may establish some mechanism that allows a common euro bond, but allow limited internal risk sharing and fiscal transfer, but each country will still be responsible for their own actions.

2012-07-17

Role of expectations and market forces in causing economic "imbalances"

Comments on James Laurenceson “Four vital things Australian commentators don’t understand about China’s economy” 17/07/2012 https://theconversation.edu.au/four-vital-things-australian-commentators-dont-understand-about-chinas-economy-8262
While all the factors that James mentioned matter, also important is the way people's expectations change over time that influence both culture and history.
I am surprised that it wasn't mentioned that adaptive expectations could also explain many of what have been the imbalance issues with the Chinese economy.
When a developing economy changes very rapidly with considerable uncertainties, many consumers, particularly historically poor ones that are the cases with developing economies, are adaptive to the rapid change in the economy and the rise in income, so their expectations are somewhat influenced by their past low income and won't spend as much as people in rich and economically relative stable developed countries.
Another factor is the role of surplus labor has played in depressing the real wages, at least until now. While many economists, including some in China, take the market as sacred on the one hand, they leave the market force aside in analysing the imbalance in the Chinese economy. They say it was the Chinese government policy that was pro investment and pro exports.
How cynical and illogical can they be?
People need to use their creativity in research, not simply and wholly rely on existing theories or what conventional line of views.

2012-07-16

No cause for pessimism for the Australian economy


Comments on Henry Ergas “Policies standing in the way of management can do great damage”, 16/07/2012, http://www.theaustralian.com.au/news/opinion/policies-standing-in-the-way-of-management-can-do-great-damage/story-fn7078da-1226426636726
Ergas has made an important contribution to the current debates on the multi-speed economy associated with the mining boom and on productivity.
The latter first. I have made a comment on the shortcomings of the viewpoint by Gruen et al that poor manager performance was the main reasons for the latest productivity slow down, by referring the charts consisting of one cross section international data with a time seires of Australia's productivity. That mix is problematic, because it says little how the international comparison has changed over time. Further, it is doubtful that international productivity would have performed better in recent years over the pre-GFC period.
For Henry's viewpoint on the Dutch Disease in the Australian economy, although it is correct to say that adjustments are inevitable when mining booms as a result of increases in international demand for mineral and a consequential rise of the Australian dollar, the view that no policies can offset or lessen the adverse impact of the mining boom on other trade exposed sectors is likely to be false.
For one thing, his mining tax design was one of policies that could just do that if the policy was designed and implemented properly.
Further, monetary policies could be designed in such a way that lowers both the demand of Australia for international capitals and the Australian dollar.
A fine combination of fiscal and monetary policies together would make the adjustments much less painful than they have been.

2012-07-15

Dutch Disease can be managed to minimise ill effects

Comments on Ken Henry "
Ken Henry: why Australia’snon-mining sector will continue to struggle", 12/07/2012,  https://theconversation.edu.au/ken-henry-why-australias-non-mining-sector-will-continue-to-struggle-8224 

This is where many economists and government officials have been lacking in creativity and in bringing a whole practical package together to deal with challenges, although the current challenges from mining boom is a good one.
Dr Henry should realise that the Henry Taxation Review's recommendation on the mining tax is a good economic theory but is not very applicable in practice and it was this combination together with bungles by politicians and bureaucrats that have resulted the current poor state of the MRRT.
Undoubtedly, the initial design of a mining tax by the Henry Review was very ambitious and elegant in theory. But the problem was it is too theoretical but not practical. An alternative one could be as simple as a pure addition to the company tax with an link to either terms of trade using mineral exports and all imports or the relative prices of mineral exports.
Of course, that additional tax should be mostly given to the states where the additional profits are generated, with some left the to the commonwealth for national adjustment to the mining boom.
States, of course, would be part of the adjustment process using that additional profit tax revenue from mining companies.
This can limit the rise of the Australian dollar and a lower dollar is conducive to lessen the impact of the mining boom, that is, the Dutch Disease.
The so called Dutch Disease can be managed with a good national policy.
Only purely relying on the market that gives to the rise of Dutch Disease.
The main viewpoint and argument in this article belongs to the latter.

Meaning and meaningful in measuring producivity

Comments on Tim Mazzarol "

Poor management performance and the implications for Australia’s economic outlook", 15/07/2012, https://theconversation.edu.au/poor-management-performance-and-the-implications-for-australias-economic-outlook-8254

While Dr Gruen and Dr Dolman's paper fingers out at what they view as poor management, particularly amongst our nation’s manufacturing firms based on some interesting research recently completed by the World Management Survey, chart 1 and chart 2 alone are not necessarily helpful in supporting their viewpoint.
Chart 1 is a time series while chart 2 is a cross-sectional. Although chart 2 indicates what is argued in this article, that is, the difference in management between Australian manufacturing firms and world best such as the US, Japan and Germany, is does not say how that difference changed over the same time period shown in chart 1.
Besides, chart 1 show the multifactor productivity had declined since 2003 not just from 2008-09. Was that coincident with the mining boom from 2003?
Further, I doubt the meaning of multiproductivity shown by chart one would really mean much to firm and industry management, because such measurement, while having its merits, may have some weaknesses in terms of significant relative price changes. We all know that the mining boom was associated with significant rises in mineral prices. From profit maximisation point of view, if the out price rises, then even the multifactor productivity stays constant or goes backward the firm may still be more profitable.
That is the difference between academic style studies and real world operators.
So the question is how to be most meaningful in measuring productivity in the real world. That would require a bit of creativity, not simply adopt what is available. Creativity may be controversial when it first appears, so it needs courage too.
If I were to redo a study on productivity similar to show the case shown chart 1, I would take the changes in relative prices into account and come up with a new concept or new measurement for it.

PS: The same logic applies to the situation when an industry or the economy is experiencing recessions when capital is sticky in the short term and cannot be adjusted as freely and quickly as desirably. So from microeconomic point of view, firms maximising profits would take the most effort to do it and that does not necessarily mean an improvement in multifactor productivity.

2012-07-12

An Australian political reform?

Comments on Greg Craven "Parliament needs the voice of reason to raise the tone of politicians", 12/07/2012,  http://www.theaustralian.com.au/national-affairs/opinion/parliament-needs-the-voice-of-reason-to-raise-the-tone-of-politicians/story-e6frgd0x-1226423839617
It is an interesting idea to have eminent Australians participate in parliament debates. Equally, the same effects could be achieved with an effective forum for eminent Australians to voice their opinions and inform the parliament. The only reform needed is for the parliament to note and debate recommended opinions by the forum. Such a forum could also include creative opinions of other Australians.

Structural changes in world economy

Comments on Greg Sheridan "Seven reasons not to write off the US", 12/072012, http://www.theaustralian.com.au/news/opinion/seven-reasons-not-to-write-off-the-us/
Greg, I am an economist and would use some economic jargon to comment on your article and viewpoints.


Your analysis is reasonable in terms of adaptive expectations, based on past experiences. The likely problem with that is if there are structural changes occurring, then adaptive expectations may lose their explanatory power. In contrast, rational expectations may be handy to use to explain things.


Over the last 20 years or so, the world has undergone an enormous and powerful structural change, typified by the rise of very large developing economies, such as China and India. This kind of structural change in the world economy means the relative decline of the developed economies and the increase in the relative weight of the developing economies. Along with this structural shift towards the developing economies, technologies are also moving to the developing world.


While China, the most dynamic example of the rising developing economies, has its many problems, it also has its strengths to formulate and stick with a long term plan. The Chinese and Indians can be as innovative as the Americans, as long their talents are allowed to do so. You and the readers can draw conclusions.

2012-07-04

What is the criterion for economic balance or not?

Comments on Ligang Song and Huw McKay "Rebalancing the Chinese economy to sustain long-term growth", July 3rd, 2012, http://www.eastasiaforum.org/2012/07/03/rebalancing-the-chinese-economy-to-sustain-long-term-growth/


While it popular to say that the Chinese economy is unbalanced, it seems not convincing and rational basis has been presented to put it beyond dispute or doubt, except to use the facts of China has surplus in trade and its investment/consumption shares are high/low.


What economic models would demonstrate that balanced trade is always optimal and that a lower/higher investment/consumption are always optimal over the course of economic development and when people and nations clearly can have different preferences?

Further, investment is absolutely necessary for economic growth, especially for developing countries which have relatively low physical capitals and inadequate infrastructure and low urbanisation. Besides, better technologies are embedded in investment


Let’s look at some of the arguments in this article. It argues “Although the non-state sector accounted for the majority of industrial output in 2007, the SOEs accounted for more than 53 per cent of non-agricultural fixed investment while employing only 13 per cent of the total workforce. These discrepancies reflect the fact that SOEs operate in capital-intensive heavy industries. But they also suggest an inefficient allocation of capital across sectors and underline that there are still large distortions in China’s factor markets.”

Even though it is acknowledged the influences of capital intensity on investment needs, it simply states that they also suggest inefficiencies in capital allocation without supporting materials/facts. Further it does not mention the role of the grey or underground banking and finance sector in providing capitals to non SOEs and its relative importance. Without those facts how the reader can be sure the argument is correct?

The article also argues the potential effect of a reform to the Hu Kou system on consumption. Although it mentions urbanisation will require investment but it does not present the fact of which effect is greater. Without those facts the reader is left wondering whether the argument is sound or not. Besides, urbanisation has different models and it does not necessarily mean that all people will need to move to mega-cities.

It is also puzzling that it has been argued that the Hu Kou system has resulted in lower wages for migration workers while no mention of the effects of excess supply of rural migration workers.
On this particular point, whether the low wages of rural migration workers were the effects of the labor market with relatively unlimited labor supply or whether it was due to the Hu Kou system, most economists would likely to argue it was the former rather than the latter.

2012-07-02

Hope for a reduction in rates by RBA on 3 July 2012

Comments on Shaun Vahey ", Keep rates on hold, says CAMA shadow board", 2/07/2012, https://theconversation.edu.au/keep-rates-on-hold-says-cama-shadow-board-8031


From aggregate GDP point of view and the housing market, rates should be held unchanged.
However, there will not be too large risks should rates go down a bit, given that mining investments are unlikely to be affected by RBA overnight rates and a lower rate should provide a boost to the other sluggish sectors and states that have struggled.
The difficulty is asset markets, especially housing market which is clearly still high as compared to other advanced countries. Stock market in Australia is probably undervalued as opposed to overvalued, and should not be a problem.
But it is difficult for the RBA to influence the housing market without significantly hurting the real economy.
Australia's interest rates are relatively high as compared to other advanced economies and we are having a multi-speed economy.
I'd hope there will be a 25 base points reduction on Tuesday.