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2015-06-30

Contest of dominance

Comments on Hugh White "Asian Century must begin with great-power accommodation", 30/06/2015

While it would be ideal that the scenario in the second last paragraph becomes true, there is no certainty and assurance of that.

If people watch the animal world presented by David Attenborough, one may be left with the impression that the existing dominant male seldom voluntarily gives way to a new challenger male and there is often a fight between the two as a succession of the dominant males in the group.

Would the US and China come to that, or would human beings are more intelligent than those animals?

A comment on Trade & Assistance Review by the Productivity Commission

Comments on Productivity Commission "Trade and assistance review 2013-14", 30/06/2015

While I have not read the full report, I sense some of the statements in this short summary hard to understand or problematic. For example, the sixth paragraph states that a large proportion of the seemingly manufacturing exports consists of services:

The review highlights that services are more important than traditional trade statistics suggest. While trade statistics suggest that manufactures are about 36% of Australian exports, on a value added basis much of this is composed of services. Consequently, services are more like 42% of Australian trade; and manufactures fall to around 14%. Imposing a net burden on services through industry assistance measures in part designed to promote exports appears even less explicable.

If that is true, then trade assistance to the manufacturing exports may also be beneficial to services when they are inputs to those manufacturing exports, because the assistance would allow the manufacturing to pay a higher price to its inputs including those services used in the exported manufacturing. Although this may be second or third round effects, the summary does not seem to take that into account.

A better inequality measure than Gini is needed

Comments on Tom Conley "Big P Political Economy - The Many Faces of Inequality and Poverty in Australia and the World", 29/06/2015

While the measure of inequality using the GINI coefficient is useful and also be informative, such a measure also has significant shortcomings particularly in a dynamic sense. A more comprehensive measure to reflect both static and dynamic situations or some complementing measures may be needed.

To capture some of the shortcomings of the Gini coefficient measure, one can ask the following question and attempt to answer it:

Do you wish to be 1% better off in a world/country of falling Gini coefficient where the average growth is less than 1%, or do you wish to be 5% better off in a world/country of rising Gini coefficient where the average growth is greater than 5%?

I think that most people are likely to prefer to be in the second situation as opposed to the first one.

If that proposition/supposition is correct, then it means that to simply use the Gini coefficient is problematic and we need to develop another measure to better reflect that.

I would suggest we need some measure of inequality that can also capture the dynamic growth in it. It should not be too difficult to develop such a new measure to better the current simple Gini coefficient.

An orderly and well designed Grexit may be beneficial

Comments on Barry Eichengreen "Path to Grexit tragedy paved by political incompetence", 29/06/2015

I agree with the author on the point that the current mess reflects the lack of leadership in all the major parties involved, though for quite different reasons. To me, the lack of political leadership lies in the lack of creative thinking in coming to a well considered and coordinated strategy for the Grexit, as opposed to the author's view that a Grexit will be disastrous. An orderly and well designed Grexit is likely to be beneficial to all major parties, because it can have all the advantages of within the euro zone, but have extra advantages of of more flexibility for Greece.

Both Greece and its creditors have had enough of the painful experiences and there should be a quick but orderly end to those pains.

China and Japan: share the most responsibilities for Asian leadership in the Asian Century

Comments on Peter Drysdale "Leadership in Asia under scrutiny", 29/06/2015

While the currently perceived and real lack of leadership in Asia, to a degree or in part, reflects the complexity and diversity of Asia and Asian countries, the most pivotal part underlying those, in my view, lies in the often difficult bilateral relations between China and Japan. They are the two largest economies in Asia, but they often do not see eye to eye with each other. Further, they are the largest developed and developing countries respectively in Asia.

When and if these two countries sort out their issues and problems so they can develop a relationship similar to that between Germany and France and Britain, many issues of Asia’s lack of leadership in the so called Asian century are likely to be resolved soon.
Both countries need to make compromises for their common good/benefits. That requires true and courageous personal leadership from the top leaders among the two countries. They need to explain the benefits to their respective people and carry them with them to forge a new bilateral relationship. And that is not an easy job by any means.
Japan may need to be really independent as opposed to be a US deputy in East Asia. China may need to embrace more of the good parts of the current global governance while at the same time to form a broad coalition to reform those areas that are no longer meet the current needs of developing and possibly many developed countries. In the process, major developing countries as a coalition, working together with most of the developed countries, can develop and design a new global governance structure.
Should a constructive and cooperative relationship be developed between China and Japan, many of the existing issues in Asia will be much easier to resolve.

2015-06-25

Housing market in Australia: bubbles or not and burst or not?

Comments on Gavin Wood and Rachel Ong "The real reasons negative gearing on housing should be phased out", 23/06/2015

I think some of the comments so far have well reasoned arguments against the remove of negative gearing, given housing investment is investment after all and investment should be allowed to deduct costs given investment in real estate is part of that investor's activity.

Another point is concerned with ABS finance statistics. Is that net or gross financing/Borrowing? Compared to owner home purchase, investors new borrowing is likely to contain a significant refinancing. If using net borrowing, the share of investment borrowing may be lower than the current indicator, although I have no idea how the financial statistics is done by ABS.

Thirdly, one of the commentators has listed a number of reasons, though no quantification of the contributions of each one. For example, how much is the effects of foreign buyers of Australian properties? Without knowing those individual effects, the discussion of this article is to a large degree hypothetical, unfortunately.

Further, there are strong implications for whether housing bubbles will burst or how rapid and to what degree any burst will occur. My own feel is that the are bubbles in Australian housing, but they can be sustained much more easily than in many other countries because of the following factors:

  1. Australia is located in Asia where there billions of population and population density is very high and land expensive
  2. Australia is large in land and small in population
  3. The policy allowing foreign investment in real estate invites foreign investments particularly from Asia where there are billions of population and they are growing very rapidly in income and they have scarce and extremely expensive land

The external factors means that the Australian housing market cannot be simply judged by Australian income alone. Australian housing may be bubbling based on Australian income levels, but that indicator in not particularly helpful unfortunately. In another word, Australian housing bubbles can be sustained by external factors.

         

Quoted numbers or not: not necessarily everyone is correct

Comments on Dylan McConnell "How much does wind energy cost? Debunking the myths", 23/06/2015 

While two people have quite different figures, it is unclear which one is more reliable and accurate after reading this article. It seems to me this article is not without its own shortcomings. For example, are all the quoted favourable figures really all reliable and accurate in the first Place?

I must however confess that I have not read the other piece to which this article is debating. But it may be reasonably expected that piece should also contain some quoted figures as opposed all figures coming from that author alone.

Land tax is no silver bullet to Australia's taxation

Comments on Mardi Dungey "The new economy - how do we get there from here?" 24/06/2015      

Although land tax is more efficient than income tax thanks to the immobility of land, it is harder to address equity like the progressive income tax can.

It's not too different to GST: it may be regressive as opposed to progressive. Why have successive governments from both sides of the major political parties not wanted to change either its scope or rates serves a good reminder the fact that GST is no bullet proof for Australia's taxation issues.

he argument for efficiency of a tax, therefore, has to be balanced with distribution aspects of taxes.

2015-06-22

Endogenous economic growth and China's one child policy

Comments on James Morley "Economic theories that have changed us: endogenous growth", 22/06/2015

While the exposition of endogenous growth in this article is useful, the use of China's one child policy as an example for lowering economic growth is, unfortunately, problematic and misleading.

It does not accord well with the story of Chinese economic growth both before and after that one child policy was introduced. China's economic transformation after that policy was introduced is regarded as phenomenal and the argument that it would/could have been more rapid if the one child policy had not been in place is hardly convincing.

While China's economic growth before that policy was not too bad, there is a qualitatively and quantitatively difference between the growth in that period and the period since then. There is no need to say which period had better growth.

The introduction of that policy, rightly or wrongly, was based on the thinking that the natural population growth (without the intervention using family planning) was too much relative to economic growth, so not only that the living standard was not improving rapid enough, but also that it may not be able to feed everyone.

One of the key factors in endogenous economic theories is not how large the population is, per se. Rather it is the quality or skills of the population.

Just consider a country with a very large population like China or India before their respective rapid growth started. Why had they low growth and why were they poor, given their very large population if large population would naturally be linked to higher growth?

One of the objectives of the child policy in China was to improve the quality of the population. To that objective, that policy has probably had a positive effect.

Further, a developing country's catch up may not necessarily be dependent, to a very significant degree, on  endogenous growth in the sense they produced new ideas or new technologies/techniques. It is their successful application of the existing technologies in the economically more advanced countries, as well as more rapid accumulation of physical capitals.

There can be winners in the Grexit game

Comments on Antonio Muscatelli "Greece: why there can be no winners in the Grexit game", 21/06/2015

Some people simply assume that Greece has not prepared for default and it's consequences., including the author of this article. That is only an assumption. That assumption may or may not be true.

It is possible that the Greece government may have carefully analysed and considered the default option and prepared for it already, but does not want to say it so as to force a better outcome than default out of negotiations. Of course, I am speculating too and don't have any better information than the author had. So don't hold me for my speculation as a certainty.

I think in the long term, it seems that an orderly Greece exit from the euro zone may prove to be better for both itself and the rest of the euro zone as a whole. A Grexit would allow it the freedom to have its own currency and to devalue as a way to adjust to increase its international competitiveness, as opposed to the simple austerity adjustments it has had so far.

The stubbornness of many participants not to actively and positively to consider Grexit may prove to be a serious mistake that carries huge costs for both Greece and the others involved. It is regrettable and it can only be avoided after a real Grexit.

2015-06-21

China's rise: a threat?

Comments on James Laurenceson and Hannah Bretherton "What Australians really think about a rising China", 27 May 2015

While China is likely to be more assertive as it becomes more powerful, it is highly unlikely to be a threat to the international order, as it is not in its interest to do so.

The main reason lies in that it has more to lose than to gain if it is to become a threat. The US and it’s extensive and powerful allies will remain a powerful check to any single country for a very long time to come, no matter how powerful any other single country may reasonably be expected to be.

This, however, does not necessarily apply to the case where a country unreasonably threats China.

Pegging RMB to a basket of currencies

Comments on Heikki Oksanen "Should China peg the renminbi to a genuine basket?" 29 May 2015

Pegging the Ren Min Bi (RMB) with a basket of major currencies appears to be a sensible approach given China’s economic development and capital account regime.

While many economists may have very strong faith in the floating exchange regime, foreign exchange markets can and do exhibit excessive fluctuations showing bubbles similar to asset markets like stock and housing markets. Excessive fluctuations in foreign exchange markets may indicate some undesirability of complete floating.

Pegging to a basket of currencies increases stability and can reduce the degree of fluctuations.

Time will tell if there is a China model

Comments on David Dollar "What institutions do Asian countries need to keep growing?" 31 May 2015

The next decade or two may prove one way or another whether there is a China model or not. While Dollar argues historical evidence is likely to be against China’s authoritarian system for its next stage of development, the current indication is that China is unlikely to say goodbye to it any time soon. As a result, we will likely to see either a China model with authoritarian government that successfully defy the historical evidence that Dollar relies, or China falls into the middle income trap including possibly a scenario where the authoritarian government is forced to give up its power in favour of the traditional democracy.

China, however, has a unique feature that is lacking in many other countries, that is, it has the largest population and it’s economy will soon be the largest in the world. Can China create a new way, that is a new model? That is a question no one can answer with absolute certainty, but will be fascinating to see for many over the next decade or two.

Middle income trap for China and other newly emerging East Asian economies?

Comments on Peter Drysdale "Will Asia’s growth fizzle out?" 1/06/2015

It is interesting to note that there is a strong regional difference in terms of transition from middle to high income, namely Latin America and East Asia. There is a cluster of countries of successful transition in East Asia, while many Latin American countries fell into the so called middle income trap.

What that reflects is the similarities of some of the key components conducive to economic growth shared by and within a region.

China’s prospect of completing such a successful transition appears to be stronger, given its geographical location in East Asia.

While the absolute level quality of China’s institutions may be low and it is a fact that it is a authoritarian state, continued reforms in China are likely to enable its successful transition from a middle to a high income country.

Major power politics: continuity and reform

Comments on Huiyun Feng "Finding common ground in major-power politics", 5/06/2015

World or international affairs, similar to domestic affairs, require both continuity and reforms. Both old and newly emerging powers must realize this fundamental point and act with it in mind to maintain what is good in the current system and to reform the part in the system to make it work better, from efficiency, equity and/or effectiveness point of view. Both worlds should seek common ground in this spirit.

A better governing model for AIIB

Comments on Richard Kozul-Wright and Daniel Poon "Development finance with Chinese characteristics", 9/06/2015

I think that a new governing model for the Asian Infrastructure Investment Bank (AIIB) could be to seek a balance between economic weights or contributions to the AIIB and members' sovereignty.

Such a governing structure will have the feature of combining both the representative and senate structures in many Western democracies. It will have more desirable properties than both the current governing structures of the World Bank and the IMF. For example, it is more objective as opposed to the arbitrary nature of the existing ones.

Further, it gives an equal weight to each country in the sovereign part of the proposed structure. The objectiveness and fairness are superior to all the current models of governance.

If China and other countries are interested in successfully reforming the current international financing bodies, they are likely to have a much stronger argument should they carefully consider and device a better governing model and mechanism. The model proposed here can help them to advance their goals and endeavors in seeking to reform both the IMF and the World Bank.

Voting in Taiwan

Comments on Sheryn Lee "Taiwan: voting for stable relations with China?" 10 June 2015

A question on economic dependency: what are the criteria for assessing whether Taiwan’s dependency on the mainland is healthy or otherwise? I am not sure whether the perception of excessive dependency is justified or not. No matter whether it is justified or not, it seems there is a need to adopt or develop objective criteria to use in such tasks.

Given that China is undertaking many reforms, both China (the mainland) and Taiwan should study what will be the best structure between the two under unification. Deng Xiaoping seemed to have a different structure from that of Hong Kong in mind. People now should be able to further develop Deng’s idea creatively.

Infrastructure crisis and AIIB

Comments on Nicholas Morris and Irene Tsjin "How to solve Indonesia’s infrastructure crisis", 10/06/2016

This infrastructure crisis, as an example in possibly many developing countries, highlights the urgent need to improve the international lending institutions and facilities. In that context, the initiative for an international infrastructure bank, namely the Asia Infrastructure Investment Bank (AIIB), is both timely and constructive. China should be praised for its role in that endeavor.

Power shifts in the world

Comments on David Huang "Building security and integration in the Asia Pacific", 13/06/2015

While the US is undoubtedly still the most powerful country both economically and particularly militarily in the world, it will not be long for that situation to change.

Economically, there are already some people who argue that China has already overtaken the US as the world largest economy.

Militarily, the power is largely though not exclusively dependent on economic power. Arguably, there may be some lags between the rise of a country’s economic power and it’s military power, though the lag may not necessarily follow only one direction.

With the increasingly more rapid speed in catching up economically, how long a country can sustain the number one status does not depend on the existing one alone but the new comers.

A better regime for foreign investment and macroeconomic policies

Comments on John Denton and Peter Drysdale "Time to re-position Australia’s foreign investment regime", 14/06/2015

There are clear benefits to integrate policies toward and implementation of foreign investment into a seamless regime, such as a ministerial-level Foreign Investment Council as the author nicely proposed. Another approach may be a national economic management council which integrate economic policies and implementation at the national level and the tasks proposed for the foreign investment council forms a part of it.

At macro level, economic textbooks say there should be optimal combination of fiscal and monetary policies to achieve most desirable outcomes. But in reality, it does not seem such coordination of those two classical Macroeconomic policies really exists in many countries. So there is a gap between theory and practice there.
Now if we treat foreign investment as something similar to government spending but differing in degrees of the host country’s direct control in the GDP equation (as part of the investment - I component), the council proposed by this article’s authors may naturally fall into the macroeconomic policies area. As a result, a national economic council would be handy to include foreign investment coordination in its tasks.

Non-discriminatory policy on foreign investment for Australia preferred

Comments on Shiro Armstrong, Sam Reinhardt and Tom Westland "A Swiss-cheese approach to foreign investment isn’t in Australia’s interests", 15/06/2015

Undoubtedly, there are benefits in adopting non-discriminatory foreign investment policies similar to WTO most favoured nation provision. Economists and polling often, however, do not see eye to eye with each other. Pollies often take short term approach based on electoral pressures and will always find and use discrimination approaches to please powerful and vocal sections of the electorate. They probably don’t want to lose their power to do so.

On the other hand, economists argue for free trade. Yet the reality is there are enormous difficulties to negotiate really free trade agreements.

Sino-Russian strategic accord?

Comments on Tom Lairson and Ilan Alon "Disparities limit the scope for a Sino–Russian strategic accord", 16/06/2015

While it is true that there are significant dissimilarities between China and Russia that may possibly mean certain barriers for them to become close allies, whether they will develop into close strategic allies or not is also dependent on how the US and NATO behave. 

For example, should the latter pose existential security threats to the former, then it is not inconceivable that they would develop into strategic allies to defend themselves together. Even though they may be currently seen as unlikely strategic allies, they may not have other and better alternatives to them if both faced with that kind of threats.

A welcome change in China's foreign policy

Comments on Jonas Parello-Plesner, Washington and Mathieu Duch√Ętel "How Chinese nationals abroad are transforming Beijing’s foreign policy" 16/06/2015

It has been a nice and welcome change of Chinese government policy, not only by overseas Chinese nationals but also likely by other countries, given that other nationals may also get assistance by Chinese evacuation operations. As the authors argued, it is also likely to lead to China's more willing adoption of multilateral intervention for the common goods of the international communities. This is an example of globalization leading to better behaviour and policy, and possibly a demonstration of China’s peaceful rise claim.

India may play a greater role in AIIB than Bery argued

Comments on Suman Bery "Why the AIIB could work for India", 17/06/2015

Amomg the three spheres that Bery identified India’s interests could be partitioned, namely political, financial and intellectual, I share the author’s view on the last one completely that collaboration between China and India could be transformational. I would further add that other countries which have successfully transformed from low income to middle income and then high income countries such as Korea, Singapore, Hong Kong and Taiwan into the partners of collaboration intellectually, if they are the members of AIIB.

The second sphere, namely financial, I share Bery‘s view only partly. I would also include sovereign guarantee as a preferable criterion but not as the one that would veto if there is no such a guarantee.

On the political sphere, however, I have a different view from that of Bery's. Even though China and India are not allies in the same way as the USA and Britain have, the former do have strong shared common interests as emerging economies wishing to reform the outdated governance structure of some existing international institutions, such as the world bank and the IMF. It is these shared interests that have driven their formation of the BRICS and that will outweigh their political dissimilarities.

In summary, I see that India is likely to play a greater role in AIIB than Bery envisaged.

Neutrality on South China Sea issues important

Comments on Mark J. Valencia "New round of China-bashing over the South China Sea", 18 June 2015
I must confess that I have little knowledge on international laws on seas and the legality of the claims in the South China Sea by the various states including China, Vietnam, the Philippines, Malaysia and Taiwan. It seems to me the author has reasonably argued that the current state of affairs by the US is China bashing as opposed to an unreasonable China. What China has done in terms of reclaimed feature is no different to what some other states have done. By singling out China to criticise the US position seems stranger than what it criticises.

What is the purpose of such unbalanced critique?