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.
Showing posts with label changing world economy. Show all posts
Showing posts with label changing world economy. Show all posts
2012-07-12
2011-05-17
Further reforming IMF
Comments on Peter Hartcher “Perfect time to reform the IMF”, 17/05/2011, http://www.smh.com.au/opinion/politics/perfect-time-to-reform-the-imf-20110516-1eps7.html?posted=successful
Peter, this is a very good article with excellent insights.
Some reforms IMF could include:
1. to introduce some franchise into the IMF system, by having some regional sub-committees, which have decisive says on their regional economic affairs, perhaps similar to a federation structure. For example, an Asia sub-committee to have more power to oversee Asian economies.
2. The voting rights should incorporate more than existing or past financial contributions, with some sort of the nature of a senate introduced into it. More could be considered.
3. Of course, there should be some automatic redistribution of voting rights according to and in line with changed circumstances.
4. Rotating arrangement for top IMF candidates, by at least broad regions, or the top X number of voting countries, unless they agree to not exercise their rights.
An important is to initiate this sort of reforming discussions in the right circles.
Peter, this is a very good article with excellent insights.
Some reforms IMF could include:
1. to introduce some franchise into the IMF system, by having some regional sub-committees, which have decisive says on their regional economic affairs, perhaps similar to a federation structure. For example, an Asia sub-committee to have more power to oversee Asian economies.
2. The voting rights should incorporate more than existing or past financial contributions, with some sort of the nature of a senate introduced into it. More could be considered.
3. Of course, there should be some automatic redistribution of voting rights according to and in line with changed circumstances.
4. Rotating arrangement for top IMF candidates, by at least broad regions, or the top X number of voting countries, unless they agree to not exercise their rights.
An important is to initiate this sort of reforming discussions in the right circles.
2011-05-16
More specific would be helpful
Comments on Henry Ergas “America takes us back to the seventies”, 16/05/2011, http://www.theaustralian.com.au/news/opinion/america-takes-us-back-to-the-seventies/story-e6frg6zo-1226056356121
Henry Ergas stated that "No doubt, China's economy is deeply flawed, not least because of a distorted exchange rate."
How is China's economy flawed or deeply so? In what way or ways? China is a developing and transitional economy. It cannot be compared to most of world's developed economies.
But does it mean that developing or transitional economies are flawed?
It would help the reader if Ergas was more specific or provided some detail.
It might be the fixed exchange rate, although Ergas argued that was the least of the flaws.
If that were the case, Ergas may consider the fact that free exchange rate regime has also its flaws too and some are quite serious too, such as excessive movements and fluctuations in exchange rates, causing seriously dislocations of currencies and resulting in excessive impacts on businesses and economies.
Economists, however, just accept it as the best, because it's market determine.
But are all market determined good? Why is there a need for macroeconomic theories and policies to correct the market, albeit its failures? Doesn't mean market can have its problems too?
Henry Ergas stated that "No doubt, China's economy is deeply flawed, not least because of a distorted exchange rate."
How is China's economy flawed or deeply so? In what way or ways? China is a developing and transitional economy. It cannot be compared to most of world's developed economies.
But does it mean that developing or transitional economies are flawed?
It would help the reader if Ergas was more specific or provided some detail.
It might be the fixed exchange rate, although Ergas argued that was the least of the flaws.
If that were the case, Ergas may consider the fact that free exchange rate regime has also its flaws too and some are quite serious too, such as excessive movements and fluctuations in exchange rates, causing seriously dislocations of currencies and resulting in excessive impacts on businesses and economies.
Economists, however, just accept it as the best, because it's market determine.
But are all market determined good? Why is there a need for macroeconomic theories and policies to correct the market, albeit its failures? Doesn't mean market can have its problems too?
2011-04-12
Imbalanced growth and possible stagflation
Comments on Olivier Blanchard “When it comes to the commodity crunch”, 12/04/2011, http://www.businessspectator.com.au/bs.nsf/Article/oil-inflation-commodities-IMF-Blanchard-pd20110412-FTSM4?OpenDocument&src=sph
A couple of comments.
First, on balanced or imbalanced growth.
The article starts with the following:
"The world economic recovery is gaining strength, but it remains unbalanced.
Three numbers tell the story – we expect the world economy to grow at about 4.5 per cent a year in both 2011 and 2012, but with advanced economies growing at only 2.5 per cent, while emerging and developing economies grow at a much higher 6.5 per cent."
Although Olivier Blanchard clearly has a point here, but some of the message masks the trend in the past two decades or so, that is a converging trend characterised by much higher growth in emerging economies especially the larger ones like China and India on the one hand, and the lower growth of most industrialised economies, even in the event of over consumption in some of the latter countries.
So, the unbalanced growth will continue and has been normal and will continue to be normal for some time to come, although Olivier Blanchard means the below potential low growth in industrialised economies.
Secondly, on effects of high commodity prices on different economies, Olivier Blanchard may have ignored the effects of higher prices of exports from emerging to advanced economies as a result of the high commodity prices.
I see that in conjunction with the direct effects of commodity prices will be the main sources of stagflation in some industrialised economies, should that occur over the few years to come.
A couple of comments.
First, on balanced or imbalanced growth.
The article starts with the following:
"The world economic recovery is gaining strength, but it remains unbalanced.
Three numbers tell the story – we expect the world economy to grow at about 4.5 per cent a year in both 2011 and 2012, but with advanced economies growing at only 2.5 per cent, while emerging and developing economies grow at a much higher 6.5 per cent."
Although Olivier Blanchard clearly has a point here, but some of the message masks the trend in the past two decades or so, that is a converging trend characterised by much higher growth in emerging economies especially the larger ones like China and India on the one hand, and the lower growth of most industrialised economies, even in the event of over consumption in some of the latter countries.
So, the unbalanced growth will continue and has been normal and will continue to be normal for some time to come, although Olivier Blanchard means the below potential low growth in industrialised economies.
Secondly, on effects of high commodity prices on different economies, Olivier Blanchard may have ignored the effects of higher prices of exports from emerging to advanced economies as a result of the high commodity prices.
I see that in conjunction with the direct effects of commodity prices will be the main sources of stagflation in some industrialised economies, should that occur over the few years to come.
2011-03-04
What exchange rate regime will be better for both flexibility and stability?
Comments on Barry Carin "Prospects for France’s presidency of the G20", 4/03/2011, http://www.eastasiaforum.org/2011/03/04/prospects-for-france%e2%80%99s-presidency-of-the-g20/
It is interesting to note that the original French agenda includes exchange rate instability and commodity price volatility.
What does exchange rate instability mean?
And what does it mean for the US or some other countries push for floating exchange rate for China?
Wouldn’t that suggest that free floating can be as problematic as completely fixed exchange rate regime?
PS: While at the moment there is no universally accepted solutions to exchange rate instability and commodity price volatility, it does not mean that excessive volatility and instability are good for the world economy or businesses.
Economists and government officials and advisors must consider what regime will work better.
It is interesting to note that the original French agenda includes exchange rate instability and commodity price volatility.
What does exchange rate instability mean?
And what does it mean for the US or some other countries push for floating exchange rate for China?
Wouldn’t that suggest that free floating can be as problematic as completely fixed exchange rate regime?
PS: While at the moment there is no universally accepted solutions to exchange rate instability and commodity price volatility, it does not mean that excessive volatility and instability are good for the world economy or businesses.
Economists and government officials and advisors must consider what regime will work better.
2010-12-28
The next decade ahead
The second half the 20th century was much better than its first half - no world war and living standards rose for many people with big developing countries particularly China.
The first decade of this century has seen some surprises - the 9/11 event and its wake: the Afghanistan and Iraq wars are still going on now; the financial and economic crisis that still has not ended especially in the North Atlantic quarters by now. All in all, not a particularly good start for this century.
Who knows what will be the next decade in store. But we will see and experience it, bit by bit.
It appears that global changes are likely to continue. They include:
economic power shift to the east;
climate change and human actions to counter it, successful or in vein;
the relative decline of American power and emerging of multi-polar powers;
further globalisation and the evolution of world orders;
more rapid technological changes, some may be frightening.
The first decade of this century has seen some surprises - the 9/11 event and its wake: the Afghanistan and Iraq wars are still going on now; the financial and economic crisis that still has not ended especially in the North Atlantic quarters by now. All in all, not a particularly good start for this century.
Who knows what will be the next decade in store. But we will see and experience it, bit by bit.
It appears that global changes are likely to continue. They include:
economic power shift to the east;
climate change and human actions to counter it, successful or in vein;
the relative decline of American power and emerging of multi-polar powers;
further globalisation and the evolution of world orders;
more rapid technological changes, some may be frightening.
2010-03-28
Statics and dynamics of world affairs
Comments on Joseph Nye “China’s bad bet against America”, 28/03/2010, http://www.eastasiaforum.org/2010/03/28/chinas-bad-bet-against-america/
After reading the article I looked at the credentials of the author and noticed that "Joseph Nye is Chairman of the Pacific Forum CSIS Board of Governors and a former US Assistant Secretary of Defence. He is also currently University Distinguished Service Professor at the Harvard Kennedy School."
I would like to make a few comments as follows.
Firstly, a few variables in elementary physics in terms of speed, acceleration and different momentums. It is not enough to just discuss the speed of an object without considering its acceleration that is the rate at which its speed changes. I am not sure Nye had this in mind or not when he was talking about a number of things.
Secondly, many economists and commentators talk about the yuan versus $US as if the issue was just between China and the US and ignore or are ignorant about a wider international context. In fact, as some economists and commentators have pointed out, the matter is much more complex than the former group or people naively think. It involves, I would argue, mainly competitions between China and other countries than the US. Yes, if the yuan was appreciated that will have an effect on the relative competitiveness between China and the US, but it is unlikely to change the imbalances the US has been having, because others would simply take the vacuum vacated by China and increase their surplus with the US.
Thirdly, some of the historical events that Nye has mentioned were obviously true, but has he noticed and considered the differences now and the past, that is, between China and the USSR, as well as Japan? Don’t the huge differences in sizes of population and potential economic power and its implications ring a warning to Nye’s analysis and his simply and mechanically using historical examples? Will history always simply repeat itself like natural mechanics, or new history can be made? Had the US always been asa powperful as it is now before, say the last century? Are humans still as primitive as many tens of thousand years ago? Don’t those people also need to catch up with reality?
I do not wish to comment on the decline of the US. It is still the sole superpower in the world now. But it has had problems with the Iraq and Afghanistan wars. Its military capabilities can be very powerful in destruction, but not necessarily very constructive. If taking into account the sizes and powers of those two countries, the US, as that powerful as it has been, is not that invincible as some people might think it is. That is an irony and should be respected perhaps. Maybe the first point that I have just made has some relevance here. Einstein’s relativity will work in static and dynamic senses.
Fourthly, the role of the $US internationally should never be underestimated, but at the same time many people have realised the limitations of the current or the past arrangement or state of play. In economics, people take expectations very seriously. In that context, what expectations will people have, if a model of the world economy is taking into account? What implications will that have for international currencies?
However, I don’t want to leave people with an impression that I have nothing in common with Nye. I do want to reach an agreement with Nye, that is, the cooperation between China and the US will be win-win and beneficial to both countries and the world as a whole. That is human spirit. We have come a long way in terms of globalisation and human beings should not move backwards toward barbarous state where power rather than rationality prevailed.
After reading the article I looked at the credentials of the author and noticed that "Joseph Nye is Chairman of the Pacific Forum CSIS Board of Governors and a former US Assistant Secretary of Defence. He is also currently University Distinguished Service Professor at the Harvard Kennedy School."
I would like to make a few comments as follows.
Firstly, a few variables in elementary physics in terms of speed, acceleration and different momentums. It is not enough to just discuss the speed of an object without considering its acceleration that is the rate at which its speed changes. I am not sure Nye had this in mind or not when he was talking about a number of things.
Secondly, many economists and commentators talk about the yuan versus $US as if the issue was just between China and the US and ignore or are ignorant about a wider international context. In fact, as some economists and commentators have pointed out, the matter is much more complex than the former group or people naively think. It involves, I would argue, mainly competitions between China and other countries than the US. Yes, if the yuan was appreciated that will have an effect on the relative competitiveness between China and the US, but it is unlikely to change the imbalances the US has been having, because others would simply take the vacuum vacated by China and increase their surplus with the US.
Thirdly, some of the historical events that Nye has mentioned were obviously true, but has he noticed and considered the differences now and the past, that is, between China and the USSR, as well as Japan? Don’t the huge differences in sizes of population and potential economic power and its implications ring a warning to Nye’s analysis and his simply and mechanically using historical examples? Will history always simply repeat itself like natural mechanics, or new history can be made? Had the US always been asa powperful as it is now before, say the last century? Are humans still as primitive as many tens of thousand years ago? Don’t those people also need to catch up with reality?
I do not wish to comment on the decline of the US. It is still the sole superpower in the world now. But it has had problems with the Iraq and Afghanistan wars. Its military capabilities can be very powerful in destruction, but not necessarily very constructive. If taking into account the sizes and powers of those two countries, the US, as that powerful as it has been, is not that invincible as some people might think it is. That is an irony and should be respected perhaps. Maybe the first point that I have just made has some relevance here. Einstein’s relativity will work in static and dynamic senses.
Fourthly, the role of the $US internationally should never be underestimated, but at the same time many people have realised the limitations of the current or the past arrangement or state of play. In economics, people take expectations very seriously. In that context, what expectations will people have, if a model of the world economy is taking into account? What implications will that have for international currencies?
However, I don’t want to leave people with an impression that I have nothing in common with Nye. I do want to reach an agreement with Nye, that is, the cooperation between China and the US will be win-win and beneficial to both countries and the world as a whole. That is human spirit. We have come a long way in terms of globalisation and human beings should not move backwards toward barbarous state where power rather than rationality prevailed.
2009-09-30
Left, Right, Keynesian and role of government in economy
Comments on Janet Albrechtsen “Beware socialist snake-oil vendors”, 30/09/2009, http://blogs.theaustralian.news.com.au/janetalbrechtsen/index.php/theaustralian/comments/beware_socialist_snake_oil_vendors/
While there is a danger that some of the Left people may swing too much to the left in the wake of the crisis, there should be a proper role for government in the economy. That role may vary by conditions of the economy, though. So, some of the swing to the left is justified although one should guard against an excessive swing.
The argument in the article that “the danger of replicating neo-Keynesian spending policies of the early 70s is we may end up with the disastrous stagflation - economic stagnation, high unemployment and inflation - that defined the middle to late 70s” has some merits. But it may miss a serious point, that is, the economic problems in the 1970s was caused in the first place by supply side shocks, that is, the first oil shock and the ensuing stagflation reflected the inadequacy of macroeconomic policies of demand side management, such as the Keynesian.
This time the cause of the problem may or may not be the same as at that time, that is, from supply side
Having said that, I think it is important to analyse the cause and nature of the current economic problems and adopt or develop the most suitable policies not necessarily confined to existing policy tools.
Only in that way we can restore world economic growth and efficiency as quickly as possible without repeating past mistakes.
The debate of the Left versus the Right is interesting but sometimes unhelpful. Extremism on either the Left or the Right is generally not the best for the world.
We need vision, common sense and pragmatism.
While there is a danger that some of the Left people may swing too much to the left in the wake of the crisis, there should be a proper role for government in the economy. That role may vary by conditions of the economy, though. So, some of the swing to the left is justified although one should guard against an excessive swing.
The argument in the article that “the danger of replicating neo-Keynesian spending policies of the early 70s is we may end up with the disastrous stagflation - economic stagnation, high unemployment and inflation - that defined the middle to late 70s” has some merits. But it may miss a serious point, that is, the economic problems in the 1970s was caused in the first place by supply side shocks, that is, the first oil shock and the ensuing stagflation reflected the inadequacy of macroeconomic policies of demand side management, such as the Keynesian.
This time the cause of the problem may or may not be the same as at that time, that is, from supply side
Having said that, I think it is important to analyse the cause and nature of the current economic problems and adopt or develop the most suitable policies not necessarily confined to existing policy tools.
Only in that way we can restore world economic growth and efficiency as quickly as possible without repeating past mistakes.
The debate of the Left versus the Right is interesting but sometimes unhelpful. Extremism on either the Left or the Right is generally not the best for the world.
We need vision, common sense and pragmatism.
2009-07-30
A need for an effective world central bank
Comments on Suman Bery “The wisdom of Professor Calvo”, 30/07/2009, http://www.eastasiaforum.org/2009/07/30/the-wisdom-of-professor-calvo/
There seems a badly need for an effective world central bank.
Professor Calvo’s points, like the one on national international reserves, are profoundly thought provoking, particularly in the mist of what many countries are now worrying how to manage their international reserves to avoid potential losses if the US dollar devalues, due to its ever increasing budget deficits and government debts. One can have quite different perspectives for the same issues when looking in a different scope.
That is important in terms of thinking among competing “theories” for both economic or financial theorists and policy makers alike.
In addition to that, one might look at issues from an international perspective as opposed to a national perspective for managing the so called “sudden stop” of international capital inflow to a country. This would require a “world central bank”, an international last resort, to manage a sudden change in sentiments, similar like a run on a bank. It could provide emergence loans in whatever currencies to a country with reasonable prospects of success. Such loans can be quasi commercial, with reasonable interest rates.
The need for such a world central bank should be strong, because now international capital flow in and out of a country can be very large and the impact of a sudden change is very dramatic for most country to deal with along, simply because it is out of the capacity of any single country.
The Asia financial crisis in the late 1990s and the recent world financial crisis all prove the need for such a world central bank. The responses of some Asian countries following the Asia financial crisis was for individual countries to increase their international reserves and some attempts to establish an Asian regional financial institution with roles similar to those of the IMF with a focus on Asia. The latter is in the right direction, although the former has been said to have contributed to serious international imbalance.
Further, a private bank may be insolvent and bankrupt and be out of business forever, but a nation or country will stay in “business” forever, if you like. So it will have the ability to pay back any reasonable debts it incurs when in such emergence.
There seems a badly need for an effective world central bank.
Professor Calvo’s points, like the one on national international reserves, are profoundly thought provoking, particularly in the mist of what many countries are now worrying how to manage their international reserves to avoid potential losses if the US dollar devalues, due to its ever increasing budget deficits and government debts. One can have quite different perspectives for the same issues when looking in a different scope.
That is important in terms of thinking among competing “theories” for both economic or financial theorists and policy makers alike.
In addition to that, one might look at issues from an international perspective as opposed to a national perspective for managing the so called “sudden stop” of international capital inflow to a country. This would require a “world central bank”, an international last resort, to manage a sudden change in sentiments, similar like a run on a bank. It could provide emergence loans in whatever currencies to a country with reasonable prospects of success. Such loans can be quasi commercial, with reasonable interest rates.
The need for such a world central bank should be strong, because now international capital flow in and out of a country can be very large and the impact of a sudden change is very dramatic for most country to deal with along, simply because it is out of the capacity of any single country.
The Asia financial crisis in the late 1990s and the recent world financial crisis all prove the need for such a world central bank. The responses of some Asian countries following the Asia financial crisis was for individual countries to increase their international reserves and some attempts to establish an Asian regional financial institution with roles similar to those of the IMF with a focus on Asia. The latter is in the right direction, although the former has been said to have contributed to serious international imbalance.
Further, a private bank may be insolvent and bankrupt and be out of business forever, but a nation or country will stay in “business” forever, if you like. So it will have the ability to pay back any reasonable debts it incurs when in such emergence.
2009-07-13
G-8 and more Gs
Comments on Nina Hachigian “The three-ring G8 summit”, 13/07/2009, http://www.eastasiaforum.org/2009/07/13/the-three-ring-g8-summit/
This raises an important issue, are the world most powerful leaders showing real leaderships among themselves, if they can't get their priority right and instead they waste their most valuable assets - their time?
Why don't they or their assistants decide how their time should be spent and what is the most appropriate forum for that?
Old powers' club is not willing to give up its privilege. Is that the case that it may diminish their status if they stand together with new ones?
If the G-8 wish to continue its ineffectiveness, why do the others join them at G-8?
This raises an important issue, are the world most powerful leaders showing real leaderships among themselves, if they can't get their priority right and instead they waste their most valuable assets - their time?
Why don't they or their assistants decide how their time should be spent and what is the most appropriate forum for that?
Old powers' club is not willing to give up its privilege. Is that the case that it may diminish their status if they stand together with new ones?
If the G-8 wish to continue its ineffectiveness, why do the others join them at G-8?
2009-06-16
Great Asian economic transformation and restoration
Comments on Kaliappa Kalirajan “Now for an Indian ‘miracle’”, 13/06/2009, http://www.eastasiaforum.org/2009/06/13/now-for-an-indian-miracle/
If we take a long historical view of human beings’ history and see the dynamic economic growth and transformation in Asia over the past decades in that light, starting with Japan, then followed by the four NIEs, the other East Asia tigers, China and India now, it is likely that over the next few decades we will see an Asian economic restoration. Asia is finally catching up with Europe and North America, following the latter’s remarkable economic advances since the industry revolution.
Let's hope that Asians will consolidate their economic progress over the past decades and continue to advance their economic fairs in the coming decades.
While in the past exports from Asia to other regions have played an important role in assisting Asia's transformation, the future is likely to see more reliance on intra-regional trade and domestic absorption, as the size of the Asian economies continue to grow. This is particularly so, given that the US will need to live within its means, that means to save more and consume less as a proportion of income.
Kalirajan's observation of the structural change in India's economy is especially interesting in light of this.
A closer economic integration of Asian economies especially those more advanced and those more dynamic ones, will provide further scope for growth and benefit not only Asian economies, but also economies in other regions. Intellectual thinking and policy frameworks within the region should more ahead and provide guidance to Asia’s economic transformation at such a scale. Institutional development might be beneficial to the process of transformation.
If we take a long historical view of human beings’ history and see the dynamic economic growth and transformation in Asia over the past decades in that light, starting with Japan, then followed by the four NIEs, the other East Asia tigers, China and India now, it is likely that over the next few decades we will see an Asian economic restoration. Asia is finally catching up with Europe and North America, following the latter’s remarkable economic advances since the industry revolution.
Let's hope that Asians will consolidate their economic progress over the past decades and continue to advance their economic fairs in the coming decades.
While in the past exports from Asia to other regions have played an important role in assisting Asia's transformation, the future is likely to see more reliance on intra-regional trade and domestic absorption, as the size of the Asian economies continue to grow. This is particularly so, given that the US will need to live within its means, that means to save more and consume less as a proportion of income.
Kalirajan's observation of the structural change in India's economy is especially interesting in light of this.
A closer economic integration of Asian economies especially those more advanced and those more dynamic ones, will provide further scope for growth and benefit not only Asian economies, but also economies in other regions. Intellectual thinking and policy frameworks within the region should more ahead and provide guidance to Asia’s economic transformation at such a scale. Institutional development might be beneficial to the process of transformation.
Asia is the third pillar in world economy and needs its own representatives
second Comments on Gary Hawke “The Asia Pacific Community: objectives, not institutions”, 15/06/2009, http://www.eastasiaforum.org/2009/06/15/the-asia-pacific-community-objectives-not-institutions/
I can just add some economic information to the debate. I just have a look at the CIA country information about its estimated purchasing power parity (PPP) data of a number of countries and got the following information (https://www.cia.gov/library/publications/the-world-factbook/).
The PPPs for 2008 were $17.2 trillion for the North America (US, Canada and Mexico), $14.82 trillion for the heavy weights in EU (Germany, UK, Italy, France) and $14.43 trillion for North East Asia (Japan, China, Korea, Hong Kong and Taiwan).
With other dynamic developing economies coming along in Asia, especially noticeable India, and the rapid growth of the Chinese economy, Asia is really becoming the third pillar, together with the US and EU, in the world economy.
What this means is that it would be better if it is possible to have some sort of Asian regional organisations to coordinate their common efforts and represent their interest in the world affairs. After all, Asia has about two thirds of world population, with two countries each having more than a billion population.
A peaceful, stable and more prosperous Asia will contribute to a better world.
No matter it is population, geographical size, or economic weights, Asia is an important continent. it needs its own voices and representatives in the world affairs.
I can just add some economic information to the debate. I just have a look at the CIA country information about its estimated purchasing power parity (PPP) data of a number of countries and got the following information (https://www.cia.gov/library/publications/the-world-factbook/).
The PPPs for 2008 were $17.2 trillion for the North America (US, Canada and Mexico), $14.82 trillion for the heavy weights in EU (Germany, UK, Italy, France) and $14.43 trillion for North East Asia (Japan, China, Korea, Hong Kong and Taiwan).
With other dynamic developing economies coming along in Asia, especially noticeable India, and the rapid growth of the Chinese economy, Asia is really becoming the third pillar, together with the US and EU, in the world economy.
What this means is that it would be better if it is possible to have some sort of Asian regional organisations to coordinate their common efforts and represent their interest in the world affairs. After all, Asia has about two thirds of world population, with two countries each having more than a billion population.
A peaceful, stable and more prosperous Asia will contribute to a better world.
No matter it is population, geographical size, or economic weights, Asia is an important continent. it needs its own voices and representatives in the world affairs.
2009-06-03
Saving, consumption and investment relationships - GDP identities
Second comments on Mario Lamberte “Some positive consequences of the Global Economic Crisis”, 1/06/2009, http://www.eastasiaforum.org/2009/06/01/some-positive-consequences-of-the-global-economic-crisis/
This is my second comments on this article, but still a very brief one. I just make two quick points here. One is the different presentations of the GDP and the other is about trade and external shocks.
Firstly, the different presentations of the GDP identity. The following is two of the different measures of GDP:
C + I + G + E -M = Y = C + S + T + Rf
Where Rf is net transfer to other countries and all others are as their normal representations. (for a reference to the above identities, see http://www.econ.ilstu.edu/hmohamma/441/lectures/lecture_02.htm).
If one looks only at the right hand side, it is easy to be confused by the inevitable trade off between savings and consumption, a point made in that article. But if one looks at the left hand side, one can easily see that to address high propensity to save, it is not necessarily to increase consumption. Instead, an increase in investment can accommodate high savings. Indeed, in conventional cases, savings are generally equal to investment in a closed economy. So, if there are investment opportunities in an economy, to invest the savings can be an effective way and likely a better way than increasing consumption, especially when capital is comparatively scarce, as in most developing economies in Asia. That is way I found either myself is so dumb in unable to understand the point in the article, or the point in the article is so ill conceived to mention only the increase of consumption and little about investment to accumulate capital.
Secondly, the role of trade in a modern economy. Let’s have a look at the left hand side of the GDP identity above. What Lamberte was concerned is that exports, E may not be growing as fast as it had been prior to the current world economic crisis because the US and Europe are in serious trouble and the US will need to adjust its savings and consumption. As a result, the trade / current account balance may not contribute to economic growth for many Asian economies, so the argument went.
It is possible that may be the case for the foreseeable period in the near future. But it is by no means a completely foregone conclusion. The US needs to increase its savings, both private and public. But that may not necessarily mean that their absolute levels of consumption and government spending will always fall to realise that. It may be a long and slow adjustment process, in which private consumption and government may still rise but at a slower pace than its GDP. That is to say, the proportion of the net increase in GDP devoted to savings will be larger than its existing actual proportion, but there will still some left for an increase in consumption and government spending.
Second, trade with the US may still be able to expand even when the consumption in the US is not to increase but to stay constant or even fall. The requirement is an increase in the so called intra-industry trade. There is no requirement that economic growth is the necessary condition for trade expansion.
Third, assuming that the US has ceased to be an engine of the world economic and trade growth, then other economies may take a greater role in the expansion of world economic and trade growth. Yes, it would be nice if the US could indefinitely absorb exports of other economies, especially from Asian ones. But the pattern of the world economy has been changing and the contribution of the US to world economic and trade growth, though very important as it has been, has been on the decline and will continue to do so, and even at an increasing pace.
That itself does not equate to a call for the developing economies in Asia to increase their consumption to boost their growth. To the contrary, given the role of capital in economic growth and the relatively low levels of per capita physical capital in those developing economies, the most effective way seems to be to increase investment rather than to increase the proportions of consumption, for long term growth and catch up.
That is why I find it difficult to understand there are so may people, both economists or not, high ranking officials and advisers included, are calling for China and other Asian developing economies to increase their consumption to solve the so called international imbalance. Can’t we just simply have a look at the GDP identities and to have a sense of what is needed for economic development and catch up for developing economies? There are not too many variables there. Is that too difficult to do or comprehend? Why?
Let’s have a debate!
This is my second comments on this article, but still a very brief one. I just make two quick points here. One is the different presentations of the GDP and the other is about trade and external shocks.
Firstly, the different presentations of the GDP identity. The following is two of the different measures of GDP:
C + I + G + E -M = Y = C + S + T + Rf
Where Rf is net transfer to other countries and all others are as their normal representations. (for a reference to the above identities, see http://www.econ.ilstu.edu/hmohamma/441/lectures/lecture_02.htm).
If one looks only at the right hand side, it is easy to be confused by the inevitable trade off between savings and consumption, a point made in that article. But if one looks at the left hand side, one can easily see that to address high propensity to save, it is not necessarily to increase consumption. Instead, an increase in investment can accommodate high savings. Indeed, in conventional cases, savings are generally equal to investment in a closed economy. So, if there are investment opportunities in an economy, to invest the savings can be an effective way and likely a better way than increasing consumption, especially when capital is comparatively scarce, as in most developing economies in Asia. That is way I found either myself is so dumb in unable to understand the point in the article, or the point in the article is so ill conceived to mention only the increase of consumption and little about investment to accumulate capital.
Secondly, the role of trade in a modern economy. Let’s have a look at the left hand side of the GDP identity above. What Lamberte was concerned is that exports, E may not be growing as fast as it had been prior to the current world economic crisis because the US and Europe are in serious trouble and the US will need to adjust its savings and consumption. As a result, the trade / current account balance may not contribute to economic growth for many Asian economies, so the argument went.
It is possible that may be the case for the foreseeable period in the near future. But it is by no means a completely foregone conclusion. The US needs to increase its savings, both private and public. But that may not necessarily mean that their absolute levels of consumption and government spending will always fall to realise that. It may be a long and slow adjustment process, in which private consumption and government may still rise but at a slower pace than its GDP. That is to say, the proportion of the net increase in GDP devoted to savings will be larger than its existing actual proportion, but there will still some left for an increase in consumption and government spending.
Second, trade with the US may still be able to expand even when the consumption in the US is not to increase but to stay constant or even fall. The requirement is an increase in the so called intra-industry trade. There is no requirement that economic growth is the necessary condition for trade expansion.
Third, assuming that the US has ceased to be an engine of the world economic and trade growth, then other economies may take a greater role in the expansion of world economic and trade growth. Yes, it would be nice if the US could indefinitely absorb exports of other economies, especially from Asian ones. But the pattern of the world economy has been changing and the contribution of the US to world economic and trade growth, though very important as it has been, has been on the decline and will continue to do so, and even at an increasing pace.
That itself does not equate to a call for the developing economies in Asia to increase their consumption to boost their growth. To the contrary, given the role of capital in economic growth and the relatively low levels of per capita physical capital in those developing economies, the most effective way seems to be to increase investment rather than to increase the proportions of consumption, for long term growth and catch up.
That is why I find it difficult to understand there are so may people, both economists or not, high ranking officials and advisers included, are calling for China and other Asian developing economies to increase their consumption to solve the so called international imbalance. Can’t we just simply have a look at the GDP identities and to have a sense of what is needed for economic development and catch up for developing economies? There are not too many variables there. Is that too difficult to do or comprehend? Why?
Let’s have a debate!
2009-05-26
Decoupling of world economies
Comments on Adam Carr “SCOREBOARD: Decoupling revisited”, 26/05/2009, http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-Decoupling-revisited-pd20090526-SDTAF?OpenDocument&src=sph
In my view, decoupling is happening and will be more pronounced in the coming years. There are a number of reasons for this decoupling. Firstly, the world economy may have come to the point that the capacity of the more advanced economies, especially the US, to continue to absorb the continuous and rapid expansion of the developing economies through imports may have reached a reflection point. The implication is that developing economies, especially the large and rapidly growing ones, will have to find other ways than relying on simply exporting their growing outputs.
Secondly, the current financial and economic crisis has made it clear that the US cannot continue to consume beyond its means, both privately and publicly. They must increase their savings from now on, or at least following the recovery. In so doing, its growth is expected to be slower, so its current account deficits will be reduced. This will add to the need for developing economies to rely more on themselves to maintain rapid growth.
Thirdly, some large developing economies have probably accumulated a critical mass to accelerate the so called South-South trade, that is, collectively act as a group to assist the growth of each other.
As Adam Carr, I don't have Nobel Prize either. But I would not be surprised at all that the more dynamic developing economies will recover much earlier than their more advanced counterparts from this world great recession. Further, I will not be surprised that they will maintain their rapid growth irrespective whether the US will or will not visit Japan’s 1990s experience following its bubble burst.
The rapid industrialisation of many developing economies simultaneously, especially the main large ones, is likely to see a change in the patterns of growth in the world economy. Decoupling will be a natural product out of that process.
In my view, decoupling is happening and will be more pronounced in the coming years. There are a number of reasons for this decoupling. Firstly, the world economy may have come to the point that the capacity of the more advanced economies, especially the US, to continue to absorb the continuous and rapid expansion of the developing economies through imports may have reached a reflection point. The implication is that developing economies, especially the large and rapidly growing ones, will have to find other ways than relying on simply exporting their growing outputs.
Secondly, the current financial and economic crisis has made it clear that the US cannot continue to consume beyond its means, both privately and publicly. They must increase their savings from now on, or at least following the recovery. In so doing, its growth is expected to be slower, so its current account deficits will be reduced. This will add to the need for developing economies to rely more on themselves to maintain rapid growth.
Thirdly, some large developing economies have probably accumulated a critical mass to accelerate the so called South-South trade, that is, collectively act as a group to assist the growth of each other.
As Adam Carr, I don't have Nobel Prize either. But I would not be surprised at all that the more dynamic developing economies will recover much earlier than their more advanced counterparts from this world great recession. Further, I will not be surprised that they will maintain their rapid growth irrespective whether the US will or will not visit Japan’s 1990s experience following its bubble burst.
The rapid industrialisation of many developing economies simultaneously, especially the main large ones, is likely to see a change in the patterns of growth in the world economy. Decoupling will be a natural product out of that process.
2009-05-22
A rapidly changing economic landscape of the world
Second comment on Ryo Sahashi “A three-tier approach to Asian regional architecture”, 20/05/2009, http://www.eastasiaforum.org/2009/05/20/a-three-tier-approach-to-asian-regional-architecture/
This is my second comment on this article. In this I will focus on a point regarding economic matters, as evident from the following excerpt from this article:
[Economically, the U.S., Japan, and other advanced economies - including EU countries - will maintain their global dominance, and their relatively strong position vis-à-vis newly emerging economies like China and India will continue for the foreseeable future.
It is unlikely that China and India (and possibly Russia) will form their own international institutions to provide an alternative for the established ones. It is important to keep a coalition of advanced economies in rule-based international institutions.]
While it is true that the US, Japan and the EU are now still world largest economies both individually and as a whole, the rise of some large developing economies is causing rapid changes to the world economic landscapes, with shifting in geoeconomic powers. The current financial and economic crisis is accelerating those changes. If anyone has any doubt about this, the G20 meeting in London in April can be a case study for people to derive some useful insights and helpful conclusions. It is not too difficult to see that the argument of “their global dominance, and their relatively strong position” of the US, Japan and EU is no longer necessarily correct.
Further, the trends of the relative shift of economic powers seen in the past decade or so will accelerate to an unprecedented degree over the coming decade, as the inevitable readjustments of large international imbalances between the US and some other countries in the wake of this world wide economic crisis. There are profound economic implications from these adjustments. The US is likely to see a lengthy period of slower growth with possibly higher inflation.
While this could, on the other hand, be a potential threat to some of the rapidly rising developing economies, some of them have advanced to such a degree that they can adjust their economic structure to accommodate their higher saving rates through channelling savings to more rapid capital accumulation. This may not be very easy and should take some time, but the result will be more rapid growth and faster shrinking of the gaps between the now advanced and developing economies.
Besides, an important consequence of the current crisis is that the authorities in many countries have to increase government deficits and debts to try to get the economies up and going again. The burdens of increased government debts are likely to be heavier in the US, Japan and the EU, relative to some of the rapidly rising developing economies. Efforts to reduce government deficits and debts will dampen the economy, further constraining its growth in the medium term. This headache is likely to persist in some advanced economies for some time to come.
Whether there is a need for the large and more rapidly growing developing economies to form their own international institutions to provide an alternative for the established ones is an open question. However, the existing main international economic institutions such as the IMF and the World Bank are likely to experience significant changes in their governance and approaches. Like it or not, the representations of developing economies in those institutions will strengthen at the expenses of the existing heavily represented advanced countries. This is not a rivalry between the advanced and developing countries, but simply a reflection of the new reality. The existing structure of governance simply cannot work effectively any more.
To conclude, the economic dominance of the three major advanced regions internationally will disappear at a frightening speed, if that has not happened already. The coalition of advanced economies is no more than a wishful thinking. Countries, advanced and developing alike, will seek every opportunity to advance their own economies. In that process, the more dynamic developing economies are more attractive than semi-stagnant ones. That is the beauty of evolution and human beings will continue to seek beauty and love beauty, among the laments and the noises of wingy from some minds who may feel the world is changing too fast for them to cope.
This is my second comment on this article. In this I will focus on a point regarding economic matters, as evident from the following excerpt from this article:
[Economically, the U.S., Japan, and other advanced economies - including EU countries - will maintain their global dominance, and their relatively strong position vis-à-vis newly emerging economies like China and India will continue for the foreseeable future.
It is unlikely that China and India (and possibly Russia) will form their own international institutions to provide an alternative for the established ones. It is important to keep a coalition of advanced economies in rule-based international institutions.]
While it is true that the US, Japan and the EU are now still world largest economies both individually and as a whole, the rise of some large developing economies is causing rapid changes to the world economic landscapes, with shifting in geoeconomic powers. The current financial and economic crisis is accelerating those changes. If anyone has any doubt about this, the G20 meeting in London in April can be a case study for people to derive some useful insights and helpful conclusions. It is not too difficult to see that the argument of “their global dominance, and their relatively strong position” of the US, Japan and EU is no longer necessarily correct.
Further, the trends of the relative shift of economic powers seen in the past decade or so will accelerate to an unprecedented degree over the coming decade, as the inevitable readjustments of large international imbalances between the US and some other countries in the wake of this world wide economic crisis. There are profound economic implications from these adjustments. The US is likely to see a lengthy period of slower growth with possibly higher inflation.
While this could, on the other hand, be a potential threat to some of the rapidly rising developing economies, some of them have advanced to such a degree that they can adjust their economic structure to accommodate their higher saving rates through channelling savings to more rapid capital accumulation. This may not be very easy and should take some time, but the result will be more rapid growth and faster shrinking of the gaps between the now advanced and developing economies.
Besides, an important consequence of the current crisis is that the authorities in many countries have to increase government deficits and debts to try to get the economies up and going again. The burdens of increased government debts are likely to be heavier in the US, Japan and the EU, relative to some of the rapidly rising developing economies. Efforts to reduce government deficits and debts will dampen the economy, further constraining its growth in the medium term. This headache is likely to persist in some advanced economies for some time to come.
Whether there is a need for the large and more rapidly growing developing economies to form their own international institutions to provide an alternative for the established ones is an open question. However, the existing main international economic institutions such as the IMF and the World Bank are likely to experience significant changes in their governance and approaches. Like it or not, the representations of developing economies in those institutions will strengthen at the expenses of the existing heavily represented advanced countries. This is not a rivalry between the advanced and developing countries, but simply a reflection of the new reality. The existing structure of governance simply cannot work effectively any more.
To conclude, the economic dominance of the three major advanced regions internationally will disappear at a frightening speed, if that has not happened already. The coalition of advanced economies is no more than a wishful thinking. Countries, advanced and developing alike, will seek every opportunity to advance their own economies. In that process, the more dynamic developing economies are more attractive than semi-stagnant ones. That is the beauty of evolution and human beings will continue to seek beauty and love beauty, among the laments and the noises of wingy from some minds who may feel the world is changing too fast for them to cope.
Subscribe to:
Posts (Atom)
Posts
