Not only poor old Europe but also miserable Greek PM Tsipras

Comments on Mark Beeson "Poor old Europe", 18/07/2015

There is at least another alternative that is the Grexit, albeit orderly with the support of the rest of the Euro zone members particularly the big ones like Germany and France.

I'd have thought that the Greek PM was preparing for that, but unfortunately he appeared to have only played with fire rather than carefully and seriously leading Greece to a better position to be really independent economically.

I thought he was using brinkmanship to secure a better bargaining for support of the others for an orderly and the best Grexit which would provide it with the flexibility of economic adjustment with its own currency and without cuts to nominal pensions and nominal wages.

What has happened in the last was his complete capitulation at the last negotiation that betrayed his earlier claim made to his people in Greece. It is disgraceful behaviour.

But there is no guarantee that this is the end of the Greece crisis and sooner or later the crisis may resurface again down the track.

Let's wait and see what will happen.

Kohler's top ten charts of 2011

See the link for top ten interesting economic charts, published by Alan Kohler:
http://www.businessspectator.com.au/bs.nsf/Article/markets-charts-US-budget-euro-debt-crisis-GDP-pd20111229-PYW48?OpenDocument&src=sph&src=rot

One of them is copied below, public debts and budget deficits:



I provided the following comment:

Alan, do you also have data for household' wealth?
From that and the chart for household debt, a chart for net debt could be built.
Then combined with household income data, a chart of net debt and income ratio of household could be constructed.
Both charts may be informational too.

America - both the main culprit and a big victim of the GFC

Comments on the article “The odd decouple”, The Economist, 2/09/2010, http://www.economist.com/node/16943853/
The article came with this sentence to accompany the title: “Theories about why some rich-world economies are doing better than America’s don’t stand up”.

Those mentioned theories including the one created by The Economist are all missing the point here.

They all ignored the fundamental point how the GFC occurred in the first place.

It was the sub-prime mortgages crisis in the US.

The effects of that crisis unfolding and unwinding have been, are and will continue to be different for different countries in the rich world - a similar version of the stronger contrast between the rich and the newly emerging economies in the past two years.

The US has been the epicentre of the GFC and incurred much greater damages to itself. As a result, it requires longer to recover from it.

Economic theories and economic policies

Comments on Tony Makin “Saddled with legacy of fiscal extravagance”, 30/08/2010, http://www.theaustralian.com.au/national-affairs/saddled-with-legacy-of-fiscal-extravagance/story-fn59niix-1225911594527
While the argument of fiscal extravagance is correct, it is problematic to use the point that "in mainstream macro-economics, arguments in favour of using activist monetary policy, conducted under the auspices of more independent central banks, have dominated arguments for deploying activist fiscal policy", as the support against fiscal extravagance.

Even that point was correct in actual policy effectiveness (it is doubtful at the best) in normal circumstances, the nature of the GFC should question the generality of that point in the wake of the GFC.

Any economists, especially those who prescribe to actual policies, need not to be ideological in theories and need to take into account the differences between the assumptions in a theory and the real world conditions and take a pragmatic approach to policies.

Stiglitz, a strong Keynesian, is probably wrong in his judgement about the appropriateness of Australia’s fiscal policies in the wake of the GFC, some strong monetarists have been also wrong in continue to use the argument against any use of fiscal policy as a tool to deal with the GFC.

Both sides of the macro economists need to be realistic enough to realise some of their views may be wrong or incorrect sometimes!

What saved Australia from a recession?

There are different claims of what has or have saved Australia from a recession in 2009. The government has been saying it was its stimulus packages that did the work, while some others argue the government's packages played a minor role. There is also the fact there have been some wastes in the government's programs as a part of those packages.

The government has been supported by Treasury and some big names including Joseph Stiglitz, a Nobel Prize winner in economics professor and former World Bank chief economist.

On the other hand, there are also well known and respected economists and people who have argued against the government's claim, including economics Professor Warwick Mckibbin - a board member of the Reserve Bank of Australia since 2001, and history Professor Niall Ferguson of Harvard University.

The following is a link to Professor Niall Ferguson's article on the Australian (online): "ALP's knight is a thief in rusty armour", 12/08/2010,

http://www.theaustralian.com.au/news/opinion/alps-knight-is-a-thief-in-rusty-armour/story-e6frg6zo-1225904126639

Of course it is debatable and involves judgment.

I personally, however, tend to agree with the nay side.

PS: the first few paragraphs of Niall Ferguson's article are as follows:
TO a visitor's ears, there's something very Australian about using the acronym "GFC" to refer to the biggest global financial crisis since the Depression.

In the US GFC brings to mind the recipe for deep-fried chicken devised by Colonel Sanders. KFC stands for Kentucky Fried Chicken. Here, GFC should stand for Gillard's Fraudulent Claim.
The claim in question is that it was the fiscal stimulus injected by the Labor government that saved Australia from much more serious recession. According to one recent election ad, "Labor did what it had to do to avoid recession and protect jobs." The ABC's Kerry O'Brien unthinkingly recycles this line when asking Tony Abbott how he would have saved the 200,000 jobs Labor "created". It must have been music to Julia Gillard's ears when Nobel Prize-winning economist Joseph Stiglitz gave her his seal of approval recently. He praised the government's debt splurge as "one of the best-designed Keynesian stimulus packages of any country".
Now, I like Stiglitz. Unlike some Nobel prize winners, he hasn't allowed the Swedish central bank's gong to super-size his self-esteem. But this is not the best argument I have heard him make, for three reasons.

First, he is appraising his own handiwork, since he was involved in the package's design. Second, he falls into the "post hoc ergo propter hoc" trap. Just because event B, an economic recovery, happens after event A, fiscal stimulus, doesn't mean that A caused B.

The Greek tragedy?

Comments on Andrew Sheng “The Greek tragedy: Global debt crisis and balance sheets”, http://www.eastasiaforum.org/2010/05/31/the-greek-tragedy-global-debt-crisis-and-balance-sheets/

Sheng's following description at the start is interesting and sensational: "If a pack of wolves stalk a herd of buffalo, the herd can guard the weaker buffaloes. But if the wolves stampede the herd, they are able to take down the weakest buffaloes."

He tries to state the negative side of the financial markets, but it may have a side and negative effect on markets in general.

The first question is: what are normal participants and what are market wolves, and who can define and identify them and do something positive about it? That can be very difficult indeed.

It is like nature and food chain. “We, human beings”, need to determine which ones along the chain are good and which ones are bad, of course according to our standard and values. But we, though highly intelligent, can often be wrong in our interventions on nature.

So much digression and let me get back to the topic here. If the market participants do not act or react to news and information and take actions to maximise their interests, what do we expect them to do? Should they reward Greek equally as they do to Germany?

So I seem to have lost in this line of thinking and am disoriented as to what are the norms and principles regarding to market participants.

Let’s also move to a private company. If it is bankrupt, what should or do we “human beings” need to do? To let it fail because it is failed or act as “red cross” to rescue it?

Again, Sheng’s remarks have caused me great uncertainty.

It is complex economics and normality/morality, isn’t it?

Learn, learn and learn, life-long learning work in modern and knowledge society with its changing and uncertain morality.

Are reforms needed?

Have the reforms and changes in China over the past 30 years moving to market economy good or bad according to some morality?

I am wondering and wondering.

The unfortunate Greek tragedy!

IMF has no innovative solution to Greek problems

Comments on John Irish of Reuters “Doubts over Greek aid package remain: IMF”, 25/05/2010, http://www.businessspectator.com.au/bs.nsf/Article/IMF-chief-economist-doubts-over-Greek-aid-package--5RP3D?OpenDocument&src=hp5

It appears that few top economists or government officials have come up with a credible and innovative solution to the problems of some euro members are having.

That is unfortunately a pity.

To me, there is an alternative to the conventional austere approach to Greek and Spain.

That alternative is to allow temporary intra-euro trade measures to be introduced to increase the relative competiveness of those weak euro economies against those strong ones, within the framework of monetary union and independent fiscal sovereignty.

Greek and Spain should be allowed temporarily to impose a tariff on imports from strong euro members and use the revenue to subsidise their exports to those strong economies. Their competiveness is improved and other members will enjoy lower prices of imports from Greek and Spain.

The temporary trade measures should be scheduled to be removed, either gradually over a number of years or at once at some time in the future.

That is no different from currency devaluation when a country has its own currency.

As long as it is restricted within the eurozone, it will be an “internal” issue and should not cause any issue with WTO rules.

Business as usual is not too bad

Comments on Henry Ergas “After the GFC, it's business as usual”, 9/04/2010, http://www.theaustralian.com.au/news/opinion/after-the-gfc-its-business-as-usual/story-e6frg6zo-1225851577496

This is a good piece, though also with some shortcomings of its own, as most cases are - perfection rarely exists.

The criticism on "proposed global cures of high cost and dubious efficiency" is well and correctly made.

The argument of the Chinese currency ignored the fact that it is not just an issue of trade, but also an issue of assets values. That is additional complexity to the Chinese currency issue that most commentators and analysts have yet to properly and adequately take into their considerations.

While it is probably a step too far to criticise the role of government in managing the economy, Henry Ergas has got a good point that liberalisation, incentives and the market do play a far more significant and useful role than Rudd derided they had been in his economic essay last year.

Garnaut's view on crisis and Aussie economy

Comments on Paul Kelly “Painful adjustment for spendthrifts”, 21/10/2009, http://www.theaustralian.news.com.au/story/0,25197,26237570-12250,00.html

Garnaut is an experienced and knowledgeable economist and policy adviser, so his views on the economy must be listened to carefully by the government and policy advisers including bureaucrats.

Garnaut is most likely right that Australia needs to adjust to its living standards in the wake of the crisis.

His point on what the Rudd government can deliver is probably correct, given that the budget deficits and rising community expectations.

His view on the tendance of government to increase interventions in the economy to the detriments of the economy following the crisis is correct. The Rudd government is a good example.

However, such adjustment does not necessarily mean lowering the standards immediately and drastically. Adjustment can be undertaken over a period of time and over that period of time the living standards may not grow as much as their trend growths, as opposed to an absolute fall.

The second point that we may need some caution in interpreting Garnaut's view is about the current account deficit. He may be half correct but is unlikely to be completely correct. A country with significant immigration may sustain current account deficit over a very long period without serious problems to its economy.

Further, even current account deficit adjustment can take a very long time without serious problems. As long as intertemperary budget constraint can be satisfied, there is no need to require the constant current account balance.

The last point is that while Australians' living standards may need an adjustment, it will be far smaller than the adjustment in the US, due to vastly different pre-crisis conditions between the two countries, as well as the quite differential impact on China and Asian economies on the two countries.

On this point, the much better pre-crisis condition of the Australian economy and government balance sheet were important factors and that should be attributed to the Howard/Costello government.

The deterioration in the terms of trade effect may not be as big as was originally thought, and there may be some significant recover in the terms of trade in Australia’s favour.

More fundamental factors in play in history

Comments on Robert Manne “Past another turning point in history”, 26/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26124842-7583,00.html

While your view of the left and the right in the west may have some truth, your have ignored some important points of their evolutions. You only noticed the bad aspects of the former USSR and ignored its any merits, even though you are a professor in history.

I am not a historian as you are. But it appears to me that there have been some more fundamental factors in play than what you have relied on for your argument.

I think one has got to look at the history more objectively, in the context of both longer history and wider social and international perspectives.

Did the rise of Keynesian have anything to do with the creation of the Soviet Russia and the USSR as a competing social system?

Did the re-emergence of the right or neo-liberalism have anything to do with the inability of government intervention based on the Keynesian aggregate demand management, or the failure of the both Keynesians and monetarists to come up with more effective macroeconomic tools to deal with the supply side macroeconomic problems as a result of the first oil shock?

Will the current crisis and the success of some developing economies in the east generate other new economic and social thinking beyond the confines of the left and the right in the west?

G20 - helpful or unhelpful?

Comments on Uri Dadush “Four challenges in Pittsburgh for the G20”, 24/09/2009 http://www.eastasiaforum.org/2009/09/24/four-challenges-in-pittsburgh-for-the-g20/

Among the three important examples which go beyond the current crisis, the third one is likely to be the most difficult one. It is not a significant issue for quite a number of countries in the group that means there may not be enough incentive to have that on the agenda.

In a post crisis environment, it may be easier to achieve the second and the first ones.

There is enough momentum for the first one out of the UN summit meeting this week.

In terms of withdrawal of stimulus, the group is now more unhelpful than being helpful, because it should send a clear signal that while in many countries it is still too early to withdraw measures, the condition in some countries are such that their government should decide when and how to withdraw from stimulus, otherwise there will be a serious chance that they may do it too late that will accelerate inflation.

The group already has an adverse effect on some countries, say Australia. The Australian government is using the group to play domestic politics and delay withdrawal.

In terms of how to prevent future similar crisis, it is important not to over regulate the banking and finance industry to achieve financing efficiency and lower costs of capital. There may be some minimum international regulations / guidelines, and leave the rest to each country to make sure their banks are safe and efficient.

The worst thing is to have a group of unaccountable international bureaucrats to impose a set of excessive regulations in the wake of the crisis in the name of preventing another crisis that will significantly increase the costs of finance everywhere.

Banks in Australia have done through the crisis with little problems. In such a case, is there a need to tighten the regulations? The answer is definitely no. But the danger is that the Rudd government will do it nevertheless to fight the so called “neo-liberalism”, or “market fundamentalism”.

That will be a tragedy for Australia with higher interest rates than necessary.

Government and bureaucrats are abusing economics

Comments on David Burchell “An economist's laugh, but joke's on us”, 7/09/2009, http://www.theaustralian.news.com.au/story/0,25197,26035133-5013479,00.html

The Keynesian’s main approach to macroeconomic policy is to use government expenditures as the main tool to manage the aggregate demand. Since that comes from government, how successful of that demand management depends on the competency and virtue of the government of the day, as well as top economic bureaucrats.

Unfortunately the experience over the past year or so in Australia shows both were not competent enough and the government was too focused on its own election politics as opposed to the nation’s well beings.

The Treasury, the nation’s top economic advisory agency for example, came up with cash handouts that were the dumbest economic strategy to stimulate the demand. Why didn’t it come up with better targeted demand stimulating measures? One can only guess.

The government, on the other hand, came up with the Education Revolution spending to build a school hall or library in each and every school irrespective whether they needed it or not and irrespective school funding needs at all. That has generated huge wastes and inefficiency and now they have a budget overrun and have to increase funding to that program.

The Indigenous Housing projects in the Northern Territory by the federal government is another prime example of how incompetent of both the government and its bureaucratic agencies. So much money and time have been spent and no single house has been built. How competent was that?

While on the other hand, the government is using the crisis as an excuse to increase spending in the name of jobs. Its own doing has been no different in giving some unemployed people and ask them to fill an ABS job survey to say they are employed.

That is not what Keynes had in mind and not true Keynesians are about. That is a gross abuse of economics, economic principles and proper economic and budgetary governance.

This time the IMF has better insight and foresight than Aussie Treasury

Comments on Michael Stutchbury “IMF sees problems here even after global crisis passes”, 10/08/2009, http://www.theaustralian.news.com.au/story/0,25197,25906807-5017771,00.html

While the IMF has got its forecast wrong many times as any other economic forecasters did in the past, its assessment of this time seems more reasonable than the Treasury's used in the may budget. The destruction to the Australia's capacity may not be very big, but to the main OECD countries are very large indeed. This is one reason why the media term growth cannot be as those in previous recoveries from recession.

Another main reason is the inevitable adjustment to rebalance internationally, especially in the US and China in particular to their economic structures and savings and consumptions. That adjustment process of the main international economies on top of the damage to productive capacities by the great recession will see a slower world growth. That in turn will mean a slower growth for the Australian economy, both in the recovery phase and thereafter.

The Treasury needs to have another very careful examination of its assumptions used in its economic forecast. The structural parameters have changed and one cannot simply extrapolate the past experience without taking into account the new international situation.

Time to test the Rudd government's economic management and governance

Comments on Michael Stutchbury “Stimulus could hurt recovery unless wound back faster”, 8/08/2009, http://www.theaustralian.news.com.au/story/0,25197,25899373-5017771,00.html

If the Rudd government and the Treasurer Swan are competent in economic management, they need to hear the advice from the RBA governer.

If they are economic conservatives, they must reflect on their spending spree policies, the efficiency of their spending, like the school funding for school halls and libaries, NBN.

It remains to be seen if the Rudd government uses the threat of recession as a guise or cover for their big government, big spending approach to governance – the Labour’s tradition.

It is time for the Rudd government to show its true colour in economic management and governance.

Sinodinos' extraordinary vision

Comments on Arthur Sinodinos “Why not trade our way out of the climate crisis?” 6/08/2009, http://www.theaustralian.news.com.au/story/0,25197,25888591-5013480,00.html

This is an excellent article with an extraordinary vision to link the three most important and urgent world economic issues, namely, climate change the global warming, the Doha round trade negotiation and the current great economic recession. Trade liberalisation is the common thread to all these issues.

All members of the international community should realise that by further liberalising international trade and investment, every nation will benefit. Undoubtedly, it will assist the world to recover from the recession. With true world leaderships by important and influential world leaders, it will accelerate the international efforts on climate change and reach a meaningful international agreement. Both developed and developing nations should participate in and contribute to the course of limiting human induced adverse climate change in a practical and equitable way.

I think Australian government needs to take Sinodinos’ idea very seriously and lead the international community in this direction. Sinodinos should be invited to be an advisor on these issues.

If the international community can achieve Sinodinos’s vision, he should be nominated for a Nobel prize.

Are we in for another period of stagnation?

Comments on Wolfgang Münchau’s commentary “No exit”, on Financial Times, see http://www.businessspectator.com.au/bs.nsf/Article/No-exit-pd20090727-UBS7F?OpenDocument&src=sph 27/07/2009

After a severe financial and economic crisis as the world has just experienced or is still experiencing, there will be many painful adjustments to realign the elements in the system.

While the concerted efforts by governments and central banking authorities have averted the total collapse of the international banking and financial system (and it is good indeed), we are just at the beginning of the long process of adjusting and realignment.

The first oil shock may have marked an important milestone as the beginning of the so called stagnation period that ran for many years. Stagnation was an adjustment process, a painful price to pay for that oil shock from the supply side. That lesson may be relevant for the current predicament we are having.

There were no effective policies, and for that matter, economic theories, that could solve that stagnation back then. We seem to be no different now from then, lack of effective policy tools to deal with this kind of so called balance sheet recessions.

There are some scenarios the matter would play out. The first one is that the world, especially the advanced countries, just wear the consequences of the recession and its aftermath of long and painful adjustment and realignment process, and sooner or later they will emerge from that process as the 1970 and early 1980s indicated, and return to a new and normal growth path afterwards.

The second scenario is that the governments and central banking authorities accidentally discover a magic cure in terms of policies and led the world out of that painful process. As a result, the total economic losses could be minimised. But the likelihood of that happening is fairly low.

The third scenario is that economists, academic or otherwise, develop new theories that can be used effectively to deal with these new economic challenges and minimise the total economic losses in that process. It is possible for this to happen, but main stream economists have to work hard and be innovative not dogmatic about it.

Let’s hope that either scenario 3 or 2 occurs and occurs as early as possible. This is trillions and trillions involved public work. We have got to accomplish it. Otherwise, stagnation may be here with us for a long period to come.

Financial crisis, scapegoat and regulations

Comments on Jagjit S. Chadha “Is the love of finance the root of all evil?” 24/07/2009, http://www.eastasiaforum.org/2009/07/24/is-the-love-of-finance-the-root-of-all-evil/

I like this article. I find it fascinating and can’t help from commenting, though I didn’t rush in doing it earlier on after my first noting it.

Although it is against the current wind blowing heavily, it appears to be more sober analysis than most very loud noises calling for this and that.

While there may well be a case for strengthening some financial regulations, there is a real danger of overdoing it and over-regulation of the financial sector, at the expenses of efficiency and suffocation of innovations.

It is true that the world main financial and banking system came near collapse. But what were the main direct causes? It was the subprime problems and the malpractice of selling subprime mortgages in the US to the largest degree, wasn’t it? Imagine what would have been if there had not been those malpractices in which people without the ability to pay were given more 100% loans of the equities they bought, at very low interest rates.

International imbalance in saving and consumption may have contributed to the financial problems in the US. But, I would argue that the causal relationship is by no means inevitable and what had occurred in the US should have been avoidable in the first place.

For example, the US could have used the low interest rates afforded by excess international savings to invest in more productive sectors and areas, or even other countries, that would generate much higher returns and enhance the well beings not only in the US, but also other countries.

This in an indirect way would be similar to the argument of readdressing the patient and non-patient internationally discussed by Chadha in this article.

So I agree with Chadha that the size of the financial sector was not necessarily the problem. If looking at the worldwide, savings are not necessarily too high, because there are so many countries, mostly developing ones, have extremely low level of physical capitals and need to increase investment and accumulate them. Even in some advanced economies, infrastructures may need to be upgraded or replaced.

I find the argument that too much savings amusing, but can’t help laughing at it. When there are problems, it is easy and tempting to find a scapegoat, whether there is any justice to it or not is irrelevant to most people.

The financial and economic crisis is such a case in unprecedented scale.

Apollo 13 and Kay's idea of financial system designs

Comments on John Kay “Economic lunacy”, 22/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Economic-lunacy-pd20090722-U7CQ9?OpenDocument&src=sph

Kay’s idea sounds interesting and innovative. It deserves to be carefully analysis to see if that can work. It would be nice if the economy and financial system can be designed according to the modular approach that used in appliance and the Apollo 13 system.

The financial and economic systems are definitely more complex and the trade off between safety and efficiency gains are much greater. That can be a key difference between the financial and economic systems and other much smaller system.

A key issue in the financial system is the asymmetric risks and rewards. A person may gain many millions or more as rewards, but may lose little such as lost a job as risks. This kind of asymmetry results in people work in a way that maximise their rewards but can leave the accordingly high risks for others to bear. Any system designs need to address this asymmetry issue between risks and rewards for people working in it.

It may be the case that one’s rewards should be partly held until sometime well after the time period that can be said risks were not increased due to their efforts in achieving those rewards. Alternatively, there should be some retrospect civil and criminal responsibilities that are applied to people who had contributed to failures before.

Any system designs need to be clear, so people understand them and always take due risk management in their work. They should also avoid undue adverse effects on incentives for individual innovations.

Depression unlikely but can't be ruled out completely

Comments on Adam Carr “Depression drivel”, 18/06/2009, http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-Depression-drivel-pd20090618-T4TR3?OpenDocument&src=sph

History will or will not repeat itself is an interesting question, but there are no automatically fixed answers.

Clearly there are very different institutions now as compared to back then in the great depression. It should suggest that we may not repeat the great depression. However, the financial and banking crisis a few months earlier was a stark reminder that history could repeat itself even under quite different circumstances. Also the lost decade in Japan may lend further support to that.

Expectations work in strange ways. Different sorts of expectations, adaptive, rational you name it, may co-exist and work together. If expectations of most people are that we are likely to have a quasi great depression in a different form, then it is likely that we will have one.

The problem is that we don’t know for sure how people form their expectations all the time. We have herd behaviours in the share market, housing market and some other market. We have bubble and bursting of bubbles. There are hardly perfect things in expectations.

So while I am confident that the world authorities should be able to deal with the current economic crisis, I cannot rule out completely the recurrence of another depression. I am not as confident as Carr is on this and I don’t want to be either. History is not necessarily always rational. Neither is the economy, and definitely the equity and housing market!

A point on the virtues of bulls versus bears

Cooments on Cassandra Wilkinson’s “Gekko was right after all”, 25/05/2009, http://www.theaustralian.news.com.au/story/0,25197,25531334-5017272,00.html

Cassandra Wilkinson has made a point. That is, bulls and bears in the stock markets.

Bubbles in stock markets have been driven by the bulls in the market participants. But when they burst, the bears in the market are in the centre stage and full control.

Although the stock markets world-wide may have recovered from their recent lows, many markets including housing markets as well as the economy in many countries are still definitely bearing. To break the grips from the bears, we need many bulls to come to the stage, or to turn many current bears into bulls.

Yes, it may seem ironic. It was the bulls that cased the bubbles in the first place, but unfortunately what we need most at the moment is bulls and more bulls. We need them to boost confidence! There are too many bears around now and we are bearing. We need strong bulling spirit to get us out this great recession!