Comments on Richard Holden "Economic theories that have changed us: efficient markets and behavioural finance", 3/07/2015
You seem to say that both the efficient market theory and the behavioral finance they are backed by evidence. So how do you reconcile the two theories, if they have quite different implications? It is not right that two contradictory are both right?
Or this is similar to the wave and particles dual theory?
Showing posts with label economic theories. Show all posts
Showing posts with label economic theories. Show all posts
2015-07-04
Asymmetric information and public goods
Comments on Richard Holden "Economic theories that have changed us: asymmetric information", 3/07/2015
Asymmetric information is inevitable in reality, but appropriately providing public goods (social infrastructure) such as consumer protection laws as part of social infrastructure that can reduce the impact would be a more economical way to go.
Of course, it may take time to have relevant laws or regulations to be developed, particularly in developing countries.
Asymmetric information is inevitable in reality, but appropriately providing public goods (social infrastructure) such as consumer protection laws as part of social infrastructure that can reduce the impact would be a more economical way to go.
Of course, it may take time to have relevant laws or regulations to be developed, particularly in developing countries.
2010-06-07
Political economy of trade, partial economic theories/models and true optimality
Comments on Ronald I. McKinnon “Why exchange rate changes will not correct global trade imbalances”, 5/06/2010, http://www.eastasiaforum.org/2010/06/05/why-exchange-rate-changes-will-not-correct-global-trade-imbalances/
It appears that there are more than one factor working in the issues of trade balances - the elasticity and more fundamentally savings and investment behaviours, as well as various preferences and behaviour inertias, both short and long terms.
So the economic reality is invariantly much more complex than many nice but mostly partial economic theories and models based on certain assumptions and focus on certain aspects of the reality.
The main issues are largely empirical in nature.
The US has tended to run trade deficits for fairly long period of time, with different countries on the other side of the balance from time to time and as its target of trade wars.
The question is not just China with its currency pegged to the $US has trade surplus with the US, but also some other countries whose currencies are free to adjust that also have trade surpluses with the US.
While the US can blame China for fixed exchange rate, how should it blame those other countries? Which countries should and can the US to blame for its budget deficits over a very long period that is internal in nature? Still external high savings countries?
Besides, bilateral trade balance is not and should not be the benchmark for trade balance in a multi-country trade in the world as it is. To require bilateral trade balance will mean huge losses in global welfare due to losses in trade opportunities.
Further, optimal trade balance even for a country should be over a sufficiently long period and should not mean balance year by year.
But trade is economic as well as political, so people from short term political point of view often selectively quote or use some partial economic theories to their advance their arguments. Even economists sometimes can act either inadvertently or deliberately in that way.
Paul Krugman, a fairly recent Nobel Economics laureate, is an example in this regard. Of course, he is famous for strategic trade theories, after all.
It appears that there are more than one factor working in the issues of trade balances - the elasticity and more fundamentally savings and investment behaviours, as well as various preferences and behaviour inertias, both short and long terms.
So the economic reality is invariantly much more complex than many nice but mostly partial economic theories and models based on certain assumptions and focus on certain aspects of the reality.
The main issues are largely empirical in nature.
The US has tended to run trade deficits for fairly long period of time, with different countries on the other side of the balance from time to time and as its target of trade wars.
The question is not just China with its currency pegged to the $US has trade surplus with the US, but also some other countries whose currencies are free to adjust that also have trade surpluses with the US.
While the US can blame China for fixed exchange rate, how should it blame those other countries? Which countries should and can the US to blame for its budget deficits over a very long period that is internal in nature? Still external high savings countries?
Besides, bilateral trade balance is not and should not be the benchmark for trade balance in a multi-country trade in the world as it is. To require bilateral trade balance will mean huge losses in global welfare due to losses in trade opportunities.
Further, optimal trade balance even for a country should be over a sufficiently long period and should not mean balance year by year.
But trade is economic as well as political, so people from short term political point of view often selectively quote or use some partial economic theories to their advance their arguments. Even economists sometimes can act either inadvertently or deliberately in that way.
Paul Krugman, a fairly recent Nobel Economics laureate, is an example in this regard. Of course, he is famous for strategic trade theories, after all.
2009-09-15
Economists need to revisit the rational and efficient market assumption
Comments on Alan Kohler “The Lehman lesson is ongoing”, 14/09/2009, http://www.businessspectator.com.au/bs.nsf/Article/The-Lehman-lesson-is-ongoing-pd20090914-VUSXM?OpenDocument&src=sph
I totally agree with you on that "it’s imperative that economists do the same and come up with a new theory that accepts that economies are run by flawed humans and that they are buffeted by a financial system that is subject to the madness of crowds."
I also agree with you on that "Macroeconomists have suffered a terrible blow to their confidence", except some small handful exceptionally strong Keynesians.
The rational and efficient market assumption just blinded too many economists and diverted too much resource of economic research and policy research away from studying the real market and policies that could have avoided the financial and economic crises.
Economists need to correct that.
I totally agree with you on that "it’s imperative that economists do the same and come up with a new theory that accepts that economies are run by flawed humans and that they are buffeted by a financial system that is subject to the madness of crowds."
I also agree with you on that "Macroeconomists have suffered a terrible blow to their confidence", except some small handful exceptionally strong Keynesians.
The rational and efficient market assumption just blinded too many economists and diverted too much resource of economic research and policy research away from studying the real market and policies that could have avoided the financial and economic crises.
Economists need to correct that.
2009-06-23
Questions for Harry Clarke on national interest
These are some questions that I posed to Harry Clarke as comments to his article / blog "More on Rio, BHP-Billiton & Chinalco’s rejected love", or reply to his questions for me, 9/06/2009, http://www.harryrclarke.com/2009/06/09/more-on-rio-bhp-billiton-chinalcos-rejected-love/
I have commented on this article before. But Harry asked me to demonstrate my argument agaist his argument that the use of the Cournot Nash model is right in this case. Here are my questions.
hc, some quick points to discuss with you. First how do you define national interest clearly so that whoever is reviewing foreign investments can apply it consistently across the board?
Second, is your argument of monopoly power by Australia correct or informed as it should be? Both Rio and BHP say they would market their shares of iron ore production separately that seems to contradict your argument.
Third, is either Rio or BHP wholly owned by Australians, so Australia has the monopoly power? If they are not, why an increase in Chinalco's share in Rio would reduce any monopoly power that Australia has?
In terms of models, why is the Cournot-Nash story right in this case? Isn't the case that that model assumes perfect competition on the demand side? If that is the case, is that consistent with your argument of monopsony power demand? If you have monoply powers on both the supply and demand side, why is that model applicable?
I have commented on this article before. But Harry asked me to demonstrate my argument agaist his argument that the use of the Cournot Nash model is right in this case. Here are my questions.
hc, some quick points to discuss with you. First how do you define national interest clearly so that whoever is reviewing foreign investments can apply it consistently across the board?
Second, is your argument of monopoly power by Australia correct or informed as it should be? Both Rio and BHP say they would market their shares of iron ore production separately that seems to contradict your argument.
Third, is either Rio or BHP wholly owned by Australians, so Australia has the monopoly power? If they are not, why an increase in Chinalco's share in Rio would reduce any monopoly power that Australia has?
In terms of models, why is the Cournot-Nash story right in this case? Isn't the case that that model assumes perfect competition on the demand side? If that is the case, is that consistent with your argument of monopsony power demand? If you have monoply powers on both the supply and demand side, why is that model applicable?
Subscribe to:
Posts (Atom)
Posts
