The following is a link to my comments on Zhang Wuchang's blog or article:
http://www.pinggu.name/space-1121094-do-blog-id-24777.html
Zhang is a famous economist in Hong Kong and China. Krugman is a Nobel Prize laureate in economics.
But they differ dramatically in their policy approach, apart from their possibly “country biases”.
2009-11-04
Divergence between the monetary and fiscal policies in Australia
Comments on Michael Stutchbury “Swan remains a pessimist”, 4/11/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/swan_remains_a_pessimist/
Stutchbury starts with the following:
“AUSTRALIA is leading the Group of 20 nations in lifting interest rates because the Reserve Bank is more optimistic on the economy than Wayne Swan and his Treasury bureaucrats are.
Swan and the Treasury won’t wind back their budget stimulus quicker than scheduled because they are more pessimistic about the economy than the Reserve Bank is.
Reserve Bank governor Glenn Stevens says the risk of a serious economic contraction has passed. The Treasurer and Treasury secretary Ken Henry maintain the economy remains vulnerable to significant setbacks. ”
Bearing in mind the different role in macroeconomic policies Henry and Stevens play, I would tend to agree with the more independent governor Stevens for RBA's estimate of the economy than the much less independent Treasury secretary Henry and its Treasury estimate, even without applying any of my own judgement.
Henry is also at risk of being seen as part of “interest group”, given that the budget estimate was done by Treasury and him. This is beyond the perception that he and the Treasury have possibly become partisan and got too close to the government.
Stutchbury starts with the following:
“AUSTRALIA is leading the Group of 20 nations in lifting interest rates because the Reserve Bank is more optimistic on the economy than Wayne Swan and his Treasury bureaucrats are.
Swan and the Treasury won’t wind back their budget stimulus quicker than scheduled because they are more pessimistic about the economy than the Reserve Bank is.
Reserve Bank governor Glenn Stevens says the risk of a serious economic contraction has passed. The Treasurer and Treasury secretary Ken Henry maintain the economy remains vulnerable to significant setbacks. ”
Bearing in mind the different role in macroeconomic policies Henry and Stevens play, I would tend to agree with the more independent governor Stevens for RBA's estimate of the economy than the much less independent Treasury secretary Henry and its Treasury estimate, even without applying any of my own judgement.
Henry is also at risk of being seen as part of “interest group”, given that the budget estimate was done by Treasury and him. This is beyond the perception that he and the Treasury have possibly become partisan and got too close to the government.
2009-11-03
Phelps on economic opposites - Keynesian and neoclassical
Edmund Phelps is a outstanding economist and has contributed to the expectations theories. His analysis of intertemporal tradeoffs in macroeconomic policy is the prime reason for his Nobel Prize in economics.
He has a comments on what he calls the economic opposites: Keynesian economics and the neoclassical equilibrium theory.
He says: "In the theory wars, which are as much wars over policy choices, two very bad kinds of theories are driving out good theories."
One very interesting point Phelps makes is about the cause of the great financial crisis:
"The most profound fallacy is the newfangled idea that misalignment of incentives in banks caused the housing bubble – a bubble that, when it burst, shook the economy to its foundations. All can agree that increased lending and building ran into the awkward fact that costs increase when production is stepped up. On that account, prices sought a higher level. But that analysis does not capture the steep four-year climb in housing prices, which rose by more than 60 per cent.
To account for so large an increase, we have to recognise that expectations played a role. Speculators appear to have expected that housing prices would go sky-high, so prices took off and then went on climbing in anticipation that those high prices were getting closer. The banks, seeing the houses offered as collateral were worth more and more, responded by supplying an increasing flow of mortgage loans.
From this viewpoint, speculation drove the crisis. Misaligned incentives were not sufficient to do it – and not necessary either. Bubbles long predate bonuses. The crisis could have happened with a 1950s financial sector. The lesson the crisis teaches, though it is not yet grasped, is that there is no magic in the market: the expectations underlying asset prices cannot be “rational” relative to some known and agreed model since there is no such model."
See Edmund Phelps "A fruitless clash of economic opposites", 2/11/2009, http://www.ft.com/cms/s/0/f71cfc6a-c7e6-11de-8ba8-00144feab49a.html
He has a comments on what he calls the economic opposites: Keynesian economics and the neoclassical equilibrium theory.
He says: "In the theory wars, which are as much wars over policy choices, two very bad kinds of theories are driving out good theories."
One very interesting point Phelps makes is about the cause of the great financial crisis:
"The most profound fallacy is the newfangled idea that misalignment of incentives in banks caused the housing bubble – a bubble that, when it burst, shook the economy to its foundations. All can agree that increased lending and building ran into the awkward fact that costs increase when production is stepped up. On that account, prices sought a higher level. But that analysis does not capture the steep four-year climb in housing prices, which rose by more than 60 per cent.
To account for so large an increase, we have to recognise that expectations played a role. Speculators appear to have expected that housing prices would go sky-high, so prices took off and then went on climbing in anticipation that those high prices were getting closer. The banks, seeing the houses offered as collateral were worth more and more, responded by supplying an increasing flow of mortgage loans.
From this viewpoint, speculation drove the crisis. Misaligned incentives were not sufficient to do it – and not necessary either. Bubbles long predate bonuses. The crisis could have happened with a 1950s financial sector. The lesson the crisis teaches, though it is not yet grasped, is that there is no magic in the market: the expectations underlying asset prices cannot be “rational” relative to some known and agreed model since there is no such model."
See Edmund Phelps "A fruitless clash of economic opposites", 2/11/2009, http://www.ft.com/cms/s/0/f71cfc6a-c7e6-11de-8ba8-00144feab49a.html
2009-11-02
Opposition voices are important for stronger democracy
Comments on Alan Kohler “Treading the boards”, 2/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/Treading-the-boards-pd20091102-XDR5A?OpenDocument&src=sph
Alan, maybe it should be like this in politics for useful democracy and having the government of the day accountable.
The voice of opposition is important. It presents a different perspective.
Just think for a moment that how much the Rudd government relies on spin, then it is not difficult for anyone to come to the point that without effective opposition to hold the government accountable will lead to extremely bad government.
The past two years have seen billions of taxpayers’ money being wasted and the opposition has been ineffective.
That is the price Australians have paid for inefficient government and ineffectual opposition.
We need stronger democracy. We need stronger opposition to make the government more efficient.
As for the life of politicians after politics, it is a matter for them and those who have the power to make decisions.
Alan, maybe it should be like this in politics for useful democracy and having the government of the day accountable.
The voice of opposition is important. It presents a different perspective.
Just think for a moment that how much the Rudd government relies on spin, then it is not difficult for anyone to come to the point that without effective opposition to hold the government accountable will lead to extremely bad government.
The past two years have seen billions of taxpayers’ money being wasted and the opposition has been ineffective.
That is the price Australians have paid for inefficient government and ineffectual opposition.
We need stronger democracy. We need stronger opposition to make the government more efficient.
As for the life of politicians after politics, it is a matter for them and those who have the power to make decisions.
RBA is not responsible for housing undersupply
Comments on Robert Gottliebsen “Rate rises may backfire”, 2/11/2009, http://www.businessspectator.com.au/bs.nsf/Article/Cup-Day-deliberations-pd20091102-XDRU7?OpenDocument&src=sph
Robert, both you and Triguboff have got it wrong on this issue. The RBA is charged with price stability and now also has to take asset prices into account in fulfilling their duties.
Yes, faster rate rises will dampen construction and have a n negative effect on supply of housing in the media term. But that does not mean that the RBA should not act to combat price rises.
The undersupply of housing in the past decades has had its multiple reasons, and interest rate has been the least of them.
To overcome undersupply, those prime reasons, like government bottlenecks in planning and land release, red-tapes and etc have to be tackled. That is a fundamental principle of economics and public policy.
Restricting the RBA's hand is no solution to housing shortage and is a wrong approach to fixing it.
Robert, both you and Triguboff have got it wrong on this issue. The RBA is charged with price stability and now also has to take asset prices into account in fulfilling their duties.
Yes, faster rate rises will dampen construction and have a n negative effect on supply of housing in the media term. But that does not mean that the RBA should not act to combat price rises.
The undersupply of housing in the past decades has had its multiple reasons, and interest rate has been the least of them.
To overcome undersupply, those prime reasons, like government bottlenecks in planning and land release, red-tapes and etc have to be tackled. That is a fundamental principle of economics and public policy.
Restricting the RBA's hand is no solution to housing shortage and is a wrong approach to fixing it.
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