As Donald Trump edges towards winning the Republican Party nomination for President of the United States, I will break down Trump's economic proposals that he has for the United States. Three of the main proposals he has proposed will actually be very detrimental for the country. These three include deporting millions of Americans, large tariffs on goods with China, Japan and Mexico and an extremely unfriendly foreign policy towards the Middle East.
By deporting millions of undocumented Americans from Latin American countries such as Mexico, he might cause a large shortfall in minimum wage and other low wage positions in agriculture, in food preparation and in perhaps janitorial roles. There aren't enough people in the country that will comfortably fill those positions as those have been mostly filled by new immigrants, some of them illegal. While some of the domestic unemployed might be able to fill in some of these positions, they won't be able to cover all of these positions as some of the more vulnerable local populations might not want to even take these jobs, without a modest wage increase. While it might decrease unemployment among the working population, this might create a large void in the service economy and that might result in prices going up.
The second and most damaging of his economic proposals would be to slap large tariffs on goods with countries that provide some of the products that are consumed in this country such as China, Japan, Mexico, South Korea and elsewhere. His rhetoric contends that this will help to revitalize America's flagging domestic manufacturing industry, but this does not seem like it will be the case. The best case scenario will cause some of these offshore jobs to move to even lower income countries such as Indonesia, Vietnam and India and cause prices for goods and services to raise accordingly to the rate of tariffs. You would have to slap prohibitive tariffs to move the low-wage manufacturing jobs back to the country. Prices on everyday goods such as t-shirts might even double as a result of this import tariff. This will surely increase the costs of living in the United States and it will hit the working people even harder. The cheaper goods that the country has been receiving (some of the cheapest in the world) has been caused by low tariffs to low to middle income countries such as China, Mexico and cheap higher-quality goods from countries such as South Korea. This has been a boon for the working people to consume more cheaper products and has helped to move some of those same people into more value-added service positions that contribute to the less manufacturing intensive some of the economy. This has also been environmentally feasible for the country as heavy manufacturing plants has caused massive population problems for a country such as China. Let's also not talk about a massive trade war with China or a tariff war with the European Union...
The third and last of his proposals has been quite damaging for America's image and relations with countries in the Middle East as to outlaw all Muslims coming into the country might cause more hostility towards the United States in those Middle Eastern states. This might be an ideal solution for Trump but this might cause a breakdown in commerce between the United States and the Middle East. While relations with certain states in the Middle East such as Iran and Syria might not improve under President Trump, relations with allies such as Turkey, Saudi Arabia and Egypt might be strained. While the economies of this region do not figure much to America's export economy, it might cause a strain in developing good relations with a region that is so vital to providing the oil and gas to the world's second largest economy (the United States). By promoting and causing more Muslim hostility to the United States, the country might have to spend more on its wasteful military spending that does not provide much benefit to the domestic consumption economy of the United States and further drag the federal government into the brink of bankruptcy.
From these three proposals we can see briefly that a Trump Presidency will be horrible for the country's economic well-being, along with foreign policy problems with Muslim countries due to his well documented Islamophobic comments in order to win more fear on his behalf. While relations with countries such as Russia might improve under his presidency, he might cause rough relations with manufacturing countries such as China and South Korea. This would not put the United States in the right footing as to compete with these countries on a global level with heavy tariffs damaging domestic American firms' capabilities to compete on the international level. By deporting millions of undocumented immigrants, he might also put those that might be able to work in manufacturing jobs back to their home countries. Like Trump has used his "huge" quote on many things such as his proposals and his campaign, a President Trump would cause severe economic problems in the United States. This short blog post is just a brief summary of the problems that a President Trump would have and we will find out and see if the country is smart enough to elect a President other than Donald Trump.
Showing posts with label Russia. Show all posts
Showing posts with label Russia. Show all posts
Wednesday, February 24, 2016
Tuesday, February 9, 2016
Interesting Seeking Alpha Article on Russia and Commodities
I have read a very interesting article on Seeking Alpha just recently in the morning. Here is the link. I agree with the opinion that low oil prices will not hurt Russia's economy in the long term as Russia is a very large country with bountiful amount of natural resources that cater towards their own socio-economic development. What's also going to be important towards the further development of their national economy will be their economic relationship with one of the most resource-hungry countries in the world (that being China). This will effectively lead towards the mitigation of the current ruble/currency crisis that has plagued Russia ever since oil prices took a nosedive. If this trend of the low prices continue, Russia will have to diversify its economy into building an economic base free of the "natural resource curse". Let's just put it this way: Russia will have to move away from its model of exporting natural resources (gas, oil, water, lumber) and towards exporting it's specialized products in military a lot more. While I agree with most of the points that the author in this article makes, I think it's more adequate to say that Russia faces troubles while their direct geopolitical and military competitor in the United States does not have similar issues.
Sunday, February 8, 2015
The Greek Debt Situation, the Troika, Syriza and Few Thoughts
As eyes of the world has turned towards the recent developments in Greece, I can admit that this will be an interesting period of time for Greece and the other member states of the European Union. Following the election of Syriza in the latest election, the leader of the Syriza party, Alex Tsipras, has promised the Greeks an end to the crippling austerity that the Greeks have faced ever since the start of the European debt crisis in 2009. The party aims to boost economic growth through stimulating the depressed Greek economy through Keynesian policies that will the new Syriza government promises to generate economic growth and to promote "social solidarity". What has really shocked the markets lately is Syriza's promise to stop negotiating with the Troika that consists the IMF, the European Central Bank and the European Union. The government has promised to return to the government-heavy policies of the past and to negotiate a write-off in Greek government debt. The decisive action in the economic and the political policies of the Marxists and the Keynesians that make up the intellectual leadership for the now ruling Syriza government has ran into a lot of controversy with the mainstream economic institutions that has been bailing out the Greek government and the Greek economy. In this particular blog post, I can hopefully explain the Greek situation in more details, but also impart my opinion on the state of this interesting situation that has been developing in Greece and the European Union.
Debt Situation Background and the Economic Crisis
The debt crisis in Greece had started even before the 2007-2008 Global Financial Crisis with the entrance of Greece into the Eurozone and the overspending that occurred during the Olympics was blamed for the current debt crisis that had its seeds all the way back in 2004. While the Olympic Games was one of the many financial debacles that the Greek government has had in the last two decades, I would say it compares nowhere to the other pressing problems that led up to their debt implosion that occurred after the Global Financial Crisis.
A combination of a corrupt government bureaucracy that struck shady back room deals, a culture of endemic tax evasion and a burdensome public sector led to one of the most serious debt crises that any country has faced. It has been said that the corruption of Greek officialdom led Greece into the Eurozone by utilizing the services of Goldman Sachs to make their debt situation comfortable enough for the not as corrupt European bureaucrats to let Greece into the European Union. The mistake of letting one of the most corrupt nations in Europe to enter the Eurozone was compounded by the fact that much of this debt could have avoided if Greece undertook an immense political restructuring program that changed the way politics in Greece had been operating. From the bribes that the officials had extracted from the Greek taxpayers in order to bribe corrupt European Union officials to the bribes that Greek political parties had handed out in public sector jobs led to one of the worst possible economic environments in all of Europe. The public also engaged in one of the most institutionalized tax evasion schemes in the world. Here are two articles that explain the tax evasion problem that had plagued Greece: One published by the Economist and another by the New Yorker. The Greeks had also simply been living way beyond their means for a long time with the government deficit financed growth and when the financial crisis had hit the country, the entire corrupt Greek political and economic system fell apart.
The US economic crisis caused a huge breakdown in the global debt pyramid that had partially relied on the US mortgage-backed securities for further growth. With the entire debt pyramid collapse, there it unleashed an onslaught of bad debt and bad loans. It triggered a tidal wave of debt crises around in Europe and the worst basket case example in the Hellenic country of Greece. Countries like Greece that had largely been living beyond their means through cheap interest rates that the Eurozone had brought. Through years of unnatural interest rates and a horribly mismanaged national economy, Greece paid the ultimate price for being in the same economic zone with countries like Germany. The Greeks had to be bailed out several times and here's an article from 2012 that described the situation in Greece 3 years ago.
The International Lenders and Greece
The 'Troika' of the International Monetary Fund, the European Union and the European Central Bank had to bailout certain failed European economies, but they also wanted these economies to restructure their economies based on the rules and the regulations of the IMF's "Washington Consensus". Here's an article by the English economist, Dr. John Williamson, which had coined that term as a way to disapprove of the policies that the IMF had implemented in many countries. In Greece, the Troika have demanded the exact same policies as John Williamson had lambasted in his article, especially when it comes to privatization of state industries. This leads to an interesting situation in Greece, where the bloated public sector has been connected to previous political election campaigns of both the major Greek parties as a way of institutionalizing corruption through vote purchasing. The anger of the crowds could be linked to these new policies which should have goals of liberating the Greek economy from the malaise of having an extremely unproductive and corrupt public sector. This has not really worked in Greece as it is very difficult to get rid of the old culture, plus the downward spiral of the Greek economy, which has been exacerbated by the cuts in benefits for ordinary citizens.
The crisis has caused tremendous hardship for many of the normal members of Greece with sharp increases in unemployment, cuts in state spending on welfare and on healthcare, reduction in the state infrastructure and a massive program of privatization. This has not just led to a breakdown in the Greek economy, but also numerous other social problems. Over 25% of Greeks are unemployed, with youth unemployment at 50% of above and many talented Greeks are moving out of Greece to find a more high-paying and desirable job within the Eurozone and in countries such as the United States. There has also been a tremendous breakdown in the normal social order, with countless people living on the streets, rummaging through trash cans to find out and the official poverty rate has increased to 45% by some estimates. Here's an extremely glaring chart that I found on Zero Hedge categorizing the tremendous poverty that has been accelerated acutely by the austerity that has been imposed on the Greece by the Troika:
From this chart, we can talk about the very sharp and very acute increase in poverty that Greece has suffered ever since the start of the financial crisis. There has been reports of a huge resurgence of crime and lawlessness in Greece, which radical political groups such as the anarchists, the fascist Golden Dawn and some say, the current government, Syriza, have all seized the opportunity to increase their following. There have been countless numerous riots and incidents where there have been clashes between the different political elements in Greece. By browsing the internet and YouTube, you will be able to see these many incidents that has happened in a very unsettled and impoverished country. The radical leftists of the Syriza party have seized upon this crisis and by promoting an anti-austerity, pro-stimulus policy program, they have made the rest of the world look at that with a wary eye.
The Recent Election of Syriza and Current Situation
With the rather explosive situation in Greece, the radical leftists of the Syriza party was able to defeat the Troika's favored political party, the mainstream conservative party of the New Democracy. With this election of the Syriza, there has been a tremendous amount of both media coverage in what Alexis Tsipras and the radical Syriza might offer for the country. Here are two articles on Syriza: one that talks about the Syriza intellectuals that were educated in British universities and another on the roots of Alexis Tsipras. What's interesting from this particular situation is the clash between the leftist ideologues within the Syriza party, such as the Finance Minister, and the European finance and banking bureaucrats. Ever since the situation, Syriza has overturned many of the Troika's economic policies, such as the reduction of public sector workforce, the privatization of key publicly held companies and most importantly, they want to overturn the Troika's loan and debt policies. Alexis Tsipras has declared the end of the crippling austerity that the reforms have caused in Greece, but will face a tough battle and an intense clash with the authorities that have been dictating the terms of the Greek economy for the last 5-6 years.
Within the election of Syriza, financial markets at first reacted negatively to the possibility that Syriza would do great harm to the reform process that the Troika had implemented on the Greek economy, but now it has emerged that the European Central Bank will most likely dictate the terms to the Greek government. The Greek government had hoped to renegotiate the terms of the bailout package and the other economic terms that the Troika had implemented on Greece, but it looks like Alexis Tsipras and the Syriza have not completely backtracked from their strong anti-austerity rhetoric. Despite the fact that the European monetary authorities have a strong stranglehold on the Greek government's ability to operate as they had originally promised, they have found little common ground between them and the monetary authorities of countries like Germany. According to a recent article, Greece has been isolated in a previous meeting of finance ministers just before the Eurogroup meeting that will take place on Feb. 11th, which will be an important meeting in which the new Greek authorities will put forth a proposal that they want to be implemented in order to save their country from actually going bankrupt. With this meeting, Alexis Tsipras has just set up a clash with these ministers after laying out concrete plans to end the reforms that the Troika had implemented, especially the crippling austerity that has trapped millions of Greeks into long-term poverty. It will be a very interesting next couple of months for those who will be following how this interferes with the financial markets.
Possible Results and Possible Macroeconomic Effects
I believe that a Greek default and a Grexit of the euro are both entirely impossible. A more realistic solution to this confrontation is a negotiated write-offs of small amounts of Greek debt, while still not solving the problems in the structure of the economic institutions within Greece. Greece will still be continued to be saddled with massive public debt, institutional corruption and an extremely inefficient public sector. To improve the situation in Greece, there must be a change in how Greece functions as a democratic country. There needs to be more transparency in how the bureaucracy is managed, as debts could be potentially saved without resorting to drastic privatization or the massive public sector layoffs. I still don't believe that the institutional corruption or the entrenched political interests within Greece could be fixed overnight, since the new Syriza government wants a return to the statist government that promotes 'social justice' versus an economic model that promotes business growth. I believe that they will be able to get some debt concessions, but it does not address the long-term debt issues that Greece will have to face. The new Syriza government and the European monetary authorities will most likely end up kicking the can down the road.
There are many possible solutions and results that could come from this particular and interesting situation that Greece is facing, not just against its creditors, the Troika and the financial markets, but also against the underlying principles of liberal economics that has been prevalent throughout the world since the 1980s. There has been a resurgence of a previous dominant Keynesian thought in economic thought that has expanded beyond the confines of the New Keynesians and the followers of Paul Samuelson's neoclassical synthesis. I believe the election of Syriza in Greece will continue to trigger the resurgence of left Keynesian economic thought throughout the world, but also other left wing alternatives that might spurn the IMF's Washington Consensus and the general Monetarist and New Keynesian approaches to economic policy. I also believe we could potentially see the development of new economic models to explain the problems that countries such as Greece went through. Maybe there are possible solutions that could be utilized without the pitched ideological battles that has raged within the European community and beyond. I think there are a tremendous sets of new data that could be extrapolated from this particular situation and that data could be analyzed from the resulting resolution to the Greek crisis.
Debt Situation Background and the Economic Crisis
The debt crisis in Greece had started even before the 2007-2008 Global Financial Crisis with the entrance of Greece into the Eurozone and the overspending that occurred during the Olympics was blamed for the current debt crisis that had its seeds all the way back in 2004. While the Olympic Games was one of the many financial debacles that the Greek government has had in the last two decades, I would say it compares nowhere to the other pressing problems that led up to their debt implosion that occurred after the Global Financial Crisis.
A combination of a corrupt government bureaucracy that struck shady back room deals, a culture of endemic tax evasion and a burdensome public sector led to one of the most serious debt crises that any country has faced. It has been said that the corruption of Greek officialdom led Greece into the Eurozone by utilizing the services of Goldman Sachs to make their debt situation comfortable enough for the not as corrupt European bureaucrats to let Greece into the European Union. The mistake of letting one of the most corrupt nations in Europe to enter the Eurozone was compounded by the fact that much of this debt could have avoided if Greece undertook an immense political restructuring program that changed the way politics in Greece had been operating. From the bribes that the officials had extracted from the Greek taxpayers in order to bribe corrupt European Union officials to the bribes that Greek political parties had handed out in public sector jobs led to one of the worst possible economic environments in all of Europe. The public also engaged in one of the most institutionalized tax evasion schemes in the world. Here are two articles that explain the tax evasion problem that had plagued Greece: One published by the Economist and another by the New Yorker. The Greeks had also simply been living way beyond their means for a long time with the government deficit financed growth and when the financial crisis had hit the country, the entire corrupt Greek political and economic system fell apart.
The US economic crisis caused a huge breakdown in the global debt pyramid that had partially relied on the US mortgage-backed securities for further growth. With the entire debt pyramid collapse, there it unleashed an onslaught of bad debt and bad loans. It triggered a tidal wave of debt crises around in Europe and the worst basket case example in the Hellenic country of Greece. Countries like Greece that had largely been living beyond their means through cheap interest rates that the Eurozone had brought. Through years of unnatural interest rates and a horribly mismanaged national economy, Greece paid the ultimate price for being in the same economic zone with countries like Germany. The Greeks had to be bailed out several times and here's an article from 2012 that described the situation in Greece 3 years ago.
The International Lenders and Greece
The 'Troika' of the International Monetary Fund, the European Union and the European Central Bank had to bailout certain failed European economies, but they also wanted these economies to restructure their economies based on the rules and the regulations of the IMF's "Washington Consensus". Here's an article by the English economist, Dr. John Williamson, which had coined that term as a way to disapprove of the policies that the IMF had implemented in many countries. In Greece, the Troika have demanded the exact same policies as John Williamson had lambasted in his article, especially when it comes to privatization of state industries. This leads to an interesting situation in Greece, where the bloated public sector has been connected to previous political election campaigns of both the major Greek parties as a way of institutionalizing corruption through vote purchasing. The anger of the crowds could be linked to these new policies which should have goals of liberating the Greek economy from the malaise of having an extremely unproductive and corrupt public sector. This has not really worked in Greece as it is very difficult to get rid of the old culture, plus the downward spiral of the Greek economy, which has been exacerbated by the cuts in benefits for ordinary citizens.
The crisis has caused tremendous hardship for many of the normal members of Greece with sharp increases in unemployment, cuts in state spending on welfare and on healthcare, reduction in the state infrastructure and a massive program of privatization. This has not just led to a breakdown in the Greek economy, but also numerous other social problems. Over 25% of Greeks are unemployed, with youth unemployment at 50% of above and many talented Greeks are moving out of Greece to find a more high-paying and desirable job within the Eurozone and in countries such as the United States. There has also been a tremendous breakdown in the normal social order, with countless people living on the streets, rummaging through trash cans to find out and the official poverty rate has increased to 45% by some estimates. Here's an extremely glaring chart that I found on Zero Hedge categorizing the tremendous poverty that has been accelerated acutely by the austerity that has been imposed on the Greece by the Troika:
The Recent Election of Syriza and Current Situation
With the rather explosive situation in Greece, the radical leftists of the Syriza party was able to defeat the Troika's favored political party, the mainstream conservative party of the New Democracy. With this election of the Syriza, there has been a tremendous amount of both media coverage in what Alexis Tsipras and the radical Syriza might offer for the country. Here are two articles on Syriza: one that talks about the Syriza intellectuals that were educated in British universities and another on the roots of Alexis Tsipras. What's interesting from this particular situation is the clash between the leftist ideologues within the Syriza party, such as the Finance Minister, and the European finance and banking bureaucrats. Ever since the situation, Syriza has overturned many of the Troika's economic policies, such as the reduction of public sector workforce, the privatization of key publicly held companies and most importantly, they want to overturn the Troika's loan and debt policies. Alexis Tsipras has declared the end of the crippling austerity that the reforms have caused in Greece, but will face a tough battle and an intense clash with the authorities that have been dictating the terms of the Greek economy for the last 5-6 years.
Within the election of Syriza, financial markets at first reacted negatively to the possibility that Syriza would do great harm to the reform process that the Troika had implemented on the Greek economy, but now it has emerged that the European Central Bank will most likely dictate the terms to the Greek government. The Greek government had hoped to renegotiate the terms of the bailout package and the other economic terms that the Troika had implemented on Greece, but it looks like Alexis Tsipras and the Syriza have not completely backtracked from their strong anti-austerity rhetoric. Despite the fact that the European monetary authorities have a strong stranglehold on the Greek government's ability to operate as they had originally promised, they have found little common ground between them and the monetary authorities of countries like Germany. According to a recent article, Greece has been isolated in a previous meeting of finance ministers just before the Eurogroup meeting that will take place on Feb. 11th, which will be an important meeting in which the new Greek authorities will put forth a proposal that they want to be implemented in order to save their country from actually going bankrupt. With this meeting, Alexis Tsipras has just set up a clash with these ministers after laying out concrete plans to end the reforms that the Troika had implemented, especially the crippling austerity that has trapped millions of Greeks into long-term poverty. It will be a very interesting next couple of months for those who will be following how this interferes with the financial markets.
Possible Results and Possible Macroeconomic Effects
I believe that a Greek default and a Grexit of the euro are both entirely impossible. A more realistic solution to this confrontation is a negotiated write-offs of small amounts of Greek debt, while still not solving the problems in the structure of the economic institutions within Greece. Greece will still be continued to be saddled with massive public debt, institutional corruption and an extremely inefficient public sector. To improve the situation in Greece, there must be a change in how Greece functions as a democratic country. There needs to be more transparency in how the bureaucracy is managed, as debts could be potentially saved without resorting to drastic privatization or the massive public sector layoffs. I still don't believe that the institutional corruption or the entrenched political interests within Greece could be fixed overnight, since the new Syriza government wants a return to the statist government that promotes 'social justice' versus an economic model that promotes business growth. I believe that they will be able to get some debt concessions, but it does not address the long-term debt issues that Greece will have to face. The new Syriza government and the European monetary authorities will most likely end up kicking the can down the road.
There are many possible solutions and results that could come from this particular and interesting situation that Greece is facing, not just against its creditors, the Troika and the financial markets, but also against the underlying principles of liberal economics that has been prevalent throughout the world since the 1980s. There has been a resurgence of a previous dominant Keynesian thought in economic thought that has expanded beyond the confines of the New Keynesians and the followers of Paul Samuelson's neoclassical synthesis. I believe the election of Syriza in Greece will continue to trigger the resurgence of left Keynesian economic thought throughout the world, but also other left wing alternatives that might spurn the IMF's Washington Consensus and the general Monetarist and New Keynesian approaches to economic policy. I also believe we could potentially see the development of new economic models to explain the problems that countries such as Greece went through. Maybe there are possible solutions that could be utilized without the pitched ideological battles that has raged within the European community and beyond. I think there are a tremendous sets of new data that could be extrapolated from this particular situation and that data could be analyzed from the resulting resolution to the Greek crisis.
Saturday, January 10, 2015
Some Ideas on the possible application of Game Theory in exploring the lifting of the US embargo on Cuba
As I mentioned in a past blog post, there has been a lot of banter about the current restoration of diplomatic relations with the nation of Cuba. This post concerns something else that has been on my mind the last couple of weeks. It is probable application of game theory towards the field of international economics. Game theory is already used most intensively in several branches of economics (industrial organization, behavioral economics, information economics, political economy), but there's a lack of full application in other branches of economics such as international economics.
I have been intensely reading parts of a book by the late Stanford economics professor, John McMillan. The book goes through the lack of game theory application, despite obvious game theory-like applications within international economics. This book had given me several ideas on the possible wider probable usage of certain mathematical games within the fixture of game theory in order to be applied in the inner-working of international economics, especially in international trade. By utilizing the trade between Cuba and US as a possible example, we could possibly apply game theory to the increased link between the two countries versus the chief adversary of the US in Russia. Here are some possible applications that can be utilized, which also includes some articles on similar topics that I found, which had given me the impetus to write this article.
1. Embargo or No embargo payoff
By utilizing the simple stochastic multi-player games, we can determine payoff costs by comparing the embargo or no embargo payoff between the two different multi-layer outcomes of (Embargo) or (No Embargo). This is a rather simplistic explanation of such a multi-player stochastic game that we will need to construct in order to measure the payoffs in of the each quadrants, but there might be a need to construct algorithmic stochastic multi-player games. This need is not just based on the complexity of the variables, but also on the need to have more well-defined variables, especially when it comes to find the advantages to each variable. To further explore the information, you need to perhaps construct a more complex model, with the help of computer software, in which there needs to be a various number of factors included. These factors include the trade flow variables, the number of zero-sum games and cooperative games performed in each of the variables, etc. There needs to be a construction of a model that is complex enough to find the actual numbers of payoffs for each of the two factors, but I'm sure it'll indicate that the
This article by Professor Dobre Claudia Ioana strikes to me as an interesting implication of certain principles within the mathematical realm of game theory to something found in international economics -> international trade. It also has given me some impetus in coming up with the idea of implicating the methods of game theory in dealing with rather complex trade relations between the countries of Cuba and the US. By utilizing the basic idea around Part 2.3 of the article, we can calculate for the strategic trading policies that could potentially benefit both Cuba and the US. In this simplified case, we can solve for the Nash equilibrium within the confines of a non-cooperative game, the payoffs are as follows:
2. Extensive Form Games
Another factor that should possibly be calculated is how the United States has to deal with how Russia responds to Cuba and vice versa. This particular situation can be characterized as a multi-player game where we need to figure out the payoffs and similar equilibriums. In this situation, we could potentially utilize extensive form games to factor each of the important factors between these three competing nations. It might be hard to characterize entire large economies as a single one micro body/ individual, but I believe that it can be surmised that all of these countries act as one single body.
The first series of extensive form games you could possibly calculate for certain payoffs between US-Cuba and between Russia-Cuba. By factoring the payoff decision-making numbers of this series of extensive form games (factors including certain firms, certain economic sectors, certain competitive indicators), you could potentially compare the numerical payoffs in each of these insistences.
After this, you could potentially utilize a second series of extensive form games to calculate the numerical payoff results that are resultant from the previous extensive form game. The numerical payoffs, along with certain control variables such as competitive advantage, gains/losses from trade and other indicators, are then calculated to determine whether or not the options are valid through the applicability of such a model.
The calculated effects on Cuba's trade policies in certain segments of their economy and the US economy could potentially benefit the US tremendously in that particular arena versus what the main US adversary has, which is Russia. By calculating for the potential benefits/pitfalls from them, one could be derive a simulation for a potential new international trade model.
(An introduction to Extensive Form games is found here, written/presented by Jonathan Levin, the winner of the 2011 John Bates Clark medal. These explanations are mostly meant for his field of concentration, which is industrial organization, but I think it gives a good idea of what extensive form games are.)
I believe the ideas that Professor Dobre Claudia Ioana and the late Professor John McMillan brought up offers a lot of hope for game theory to become a great potential tool for international economics/international trade researchers to continue to build onto. There could be lots of different ways to utilize these tools in its eventual development into useful tools for analyses of complex international trade situations/conflicts, such as that in this particular situation.
I have been intensely reading parts of a book by the late Stanford economics professor, John McMillan. The book goes through the lack of game theory application, despite obvious game theory-like applications within international economics. This book had given me several ideas on the possible wider probable usage of certain mathematical games within the fixture of game theory in order to be applied in the inner-working of international economics, especially in international trade. By utilizing the trade between Cuba and US as a possible example, we could possibly apply game theory to the increased link between the two countries versus the chief adversary of the US in Russia. Here are some possible applications that can be utilized, which also includes some articles on similar topics that I found, which had given me the impetus to write this article.
1. Embargo or No embargo payoff
By utilizing the simple stochastic multi-player games, we can determine payoff costs by comparing the embargo or no embargo payoff between the two different multi-layer outcomes of (Embargo) or (No Embargo). This is a rather simplistic explanation of such a multi-player stochastic game that we will need to construct in order to measure the payoffs in of the each quadrants, but there might be a need to construct algorithmic stochastic multi-player games. This need is not just based on the complexity of the variables, but also on the need to have more well-defined variables, especially when it comes to find the advantages to each variable. To further explore the information, you need to perhaps construct a more complex model, with the help of computer software, in which there needs to be a various number of factors included. These factors include the trade flow variables, the number of zero-sum games and cooperative games performed in each of the variables, etc. There needs to be a construction of a model that is complex enough to find the actual numbers of payoffs for each of the two factors, but I'm sure it'll indicate that the
This article by Professor Dobre Claudia Ioana strikes to me as an interesting implication of certain principles within the mathematical realm of game theory to something found in international economics -> international trade. It also has given me some impetus in coming up with the idea of implicating the methods of game theory in dealing with rather complex trade relations between the countries of Cuba and the US. By utilizing the basic idea around Part 2.3 of the article, we can calculate for the strategic trading policies that could potentially benefit both Cuba and the US. In this simplified case, we can solve for the Nash equilibrium within the confines of a non-cooperative game, the payoffs are as follows:
- If Cuba does want to open up, the US wants to retain the trade embargo.
- If Cuba does want to open up, the US removes the trade embargo, the US places favorable conditions for Cuba.
- If Cuba does want to open up, the US removes the trade embargo and the US places unfavorable conditions for Cuba.
This is just the basic approach to the multi-faceted approach to determining the payoffs and the Nash equilibrium for this particular international trade situation. These are just some ideas of a possible design that could be brought forth and I'm still currently thinking about the various formulas and variables that could be realized to achieve a full and sustained approach to developing a solution to the problem.
2. Extensive Form Games
Another factor that should possibly be calculated is how the United States has to deal with how Russia responds to Cuba and vice versa. This particular situation can be characterized as a multi-player game where we need to figure out the payoffs and similar equilibriums. In this situation, we could potentially utilize extensive form games to factor each of the important factors between these three competing nations. It might be hard to characterize entire large economies as a single one micro body/ individual, but I believe that it can be surmised that all of these countries act as one single body.
The first series of extensive form games you could possibly calculate for certain payoffs between US-Cuba and between Russia-Cuba. By factoring the payoff decision-making numbers of this series of extensive form games (factors including certain firms, certain economic sectors, certain competitive indicators), you could potentially compare the numerical payoffs in each of these insistences.
After this, you could potentially utilize a second series of extensive form games to calculate the numerical payoff results that are resultant from the previous extensive form game. The numerical payoffs, along with certain control variables such as competitive advantage, gains/losses from trade and other indicators, are then calculated to determine whether or not the options are valid through the applicability of such a model.
The calculated effects on Cuba's trade policies in certain segments of their economy and the US economy could potentially benefit the US tremendously in that particular arena versus what the main US adversary has, which is Russia. By calculating for the potential benefits/pitfalls from them, one could be derive a simulation for a potential new international trade model.
(An introduction to Extensive Form games is found here, written/presented by Jonathan Levin, the winner of the 2011 John Bates Clark medal. These explanations are mostly meant for his field of concentration, which is industrial organization, but I think it gives a good idea of what extensive form games are.)
I believe the ideas that Professor Dobre Claudia Ioana and the late Professor John McMillan brought up offers a lot of hope for game theory to become a great potential tool for international economics/international trade researchers to continue to build onto. There could be lots of different ways to utilize these tools in its eventual development into useful tools for analyses of complex international trade situations/conflicts, such as that in this particular situation.
Thursday, December 18, 2014
Russia Bankrupt and Will Collapse? Not so fast!
As many of you guys have been following the latest stories in the Western media about the great collapse of the Russian economy and Putin's tyrannical regime ending. I think these sensationalist remarks on how Russia is doomed to repeat the financial crisis of 1998 are just ridiculous. I mentioned in an earlier blog article about the dive in the value of the ruble is currently linked to the price of oil, but this doesn't mean Russia will always be like that. Since I'm a huge fan of graphical presentation of statistical data, here is the Bloomberg chart of the current situation here:
This chart is Bloomberg's interactive RUBUSD (Russian Ruble to US dollar) interactive exchange rate chart and I have transposed the price of Brent Crude oil onto it. From the looks of this particular chart, it shows you how interconnected the Russian ruble US dollar exchange rates are with the price of crude oil on international energy markets.This illustration has been put on the Western news media and interpreted as a way to prove that the Russian economy is going to collapse. I believe that the Russian economy will definitely be hurt in the short term as they do not have fully diversified their economy beyond the natural resources as they are currently a rentier economy. A rentier economy is an economy of a state that mostly seeks to sell its natural resources to external economies. In Russia's case, they are not quite a rentier state due to the sheer size of the country's economy and its economic potential.
The Russian economy has a relatively developed economic infrastructure, a highly skilled economy and one of the largest natural resource bases of any country in the world. Articles like this illustrate the sheer potential of the Russian economy, so I think it's too early to say that the Russian economy will not recover in the medium to long term, much to the dismay of Western policymakers. As with every single set of information that is available out there, I believe it's important to take a holistic view of every single economic situation, especially this one.
The Russian economy has a relatively developed economic infrastructure, a highly skilled economy and one of the largest natural resource bases of any country in the world. Articles like this illustrate the sheer potential of the Russian economy, so I think it's too early to say that the Russian economy will not recover in the medium to long term, much to the dismay of Western policymakers. As with every single set of information that is available out there, I believe it's important to take a holistic view of every single economic situation, especially this one.
Tuesday, October 21, 2014
Russia Ruble, Gold Reserve Purchases, Depressed Oil Prices
Russia's ruble has made financial news as of late, just as their conflict with their neighbor, Ukraine, has been frozen in the last month or so. Western sanctions have had a profound effect on Russia's monetary policy and the value of its currency, the ruble. According to the latest data, they have made another currency intervention by purchasing ruble from its mostly dollar-denominated currency reserves. This has been done to keep the ruble from falling even further down versus the US dollar, due to US and Western sanctions on key sectors of the Russian economy. This event coupled with falling oil prices have marked a perfect storm for Russia, but Russia has silently been buying up gold reserves. Does this mean that Russia will attempt to entirely decouple from the Western financial system? The answer is probably no, but they are slowly moving away from basing their international trade activities on the US dollar.
I have compiled two charts from Bloomberg that illustrate the falling ruble and the Russia's foreign exchange reserves, which includes gold.
By looking at these Bloomberg charts, we can see that Russia's ruble has weakened from around 36 Russian rubles to one US dollar to about 41 to 1. There is sharp drop in the value of their currency, coupled with the sustained drop in their official foreign exchange and gold reserves from $500 billion dollars to about 450. While these official estimates might not be realistic, especially due to Russia's resurgent gold bullion purchases, they mark a country mired in recession due to Western sanctions and the costly war with Ukraine. Russia has emerged as officially the country with the 5th largest currency reserve in the world, which fuels speculation of their real motives. Along with China, Russia has been purchasing gold bullion at record amounts, could they be underestimating their real gold bullion numbers? We do know that their $13 billion worth of currency interventions this month shows real weakness in the value of their currency, but does this indicate that Russia is in a free-falling economy or does it have to do with Western sanctions? I think it has more to do with strongly falling oil prices since the ruble is, in my opinion, more or less a petro-ruble, similar to other petroleum-based currencies. This could change if they continue with their gold reserve purchases and changes in central bank policies. Could this be a gold-backed ruble?
By looking at the sudden drop oil prices, which reached a peak of about $105 (WTI) and $115 (Brent), oil has taken a sharp dive and prices hover around $82 (WTI) and $86 (Brent). This sharp correction has also influenced Russia's currency reserves and the price of its currency, which means sharp economic and budget problems for the Kremlin to handle. If this slide continues and coupled with more debt downgrades by S&P and Moody's, we could see Russia's currency sink further and will require more further currency interventions. Could we see Russia's central bankers make more aggressive monetary decisions regarding the state of its falling currency? In the future, there is very much reason to believe that they might discard SOME if not ALL of their US dollar-denominated assets. Could this also lead to a more politically and militarily belligerent Russia? We will have to wait and see what unfolds...
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By looking at the sudden drop oil prices, which reached a peak of about $105 (WTI) and $115 (Brent), oil has taken a sharp dive and prices hover around $82 (WTI) and $86 (Brent). This sharp correction has also influenced Russia's currency reserves and the price of its currency, which means sharp economic and budget problems for the Kremlin to handle. If this slide continues and coupled with more debt downgrades by S&P and Moody's, we could see Russia's currency sink further and will require more further currency interventions. Could we see Russia's central bankers make more aggressive monetary decisions regarding the state of its falling currency? In the future, there is very much reason to believe that they might discard SOME if not ALL of their US dollar-denominated assets. Could this also lead to a more politically and militarily belligerent Russia? We will have to wait and see what unfolds...
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