Showing posts with label United States. Show all posts
Showing posts with label United States. Show all posts
Thursday, April 14, 2016
Great Paper on the New Keynesian model
As I was scourging through interesting papers, I found a very interesting paper written by Cohen-Setton, Hausman and Wieland on the New Keynesian model. Within the contents of the paper, they discuss the New Keynesian model and it's effect on supply-side shocks in depressed economies. They utilized a very interesting example in France and its economy after a special measure where they had lifted the gold standard and set interesting economic measures. The results are quite fascinating and the paper goes into quite detail utilizing time series and a fantastic model to describe what had happened in detail. I'm still reading the paper, but it looks like they have found the key to the current debate over structural reforms within both the United States and the European Union. By utilizing these structural reform measures that were recommended before, the example shows that it doesn't particularly work very well in times of rare financial crises. A good read for anyone who is interested in these pressing matters, along with observing the model that they had utilized.
Friday, February 26, 2016
Justin Wolfers' Interesting Article on Bernie Sanders' Economic Plan
There has been considerable conversations over Bernie Sanders' economic plan over the internet and among several top macroeconomists in the United States. Among the economists that are talking about Professor Gerald Friedman's plan that has estimated a Sanders Presidency would greatly improve the economy of the United States with its plan of completely transforming the country into one that more or less resembles that of the Nordic social democratic societies. As my father is on the faculty at one of the University of Massachusetts schools, it's interesting to consider Professor Friedman's analysis of the Sanders economic plan. I personally think that the universal healthcare program that he has promoted is while valid, it might not be the plan of action. The Nordic welfare states (Norway, Sweden, Finland and Denmark) were created earlier on in the century and had promoted a decent foundation for their societies as a whole to function on a very high level. They were created when these states did not have any nationalized program of any sort or extremely complex healthcare systems. They were relatively small and homogeneous at that period of time. My main problem with Sanders' plan is that it does not go into detail about how and where the healthcare system will change. Also, there seems to somewhat of a disagreement between how mainstream economists and how Professor Friedman sees the topic of macroeconomics as a whole. We will explore this later on this blog post, but let's first talk about Wolfers' point of view.
Let's first look at what Wolfers and the Romers have to offer for the conversation over Sanders' economic plan. The Wolfers article goes into a recent short article of what Professor David and Christina Romer have written and explains that Friedman's plan is out of whack based on their point of view. I must admit that it is completely feasible for a bunch of center-left Democratic star economists, which include Paul Krugman, to fully denounce what someone from a (more-or-less) a Post-Keynesian perspective would have. They all focused on the demand-induced part of Sanders' plan. They find it incredulous that the plan would be in Wolfers' words, "an economic nirvana". I have read and looked over Professor Friedman's plan and it does not look incredibly implausible, especially when you look at the CBO estimates or in its calculations. Maybe it is somewhat different than what most center-left macroeconomists such as Wolfers would consider to be credible. If you read towards the end of his short article, Justin Wolfers pointed out that Gerald Friedman's long and careful analysis as one that is more or less the perspective of the Post-Keynesian macroeconomists from the tradition of Joan Robinson. Let's look into this historical phenomenon where generally liberal economists divulge tremendously.
If you look back into history, John Maynard Keynes truly changed the way many in the economics arena had seen economics. He argued that the mainstream neo-classical models mostly in the field of macroeconomics to be mostly wrong and his particular analysis of how the world of economics works to be right. Of course this does not come with its controversy in the world of economics as many traditional neoclassical economists did not view his completely "heretical views" very well. Then fast-forward 10 years, two top MIT economists, Paul Samuelson and Robert Solow, created a somewhat combination of Keynes' works with the earlier neoclassical economists into somewhat of a paradigm shift between the two competing schools of economic thought into the neo-classical synthesis. This is when Joan Robinson and others at the Department of Economics in Cambridge, of which Keynes last taught before his death, argued in the Cambridge capital controversy about certain components of their competing ideologies especially about the unrealistic assumptions component to their mathematical models. The Post-Keynesian school, of which Joan Robinson is famous for, argued based primarily on the Keynesian tradition, while the other somewhat Keynesian argued based on a moderate fusion of the two competing schools. This led to a long ideological battle that has also included an entire generation of economists in the "new classical tradition" that in Robert Lucas wanted to "bury Keynesianism" and also attacked the earlier mentioned unrealistic assumptions part in their math modeling. The Wolfers' article and Krugman's numerous articles explain this battle, but it is generally between the dominant faction of Keynesians and those like Friedman, which are in the more left-leaning Robinson faction of the Keynesians.
While I don't necessarily agree completely with Friedman's observations on Sanders' economic plan for the country, Professor Gerald Friedman and Bernie Sanders' economic plan is especially important in that it's exposing the general public to more of Keynes' economic thoughts. While Keynesianism might not be the solution to some of problems in the models that some in the New Classical school of thought ran into during the Great Recession, it should form the basis in any academic and policy discussion to correcting the country's trajectory towards an entrenched oligarchy and a mass of working poor.
Let's first look at what Wolfers and the Romers have to offer for the conversation over Sanders' economic plan. The Wolfers article goes into a recent short article of what Professor David and Christina Romer have written and explains that Friedman's plan is out of whack based on their point of view. I must admit that it is completely feasible for a bunch of center-left Democratic star economists, which include Paul Krugman, to fully denounce what someone from a (more-or-less) a Post-Keynesian perspective would have. They all focused on the demand-induced part of Sanders' plan. They find it incredulous that the plan would be in Wolfers' words, "an economic nirvana". I have read and looked over Professor Friedman's plan and it does not look incredibly implausible, especially when you look at the CBO estimates or in its calculations. Maybe it is somewhat different than what most center-left macroeconomists such as Wolfers would consider to be credible. If you read towards the end of his short article, Justin Wolfers pointed out that Gerald Friedman's long and careful analysis as one that is more or less the perspective of the Post-Keynesian macroeconomists from the tradition of Joan Robinson. Let's look into this historical phenomenon where generally liberal economists divulge tremendously.
If you look back into history, John Maynard Keynes truly changed the way many in the economics arena had seen economics. He argued that the mainstream neo-classical models mostly in the field of macroeconomics to be mostly wrong and his particular analysis of how the world of economics works to be right. Of course this does not come with its controversy in the world of economics as many traditional neoclassical economists did not view his completely "heretical views" very well. Then fast-forward 10 years, two top MIT economists, Paul Samuelson and Robert Solow, created a somewhat combination of Keynes' works with the earlier neoclassical economists into somewhat of a paradigm shift between the two competing schools of economic thought into the neo-classical synthesis. This is when Joan Robinson and others at the Department of Economics in Cambridge, of which Keynes last taught before his death, argued in the Cambridge capital controversy about certain components of their competing ideologies especially about the unrealistic assumptions component to their mathematical models. The Post-Keynesian school, of which Joan Robinson is famous for, argued based primarily on the Keynesian tradition, while the other somewhat Keynesian argued based on a moderate fusion of the two competing schools. This led to a long ideological battle that has also included an entire generation of economists in the "new classical tradition" that in Robert Lucas wanted to "bury Keynesianism" and also attacked the earlier mentioned unrealistic assumptions part in their math modeling. The Wolfers' article and Krugman's numerous articles explain this battle, but it is generally between the dominant faction of Keynesians and those like Friedman, which are in the more left-leaning Robinson faction of the Keynesians.
While I don't necessarily agree completely with Friedman's observations on Sanders' economic plan for the country, Professor Gerald Friedman and Bernie Sanders' economic plan is especially important in that it's exposing the general public to more of Keynes' economic thoughts. While Keynesianism might not be the solution to some of problems in the models that some in the New Classical school of thought ran into during the Great Recession, it should form the basis in any academic and policy discussion to correcting the country's trajectory towards an entrenched oligarchy and a mass of working poor.
Wednesday, February 24, 2016
A Short Analysis of Donald Trump's Economic Proposals
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.
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.
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.
Tuesday, July 21, 2015
Puerto Rico, An American Greece?
While most people have been focusing on the crisis unfolding in Greece, attention has not been turned to somewhere closer to home in the US territory of Puerto Rico. Puerto Rico, much to the chagrin of Puerto Rican sovereigntists, is a part of the United States and they utilize the US Dollar as their form of currency. Puerto Rico has been having their own debt crisis coupled with a terrible economy that is failing to diversify beyond tourism (see Greece). Their government also refuses to prioritize paying its creditors over the welfare needs of the most vulnerable of its citizens. They are also in heated negotiations with their creditors, which is not thankfully not as extreme as the IMF. These creditors include mutual funds and hedge funds, which include two large funds, Oppenheimer Funds and Franklin Funds. This is not good news for holders of mutual funds, but also for the markets despite the small size of Puerto Rico.
Chuck Schumer and other Senate Democrats have warned that if the United States government does not help Puerto Rico fix its financial problems, mostly with mutual funds and hedge funds, it could trigger a humanitarian crisis. This is probably more important to people closer to here as it could potentially trigger a massive migration of Puerto Ricans to parts of the United States, which Massachusetts seem to be a very prominent part of their future plans. As it is not saying that US citizens should shun Puerto Ricans, but they need to shun the approach that the creditors are dealing with Puerto Rico. While Puerto Rico's troubles might not be as headline news as Greece, which being a member of a very fragile Eurozone seemingly matters more for the world economy, it should be reminded that Puerto Rico could be in a bigger hole than Greece is. While US manufacturers could be open to moving their operations to Puerto Rico, other options are available to them such as the obvious choices in China and in Mexico, but also in some emerging export-based manufacturing countries. Puerto Rico's tourism industry could be improved and they could promote non-US citizens to travel to their wonderful beaches and resorts, it cannot be the solution to their economic malaise. Similar to Greece, they must take action to revitalize that manufacturing part of their economy, which had been previously a huge part of their local economy. With some work and government legislative actions, Puerto Rico can hopefully not be an American Greece.
Chuck Schumer and other Senate Democrats have warned that if the United States government does not help Puerto Rico fix its financial problems, mostly with mutual funds and hedge funds, it could trigger a humanitarian crisis. This is probably more important to people closer to here as it could potentially trigger a massive migration of Puerto Ricans to parts of the United States, which Massachusetts seem to be a very prominent part of their future plans. As it is not saying that US citizens should shun Puerto Ricans, but they need to shun the approach that the creditors are dealing with Puerto Rico. While Puerto Rico's troubles might not be as headline news as Greece, which being a member of a very fragile Eurozone seemingly matters more for the world economy, it should be reminded that Puerto Rico could be in a bigger hole than Greece is. While US manufacturers could be open to moving their operations to Puerto Rico, other options are available to them such as the obvious choices in China and in Mexico, but also in some emerging export-based manufacturing countries. Puerto Rico's tourism industry could be improved and they could promote non-US citizens to travel to their wonderful beaches and resorts, it cannot be the solution to their economic malaise. Similar to Greece, they must take action to revitalize that manufacturing part of their economy, which had been previously a huge part of their local economy. With some work and government legislative actions, Puerto Rico can hopefully not be an American Greece.
Wednesday, March 4, 2015
Thoughts on "Firm Leverage and Unemployment During the Great Recession"
There has been several articles, papers and books I have been reading during the last week. The one I will write about today is an article written by Xavier Giroud and Holger Mueller entitled Firm Leverage and Unemployment During the Great Recession. (For those interested in reading the paper, I cannot seem to find the PDF link online, but you can perhaps contact the two professors for a copy of the paper.) Both are professors of Finance and affiliated with the NBER (National Bureau of Economic Research) and the CEPR (Center For Economic Policy Research) , one at the MIT Sloan School of Management and the other at the NYU Leonard N. Stern School of Business. The paper is interesting in that it listed an interesting conclusion in that there is a strong correlation between high-leverage firms and job losses in response to the household demand shocks during the Great Recession. This is an interesting observation that both professors were able to make, but with any article there are significant gaps in which the data was compiled. Due to certain lack of data, I think there needs to be significant improvements to potentially the next paper that they can gather.
The 3 potential improvements that the two esteemed gentlemen can make are as follows:
1. Utilize more wage/labor data that is available, which could perhaps include statistics by the Bureau of Labor Statistics. This could be utilized perhaps in determining relevant wage levels of certain households within the two sets of data between the change in both high-leverage (ΔLev 02-06 > Median) and low-leverage (ΔLev 02-06 < Median) firms between the years 2002 and 2006. By utilizing wage and labor data, you can also factor the significance that the drop in employment that are caused by both high-leverage and low-leverage firms especially in the realm of (ΔLog Emp) 07-09, which could possibly confirm the conclusions, especially under the Alternative Hypothesis: Growth, Productivity, Wages (Tables 8, 9, 10) sections of the data tables that the paper had presented. With this wage and labor data, there could be potentially another set of information the user could interpret about the changes that are caused between the two time intervals of which the data is measuring.
2. Another striking improvement that I could potentially see is a change in the dependent variables on the regression model that the two professors have used to compute their data. One possible way is to shift the focus towards labor/wages versus unemployment. With this new information, they could generate another new set of information, which could possibly further validate their results that are written under Firm Leverage and Unemployment (Table 2), Instrumental Variable IV Estimation (Table 3) and Industry Sectors (Table 4). With the change in certain dependent variables, they could see a change in the data results in Establishment Closures (Table 5), in Firm-Level Analysis (Table 6), Within-Firm Spillovers (Table 7), Alternative Hypothesis: Growth (Table 8), Alternative Hypothesis: Productivity (Table 9), Alternative Hypothesis: Wages (Table 10) and in the County-Level Analysis (Table 11). The main piece of data that could be changed is how they measured the two corresponding variables: (ΔLog (Emp) 07-09) and (ΔLog (HP) 06-09). By introducing a dependent variable into the design, they can add another dimension in their measurements in order to incorporate better analysis at the end of the day.
3. The last improvement that they could incorporate is by organizing the time and the date each locale had a significant drop in a better way that represents the drop in employment versus the drop in housing better. Perhaps by compiling a couple of new data tables with different time ranges than just the standard ranges that the data used (02-06, 07-09), we can perhaps see where the most striking changes are and what pertinent macroeconomic results are corresponded in the findings.
Overall, the paper is a fantastic read for those who are just getting into reading published papers on financial economics, but also an interesting find in that unemployment is correlated heavily to firms that tightened their debt capacity in the run-up in response to household demand shocks than to certain firms that freed their debt capacity. Maybe the authors weren't exactly correct in their predictions and percolations on potential ramifications to macroeconomic theory, but they found an interesting correlation in the data from their current research.
The 3 potential improvements that the two esteemed gentlemen can make are as follows:
1. Utilize more wage/labor data that is available, which could perhaps include statistics by the Bureau of Labor Statistics. This could be utilized perhaps in determining relevant wage levels of certain households within the two sets of data between the change in both high-leverage (ΔLev 02-06 > Median) and low-leverage (ΔLev 02-06 < Median) firms between the years 2002 and 2006. By utilizing wage and labor data, you can also factor the significance that the drop in employment that are caused by both high-leverage and low-leverage firms especially in the realm of (ΔLog Emp) 07-09, which could possibly confirm the conclusions, especially under the Alternative Hypothesis: Growth, Productivity, Wages (Tables 8, 9, 10) sections of the data tables that the paper had presented. With this wage and labor data, there could be potentially another set of information the user could interpret about the changes that are caused between the two time intervals of which the data is measuring.
2. Another striking improvement that I could potentially see is a change in the dependent variables on the regression model that the two professors have used to compute their data. One possible way is to shift the focus towards labor/wages versus unemployment. With this new information, they could generate another new set of information, which could possibly further validate their results that are written under Firm Leverage and Unemployment (Table 2), Instrumental Variable IV Estimation (Table 3) and Industry Sectors (Table 4). With the change in certain dependent variables, they could see a change in the data results in Establishment Closures (Table 5), in Firm-Level Analysis (Table 6), Within-Firm Spillovers (Table 7), Alternative Hypothesis: Growth (Table 8), Alternative Hypothesis: Productivity (Table 9), Alternative Hypothesis: Wages (Table 10) and in the County-Level Analysis (Table 11). The main piece of data that could be changed is how they measured the two corresponding variables: (ΔLog (Emp) 07-09) and (ΔLog (HP) 06-09). By introducing a dependent variable into the design, they can add another dimension in their measurements in order to incorporate better analysis at the end of the day.
3. The last improvement that they could incorporate is by organizing the time and the date each locale had a significant drop in a better way that represents the drop in employment versus the drop in housing better. Perhaps by compiling a couple of new data tables with different time ranges than just the standard ranges that the data used (02-06, 07-09), we can perhaps see where the most striking changes are and what pertinent macroeconomic results are corresponded in the findings.
Overall, the paper is a fantastic read for those who are just getting into reading published papers on financial economics, but also an interesting find in that unemployment is correlated heavily to firms that tightened their debt capacity in the run-up in response to household demand shocks than to certain firms that freed their debt capacity. Maybe the authors weren't exactly correct in their predictions and percolations on potential ramifications to macroeconomic theory, but they found an interesting correlation in the data from their current research.
Friday, February 6, 2015
World Addicted to Debt (McKinsey Report)
I was rummaging through my usual several articles to begin the day and I came across a particularly interesting article in the Economist that talked about a McKinsey report on the debt binge that the world has undertaken in the past and in the recent years. Unfortunately, the trend has accelerated at a trajectory that has been quite frightening to those have followed this. Personally, I have followed this ever since I started following the financial markets and the finances of certain countries such as the United States and China. Both countries have had significant problems with the debt, especially when it came to bad debt that had accumulated from the wrongful policy decisions that led to further market turmoil. The most troubling aspect of this debt addiction is the amount of advanced economies that have extreme turmoil in the last decade or so, with some countries more addicted to debt that ever. What's interesting about the article is that some countries have debts that are at extremely dangerous levels, which are at or above 300% of GDP. In this blog post, I will focus on two other situations about debt, but isolated to two of the largest economies in the world in the United States and in China.
In a connected Guardian article about debt, global debt has grown tremendously ever since the financial crisis especially in China. What's interesting about the fact of this tremendous growth in debt is that China has been one, if not the main driver of global economic growth ever since the financial crisis. The chart in the Guardian article gives us several amazing representations of how China's debt has grown since 2000, with the country's total debt quadrupling in the space of 7 years between 2007 and 2014 alone. China's total debt to GDP ratio has reached the levels witnessed in the advanced industrialized economies of the United States, Japan and Western Europe. This curious rise in debt has been especially troubling as the Chinese economy has become an important cornerstone in the world economy.
According to the data gathered by the McKinsey Global Institute, most countries have been leveraging their debt, while the growth rates for many of these countries have not matched the outstanding growth that a country like China has witnessed in the last 35 years. From the new data on debt that McKinsey has out, we can surmise that there is a significant amount of countries that have racked up enormous debts, such as China, but many of these countries cannot utilize these particular instruments to boost growth to Chinese levels via either government stimulated or central bank stimulated growth. What we're seeing here is that with the economic engine of growth that China has been for the world economy in the last 35 years is stalling at the present moment, due to the style of economic growth that China has been pursuing. For this long and sustained period of time, the export engine that is China has been working overtime to ensure that the world economy, which was led by the advanced economies of the United States, Japan and Western Europe, has been running smoothly. With this new piece of information about the Chinese manufacturing Purchasing Manager's Index (PMI) and the continued industrial slowdown that has dented world confidence in China's growth potentials, we are right to be worried about the future growth trajectories of the Chinese economy and the world economy.
Like China and various other economies, the debt in the United States has reached similar troubling levels as total debt has reached close to the 300% threshold, with the debt to GDP ratio at around 269%. While this number is reputed as tremendously higher than perhaps a more ideal debt to GDP ratio, the growth in the debt in the United States is slowing compared to various countries like China, where debt has grown more rapidly. This signals an improvement over the debt battles that have raged within the country's intellectual realms, but there needs to be work done on this to combat the unsustainable growth in the country's government debt.
From the McKinsey report, we can easily picture that the sustainable growth in debt is an extremely worrying trend for the world as a whole, especially in countries like in China, where the growth in debt risks putting the world's largest economy by PPP terms in grave danger. I believe that reports like this particular McKinsey report reveal a world that is needing a new path towards a new economic consensus on growth that is not entirely based on debt and on deficit financing.
In a connected Guardian article about debt, global debt has grown tremendously ever since the financial crisis especially in China. What's interesting about the fact of this tremendous growth in debt is that China has been one, if not the main driver of global economic growth ever since the financial crisis. The chart in the Guardian article gives us several amazing representations of how China's debt has grown since 2000, with the country's total debt quadrupling in the space of 7 years between 2007 and 2014 alone. China's total debt to GDP ratio has reached the levels witnessed in the advanced industrialized economies of the United States, Japan and Western Europe. This curious rise in debt has been especially troubling as the Chinese economy has become an important cornerstone in the world economy.
According to the data gathered by the McKinsey Global Institute, most countries have been leveraging their debt, while the growth rates for many of these countries have not matched the outstanding growth that a country like China has witnessed in the last 35 years. From the new data on debt that McKinsey has out, we can surmise that there is a significant amount of countries that have racked up enormous debts, such as China, but many of these countries cannot utilize these particular instruments to boost growth to Chinese levels via either government stimulated or central bank stimulated growth. What we're seeing here is that with the economic engine of growth that China has been for the world economy in the last 35 years is stalling at the present moment, due to the style of economic growth that China has been pursuing. For this long and sustained period of time, the export engine that is China has been working overtime to ensure that the world economy, which was led by the advanced economies of the United States, Japan and Western Europe, has been running smoothly. With this new piece of information about the Chinese manufacturing Purchasing Manager's Index (PMI) and the continued industrial slowdown that has dented world confidence in China's growth potentials, we are right to be worried about the future growth trajectories of the Chinese economy and the world economy.
Like China and various other economies, the debt in the United States has reached similar troubling levels as total debt has reached close to the 300% threshold, with the debt to GDP ratio at around 269%. While this number is reputed as tremendously higher than perhaps a more ideal debt to GDP ratio, the growth in the debt in the United States is slowing compared to various countries like China, where debt has grown more rapidly. This signals an improvement over the debt battles that have raged within the country's intellectual realms, but there needs to be work done on this to combat the unsustainable growth in the country's government debt.
From the McKinsey report, we can easily picture that the sustainable growth in debt is an extremely worrying trend for the world as a whole, especially in countries like in China, where the growth in debt risks putting the world's largest economy by PPP terms in grave danger. I believe that reports like this particular McKinsey report reveal a world that is needing a new path towards a new economic consensus on growth that is not entirely based on debt and on deficit financing.
Wednesday, January 28, 2015
Thoughts on this week's World Economic Forum in Davos
Like many around the world, I have been following this year's World Economic Forum in Davos, Switzerland. As I described in a previous blog post, lots of pressing issues are discussed among the leading policymakers from around the world. I mentioned the key points to this year's meeting and it includes many of the pressing issues that we as a world have to face today. Here is the link to the key moments that had happened during this year's World Economic Forum. From what I gather, this year is the year where a combination of low energy prices, terrorism, growing income inequality and a looming economic malaise surround the world at large. I believe the people at this particular conference talked about some of these pertinent issues and they have overall tackled some of the more pressing issues. These issues are very indeed alarming and I believe some of these issues can be tackled without the "action" that some of the conference attendees have come up with.
Thoughts on the key points of the yearly conference:
1. Reduce inequality, but to promote growth
The most pressing issue around the world is the growing inequality that has been prominent in world headlines and in numerous discussions between economists. As Thomas Piketty's book has reached its popularity around the world, numerous other economists and many politicians around the world has mentioned that this was a huge issue that needed to be tackled. There have been tremendous amounts of press coverage in the last couple of years towards this particular subject and the people at the forum have talked about various ways to tackle this pressing issue. Sustainable growth is something that the people at the forum have talked about as a possible resolution to the most critical issue presented at this particular conference. I believe that while it is possible to reduce inequality through promoting growth, it is also important to consider other possible solutions such as structural reform of key institutions and of how certain private institutions could function within the confines of society. It's interesting to note that while some solutions are offered, I believe there should be more radical solutions such as that posited by Piketty's Capital in the Twenty First Century than the more conservative ones mentioned at the forum.
Here are a couple of video links to certain conversations at the forum that concern this particular problematic issue and other related issues: The World Economic Outlook, IMF Director Christine Lagarde's Address, Issue Briefing: Income Inequality, BBC World Debate.
2. Europe's Quantitative Easing program
As announced in a previous post, the European Central Bank has announced a new massive quantitative easing program of over a trillion that will be pumped into the European economy. There has been a lot of discussion over this particular policy decision by the panel discussants at the forum, by top economists such as Robert J. Shiller, by the top bloggers and with some of my friends. As mentioned in a previous blog posts, there has been a tremendous controversy over this particular issue, with numerous speakers giving their particular opinion on the particular issue. Here's a list of quotes by key forum speakers and here's a video on the discussion of the effects of quantitative easing in the United States and beyond. Here are two contrasting opinion articles on the effects of quantitative easing, one from Professor Jeffrey Sachs and another from Stephen S. Roach. With this particular problem that has already been implemented by Mario Draghi, I believe it is important for them to promote these particular policies, even though there might be strong negative consequences that come from this round of quantitative easing, such as a combination of weak growth and of higher inflation that might come from this monetary policy, but we will have to wait and see.
3. Energy Prices
I think the recent drop in energy prices have been affecting everyone domestically here in the United States and globally around the world. Energy consumers have been given a break in the recent drop in petroleum prices, but energy producers have hit a wall. Countries such as Russia, Iran, Iraq, Venezuela and others will suffer tremendously in the coming years, which might contribute to significant political instability. I mentioned in an earlier blog post about Russia's internal and external problems, which I think will compound in the coming years. This will see a surge in Russia's more aggressive and nationalistic foreign policy. The oil producers will see significant domestic problems, which were already tremendous in volume, expand rapidly throughout the Middle East. We could see trouble in the coming years with this drop in oil prices because it cause an acute global recession.
Here's a video of an interesting panel discussion during the conference that concerned energy.
4. Market Volatility
The last important point that the people at the forum have made concerned with the issue of market volatility. The markets have been very volatile over the years since the Great Recession with the recent drop in energy prices and the global stock market rallies been at the forefront of discussion.
Here are a couple of discussions that deal with this pressing issue: Volatility as the New Normal, The New Growth Context.
Other Important Points:
1. China
A couple of key panel discussants talked about China at this year's conference, which included the Chinese Premier, Li Keqiang. As mentioned in a previous paragraph, he was one of the first to talk about the income inequality issue in an address to the Forum. China has tremendous challenges when it comes to its economy and its new role in the global economy, but I think it can be a tremendous benefit to the world to more fully incorporate a nation of China's size into the world economy. Here are two videos that address the issue of China in the world: Video of Premier Li Keqiang's Speech and China's Impact as a Global Investor.
2. Al Gore and Climate Change
There was a discussion by Al Gore and another discussion throughout the 4 day conference that concerned the topic of climate change. As many have watched Al Gore's documentary and other documentaries that have talked about the pressing issue of climate change, we can conclude that this is one of the more important topics talked among conference participants and conference followers. These two discussions presents the views of many that concerned this particular issue, with several others chiming in on the discussion. I think there are a tremendous number of economic issues that we will run into if we implement Al Gore's plan to combat climate change. I believe the biggest issue has to deal with the continued development of emerging economies and with the issue of lifting billions of individuals, while simultaneously counteracting this increase in carbon emissions and in pollution.
3. Conflict zones
There were a tremendous number of discussions that dealt with the increasing number of conflicts that have developed in the world, which include a variety of countries. This included actual military conflicts such as those in Syria, Ukraine and Iraq along with competing geopolitical games that larger powers are always conducting. The key discussion in this particular subject is that of the development of a new multi-polar world, which always had potentially dangerous consequences. This also leads us to the question of the viability of the democratic institutions, which has been the landmark of industrialized Western countries such as the United States. Is the end of history as describe by Francis Fukuyama not possible or is it a new chapter in history? We will have to wait and find out what unfolds in the coming years.
There were a lot of great panel discussions over the course of these 4 days in Davos. Despite the amount of content that was covered at this year's edition of the World Economic Forum, there are many economic (and political) issues that are still yet to be discussed. With the interesting economic and monetary situation unfolding in Europe and in Greece, we will have to wait and see what unravels.
Thoughts on the key points of the yearly conference:
1. Reduce inequality, but to promote growth
The most pressing issue around the world is the growing inequality that has been prominent in world headlines and in numerous discussions between economists. As Thomas Piketty's book has reached its popularity around the world, numerous other economists and many politicians around the world has mentioned that this was a huge issue that needed to be tackled. There have been tremendous amounts of press coverage in the last couple of years towards this particular subject and the people at the forum have talked about various ways to tackle this pressing issue. Sustainable growth is something that the people at the forum have talked about as a possible resolution to the most critical issue presented at this particular conference. I believe that while it is possible to reduce inequality through promoting growth, it is also important to consider other possible solutions such as structural reform of key institutions and of how certain private institutions could function within the confines of society. It's interesting to note that while some solutions are offered, I believe there should be more radical solutions such as that posited by Piketty's Capital in the Twenty First Century than the more conservative ones mentioned at the forum.
Here are a couple of video links to certain conversations at the forum that concern this particular problematic issue and other related issues: The World Economic Outlook, IMF Director Christine Lagarde's Address, Issue Briefing: Income Inequality, BBC World Debate.
2. Europe's Quantitative Easing program
As announced in a previous post, the European Central Bank has announced a new massive quantitative easing program of over a trillion that will be pumped into the European economy. There has been a lot of discussion over this particular policy decision by the panel discussants at the forum, by top economists such as Robert J. Shiller, by the top bloggers and with some of my friends. As mentioned in a previous blog posts, there has been a tremendous controversy over this particular issue, with numerous speakers giving their particular opinion on the particular issue. Here's a list of quotes by key forum speakers and here's a video on the discussion of the effects of quantitative easing in the United States and beyond. Here are two contrasting opinion articles on the effects of quantitative easing, one from Professor Jeffrey Sachs and another from Stephen S. Roach. With this particular problem that has already been implemented by Mario Draghi, I believe it is important for them to promote these particular policies, even though there might be strong negative consequences that come from this round of quantitative easing, such as a combination of weak growth and of higher inflation that might come from this monetary policy, but we will have to wait and see.
3. Energy Prices
I think the recent drop in energy prices have been affecting everyone domestically here in the United States and globally around the world. Energy consumers have been given a break in the recent drop in petroleum prices, but energy producers have hit a wall. Countries such as Russia, Iran, Iraq, Venezuela and others will suffer tremendously in the coming years, which might contribute to significant political instability. I mentioned in an earlier blog post about Russia's internal and external problems, which I think will compound in the coming years. This will see a surge in Russia's more aggressive and nationalistic foreign policy. The oil producers will see significant domestic problems, which were already tremendous in volume, expand rapidly throughout the Middle East. We could see trouble in the coming years with this drop in oil prices because it cause an acute global recession.
Here's a video of an interesting panel discussion during the conference that concerned energy.
4. Market Volatility
The last important point that the people at the forum have made concerned with the issue of market volatility. The markets have been very volatile over the years since the Great Recession with the recent drop in energy prices and the global stock market rallies been at the forefront of discussion.
Here are a couple of discussions that deal with this pressing issue: Volatility as the New Normal, The New Growth Context.
Other Important Points:
1. China
A couple of key panel discussants talked about China at this year's conference, which included the Chinese Premier, Li Keqiang. As mentioned in a previous paragraph, he was one of the first to talk about the income inequality issue in an address to the Forum. China has tremendous challenges when it comes to its economy and its new role in the global economy, but I think it can be a tremendous benefit to the world to more fully incorporate a nation of China's size into the world economy. Here are two videos that address the issue of China in the world: Video of Premier Li Keqiang's Speech and China's Impact as a Global Investor.
2. Al Gore and Climate Change
There was a discussion by Al Gore and another discussion throughout the 4 day conference that concerned the topic of climate change. As many have watched Al Gore's documentary and other documentaries that have talked about the pressing issue of climate change, we can conclude that this is one of the more important topics talked among conference participants and conference followers. These two discussions presents the views of many that concerned this particular issue, with several others chiming in on the discussion. I think there are a tremendous number of economic issues that we will run into if we implement Al Gore's plan to combat climate change. I believe the biggest issue has to deal with the continued development of emerging economies and with the issue of lifting billions of individuals, while simultaneously counteracting this increase in carbon emissions and in pollution.
3. Conflict zones
There were a tremendous number of discussions that dealt with the increasing number of conflicts that have developed in the world, which include a variety of countries. This included actual military conflicts such as those in Syria, Ukraine and Iraq along with competing geopolitical games that larger powers are always conducting. The key discussion in this particular subject is that of the development of a new multi-polar world, which always had potentially dangerous consequences. This also leads us to the question of the viability of the democratic institutions, which has been the landmark of industrialized Western countries such as the United States. Is the end of history as describe by Francis Fukuyama not possible or is it a new chapter in history? We will have to wait and find out what unfolds in the coming years.
There were a lot of great panel discussions over the course of these 4 days in Davos. Despite the amount of content that was covered at this year's edition of the World Economic Forum, there are many economic (and political) issues that are still yet to be discussed. With the interesting economic and monetary situation unfolding in Europe and in Greece, we will have to wait and see what unravels.
Wednesday, January 21, 2015
Interesting article on the Chinese money supply and first day of the annual Davos World Economic Forum
I was just scrolling through the several blogs that I read every single day, which include the Marginal Revolution. I have found a very interesting article on the Chinese money supply that Tyler Cowen had posted as a blog earlier in the wee mornings on the first day of the annual World Economic Forum in Davos. The article was quite striking for two reasons:
1. The first reason was the point about the Chinese M2 money supply being 70% higher than the "rather tight" US money supply despite the much "smaller" size of the real Chinese economy versus the US economy. This is particularly interesting as it just shows how the much maligned Federal Reserve is actually more fiscally tight and conservative than their much more activist Chinese Central Bank counterparts. From what I gather, this might also be a false indicator of what the actual GDP growth in China is.
2. This is where my second reason for writing this thought bubble that I had about reading this particular blog that Tyler had written. From the Financial Times article that Tyler had posted in this blog entry, written by Derek Scissors from the American Enterprise Institute, we can conjecture that the Chinese economy will face an extremely rocky road in the coming years. It's a pretty cool article to check out, especially with his particularly interesting views. The Chinese economy might be in trouble in the short term, but I think it might still go pretty smoothly in the longer term.
It is also the first day of the annual Davos World Economic Forum! For those who are not familiar: The Davos meeting is the annual gathering of some of the world's most powerful economic elites, where they gather to discuss some of the pressing challenges that our world faces. It has been around for 40 something years and here are two articles that are worth reading about the contents of the meeting.
2012 New Yorker article
2015 The Guardian Opinion article
Interesting topics that these powerful people will discuss over the course of the meeting include increasing political instability, global income inequality, climate change, oil and their most pressing topic: financial instability! As many of us know about the rocky world economy and they will be discussing the financial instability that the world is currently/going to face in the coming years. The videos on the earlier World Economic Forum link that I had posted will hopefully interest those that might be interested in the World Economic Forum!
It's been a while since I've posted a blog entry, mainly because of other more urgent tasks that I had to handle this week. I will be posting lots of entries the next couple of days, as it is the exciting week of the World Economic Forum! I will be watching/following the events that unfold in the lovely Swiss resort city of Davos, Switzerland, but also I will be posting another blog post on thoughts about a rather marginal economic theory that I think has some relevance in the current economic turmoil.
1. The first reason was the point about the Chinese M2 money supply being 70% higher than the "rather tight" US money supply despite the much "smaller" size of the real Chinese economy versus the US economy. This is particularly interesting as it just shows how the much maligned Federal Reserve is actually more fiscally tight and conservative than their much more activist Chinese Central Bank counterparts. From what I gather, this might also be a false indicator of what the actual GDP growth in China is.
2. This is where my second reason for writing this thought bubble that I had about reading this particular blog that Tyler had written. From the Financial Times article that Tyler had posted in this blog entry, written by Derek Scissors from the American Enterprise Institute, we can conjecture that the Chinese economy will face an extremely rocky road in the coming years. It's a pretty cool article to check out, especially with his particularly interesting views. The Chinese economy might be in trouble in the short term, but I think it might still go pretty smoothly in the longer term.
It is also the first day of the annual Davos World Economic Forum! For those who are not familiar: The Davos meeting is the annual gathering of some of the world's most powerful economic elites, where they gather to discuss some of the pressing challenges that our world faces. It has been around for 40 something years and here are two articles that are worth reading about the contents of the meeting.
2012 New Yorker article
2015 The Guardian Opinion article
Interesting topics that these powerful people will discuss over the course of the meeting include increasing political instability, global income inequality, climate change, oil and their most pressing topic: financial instability! As many of us know about the rocky world economy and they will be discussing the financial instability that the world is currently/going to face in the coming years. The videos on the earlier World Economic Forum link that I had posted will hopefully interest those that might be interested in the World Economic Forum!
It's been a while since I've posted a blog entry, mainly because of other more urgent tasks that I had to handle this week. I will be posting lots of entries the next couple of days, as it is the exciting week of the World Economic Forum! I will be watching/following the events that unfold in the lovely Swiss resort city of Davos, Switzerland, but also I will be posting another blog post on thoughts about a rather marginal economic theory that I think has some relevance in the current economic turmoil.
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.
Sunday, December 21, 2014
Thoughts on the economic benefits of renewed US-Cuba relations
As everyone is reading the morning paper or the news the last week, one of the most tense diplomatic relations in the history of the United States has finally been resolved. The United States has announced that they are moving to normalize relations with the island nation of Cuba after over 53 years after the implementation of diplomatic severance and economic embargo. This means that trade relations will be repaired between the two nations, which will help to reshape the Cuban economy. The Cuban economy has already been reshaped in the previous years by certain reforms implemented with varying results of success. There are certain activities that need to dealt with in more depth, such as good reform policies, smooth monetary conversion and reform of social institutions. Through the diplomatic restart and the economic benefits it will create, I believe these changes will create enormous economic benefits, despite the qualms that Senator Marco Rubio and others have towards the decision.
It is quite understandable that many, like Senator Rubio, would have problems with the current administration's policy towards the normalization of trade relations with Cuba, but the potential economic benefits are too enormous to ignore. A recent series of papers published by the Brookings Institution talked about the particular challenges in Cuba's shift away from a Stalinist-style central planned economy to a market socialist economy much like the one we see in mainland China or Vietnam. These six papers talk about the current conditions and the changes that are possible in the coming years to make this transformation happen. I think the articles are very informative of the particular situation, both long term and short term, that Cuba will face in the upcoming decade. Organized by the Brooking Institution's Latin American Initiative and the University of Havana's Center for the Study of the Cuban Economy, the six parts talk about important issues that concern this massive leap forward for the Cuban economy. There are several important points that I derived after quick glances at each other of the papers and I have listed them in the subsequent paragraphs.
1. Introduction and Overview - In this introductory section, Richard Feinberg summarized the six papers and provided the readers with the key points of the papers. These points are as follows:
2. Policies for Economic Growth: Cuba's New Era - This paper comes out with some particularly interesting ideas about policy ideas that Cuba could possibly implement in the coming decade. The paper focuses mostly on the structure of the Cuban economy and brings up interesting policy recommendations for the Cuban economy. Overall, I think Dr. Cordovi and Dr. Perez bring up interesting points on the need for both macroeconomic re-adjustment of planning policies, coupled with certain challenges in "microeconomic bottlenecks". I think it's special great that the two economists contend it's necessary for there to be an open discussion among economic decision-makers and policy theorists in Cuba.
3. Economic Transformation and Institutional Change in Cuba - Antonio Romero organizes this article into four main sections, which include the current economic transformation and possible steps to achieve maintain the economic change will clearly be implemented smoothly. By protecting these non-state economic enterprises with appropriate social enterprises and with clear established economic and administration decentralization, Dr. Romero makes great points in developing Cuba's economic transformation.
4. Institutional Changes of Cuba's Economic Social Reforms - Carmelo Mesa-Lago clearly articulates that there could be negative consequences to the institutional changes that Cuba has undergone, along with the many obvious positive consequences. While the institutional reforms have managed to develop the early beginnings of key economic institutions that are similar to those that are seen in the market socialist economies of China and Vietnam, there could be more enormous downside during the restructuring process. Dr. Mesa-Lago makes an important point about certain elements of the Cuban regime that might want to prevent the reforms from taking smoothly, especially in their deeply entrenched economic interests. He makes a good point in stating that these reforms should preferably happen under the current political leadership of Raul Castro, just in case the next leader decides to abort the process.
5. Economic Growth and Restructuring Through Trade and FDI - Costa Rican Experiences of Interest to Cuba - Alberto Trejos puts forward a solid case for the the applicability of the economic plan due to similarities between pre-reform Costa Rica and the current situation in Cuba. I think there are some merits to his argument, but it might not be the most feasible solution due to the enormous differences in political and social institutions between the two countries.
6. Monetary Reform in Cuba Leading Up to 2016 - Between Gradualism and the the "Big Bang" - Pavel Vidal Alejandro and Omar Everleny Perez Villanueva compare and contrast the two approaches to monetary reform in Cuba. Cuba currently has a dual-currency regime, between the Cuban Peso and the Convertible Cuban Peso, ever since its implementation in 1994. This has created enormous tensions between sections of the Cuban population due to the creation of a two-tier class system and the Cuban authorities see this as a key step to their economic reforms towards a market socialist system. I believe that a gradual monetary reform will benefit Cuba, but it cannot be put off for too long.
7. Exchange Rate Unification: The Cuban Case - Augusto de la Torre and Alain Ize talk about Cuba's drive to unify the currency system, which was a topic explored in the fifth paper of this paper series. They talk about the possible ways to unify the Cuban currency, along with certain methods in keeping each of the particular Cuban industries in mind. The most interesting aspect of this paper was the three particular choices they had in implementing the new exchange rate unification regime, which regrettably
Overall, I find this particular paper series by the Brookings Institution an enlightening and thoughtful read. It is evident that Cuba's road towards becoming an economic success story will be long and hard, but there are obvious benefits to the Cuban people. The ideas that are provided in these articles might not be implemented, but they showcase the beginning of an economy that will move from relative autarky to integration with the global economic system.
There are naysayers like Senator Marco Rubio, who has berated the resumption of diplomatic activities as a concession towards the dictatorial Cuban communist regime. Despite the obvious concerns that Mr. Rubio has brought attention to, there are other possible complications that might interfere at the speed of which the current developments are coming into fruition. A New York Times article, written by Neil Irwin, describes the possible complications that could come from America's renewed economic relationship with Cuba. The article brings up the thoughts of a recently published book written by Gary Hufbauer and Barbara Kotschwar, which would interest those that are concerned about the process of American economic normalization with Cuba. Gary Hufbauer, who formerly worked in the Nixon Administration during its normalization process with the People's Republic of China, talked about how it was of utmost importance that Cuba moves along with critical reforms. It is highlighted that they want it to be done correctly according to what they think would be beneficial for Cuba. It's highly unlikely that they would be able to implement such changes, but integrating Cuba into the global economic benefits would bring enormous benefits for the general Cuban population. If they could taste the outside world, then their situation could perhaps improve immensely.
By reviewing the information that I have gathered here, it should be evident that the benefits that United States could gain from the restoration of economic relations with the Cuba outweigh the detriments of such decisions. I believe that these changes will have a profound impact on the Cuban population in improving the economic well-being of the average Cuban, which will enable the average Cuban to be a lot freer than before. It will also open the door to American businesses in sectors like agriculture and it could prove to be a boon for established American companies, not just cigar importers.
It is quite understandable that many, like Senator Rubio, would have problems with the current administration's policy towards the normalization of trade relations with Cuba, but the potential economic benefits are too enormous to ignore. A recent series of papers published by the Brookings Institution talked about the particular challenges in Cuba's shift away from a Stalinist-style central planned economy to a market socialist economy much like the one we see in mainland China or Vietnam. These six papers talk about the current conditions and the changes that are possible in the coming years to make this transformation happen. I think the articles are very informative of the particular situation, both long term and short term, that Cuba will face in the upcoming decade. Organized by the Brooking Institution's Latin American Initiative and the University of Havana's Center for the Study of the Cuban Economy, the six parts talk about important issues that concern this massive leap forward for the Cuban economy. There are several important points that I derived after quick glances at each other of the papers and I have listed them in the subsequent paragraphs.
1. Introduction and Overview - In this introductory section, Richard Feinberg summarized the six papers and provided the readers with the key points of the papers. These points are as follows:
- Cuba's new growth model vs the old growth model
- Building New economic institutions to sustain necessary market reforms
- The State and the Market -> How current political institutions interact with the newly created market economy
- Comparative Experiences in Asia and Latin America -> How Cuba compares to similar reform processes and utilizes Costa Rica as a comparison.
- Tough Choices: Monetary Reforms and Exchange Rate Regimes -> Ideas and Reforming Cuba's dual-currency regime
3. Economic Transformation and Institutional Change in Cuba - Antonio Romero organizes this article into four main sections, which include the current economic transformation and possible steps to achieve maintain the economic change will clearly be implemented smoothly. By protecting these non-state economic enterprises with appropriate social enterprises and with clear established economic and administration decentralization, Dr. Romero makes great points in developing Cuba's economic transformation.
4. Institutional Changes of Cuba's Economic Social Reforms - Carmelo Mesa-Lago clearly articulates that there could be negative consequences to the institutional changes that Cuba has undergone, along with the many obvious positive consequences. While the institutional reforms have managed to develop the early beginnings of key economic institutions that are similar to those that are seen in the market socialist economies of China and Vietnam, there could be more enormous downside during the restructuring process. Dr. Mesa-Lago makes an important point about certain elements of the Cuban regime that might want to prevent the reforms from taking smoothly, especially in their deeply entrenched economic interests. He makes a good point in stating that these reforms should preferably happen under the current political leadership of Raul Castro, just in case the next leader decides to abort the process.
5. Economic Growth and Restructuring Through Trade and FDI - Costa Rican Experiences of Interest to Cuba - Alberto Trejos puts forward a solid case for the the applicability of the economic plan due to similarities between pre-reform Costa Rica and the current situation in Cuba. I think there are some merits to his argument, but it might not be the most feasible solution due to the enormous differences in political and social institutions between the two countries.
6. Monetary Reform in Cuba Leading Up to 2016 - Between Gradualism and the the "Big Bang" - Pavel Vidal Alejandro and Omar Everleny Perez Villanueva compare and contrast the two approaches to monetary reform in Cuba. Cuba currently has a dual-currency regime, between the Cuban Peso and the Convertible Cuban Peso, ever since its implementation in 1994. This has created enormous tensions between sections of the Cuban population due to the creation of a two-tier class system and the Cuban authorities see this as a key step to their economic reforms towards a market socialist system. I believe that a gradual monetary reform will benefit Cuba, but it cannot be put off for too long.
7. Exchange Rate Unification: The Cuban Case - Augusto de la Torre and Alain Ize talk about Cuba's drive to unify the currency system, which was a topic explored in the fifth paper of this paper series. They talk about the possible ways to unify the Cuban currency, along with certain methods in keeping each of the particular Cuban industries in mind. The most interesting aspect of this paper was the three particular choices they had in implementing the new exchange rate unification regime, which regrettably
Overall, I find this particular paper series by the Brookings Institution an enlightening and thoughtful read. It is evident that Cuba's road towards becoming an economic success story will be long and hard, but there are obvious benefits to the Cuban people. The ideas that are provided in these articles might not be implemented, but they showcase the beginning of an economy that will move from relative autarky to integration with the global economic system.
There are naysayers like Senator Marco Rubio, who has berated the resumption of diplomatic activities as a concession towards the dictatorial Cuban communist regime. Despite the obvious concerns that Mr. Rubio has brought attention to, there are other possible complications that might interfere at the speed of which the current developments are coming into fruition. A New York Times article, written by Neil Irwin, describes the possible complications that could come from America's renewed economic relationship with Cuba. The article brings up the thoughts of a recently published book written by Gary Hufbauer and Barbara Kotschwar, which would interest those that are concerned about the process of American economic normalization with Cuba. Gary Hufbauer, who formerly worked in the Nixon Administration during its normalization process with the People's Republic of China, talked about how it was of utmost importance that Cuba moves along with critical reforms. It is highlighted that they want it to be done correctly according to what they think would be beneficial for Cuba. It's highly unlikely that they would be able to implement such changes, but integrating Cuba into the global economic benefits would bring enormous benefits for the general Cuban population. If they could taste the outside world, then their situation could perhaps improve immensely.
By reviewing the information that I have gathered here, it should be evident that the benefits that United States could gain from the restoration of economic relations with the Cuba outweigh the detriments of such decisions. I believe that these changes will have a profound impact on the Cuban population in improving the economic well-being of the average Cuban, which will enable the average Cuban to be a lot freer than before. It will also open the door to American businesses in sectors like agriculture and it could prove to be a boon for established American companies, not just cigar importers.
Friday, October 31, 2014
Swiss Referendum on Gold and its wider macro ramifications
An interesting development is coming out of Switzerland, home of pretty mountains and secretive banking. 100,000 Swiss voters have signed a referendum calling for the government to maintain what many call a "partial gold standard". This move requires the Switzerland National Bank to hold 20% of its monetary reserves in the shiny gold bullion. This is big news to anyone following money and government monetary policies, since the gold standard has been used many years in the past. The world financial system has not been actively connected to gold since a couple of years after the Nixon Shock with references to gold removed by a 1976 government decree.
There are several reasons why this referendum is also big news:
1. The recent huge surge in gold reserve purchases by Russia, by India and by China
2. Long term of gold and other currencies that challenge the supremacy of the US dollar as the future reserve currency
The question is if Russia and China are buying up a lot of gold, what are their central banks going to do? Are they diversifying away from using the dollar as a fiat backer of their reserves or are they trying to establish a partial gold standard? There has been speculation for years that the Chinese government working in tandem with the Chinese Central bank has been planning for a Gold-Backed Yuan. Alan Greenspan, who is no stranger to central banking and monetary policy, said recently in an Foreign Affairs article published last month seemed to hint at China's resurgent gold reserve policies that were of huge importance to that of the United States. What's interesting is that Alan Greenspan has come out recently and mentioned that he's worried about the future of monetary policy, but also that gold should be a "good place to put your money these days given its value as a currency outside of the policies conducted by the governments. These statements don't surprise any of us that have been following Alan Greenspan. This goes back to his earlier associations with Ayn Rand and her Objectivist collective that he had participated in, with him penning Gold and Economic Freedom in Ayn Rand's book, Capitalism, the Unknown Ideal. He must think of the massive quantitative easing that the Federal Reserve has undertaken and the impending currency crisis that the Federal Reserve will eventually face.
Where does this lead us to with the Swiss referendum? If the policies on the referendum pass the voters, it would have to go through the many cantons within the Swiss Confederation. If this vote can pass, it would have huge ramifications on the gold markets, the financial markets and the world fiat currency system. If countries that are much larger in scope and in size, like China or Russia, also adopted similar currency laws for their Central Bank, it would create enormous demand for gold, driving up gold prices, while decreasing worldwide demand for the current reserve, which is the US dollar. This vote could have significant macroeconomic ramifications for the world.
There are several reasons why this referendum is also big news:
1. The recent huge surge in gold reserve purchases by Russia, by India and by China
2. Long term of gold and other currencies that challenge the supremacy of the US dollar as the future reserve currency
The question is if Russia and China are buying up a lot of gold, what are their central banks going to do? Are they diversifying away from using the dollar as a fiat backer of their reserves or are they trying to establish a partial gold standard? There has been speculation for years that the Chinese government working in tandem with the Chinese Central bank has been planning for a Gold-Backed Yuan. Alan Greenspan, who is no stranger to central banking and monetary policy, said recently in an Foreign Affairs article published last month seemed to hint at China's resurgent gold reserve policies that were of huge importance to that of the United States. What's interesting is that Alan Greenspan has come out recently and mentioned that he's worried about the future of monetary policy, but also that gold should be a "good place to put your money these days given its value as a currency outside of the policies conducted by the governments. These statements don't surprise any of us that have been following Alan Greenspan. This goes back to his earlier associations with Ayn Rand and her Objectivist collective that he had participated in, with him penning Gold and Economic Freedom in Ayn Rand's book, Capitalism, the Unknown Ideal. He must think of the massive quantitative easing that the Federal Reserve has undertaken and the impending currency crisis that the Federal Reserve will eventually face.
Where does this lead us to with the Swiss referendum? If the policies on the referendum pass the voters, it would have to go through the many cantons within the Swiss Confederation. If this vote can pass, it would have huge ramifications on the gold markets, the financial markets and the world fiat currency system. If countries that are much larger in scope and in size, like China or Russia, also adopted similar currency laws for their Central Bank, it would create enormous demand for gold, driving up gold prices, while decreasing worldwide demand for the current reserve, which is the US dollar. This vote could have significant macroeconomic ramifications for the world.
Friday, October 10, 2014
Aging Demographics and Possible Solutions
As I was rummaging through the many articles today, I stumbled upon a particularly interesting article in the Economist. The article deals with changing demographics and creating employment challenges. I think this is more and more relevant as time goes on, especially when it comes to changing labor demographics, especially in OECD countries such as the United States.
An interesting chart to compare the differences in demographics between the United State, China and Japan: here
What this chart does not illustrate is that Japan has already aged versus the United States! While China's economy is growing robustly now, the Chinese economy will not go much further with its current growth models without fundamental changes to the structure and to the health of its economy. When shifts in change of demographics happens, it will turn many of American entitlement programs that are taxpayer funded into even bigger behemoths of debt than before! Altering such programs seem impossible currently with the deadlock in Congress...
There are real solutions to this problem, which include policies that might upset populist or nativist groups such as lax border policies and immigration. What these people need to remember is that some of them came here "illegally" on Ellis Island! Here are some possible tips that can be used to fix the current debt problems and generating potential growth opportunities in the economy:
1. Promote MORE Immigration (Both Skilled and Unskilled) to fix the demographics program.
2. Promote Math and Science in schools as a fundamental way to promote new innovation and growth.
3. Robust ALMPs (Active labor market policies) in placing people into high-tech, new-growth industries.
4. Cutting Corporate Taxes.
While these certain policies will not generate the much needed revenue the federal government needs in order to sustain these life-saving programs for many, I think it is necessary for these policies to be effectively implemented to change the structure of the US economy in congruence with the aforementioned changing demographics. The specifics of these particular policies might differ in how they could be implemented, but I believe they could be very effective in targeting specific problems.
An interesting chart to compare the differences in demographics between the United State, China and Japan: here
There are real solutions to this problem, which include policies that might upset populist or nativist groups such as lax border policies and immigration. What these people need to remember is that some of them came here "illegally" on Ellis Island! Here are some possible tips that can be used to fix the current debt problems and generating potential growth opportunities in the economy:
1. Promote MORE Immigration (Both Skilled and Unskilled) to fix the demographics program.
2. Promote Math and Science in schools as a fundamental way to promote new innovation and growth.
3. Robust ALMPs (Active labor market policies) in placing people into high-tech, new-growth industries.
4. Cutting Corporate Taxes.
While these certain policies will not generate the much needed revenue the federal government needs in order to sustain these life-saving programs for many, I think it is necessary for these policies to be effectively implemented to change the structure of the US economy in congruence with the aforementioned changing demographics. The specifics of these particular policies might differ in how they could be implemented, but I believe they could be very effective in targeting specific problems.
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