tag:blogger.com,1999:blog-91297053321347957822024-03-14T01:49:58.958+11:00Thoughtful OpinionsThinking is more important than knowingAnonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-9129705332134795782.post-55770059937637175522013-03-16T19:43:00.003+11:002013-03-16T19:43:57.573+11:00Japan, Yet Another Interesting Case<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<a href="http://noahpinionblog.blogspot.com.au/2013/03/how-is-abenomics-doing.html"><span style="font-family: Calibri;">A recent post by Noah Smith</span></a><span style="font-family: Calibri;"> about the recent economic policies and performance of Japan showed some interesting statistics, especially on the existence of deflation despite large depreciation of the Japanese Yen. <o:p></o:p></span></div>
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<span style="font-family: Calibri;">The depreciation of the Yen to USD is shown on Noah Smith’s post (courtesy to Noah Smith):<o:p></o:p></span></div>
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<a href="http://1.bp.blogspot.com/-fJz3MrpcuBg/UUQsdnbF2CI/AAAAAAAAADg/cbaXmH_8cZU/s1600/Depreciation+JP.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="265" psa="true" src="http://1.bp.blogspot.com/-fJz3MrpcuBg/UUQsdnbF2CI/AAAAAAAAADg/cbaXmH_8cZU/s400/Depreciation+JP.bmp" width="400" /></a></div>
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<span style="font-family: Calibri;">In addition to that, the trade weighted index of the Japanese Yen has also fallen drastically show means that Yen have also depreciated sharply against other currencies (</span><a href="http://en.unciatrends.com/japanese-yen-trade-weighted-index/"><span style="font-family: Calibri;">Source: unciatrends.com</span></a><span style="font-family: Calibri;">):</span></div>
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<a href="http://4.bp.blogspot.com/-6jcVlfHoPT4/UUQsyS7djOI/AAAAAAAAADo/lkhL9Q-ukdc/s1600/TWI+JP.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="206" psa="true" src="http://4.bp.blogspot.com/-6jcVlfHoPT4/UUQsyS7djOI/AAAAAAAAADo/lkhL9Q-ukdc/s400/TWI+JP.bmp" width="400" /></a></div>
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<span style="font-family: Calibri;"><o:p><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
Although a depreciation of currency leading to price raises in imported goods is not the only cause of inflation. Generally, an open economy will face inflationary pressures when there is depreciation of currency. Such as that we can see in Australia’s case:<o:p></o:p></div>
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Inflation Rate, Australia (Source: <a href="http://www.tradingeconomics.com/australia/inflation-cpi">tradingeconomics.com</a>):<o:p></o:p></div>
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<a href="http://3.bp.blogspot.com/-lh3AAMsya40/UUQtKMymSMI/AAAAAAAAADw/klF35TzJJlY/s1600/INFR+AUS.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="168" psa="true" src="http://3.bp.blogspot.com/-lh3AAMsya40/UUQtKMymSMI/AAAAAAAAADw/klF35TzJJlY/s400/INFR+AUS.bmp" width="400" /></a></div>
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Trade Weighted Index, Australia (Source: <a href="http://fxtrade.oanda.com/analysis/economic-indicators/australia/indices/trade-weighted-index">fxtrade.oanda.com</a>)</div>
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<a href="http://1.bp.blogspot.com/-TbVDAtHcx_s/UUQtWvO_sRI/AAAAAAAAAD4/6rG7UFLpO6g/s1600/TWI+AU.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="252" psa="true" src="http://1.bp.blogspot.com/-TbVDAtHcx_s/UUQtWvO_sRI/AAAAAAAAAD4/6rG7UFLpO6g/s400/TWI+AU.bmp" width="400" /></a></div>
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<o:p><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
Notice the spike of inflation rate from 2000 – 2001 and mid-late 2008 during the GFC? The data range from 2000 – 2001 needs to be read with care as during that period, a 10% Goods and Services Tax is implemented which by itself puts inflationary pressure on the economy. However, the inflation rate spike in mid-late 2008 to 2009 is mainly due to the depreciation of the Australian Dollar. The effect of the depreciation on the price of import can be found by looking at the Import Price Index (Source:<span style="mso-spacerun: yes;"> </span><a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6457.0"><span style="color: purple;">abs.gov.au</span></a>):<o:p></o:p></div>
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<a href="http://www.blogger.com/null" name="1624233512149948"></a><b><span style="color: black; font-family: 'Times New Roman','serif'; font-size: 12pt; line-height: 115%; mso-ansi-language: EN-AU; mso-bidi-language: AR-SA; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-AU;">IMPORT PRICE INDEX: all groups, </span></b><span style="color: black; font-family: 'Times New Roman','serif'; font-size: 12pt; line-height: 115%; mso-ansi-language: EN-AU; mso-bidi-language: AR-SA; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-AU;">Quarterly % change</span></div>
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<a href="http://2.bp.blogspot.com/-HSKUaLZVKvU/UUQt0CsvsSI/AAAAAAAAAEA/knBD57iqAcA/s1600/IPI+AU.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" psa="true" src="http://2.bp.blogspot.com/-HSKUaLZVKvU/UUQt0CsvsSI/AAAAAAAAAEA/knBD57iqAcA/s320/IPI+AU.bmp" width="254" /></a></div>
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<span style="font-family: Calibri;">The Import of Goods and Services as a % of GDP averaged at 15% for Japan for the period 2008 - 2011, while the average is 21% for Australia during the same period (Source: </span><a href="http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS"><span style="color: purple; font-family: Calibri;">World Bank</span></a><span style="font-family: Calibri;">). While Japan’s import of goods and service as a % of GDP fluctuates more and is relatively lower as a proportion of GDP; the magnitude of the depreciation for the Yen should nevertheless put some inflationary pressure on the Japanese economy. As the import price index has also risen in Japan (Source: </span><a href="http://www.tradingeconomics.com/japan/import-prices"><span style="font-family: Calibri;">tradingeconomics.com</span></a><span style="font-family: Calibri;">):</span></div>
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<a href="http://4.bp.blogspot.com/-JYRhw36d3sg/UUQuEdV-cEI/AAAAAAAAAEI/NNml-yAU3XM/s1600/IPI+JP.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="166" psa="true" src="http://4.bp.blogspot.com/-JYRhw36d3sg/UUQuEdV-cEI/AAAAAAAAAEI/NNml-yAU3XM/s400/IPI+JP.bmp" width="400" /></a></div>
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<span style="font-family: Calibri;"><o:p><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="mso-spacerun: yes;"> </span>However Japan faced a deflation form June 2012 to January 2013 (Source: <a href="http://www.tradingeconomics.com/japan/inflation-cpi">tradingeconomics.com</a>):</div>
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The few possible reasons that could cause this are:<o:p></o:p></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">1.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">The deflationary pressure was so large that it shadowed the inflationary pressure from the depreciation of the Yen (the price of domestic goods and services fallen sharply which shadowed the price rise of imported goods and services); and/or;<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">2.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Import of goods and services are not counted in the CPI of Japan; and/or;</span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">3.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">The rise in the price of import has not yet affected the price of domestic goods and services (statistical lag); and/or;<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">4.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">The price of domestic goods and services are relatively unaffected by the price rise in import.<o:p></o:p></span></div>
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There can be a combination of the above listed reasons and I'm unsure about the second possible reason. With regarding to the fourth possible reason, here are the major imports of goods and services for both Australia and Japan (Note: I was unable to obtain detailed statistics of major imports of Japan and the source is wiki answers, so there could be mistakes and I’d greatly appreciate if anyone can provide links to Japan’s import in detail statistics):<o:p></o:p></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><a href="http://www.dfat.gov.au/publications/tgs/FY2011_goods_services_%20top_25_imports.pdf"><span style="color: purple;">Australia’s Major Imports 2008-2011</span></a> (Source: dfat.gov.au)<o:p></o:p></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><a href="http://wiki.answers.com/Q/Major_import_and_export_products_of_japan"><span style="color: purple;">Japan’s Major Imports</span></a> (Source: wiki.answers.com)<o:p></o:p></div>
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While the import of goods and services vary between the two countries, it is unlikely Japan’s import will have little or no impact on domestic goods and service. If the answer is the third reason (although there can be many other unlisted reasons), the data over the next few months should show an increase in inflation rate. I’ll keep an eye on Japan’s data over the next few months and it could be another interesting case to look at if there is still no visible rise on the inflation rate of Japan over the next few months.</div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-42536278789302353972013-03-03T18:48:00.001+11:002013-03-03T18:49:04.938+11:00A Seminar on "The Priority of Democracy" at Crooked Timber<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<a href="http://crookedtimber.org/"><span style="color: purple; font-family: Calibri;">Crooked Timber blog</span></a><span style="font-family: Calibri;"> has an interesting </span><a href="http://crookedtimber.org/2013/02/11/27491/"><span style="color: purple; font-family: Calibri;">seminar on a recent book “<i style="mso-bidi-font-style: normal;">The Priority of Democracy</i>”</span></a><span style="font-family: Calibri;">, which is written by Jack Knight and James Johnson. I would highly recommend anyone who is interested in political economy and/or political science to read the book review. The book is reviewed by the following academics:<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Chris Ansell</b> – professor of political science at University of California, Berkeley<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Peter Boettke </b>– professor of philosophy and economics at George Mason University<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Henry Farrell </b>– associate professor of political science and international affairs at George Washington University<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Ingrid Robeyns </b>– professor in practical philosophy at Erasmus University Rotterdam<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Cosma Shalizi </b>– associate professor of statistics at Carnegie Mellon University<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Melissa Schwartzberg </b>– associate professor and political theorist at Columbia University<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Adrian Vermeule </b>– professor at Harvard Law School<o:p></o:p></span></div>
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<span style="font-family: Calibri;">In the following list are the reviews and comments of the above academics on the book:<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Chris Ansell</b> – <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/11/the-political-consequences-of-learning/"><span style="color: purple;">“The Political Consequences of Learning”</span></a></i><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Melissa Schwartzberg </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/12/democratic-legitimacy-and-democracys-priority/"><span style="color: purple;">“Democratic Legitimacy and Democracy’s Priority”</span></a></i><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Henry Farrell </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/13/some-microfoundations-for-pragmatist-democracy/"><span style="color: purple;">“Some Microfoundations for Pragmatist Democracy”</span></a><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></i></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Ingrid Robeyns </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/14/can-ideal-political-theory-be-valuable-for-a-pragmatist/"><span style="color: purple;">“Can Ideal Political Theory Be Valuable For a Pragmatist?”</span></a><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></i></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Peter Boettke </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/15/institutional-problems-demand-institutional-solutions/"><span style="color: purple;">“Institutional Problems Demand Institutional Solutions”</span></a><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></i></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Cosma Shalizi </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/16/dissent-is-the-health-of-the-democratic-state/"><span style="color: purple;">“Dissent Is the Health of the Democratic State”</span></a><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></i></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;"><b style="mso-bidi-font-weight: normal;">Adrian Vermeule </b>– <i style="mso-bidi-font-style: normal;"><a href="http://crookedtimber.org/2013/02/19/two-risks-for-second-order-democracy/"><span style="color: purple;">“Two Risks for Second-Order Democracy”</span></a><b style="mso-bidi-font-weight: normal;"><o:p></o:p></b></i></span></div>
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<a href="http://crookedtimber.org/2013/02/20/defending-the-priority-of-democracy/"><span style="color: purple; font-family: Calibri;">Jack Knight and James Johnson have posted their defence on Crooked Timber as guests</span></a><span style="font-family: Calibri;">.<o:p></o:p></span></div>
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<span style="font-family: Calibri;">I’ll update the post if there are any further review posts, comments or conversations on Crooked Timber about <i style="mso-bidi-font-style: normal;">“The Priority of Democracy”</i>.</span></div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-53735694698660210122013-02-09T22:41:00.002+11:002013-02-09T22:41:49.887+11:00Economic forecast for 2013<div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;">Before we start, I will not take any responsibility for any investment decision made on this post, if you are an investor, you will have to rethink how you make your investment decisions if you base your decisions on a blog post.<o:p></o:p></span></b></div>
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<span style="font-family: Calibri;">Since a lot of people have the impression that </span><a href="http://www.smh.com.au/opinion/politics/when-a-guess-is-as-good-as-a-forecast-20130108-2cep8.html"><span style="color: purple; font-family: Calibri;">economists’ prediction are only as good as throwing a dart to a dartboard</span></a><span style="font-family: Calibri;">, I guess I’ll try to keep track of how well my economic prediction goes based on the economic theory I use, which is Post Keynesian theory. <o:p></o:p></span></div>
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<span style="font-family: Calibri;">My predictions are also based on certain assumptions:<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">1.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">US and the EU will not implement any significant stimulus program during the 2013 calendar year.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">2.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">The Australian Government will continue with its self-destructive austerity and mindless pursuit for budget surplus regardless which party will be elected during this calendar year.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-list: Ignore;"><span style="font-family: Calibri;">3.</span><span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">There will not be a significant depreciation of the Australian Dollar during the year (it will remain at above $1 USD).<o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;">Movements in the labour market:<o:p></o:p></span></b></div>
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<span style="font-family: Calibri;">The starting data is the </span><a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6202.0Main+Features1Jan%202013?OpenDocument"><span style="color: purple; font-family: Calibri;">January figures for the labour force</span></a><span style="font-family: Calibri;">.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Participation rate dropped 0.1% from 65.1% to 65% in the period of December 2012 to January 2013; this is likely to fall further.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Full time employment dropped 9,800 to 8,098,400 since December 2012; this is likely to remain constant or fall further slightly.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Part time employment increased by 20,200 to 3,450,700 since December 2012; this is likely to increase due to the movement from full time position to part time, casual positions and new entrants of the labour market.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Unemployment rate remained constant 5.4% from December 2012 to January 2013; however this is due to more people giving up looking for work (decrease of participation rate) and this figure is likely to increase by the end of this year.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Aggregate monthly hours worked decreased by 3.9 million hours to 1,619.7 million hours. This is what you would expect if there is a movement from full time employment to part time employment, and/or loss of work hours in part time employment. The figure is likely to fall further during the year.<o:p></o:p></span></div>
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<b style="mso-bidi-font-weight: normal;"><span style="font-family: Calibri;">Movements in other economic indicators:<o:p></o:p></span></b></div>
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<span style="font-family: Calibri;">The starting data is the </span><a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5206.0Main+Features1Sep%202012?OpenDocument"><span style="color: purple; font-family: Calibri;">September 2012 national accounts</span></a><span style="font-family: Calibri;"> as the December data is not yet available at the time of writing (hence September 2013 is the national account I will use for ending data):<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">GDP growth from September 2011 to September 2012 is 3.1%; this is likely to be further weakened. Note this is below the required rate of growth for stabilisation of the labour market.<span style="mso-spacerun: yes;"> </span>For more comprehensive statistical analysis, visit this </span><a href="http://bilbo.economicoutlook.net/blog/?p=21949"><span style="color: purple; font-family: Calibri;">blog post by Bill Mitchell</span></a><span style="font-family: Calibri;">.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Inflation rate from </span><a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6401.0Main+Features1Dec%202012?OpenDocument"><span style="color: purple; font-family: Calibri;">December 2011 to December 2012 is 2.2%</span></a><span style="font-family: Calibri;">; this is within the lower range of the 2% to 3% range of the RBA. This is likely to be the case for this calendar year.<o:p></o:p></span></div>
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<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt 'Times New Roman';"> </span></span></span><span style="font-family: Calibri;">Interest rate was cut to 3% at the beginning of December 2012; there are several factors involved in decisions made by the RBA, which I will discuss in later posts. I expect the interest rate to be cut below 3% by the end of the year due to weak economic outlook (and the government is making it worse with austerity!), however it is unlikely the interest rate will be cut to below 2.5%.<o:p></o:p></span></div>
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<span style="font-family: Calibri;">Overall, the prediction for 2013 represents an economy that will grow at <b style="mso-bidi-font-weight: normal;">below</b> the growth rate required for the labour market to stabilise. I will update this post when the September 2013 data comes out for GDP growth and December 2013 data for other indicators to see if I can beat a random dart.<o:p></o:p></span></div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-39238659557795404872013-01-19T15:23:00.000+11:002013-01-19T15:23:08.638+11:00"A few thoughts on depression" by Noah Smith<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="font-family: Calibri;">
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Note: depression in Noah Smith’s post refers to psychology depression not economics.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">I feel like sharing this <a href="http://noahpinionblog.blogspot.com.au/2013/01/a-few-thoughts-on-depression.html"><span style="color: purple;">post by Noah Smith</span></a> about his experience in depression. Readers might know that there is no definitive treatment for depression and it may relapse even if you got through it. Noah Smith also mentioned:<o:p></o:p></span></div>
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<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: #222222;"><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="color: black;">“</span><span style="color: #222222;">Obviously, everyone's experience of depression is different, so I don't intend these thoughts to be a universal guide or general theory.”<o:p></o:p></span></span></i></div>
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</span></span></i><i style="mso-bidi-font-style: normal;"><span style="color: #222222; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><o:p> </o:p></span></i></span></span><div class="MsoNormal" style="margin: 0cm 0cm 10pt;">
<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">However if you know somebody who has depression, Noah Smith's post may help as a guide.</span></div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-47060960908895115962013-01-18T23:29:00.002+11:002013-01-18T23:29:59.938+11:00Lerner's Functional Finance Part II<!--[if gte mso 9]><xml>
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Continuing on from my <a href="http://thoughtfulop.blogspot.com.au/2013/01/normal-0-false-false-false-en-au-x-none_2174.html">previous
post</a> about Lerner’s Functional Finance, we now look at the effects of
government expenditure.</div>
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This equation can be used to determine the changes in gross
public debt to GDP ratio:</div>
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<b style="mso-bidi-font-weight: normal;">Source</b>: Hart, N
2011, ‘Macroeconomic Policy and Abba Lerner’s System of Functional Finance’, <i style="mso-bidi-font-style: normal;">Economic Papers</i>, vol. 30, no. 2, pp. 210.</div>
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From the equation, an increase in G will increase Y, by the
amount of increase in G multiplied by the fiscal multiplier for the planned
policy. This will then lead to an increase in T, thus the Gt – Tt (the budget
deficit) is not increased by 1 X <span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">∆G but ∆G - ∆</span>Tt<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">, where:</span></div>
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<br /></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">∆G = change in government expenditure as a result of the fiscal
stimulus</span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">∆</span>Tt =<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"> change in tax receipt as a result of the fiscal stimulus</span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">As mentioned in this post and the </span><a href="http://thoughtfulop.blogspot.com.au/2013/01/normal-0-false-false-false-en-au-x-none_2174.html"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">previous
post</span></a><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">, the fiscal multiplier is very important in determining the
effectiveness of government spending and this fiscal multiplier depends on a
lot of factors such as the design of the stimulus (the spending components
involved), the structure of the economy, and consumer and business sentiments.
In US and Australia, where infrastructures lags behind a lot of countries such
as South Korea, Japan and China, spending on infrastructures have a very large
multiplier. </span><a href="http://noahpinionblog.blogspot.com.au/2013/01/why-multiplier-doesnt-matter.html"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">From this
post by Noah Smith</span></a><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">, it showed a table from a </span><a href="http://www.nber.org/papers/w16311.pdf"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">NBER working paper</span></a><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"> by Alan Auerbach and Yuriy <span style="color: #222222;">Gorodnichenko
estimating the effect of government expenditure on consumption and investment
for the US:</span></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The important thing to take note here is that although investment
spending has a larger multiplier than consumption spending, it has less
immediate effects on the economy. Thus if the government wishes to stabilise
the economy (stabilising the lost in income due to increase in unemployment)
immediately when the economy faces a downturn, consumption spending works
better but it does not necessarily “pay for itself”[1] in the long run, while
investment spending (such as building roads, railways, investing in education,
health) provides longer term benefits such as productivity gains, reducing
unemployment in the longer run, and it is very likely to “pay for itself”.</span></div>
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<br /></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Consumption spending also has one other very important effect
which investment spending lacks; this effect is the stabilising of consumer and
business sentiments in a downturn. The earlier and quicker the stimulus is
enacted when an economy faces downturn, the less consumer and business
sentiment falls, as demand for goods and unemployment is stabilised (even if
it’s for a short term). This will reduce the output gap and making it less
“expensive”[2] for the government to stabilise the economy with stimulus
spending. If a stimulus in a recession lacks short term stabilising effects
and/or took too long to implement, not only the output gap will be larger (thus
needing a larger stimulus), but it will have significant social cost (cost of
unemployment to households) and business investment will also take longer to
recover if decision makers in businesses are uncertain about future economic
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">While the fiscal multiplier is important, its size should never be
the main determinant of whether a government is to implement a fiscal stimulus
or not. The most important determinant should always be whether if the economy
is in full employment. If President Obama does not want to use the</span><span lang="EN-US" style="mso-ansi-language: EN-US;"> 14th Amendment and the </span><a href="http://economistsview.typepad.com/economistsview/2013/01/treasury-we-wont-mint-a-platinum-coin.html"><span lang="EN-US" style="mso-ansi-language: EN-US;">$1 trillion dollar platinum coin
option is out</span></a><span lang="EN-US" style="mso-ansi-language: EN-US;">,
there needs to be a plan which the US government will need to enact to avoid further
austerity (<a href="http://economistsview.typepad.com/economistsview/2012/05/government-spending-sometimes-things-are-not-what-we-think-they-are.html">when it is in fact, the austerity currently enacted by the government that is dragging down the economy</a>) and implement stimulus. At the moment, the US government is failing
miserably to provide prosperity to its population despite the GFC, when employment to population ratio have no yet recovered to pre-crisis level for more than four years from the crisis.</span></div>
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<a href="http://research.stlouisfed.org/fred2/series/LNU02376940?cid=32445"><span lang="EN-US" style="mso-ansi-language: EN-US;">Employment to population ratio, with
no disability, age 16 to 64, men (Source: St. Louis Fed)</span></a><span lang="EN-US" style="mso-ansi-language: EN-US;">:</span></div>
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<a href="http://research.stlouisfed.org/fred2/series/LNU02376945?cid=32445"><span lang="EN-US" style="mso-ansi-language: EN-US;">Employment to population ratio, with
no disability, age 16 to 64, women (Source: St. Louis Fed)</span></a><span lang="EN-US" style="mso-ansi-language: EN-US;">:</span></div>
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<span>Footnote:</span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">[1] “Pay for itself” refers to a situation when an increase in
nominal public debt led to a reduction in public debt as a % of GDP. There are
examples of raw statistic correlation in the </span><a href="http://thoughtfulop.blogspot.com.au/2013/01/normal-0-false-false-false-en-au-x-none_2174.html"><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">previous
post</span></a><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">.</span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">[2] “Expensive” only in a sense that if the government decides not
to print national currency to finance its spending. Neil Hart argues in his
paper (cited above) that the significance of the ability to print national
currency changes the whole debate of the “debt crisis” (if this actually exists
outside the European Monetary Union and other countries which do not have its
own national currency). In specific:</span></div>
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<b style="mso-bidi-font-weight: normal;">Source</b>: Hart, N
2011, ‘Macroeconomic Policy and Abba Lerner’s System of Functional Finance’, <i style="mso-bidi-font-style: normal;">Economic Papers</i>, vol. 30, no. 2, pp.
211.</div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-1731153758956595052013-01-12T15:55:00.004+11:002013-01-18T23:30:23.910+11:00Lerner's Functional Finance Part I<div class="separator" style="clear: both; text-align: center;">
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%;">Abba P. Lerner’s Functional Finance is an economic theory based on the assumption that government spending will have an effect on the economy in terms of increase demand and thus output (GDP). This theory is used by many Keynesians which suggests that effective deficit spending by the government will finance itself through the economy generating higher income and thus higher tax revenues.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%;">This is what it implies if we first look at it from a simplistic level, suppose this is what the economy looks like in the previous year:</span></div>
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<a href="http://4.bp.blogspot.com/-6aef7g24mZs/UPDit2LH84I/AAAAAAAAAAs/pw0JKkOzOP4/s1600/60%25.bmp" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-6aef7g24mZs/UPDit2LH84I/AAAAAAAAAAs/pw0JKkOzOP4/s1600/60%25.bmp" /></a><br />
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Government debt to GDP ratio = 60%</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Where: </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Dgt = stock of government debt at time t</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Yt = GDP of the economy at time t</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">If during the government decides to boost GDP by increasing government spending (assume the budget is a balanced budget in time t-1), which resulted in:</span></div>
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<a href="http://4.bp.blogspot.com/-2PH_TFbJVtw/UPDjBWQzmUI/AAAAAAAAAA0/iiTkkbqYy8s/s1600/66%2525.bmp" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="http://4.bp.blogspot.com/-2PH_TFbJVtw/UPDjBWQzmUI/AAAAAAAAAA0/iiTkkbqYy8s/s1600/66%2525.bmp" /></a> </div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Government debt to GDP ratio = 60%</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%;">So in the above example, if the fiscal multiplier is at least 1.67, where every 1 dollar spent by the government will boost GDP growth by at least 1.67 dollars, government spending will not lead to an increase in government debt to GDP ratio. In the </span><a href="http://www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf"><span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">most recent IMF paper by Olivier Blanchard and Daniel Leigh</span></a><span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">, it had recognised its mistakes in previous published paper suggesting a fiscal multiplier of 0.5, but it mentioned on page 6:</span></div>
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<i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">“</span></i><i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman","serif"; font-size: 12pt;">Figure 1 illustrates this result using a scatter plot. A natural interpretation of this finding is that multipliers implicit in the forecasts were, on average, too low by about 1”</span></i></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt;">So the natural interpretation of figure 1 means that the fiscal multiplier is around 1.5, at least for the period after the GFC. While the IMF did not suggest an actual figure for the fiscal multiplier in the paper, it concluded (page 6):</span></div>
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<i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">“</span></i><i style="mso-bidi-font-style: normal;"><span style="font-family: "Times New Roman","serif"; font-size: 12pt;">We conclude that multipliers were substantially above 1 in the early years of the crisis”</span></i></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">While in other parts of the paper, it has also mentioned fiscal multiplier calculated by other economists, such as </span><span style="font-family: "Times New Roman","serif"; font-size: 12pt;">Christiano, Eichenbaum, and Rebelo (2011) suggested fiscal multiplier can exceed 3 using the DSGE model when the economy reaches zero or lower bound; Hall (2009) suggests a fiscal multiplier of 1.7 in zero or lower bound; and </span><span style="font-family: "TimesNewRomanPSMT","serif"; font-size: 12pt; mso-bidi-font-family: TimesNewRomanPSMT;">Auerbach and Gorodnichenko (2012b) suggests a fiscal multiplier of 2.5 during recession based on US data.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">In the above example I have provided, it is important to note that other sectors of the economy are not included. Hence if the contribution to GDP by other sectors of the economy is added, we may be able to see a constant or dropping government debt to GDP ratio, even if the fiscal multiplier is lower than 1.67. Also the smaller the initial government debt to GDP ratio, the larger the fiscal multiplier needs to be in order for the ratio not to rise. For example:</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; line-height: 115%;">The fiscal multiplier has to be at least 2 in order for the ratio not to rise if other sectors contributions to GDP are excluded.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Historically, the US and Australia have had periods where Lerner’s Function Finance concept seems to apply.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt;">If we look at gross federal debt as a percentage of GDP column and gross federal debt held by the public column, we can see that for from 1958 – 1970, 1972 – 1975 are the periods which most obviously shows an increase in public debt (budget deficit) accompanied with a decrease in gross public debt to GDP ratio. We should also look at the period from 1970 – 1982 where the nominal value of public debt tripled but the debt ratio dropped from 37.6% to 35.2%.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">As mentioned above, the important point for economists to analyse is how much was contributed to GDP from the increase in governement spending. I was however unable to obtain the contribution to GDP data for the US going back that far. Other than the importance of contribution to GDP data, how effective did the US government in attempting to achieve full employment?</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Source: <a href="http://www.tradingeconomics.com/united-states/unemployment-rate">http://www.tradingeconomics.com/united-states/unemployment-rate</a></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">This does not look very successful (at least in comparison to Australia), however what would the data be like if the US government did not run budget deficit cannot be determined. </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">I was able to obtain the gross public debt in nominal national currency from the Australian Treasury (I want to criticise the Australia Bureau of Statistics for not having the data prior 1970s, or if they did, it was extremely difficult to find).</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt;">1963 - Australia moved to decimal currency </span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">1983 onwards - Commonwealth Government Securities are being issued.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Source: <a href="http://archive.treasury.gov.au/documents/1496/PDF/01_Debt.pdf">http://archive.treasury.gov.au/documents/1496/PDF/01_Debt.pdf</a></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">In Australia’s case, it was quite obvious the period from 1948 – 1956 where public debt to GDP ratio was significantly lower despite consistent budget deficit. Australia was also more successful in achieving and maintaining full employment than the US:</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">Source: <a href="http://archive.treasury.gov.au/documents/110/PDF/round3.pdf">http://archive.treasury.gov.au/documents/110/PDF/round3.pdf</a></span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">As mentioned above, what would the data look like if the budget stance was different cannot be determined. However, Keynesian theory would suggest a higher unemployment level unless production capacity of the economy is fully utilised.</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">The structure of the economy changed significantly over time compared the 1940s – 1970s, for example, manufacturing industry’s contribution to GDP was around 20-25% of GDP in 1960s but have now dropped to 10.5% by 2005 in; and the decline in competition of the market in Australia (as evident by the increase in profit share as a % of GDP).</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">From <a href="http://bilbo.economicoutlook.net/blog/?p=11911">Bill Mitchell’s Blog</a>:</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt;">These changes in the structure of the economy have impacts on the fiscal multiplier. However from the above empirical evidence, Lerner’s Functional Finance concept may well be valid, that government spending will finance itself. With national governments around the world abandoning full employment as their national goal </span><span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">(indeed, they are creating unemployment through austerity) </span><span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">in attempt to achieve a budget surplus and failing because of automatic stabilisers; it is important to think carefully about the aim of budget surplus other than political popularity. If its aim is to lower or maintain the public debt as a % of GDP ratio, Lerner’s Functional Finance may be able to provide an alternative to fiscal austerity while maintaining full employment [1].</span></div>
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<span style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-theme-font: minor-fareast;">[1] – The ability of national governments to print national currency have not been discussed in this post, but it may well work depending on how underutilised is the economy’s production capacity, for example, <a href="http://krugman.blogs.nytimes.com/2013/01/08/rage-against-the-coin/">the trillion dollar platinum coin</a>.</span></div>
Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-60538798302314946752013-01-10T21:46:00.002+11:002013-01-16T17:54:59.669+11:00What is right or wrong and what is "common sense" (Update)<strong>Update</strong>: Having misunderstood the meaning of "cognitivism" and "non-cognitivism" as they only apply to semantics, there is one part of the post I'll need to rewrite. I apologise for the mistake if it misled anyone who have read it. The update is in bold.<br />
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How do people know or judge what is right or wrong and what is “common sense”? There are some things which, attributing right or wrong are relatively easy, for example, a person explaining something with appropriate and proven scientific theory. But in the real world, things are sometimes far more complicated than that specific example, people tend to overuse the word "common sense" and apply what they think is right or wrong in complicated situations too often.<o:p></o:p><br />
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To get an idea of complicated situations, consider this.<o:p></o:p><br />
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Imagine an overseas student from Asian background did something troublesome and was caught by a teacher grown up in Australia. The teacher might want the student to look them in the eye when the teacher explains to the student what the student did wrong, in some cases, the teacher might even want acknowledgement from the student. However due to difference in the culture where the student is grown up, the student might choose to not look at the teacher in the eye and falls to silence as an act to acknowledge his/her mistake.<o:p></o:p><br />
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If we understand the cultural values of both parties in this situation, we can understand it as that the teacher wants the student to listen to him/her when talking, and acknowledge the mistake the student has made. While the student paid respect to the teacher and knows he/she made a mistake. However due to the difference in the expectation and if both parties did not know what certain action meant for people from a different cultural background, some miscommunication might occur. Such as that the teacher might think the student is not listening to him/her because the student is not looking at the teacher in the eye when he/she is talking etc.<br />
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In the above example, if in the event that a miscommunication occurred, it is difficult, if one is to judge which party is right or which party is wrong. People observe and learn from their experience, these experiences and the cultural values in the environment they live in construct the people’s thinking and expectation, and this may be called “common sense”. The problem is that, if one relies on “common sense” too much, the chances of miscommunication and misunderstanding when interacting with people from different cultures increases.<o:p></o:p><br />
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<strike>Meta-ethics studies divides into the judgement of right or wrong into cognitivism and non-cognitivism. If we are to judge the right or wrong in the above example, non-cognitivism applies. This means that there is no true or false whether if we think any particular party in the above example is right or wrong. We may be simply expressing our feeling and emotion towards the situation from our past live experience that constructs our thinking. Cognitivism suggests the judgement of right or wrong to be about a matter of fact, e.g. science. Unfortunately, people make judgements about right or wrong on non-cognitivism basis rather than cognitivism basis too often.</strike><br />
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<strong>Meta-ethics studies, as according to Richard Garner and Bernard Rosen, suggests that one of the three meta-ethics problem is "How may moral judgments be supported or defended?"; in other words, how do we know our judgements on moral issues are right or wrong? This suggests that there is no definitive true or false when people make judgements about right or wrong on moral issues (such as the above situation)<span dir="auto">. This view suggests that, if we are to judge which party in the above situation to be right or wrong, we may be simply expressing our feelings and emotions towards the situation. This judgement, will be based on our views on past life experiences that will construct our thinking, and that the judgement itself also cannot be verified or falsified. It is problematic if we include morality in our "common sense" and make judgements on complicated moral issues when it is not verifiable knowledge (e.g. science which can be verified or falsified by evidence) because then, it is easy to create conflict and miscommunication with people from different culture even when none of the parties can be right or wrong.</span></strong><br />
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<span dir="auto"></span>That being said, can we ever expect a certain degree of “common sense” that applies to people from different culture? The answer is, yes, we can. Even if one is to take the extremes, say country A consist of tribal population with very limited knowledge in science, technology and medicine and country B with advanced knowledge in science, technology and medicine. Despite a lot of major differences in the live experience, a lot of similarity also applies, such as killing people with malicious intent are unlawful, care for the young, sick and disabled and respect for the elderly etc. Hence, there can be some common expectation and values which may apply to any person regardless of their difference. The interesting question to think about is why, despite such differences in lifestyle, experience and cultural values that some degree of similarity applies?<o:p></o:p><br />
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With the world becoming more and more interconnected and multiculturalism bringing people from all over the world together. Although it is difficult, and sometimes people simply forget, but we can reduce our miscommunication and conflicts; get to know people from other cultures; and we may learn valuable things from them if we can try to lower our expectations, think and try to understand our differences and respect each other.Anonymoushttp://www.blogger.com/profile/17151897430983342313noreply@blogger.com0tag:blogger.com,1999:blog-9129705332134795782.post-29605077559605577102013-01-08T23:13:00.000+11:002013-01-08T23:14:32.421+11:00Welcome to Thoughtful Opinions<div class="MsoNormal" style="line-height: normal; margin: 0cm 0cm 10pt;">
<span style="color: #333333; font-family: 'Arial','sans-serif'; font-size: 10pt; mso-fareast-font-family: 'Times New Roman'; mso-fareast-language: EN-AU;">Welcome to Thoughtful Opinion, the purpose of this blog is to discuss and provoke thinking on a wide range of topics and issues such as economics, politics, psychology and other issues. Below are the discussion policies:<br /><br />1. Coarse language, racists, discriminatory and sexist comments are prohibited.<br /><br />2. No personal attacks on me or other commentators will be allowed. The commenting section is provided for the purpose of civilised and thoughtful discussions to the topics and issues discussed and raised in the main post.<br /><br />3. Do not feed trolls<br /><br />4. Discussions in the commenting section should be related to the talk point in the main post.<br /><br />5. Links which leads to peer reviewed academic papers, statistics or other sources which aids the discussion are much welcomed. </span></div>
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