Sunday, December 27, 2009
Tuesday, November 10, 2009
Tobin tax disturbs the purchasing power parity condition!
British prime minister Gordon Brown is proposing to put such a notorious economic policy into practice. This economic policy is "Tobin tax" which is levied on trade of currency across borders. This aim is to avoid an excess flow of international financial transactions which have caused the current financial crisis. He seems to be highly sceptical about liberal international system as he suspects the liberalised system has a high risk to encourage a bubble burst of financial market. However, Tobin tax also involves the high risk of disturbing the purchasing power parity (PPP) condition.
Tuesday, July 21, 2009
British Conservative party knows the monetary policy is effective and claims a more proactive and responsible central bank!
Tory's manifest about the central bank's policy reform is good and wise. The central bank should hold more power over financial market and become more proactive toward the economic situation!
Majority of economists Labour party tend to underestimate the power of monetary policy. The labour party has allowed Bank of England, the British central bank, to be independent from the political body since 1997 in order to imitate the style of European Central Bank. This means that Bank of England puts its own policies into practice regardless of the fiscal policy operated by the government. The advantage of this reform in 1997 is that the central bank can be pragmatic to operate their monetary policy. This implies that the policy is no longer disturbed by the idealistic policies claimed by the political party which always proposes the non-pragmatic policy only attracts mass. However, the disadvantage of the reform in 1997 is that the monetary policy operated by a central bank is dis-harmonised with the fiscal policy operated by a government. Labourite monetary policy is just extremely irresponsible, and causes the dis-harmony between fiscal and monetary policy units!
The failure of British Labour party is that this party has underestimated the significance of monetary policy and the responsibility of Bank of England for the financial market situation. The current financial crises are caused by the lack of responsibility of the central bank. Labour only considers the financial market stability is dependent on the fiscal policy (tax and national debt). Labour has rarely focused on the microeconomic level of financial market. The fiscal policy can control the volume of activities in the macroeconomic level. But, the important role of financial market is to analyse how the cash flows and to lead the flow of cash does not cause the trigger of financial crises. The monetary policy in the labour regime has not been able to restrict the monetary transaction taken place by Private financial institutes whose business performances are quite questionable and unstable.
The labour only considers to restrict the unstable monetary transaction by imposing extra regulations and taxes, but this causes the restriction of our glorious free market system! The financial market is already the most regulated market in all over the world. The reason why the financial market can cause such crises currently going in the world is that it is more likely to be expanded much faster than other sorts of markets. Furthermore, the financial market is quite flexible to manipulate the tax and regulation system so that a new tax and a new regulation are less effective on the financial market and discard the equity and the individual liberty in the market system.
The best way to avoid the bad cash flows without discarding equity and the individual liberty is to allow the central bank to hold the power to decide which financial institutes and private companies are eligible to lend money. The currently going financial crises are based on the failure to invest the money to the stable and responsible institutes. Bank of England does not have a greater power to decide to invest to the institutes.
Labour, the British totalitarian party, only tries to use the big government policy to censor the financial activities and even nationalise private sectors! This allows Labour to make Britain as a totalitarian nation!
In contrast, Tory (British Conservative party), the classical liberalist party, claims the best way is to avoid imposing the excess censorship in the economic activities in order to defend equity and the individual liberty. If Bank of England is enabled to act independently and hold much stronger power, it will be able to stabilise British macroeconomic circumstances without imposing the excess censorship and the nationalisation. It is important to remember that Federal Reserve Bank, the US central bank, is in fact a private financial institute (not officially a public sector). As Federal Reserve Bank act in a role of private business, it concerns about the risk and return of investment to the market. Tory wants Bank of England to act almost like Federal Reserve Bank. Although Bank of England will not be privatised, it should act very cautiously as much as private banks do. Bank of England has invested any British financial institutions without considering risk and return from the investment too loosely. Bank of England might have thought that investing and stimulating the economic activity of any sectors encourages the British economic growth, which fulfils the national interest. Nonetheless, Bank of England ought to remember the proverb "Be cruel to be kind". Bank of England should learn from the private banks which are quite selective to invest to the others. Banks' priority is to make a sufficient amount of profit from the investment and avoid the risk of investment as much as possible. Bank of England has been too ignorant about this philosophy of investment as it has been a public sector since the after the WW2. The central bank should not be the socialist bank, it should also have a strong capitalist mind!
All in all, Tory knows that monetary policy has much higher responsiveness to the macroeconomic situation than Labour. Indeed this is a damn good move that Tory offers a more sovereign power to the monetary policy unit. It shall enable the macroeconomic climate to be more stabilised without a totalitarian government's censorship, unlike the labourite fiscal policy.
Majority of economists Labour party tend to underestimate the power of monetary policy. The labour party has allowed Bank of England, the British central bank, to be independent from the political body since 1997 in order to imitate the style of European Central Bank. This means that Bank of England puts its own policies into practice regardless of the fiscal policy operated by the government. The advantage of this reform in 1997 is that the central bank can be pragmatic to operate their monetary policy. This implies that the policy is no longer disturbed by the idealistic policies claimed by the political party which always proposes the non-pragmatic policy only attracts mass. However, the disadvantage of the reform in 1997 is that the monetary policy operated by a central bank is dis-harmonised with the fiscal policy operated by a government. Labourite monetary policy is just extremely irresponsible, and causes the dis-harmony between fiscal and monetary policy units!
The failure of British Labour party is that this party has underestimated the significance of monetary policy and the responsibility of Bank of England for the financial market situation. The current financial crises are caused by the lack of responsibility of the central bank. Labour only considers the financial market stability is dependent on the fiscal policy (tax and national debt). Labour has rarely focused on the microeconomic level of financial market. The fiscal policy can control the volume of activities in the macroeconomic level. But, the important role of financial market is to analyse how the cash flows and to lead the flow of cash does not cause the trigger of financial crises. The monetary policy in the labour regime has not been able to restrict the monetary transaction taken place by Private financial institutes whose business performances are quite questionable and unstable.
The labour only considers to restrict the unstable monetary transaction by imposing extra regulations and taxes, but this causes the restriction of our glorious free market system! The financial market is already the most regulated market in all over the world. The reason why the financial market can cause such crises currently going in the world is that it is more likely to be expanded much faster than other sorts of markets. Furthermore, the financial market is quite flexible to manipulate the tax and regulation system so that a new tax and a new regulation are less effective on the financial market and discard the equity and the individual liberty in the market system.
The best way to avoid the bad cash flows without discarding equity and the individual liberty is to allow the central bank to hold the power to decide which financial institutes and private companies are eligible to lend money. The currently going financial crises are based on the failure to invest the money to the stable and responsible institutes. Bank of England does not have a greater power to decide to invest to the institutes.
Labour, the British totalitarian party, only tries to use the big government policy to censor the financial activities and even nationalise private sectors! This allows Labour to make Britain as a totalitarian nation!
In contrast, Tory (British Conservative party), the classical liberalist party, claims the best way is to avoid imposing the excess censorship in the economic activities in order to defend equity and the individual liberty. If Bank of England is enabled to act independently and hold much stronger power, it will be able to stabilise British macroeconomic circumstances without imposing the excess censorship and the nationalisation. It is important to remember that Federal Reserve Bank, the US central bank, is in fact a private financial institute (not officially a public sector). As Federal Reserve Bank act in a role of private business, it concerns about the risk and return of investment to the market. Tory wants Bank of England to act almost like Federal Reserve Bank. Although Bank of England will not be privatised, it should act very cautiously as much as private banks do. Bank of England has invested any British financial institutions without considering risk and return from the investment too loosely. Bank of England might have thought that investing and stimulating the economic activity of any sectors encourages the British economic growth, which fulfils the national interest. Nonetheless, Bank of England ought to remember the proverb "Be cruel to be kind". Bank of England should learn from the private banks which are quite selective to invest to the others. Banks' priority is to make a sufficient amount of profit from the investment and avoid the risk of investment as much as possible. Bank of England has been too ignorant about this philosophy of investment as it has been a public sector since the after the WW2. The central bank should not be the socialist bank, it should also have a strong capitalist mind!
All in all, Tory knows that monetary policy has much higher responsiveness to the macroeconomic situation than Labour. Indeed this is a damn good move that Tory offers a more sovereign power to the monetary policy unit. It shall enable the macroeconomic climate to be more stabilised without a totalitarian government's censorship, unlike the labourite fiscal policy.
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