THERE IS NO SUCH A THING LIKE SOCIETY!!
We'd definitely better say "community" or "institution" if you want to mention the macro environment where a cohort of individuals gathers into.
Human-being is social itself. There is no such a superstitious thing called society! Therefore, human-beings are social each other, so any institute such as a state or a corporation does not need to concern about the empty meaningless superstition called society!
If any instiute enforces individuals to be social by following their vision of sociality, it fails into the oppressive totalitarian serfdom which transforms majority of individual human-beings to beasts!
Only the best alternative policy is to leave individuals and their family alone to allow them naturally social themselves. All in all, the sociability of individuals is not a business of any institute and community!
Oh, I must note that I despise Burkean philosophy so much!
Burke said the tradition is a fundamental guidance of how human-beings should live. I know Burkean theory remains some freedom and liberty, but the idea of common sense guided by tradition is a burden on progress and liberty.
Although human-beings are social, but not capable to define what is a true natural law. Aristotle did not much mention about the tradition although Aristotle is a natural law theorist. Aristotle mentioned the natural law is invisible and difficult to define. Even some academic commentators claimed that although Aristotle said virture is a significant factor of human-beings he has never indicated virture as a moral objective.
By contrast, Burke seemed to insist that virture is an objective and derived from the tradition. But, using tradition as a moral guide line is a dangerous idea. As Bentham said the moral guide line should exist for the future not the past. Tradition, i.e. the past experience, might have been functional in the past, but never 100% significantly functional in the future. This guide line is not able to the existence level and the future optimum level of the pleasure and the pain for individuals. We are able to regress some past data sets and experiences to construct our future plan, but there is always an error in them! The errors derived from psychological senses and indoctrinating moral entreneurs should be omitted by civil action and people's party!
All in all, I declair to say that I am strongly against the statement "Society is the only true state of nature, and reason is to be conducted within tradition". Only the thing whose reason is to be conducted within tradition is a mal-functional guidance of miss-used moral entrepreneurship. It is waste of time to define society as there is no such a thing like society: There are only individuals and their family...!
Wednesday, December 15, 2010
Tackling on criminal acts with the utilitarian philosophy
In terms of my consequentialist point of view, the legislation system should have provided the incentive which prevents individuals to commit a crime serious act. If there is a criminal act, there is often a derivative branch of the mischief of a criminal act. There is a raison d'etre of a criminal act. In order to decline the number and the quality of criminal acts, the priority is to tackle on the "cause" of crime.
We certainly need a negative sanction (i.e. punishment!!) which is measured owing to the equivalent pain to the pain a victim suffers from. "Mouth to mouth and teath to teach" method sounds uncivil but is certainly necessary and works for preventing some criminal acts. Some severe crimes tend not to decrease by this method according to the statitstics. But the system still need to remain this method in order to equate the pleasure and the pain of both sides. In order to decrease these severe crimes, which are not significantly correlated with the level of punishment, we need to tackle on the "derivative branch" of the mischief of these acts!
Some criminal acts need to be legal or decriminalised such as usage of some recreational drungs (in philosophy of law, it's called some categories of self-intoxication), ganbling, doing and buying prostitution because these acts bring pleasure and are possible to prevent the pain derived from these act by installing a proper legislation. Or, we need to provide individuals the "substitutions" of these goods and services like what Islamic society does.
The severe criminal acts such as murdering, hatred, conspiracy, and organised crime, need a severe punishment by either a public institution or individuals themselves. But, in order to reduce the cost and the derivative branch of the hatred, we need to tackle on the derivative branch of the mischief of the criminal acts...!
We certainly need a negative sanction (i.e. punishment!!) which is measured owing to the equivalent pain to the pain a victim suffers from. "Mouth to mouth and teath to teach" method sounds uncivil but is certainly necessary and works for preventing some criminal acts. Some severe crimes tend not to decrease by this method according to the statitstics. But the system still need to remain this method in order to equate the pleasure and the pain of both sides. In order to decrease these severe crimes, which are not significantly correlated with the level of punishment, we need to tackle on the "derivative branch" of the mischief of these acts!
Some criminal acts need to be legal or decriminalised such as usage of some recreational drungs (in philosophy of law, it's called some categories of self-intoxication), ganbling, doing and buying prostitution because these acts bring pleasure and are possible to prevent the pain derived from these act by installing a proper legislation. Or, we need to provide individuals the "substitutions" of these goods and services like what Islamic society does.
The severe criminal acts such as murdering, hatred, conspiracy, and organised crime, need a severe punishment by either a public institution or individuals themselves. But, in order to reduce the cost and the derivative branch of the hatred, we need to tackle on the derivative branch of the mischief of the criminal acts...!
Friday, November 19, 2010
Britain, outside the Eurozone, should not lend money to Ireland
Britain doesn't have any accountability to this Irish failure 'cos Britain is not a part of the EMU!
Unless either Ireland leaves the EMU or the Eurozone decided to Federalise itself (i.e. replace the national debts with the ECB bond, and replace the unstable fragmented fiscal policies with a stable common treasury) , investing Ireland contains a high risk premium!
Lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.
A relatively well-off country shouldn't be penalised save a country with an insoluble trouble! The current policy will knockdown both the relatively well-off countries, such as Germany and Britain, and the countries under the crisis!
It's highly dangerous to lend money to those which have a high risk premium!
I would have agreed with you if Ireland weren't in the Eurozone.
Under her crisis, the common currency system is a fundamental cause, so the Eurozone countries are much more responsible on her crisis than Great Britain.
The reason why Germany could lend money to Ireland was that the stimulus to Ireland, the same organ of the common currency system, also stimulate the value of Euro, so it is beneficial to Germany in a long term. The value of Euro is influenced by the value of all a whole set of Eurozone countries.
However, the stimulus by Britain, who is in outside the Eurozone, won't encourage Irish economy, the tiny part of the Eurozone. If Ireland had kept her own monetary policy, British stimulus to Ireland causes to the appreciation of Irish economy, therefore it would have induced the healthy inflation which reduces the net present value of the money borrowed at the time Ireland borrowed. Therefore, the motivation to invest into capital in Ireland will be encouraged 'cos of the expected inflation.
On the contrary to this function, the current system doesn't enable Ireland to reduce the net present value of the money borrowed unless the entire Eurozone economy is stimulated. Although the British stimulus to Ireland may boost her economy in a very short run, because the velocity of money invested will be very low or even zero, Irish economy won't be stimulated enough to recover from the recession due to the low inflation expectation.
All in all, the responsibility of Irish economy is based on the accountability of the entire Eurozone. British investment to Irish economy will simply be a waste of money unless Britain charges a high interest rate.
... Politicians tend to lose the perspectives from a financial and economic analyst. If we lend money, all the factors have to be put into a calculus! We must not forget about the dynamic impacts of Financial Engineering on an international public sector economy! The simulation taking the inflation expectation, impact of the monetary union, and risk premium into consideration must be run! It's dangerous to rely on the Pro-Europeanist transcendentalism any more! Realistic financial aspects based on the cost and benefit analysis should be taken into the consideration well!
Unless either Ireland leaves the EMU or the Eurozone decided to Federalise itself (i.e. replace the national debts with the ECB bond, and replace the unstable fragmented fiscal policies with a stable common treasury) , investing Ireland contains a high risk premium!
Lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.
A relatively well-off country shouldn't be penalised save a country with an insoluble trouble! The current policy will knockdown both the relatively well-off countries, such as Germany and Britain, and the countries under the crisis!
It's highly dangerous to lend money to those which have a high risk premium!
I would have agreed with you if Ireland weren't in the Eurozone.
Under her crisis, the common currency system is a fundamental cause, so the Eurozone countries are much more responsible on her crisis than Great Britain.
The reason why Germany could lend money to Ireland was that the stimulus to Ireland, the same organ of the common currency system, also stimulate the value of Euro, so it is beneficial to Germany in a long term. The value of Euro is influenced by the value of all a whole set of Eurozone countries.
However, the stimulus by Britain, who is in outside the Eurozone, won't encourage Irish economy, the tiny part of the Eurozone. If Ireland had kept her own monetary policy, British stimulus to Ireland causes to the appreciation of Irish economy, therefore it would have induced the healthy inflation which reduces the net present value of the money borrowed at the time Ireland borrowed. Therefore, the motivation to invest into capital in Ireland will be encouraged 'cos of the expected inflation.
On the contrary to this function, the current system doesn't enable Ireland to reduce the net present value of the money borrowed unless the entire Eurozone economy is stimulated. Although the British stimulus to Ireland may boost her economy in a very short run, because the velocity of money invested will be very low or even zero, Irish economy won't be stimulated enough to recover from the recession due to the low inflation expectation.
All in all, the responsibility of Irish economy is based on the accountability of the entire Eurozone. British investment to Irish economy will simply be a waste of money unless Britain charges a high interest rate.
... Politicians tend to lose the perspectives from a financial and economic analyst. If we lend money, all the factors have to be put into a calculus! We must not forget about the dynamic impacts of Financial Engineering on an international public sector economy! The simulation taking the inflation expectation, impact of the monetary union, and risk premium into consideration must be run! It's dangerous to rely on the Pro-Europeanist transcendentalism any more! Realistic financial aspects based on the cost and benefit analysis should be taken into the consideration well!
Tuesday, November 02, 2010
Eurozone fiscal integration is required soon as possible!!
A country in the Eurozone is required to pay a high interest rate to borrow money from another country in the Eurozone. This is the first attempt to make all the Eurozone countries to be responsible for helping each other without claiming any help from the outside European Union (EU). As long as Maastricht treaty restrict the rate of national debt balance to GDP, Eurozone countries are not able to incur their national debt enough to stimulate their economy. Therefore, the relatively well-off countries joining the European Monetary Union (EMU) are expected to subsidise the stagnating countries.
However, lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.
This Eurozone macroeconomic policy is very unstable!
Mr. Jean Claude Trichet(Read about his articule in this blog!) also highly criticised this unstable fiscal rule, charging high interest rate for countries borrowing from another country inside the Eurozone.
Mr. Trichet is remarkably intelligent enough to realise the current Eurozone economic system is notoriously unstable.
The Eurozone should install the European federalism with the ECB bond by relinquishing the right to incur national debt in all the Eurozone nations! Otherwise, the EMU should be dissolved (i.e. abolish Euro, the common currency), and remove the restriction on incurring national debt stated by Maastrict treatyin order to enable them to set their own interest rate for their own monetary policy to adjust their own money supply and their liquidity to their economic stimulus.
If the ECB bond is incurred, the value of national debt traded in the international market is determined by the economic performance of the Eurozone economy. Instead of penalising a relatively well-off Eurozone country, the Eurozone economy should incur the bond with their collective responsiblity. If the debt is incurred by the collective responsibility, the risk and the interest rate is spread out to all the Eurozone nation. Therefore, one country doesn't have to pay an excessively high interest rate meanwhile a relatively well-off country does not need to be penalised (Although they might need to contribute to pay the interest rate of the ECB bond, but the cost and the risk are still obviously lower than the cost and the risk of lending money to a country in a terminal recession).
In addition, if the entire Eurozone economy is expected to recover by the fiscal stimulus financed by the debt, the value of the ECB bond will continue increasing so that more traders will purchase it. A high volume of finance flow from both private companise, individual citizens, and the government outside the Eurozone will be expected as the ECB bond is introduced. This is the golden rule of the national debt. As the credit rating of the ECB increases, the limitation of incurring the debt will be less restricted unlike the current Eurozone system.
The current Eurozone system will stagnate the Eurozone economy further. In order to avoid this situation, the Eurozone economy "has to" either dissolve the EMU or establish the common treasury under the Euro-Federalism. Nevertheless, in order to establish the more stable system than now by keeping the common currency, a furthermore efficient fiscal policy (spending on the government expenditure with a lower cost of taking tax) needs to be put into practice. On the top of it, the fiscal policy in all the Eurozone country has to be strictly counter-cyclical to their own business cycle relative to the one of the entire Eurozone in order to adjust their economy to be harmonised with the entire Eurozone economic environment. One country will no longer be able to diviate their fiscal policy rule from the other Eurozone countries.
However, lending money to individuals with a high risk premium requires charging a high interest rate enough to cover the risk premium because the lender should not make a fatal loss on a budget, which causes the lending country to fall in to another recession.
This Eurozone macroeconomic policy is very unstable!
Mr. Jean Claude Trichet(Read about his articule in this blog!) also highly criticised this unstable fiscal rule, charging high interest rate for countries borrowing from another country inside the Eurozone.
Mr. Trichet is remarkably intelligent enough to realise the current Eurozone economic system is notoriously unstable.
The Eurozone should install the European federalism with the ECB bond by relinquishing the right to incur national debt in all the Eurozone nations! Otherwise, the EMU should be dissolved (i.e. abolish Euro, the common currency), and remove the restriction on incurring national debt stated by Maastrict treatyin order to enable them to set their own interest rate for their own monetary policy to adjust their own money supply and their liquidity to their economic stimulus.
If the ECB bond is incurred, the value of national debt traded in the international market is determined by the economic performance of the Eurozone economy. Instead of penalising a relatively well-off Eurozone country, the Eurozone economy should incur the bond with their collective responsiblity. If the debt is incurred by the collective responsibility, the risk and the interest rate is spread out to all the Eurozone nation. Therefore, one country doesn't have to pay an excessively high interest rate meanwhile a relatively well-off country does not need to be penalised (Although they might need to contribute to pay the interest rate of the ECB bond, but the cost and the risk are still obviously lower than the cost and the risk of lending money to a country in a terminal recession).
In addition, if the entire Eurozone economy is expected to recover by the fiscal stimulus financed by the debt, the value of the ECB bond will continue increasing so that more traders will purchase it. A high volume of finance flow from both private companise, individual citizens, and the government outside the Eurozone will be expected as the ECB bond is introduced. This is the golden rule of the national debt. As the credit rating of the ECB increases, the limitation of incurring the debt will be less restricted unlike the current Eurozone system.
The current Eurozone system will stagnate the Eurozone economy further. In order to avoid this situation, the Eurozone economy "has to" either dissolve the EMU or establish the common treasury under the Euro-Federalism. Nevertheless, in order to establish the more stable system than now by keeping the common currency, a furthermore efficient fiscal policy (spending on the government expenditure with a lower cost of taking tax) needs to be put into practice. On the top of it, the fiscal policy in all the Eurozone country has to be strictly counter-cyclical to their own business cycle relative to the one of the entire Eurozone in order to adjust their economy to be harmonised with the entire Eurozone economic environment. One country will no longer be able to diviate their fiscal policy rule from the other Eurozone countries.
Friday, August 13, 2010
Analysis of the UK labour market and the immigration
I agree with the statement that "Britain has an oasis of talent only problem is they recruit all the crap." Great Britain has educated so many talented people, especially in Scotland, but they tend to leave this country because of this fact.
My point is that the UK and the Western EU countries tend to prefer the EU imigrant to the non-EU altough the one from the EU has a lower class qualification than the one from the non-EU. I have seen the fact. Furthurmore, they prefer Japaenese citizens who have already got the UK permanent residencial VISA to the Japanese persons who do not like me. It is mainly because of the bureaucracy. The companies tend to want to avoid the extra bureaucracy. This is the statement that the recruit agencies told me as well!
In 1990s in Britain, there was a notorious wage inflation. I am sympathetic to the fact that the UK Labour government wanted the cheap manual labour force imigrants from the EU Eastern European countries to calm the wage inflation down.
But, my concern is that the "intermediate class" job which I have been trying to get. When there is an obvious a world class achievement indicated in the CV, it does not matter. But, such indivdiuals with this sort of CV are not majority. Majority of the applicants of skilled non-manual jobs are highly discriminated between the EU and the non-EU. Because this sort of job is difficult to access propery.
For the manual labour jobs, it is irrelevant to measure the specific skills apart from the efficiency to work under the cheap wage.
But, my situation is not entirely fair condition. I have spent 6 years for the education overhere, and obtained MSc and Honours in Bachelor with a good grade.
As I also studied in microeconomics in MSc, the information on the labour market tends to be assymetric so that the insurrance and the personal connection exist there to avoid the unseen risk.
Of course, people recognise if there is a world class achievement. But, as a matter of fact, this kind of labour force is such limitted.
My point is that the UK and the Western EU countries tend to prefer the EU imigrant to the non-EU altough the one from the EU has a lower class qualification than the one from the non-EU. I have seen the fact. Furthurmore, they prefer Japaenese citizens who have already got the UK permanent residencial VISA to the Japanese persons who do not like me. It is mainly because of the bureaucracy. The companies tend to want to avoid the extra bureaucracy. This is the statement that the recruit agencies told me as well!
In 1990s in Britain, there was a notorious wage inflation. I am sympathetic to the fact that the UK Labour government wanted the cheap manual labour force imigrants from the EU Eastern European countries to calm the wage inflation down.
But, my concern is that the "intermediate class" job which I have been trying to get. When there is an obvious a world class achievement indicated in the CV, it does not matter. But, such indivdiuals with this sort of CV are not majority. Majority of the applicants of skilled non-manual jobs are highly discriminated between the EU and the non-EU. Because this sort of job is difficult to access propery.
For the manual labour jobs, it is irrelevant to measure the specific skills apart from the efficiency to work under the cheap wage.
But, my situation is not entirely fair condition. I have spent 6 years for the education overhere, and obtained MSc and Honours in Bachelor with a good grade.
As I also studied in microeconomics in MSc, the information on the labour market tends to be assymetric so that the insurrance and the personal connection exist there to avoid the unseen risk.
Of course, people recognise if there is a world class achievement. But, as a matter of fact, this kind of labour force is such limitted.
Thursday, August 12, 2010
My favourite quote of Max Stirner
“He who must expend his life to prolong life cannot enjoy it, and he who is still seeking for his life does not have it and can as little enjoy it.” --- Max Stirner (Anarchist)
Japan will be far more isolated from the global community...!
Wednesday, Aug. 11, 2010
Budget cutters target JET
'Amakudari' excess or 23-year success in soft foreign policy?
Who want to go to Japan to friendly communicate with Japanese? Only those paid by them do! Any people from the advanced Western countries coming for business would not have much time to communicate in the local community.
This has been the only way the ordinary Western people (North American, Western European, Australian, and New Zealander) come to Japan, and Japanese could know their civilisation and culture! I was highly benefited by this JET programme! If there had not been this programme, I would not be successful like now! Japanese government should cut the other "Amakudari"; not the JET one!!
Friday, August 06, 2010
I rescpet Jean Claude Trichet
Although I am highly sceptical about the currently ongoing system of the European Monetary Union, I really respect Mr Trichet! This is the "good example of monetalism" i.e. not a nihilistic and normative monetalism: Trichetian monetalism is realistic and functional! I really think, among the advanced nations, the US Federal Researve and the European Central Bank are respectable central banks: I seriously despice the other central banks in the advanced countries such as Bank of Japan and Bank of England! All in all, Mr. Jean Claude Trichet is a great governer! He is from Nancy in the north east of France where I visited once and is famous for Art Nouveau and Jeanne d'Arc. This proves a civilised place nurtures and educates such a civilised person
Yep, as long as the EU is willing to amend the current unstable structure of the EMU, the Eurozone economy will develop further and take an initiative in the global economy.
I am totally apathetic about the ideological issue, but I strongly concern about how the newly invented common currency system and the evolution of European unionism go on in the future!
I would say, the Euro is short in the short term, but long in the long (probably and the midium) term!
Mr. Trichet had a right choice to keep a certain level of interest rate unlike BoJ and BoE having setting sizeably low! Furthermore, as the interest rate goes up (what Mr Trichet has done) , the demand of purchasing national debts goes up, and the positive inflation will be encouraged due to repressing unnecessary supply of capital and encouraging a strong capital fonded by the increased saving. As the positive inflation occurs, the nominal wage starts going up by wage burgaining because the price of goods and services eventually goes up so that people have to burgain for their income. But, as the export demand increases the employment won't decrease as the overall productivity goes up in this economic region by rise in the interest rate. Good courage!
Yep, as long as the EU is willing to amend the current unstable structure of the EMU, the Eurozone economy will develop further and take an initiative in the global economy.
I am totally apathetic about the ideological issue, but I strongly concern about how the newly invented common currency system and the evolution of European unionism go on in the future!
I would say, the Euro is short in the short term, but long in the long (probably and the midium) term!
Mr. Trichet had a right choice to keep a certain level of interest rate unlike BoJ and BoE having setting sizeably low! Furthermore, as the interest rate goes up (what Mr Trichet has done) , the demand of purchasing national debts goes up, and the positive inflation will be encouraged due to repressing unnecessary supply of capital and encouraging a strong capital fonded by the increased saving. As the positive inflation occurs, the nominal wage starts going up by wage burgaining because the price of goods and services eventually goes up so that people have to burgain for their income. But, as the export demand increases the employment won't decrease as the overall productivity goes up in this economic region by rise in the interest rate. Good courage!
Saturday, July 10, 2010
The 5 conditions to join the European Monetary Union
There are the 5 conditions:
1. High trade frequency with the Eurozone
2. Flexible Labour Mobility
3. Harmonised Business cycle with the Eurozone's
4. Sophisticated fiscal policy and a long history of the tight monetary policy
5. Political integration.
The score for the UK:
1. Tick!
2. Tick! But, conditional. The UK should stop the unfair welfair distribution system! The way to select the individuals to gain the benefit much more carefully...
3. No. The financial regulation system has to be more centralised and controlled by the mainland EU.
4. Not too bad compared to Mediterraneans.
5. Conditionally tick. Depends on how the USA reacts, and how the EU performs in the diplomacy. In addition, the nuclear issue is a big matter! The UK nuclear technology sharing must shift from with the USA to with France. All the nuclear plants should be owned by the EU gov't!
The biggest challenge for the UK to join the EMU is the question No. 3. The UK has a strong trade tie with outside the EU, and the UK industry has been sustained by her remarkably famous very liberalised financial market. It'll be a big challenge for the UK citizens to abandon their tradition as the centre of internationan financial market... In addition, the problem of the question No. 5 is France.
France has to abandon her nationalism! France has to make the nuclear technology shared with the EU gov't!
>I'd be keeping an eye on German politics. They are paying for the Greeks and others.
I think (and feel) the continental Europe will survive with the EMU. In fact, meanwhile the EMU needs to enforce transformation (It will be oppressive) to the European Federalism, the economy eventually will be stabilised and face an economic recovery in 2014.
Creation of the "Eurobond" is better than enforcing one country or a few countries to transfer their tax revenue.
If I were the EU governor, I would have made all the Eurozone countries to DEFAULT in order to abolish all the national debt of these member countries. Then, all the fiscal stimulus packages should be paid off by the "Eurobond" i.e. collective responsiblity among the all Eurozone countries. This way will give much better prospect for the economic growth inside the Eurozone so that the Golden Role will be encouraged. In this way, the Eurobond will be more popular to be purchased so that the EU finance will be much lucrative.
In addition, I wonder how the USA reacts, and how France is willing to share the nuclear issue with the UK.
* The advantange for the UK to join the EMU:
1. Becomes easier to establish a branch of Europe in the UK and of the UK in Europe.
2. Financial market is more integrated with the EMU countries so that the risk of shock in the financial market is shared among the EMU countries
3. If the Euro-bond is created (This is the final condition to support joining the EMU!), the UK will take an advantage of the credibility of the Euro and the Euro-bonds (Creating the common currency also requires the common bond i.e. abolishing the national debt system)
But, whereas there are various advantages, I am a wee bit still sceptical about this integration...
1. The power of trade unions need to be diminished (Which is good, but the wage bargaining power of labourer in the entire EMU needs to be 10% or below so that the riot of labourers may occur)
2. The fiscal policy should be dictated by the EU central gov't, and weaken the dicision making power of the national gov't (especially during the first step of the estabilishment: It can allow more decentralisation after the status-quo of the EU federation is stabilised)
3. Immigration law for non-EU skilled labour force will be much stricter than now so that I am wondering if """I""" may have a disadvantage :( (This is the statement the UKIP put emphasis on)
Why The United States, Europe, and Japan are heading toward deflation, a classic prolonger of crises. further?
If I were a governor of central bank in any of them, I would have "INCREASED" the interest rate rather than putting it down to the zero rate...! :(
We'd rather better "restrict" money supply to increase the value of currency and increase the interest rate to encourage the trade of national debts! The investment rate won't increase due to the liquidity trap anyway so that we'd rather better decrease the excess supply (of capital), i.e. cutting down the unnecessary supply in a Short run. In the middle run, as savers gain the interest rate, unnecessary enterprises will be closed down, some productive enterprises will put a prise rise so that labourers (mainly unions) will also start bargaining for their wage, etc in the middle run.
Speaking of national debts, we'd rather better increase the interest rate in order to stimulate the demand for buying debts as a traded equity. As the interest rate starts going up it means the price inflation of these bonds. As the inflation of commodity, i.e. national debts, people start buying them and trade each other. As the exuberance to buy a national debt is encouraged, the public fonding is coming into the gov't budget i.e. the Golden Role occurs.
Are the bunch of buggers working in these central banks and major financial institutions real elites? I often think I'm much superior to them? Ain't I insane to say that?? Oh, God...
>will be the biggest challenge to democracy since the Second World War.
As I said in my blog, according to Kondratieff, we are now in the "Winter" which will cause the huge mass destruction as same as WW2 and Spain-America War. Until reducing the excess supply of capital and discovery of a new techology and/or a new natural resource take place, the winter won't end.
>I really do not think governments will be able to take the people with them when it comes to reducing our respective deficits unless the private market fills the gap.
I always claim people that the IS-LM model fails! It is useful to demonstrate a plausible explanation to indicate how the monetary and fiscal policy work. However, this model isn't proven by any statistic analysis. As Prof. Paul Krungman said many economists say lie. The IS-LM model always encounters the simultaneous problem (impossible to predict the change by using explanatory variables because these explanatory variables are also influenced by the dependent variable) and depends on the "sensitivity" of variables e.g. interest rate, tax, etc. As a matter of fact, I should be called a radical government sceptic. Although I admire the analyses introduced by J.M. Keynes, the possitive planning always suffering from "sensitivity dependency", "effect lagging", "violation of equity", etc.
If I were a governor of central bank in any of them, I would have "INCREASED" the interest rate rather than putting it down to the zero rate...! :(
We'd rather better "restrict" money supply to increase the value of currency and increase the interest rate to encourage the trade of national debts! The investment rate won't increase due to the liquidity trap anyway so that we'd rather better decrease the excess supply (of capital), i.e. cutting down the unnecessary supply in a Short run. In the middle run, as savers gain the interest rate, unnecessary enterprises will be closed down, some productive enterprises will put a prise rise so that labourers (mainly unions) will also start bargaining for their wage, etc in the middle run.
Speaking of national debts, we'd rather better increase the interest rate in order to stimulate the demand for buying debts as a traded equity. As the interest rate starts going up it means the price inflation of these bonds. As the inflation of commodity, i.e. national debts, people start buying them and trade each other. As the exuberance to buy a national debt is encouraged, the public fonding is coming into the gov't budget i.e. the Golden Role occurs.
Are the bunch of buggers working in these central banks and major financial institutions real elites? I often think I'm much superior to them? Ain't I insane to say that?? Oh, God...
>will be the biggest challenge to democracy since the Second World War.
As I said in my blog, according to Kondratieff, we are now in the "Winter" which will cause the huge mass destruction as same as WW2 and Spain-America War. Until reducing the excess supply of capital and discovery of a new techology and/or a new natural resource take place, the winter won't end.
>I really do not think governments will be able to take the people with them when it comes to reducing our respective deficits unless the private market fills the gap.
I always claim people that the IS-LM model fails! It is useful to demonstrate a plausible explanation to indicate how the monetary and fiscal policy work. However, this model isn't proven by any statistic analysis. As Prof. Paul Krungman said many economists say lie. The IS-LM model always encounters the simultaneous problem (impossible to predict the change by using explanatory variables because these explanatory variables are also influenced by the dependent variable) and depends on the "sensitivity" of variables e.g. interest rate, tax, etc. As a matter of fact, I should be called a radical government sceptic. Although I admire the analyses introduced by J.M. Keynes, the possitive planning always suffering from "sensitivity dependency", "effect lagging", "violation of equity", etc.
Sunday, June 27, 2010
According to Kondratieff cycle, the Spring won't come until 2014 at the earliest
We are experiencing a serious economic recession now. No economic policy will work to overwhelm the recession. Increase in saving no longer works as there is no place to invest the money in. Keynesian economic policy only works to avoid the hard-landing and slow the speed of economic downturn. The market potential indices explained by New Economic Geography theory do not have a positive impact on the productivity when all economic regions in the globe are in the recession or the depression. In order to expect the long-run recovery, it requires an exogenous shock such as a technological innovation and discovery of a new natural resource.
According to Kondratieff cycle theory, the current economic recession should be called "the winter". The winter comes every 50 or 60 years. The last winter was the WW2, and the previous to the last one was Spanish-American war. The winter comes when an economy loses the target of investment due to the excess supply of already developed technologies. The excess population, i.e. the excess labour supply, is also the cause of the winter. In order to keep investing to artificially stimulate the market multiplier to activate an economy and to prevent the excess labour supply, a war occurs. Provoking a war is the best way to encourage the investment to capital and increase the labour demand. However, as our great Adam Smith, the father of economics, mentioned, war, i.e. the investment to the defence, would never encourage rise in productivity.
This is mainly fault of countries (or any sort of economic region) which have failed to make their economic policy functional enough to avoid the harsh winter. War occurs to clear this failure. War should not occur due to the fact that war reduces the sum of utility in society because of the distress caused by death of members of families, close friends, and significant others, and loss of properties. However, as human-beings and their society are not perfectly rational enough to perfectly function their economy in a perfectly rational way the failure tends to be inevitably made.
Nowadays, due to the situation that nuclear weapons exist, the war whose impact is enough overcome the winter will not occur because this sort of war will induces destruction of the entire globe. Some individuals claim that the "War on Terror" is the war taking place due to the current winter situation. But, this "War on Terror" does not seem to be big enough to reduce the excess labour supply in the globe and to artificially encourage the market multiplier.
Emile Durkheim may explain this situation. According to Durkheim, the current post-industrialised society is less altruistic and less fatalistic than the traditional society. However, the current post-industrialised society is more anomie. In the anomie, many people tend to become psychologically pathetic due to loss of their direction to live.
I guess that the death of many people may occur due to an increase in suiside caused by psychological pathology instead of the war.
Friday, May 14, 2010
The UK coalition gov't eventually need to either increase the national debt beyond Maastrict treaty's restriction or increase the tax again
Well, I partially agree with your comment, my friend. But, speaking of the tax plan, it seems to be a "discrete" fiscal plan rather than a "permanent". During recession or recovering periods, they offer a temporary tax cut, but it sounds like going up again.
The coalition will have a dlilema about it. In terms of my prediction, as long as Britain sticks to Maastricht treaty, her economy hardly recovers.
Although I disagreed with Labour and Gordon Brown, the national debt should have been incured more before the recovery was ensured (without increasing tax which Labour and Gordon Brown insisted on 'cos of the restriction on incuring debt by Maastricht treaty) rather than introducing a temporary tax cut which concerns with the problem of Ricardian-equivalence (People already know the tax will rise in the near future so an effect of temporary tax cut won't work as much as the policy expects).
The first 10,000 quid you earn free of tax itself is fine. But, it does not seem to be effective enough when the total recovery from the recession caused by what the former gov't party Labour created!
I do usually not agree with incuring an extra national debt for a temporary recession, but the currently going recession shall be called the "depression" caused by the artificial economic boom plotted by Labour. The coalition gov't eventually need to either increase the national debt beyond Maastrict treaty's restriction or increase the tax again...
I do not put this comment to contradict you, but this is my worry about British politics for the moment, and I wish some gentlemen like you may listen to it...
The coalition will have a dlilema about it. In terms of my prediction, as long as Britain sticks to Maastricht treaty, her economy hardly recovers.
Although I disagreed with Labour and Gordon Brown, the national debt should have been incured more before the recovery was ensured (without increasing tax which Labour and Gordon Brown insisted on 'cos of the restriction on incuring debt by Maastricht treaty) rather than introducing a temporary tax cut which concerns with the problem of Ricardian-equivalence (People already know the tax will rise in the near future so an effect of temporary tax cut won't work as much as the policy expects).
The first 10,000 quid you earn free of tax itself is fine. But, it does not seem to be effective enough when the total recovery from the recession caused by what the former gov't party Labour created!
I do usually not agree with incuring an extra national debt for a temporary recession, but the currently going recession shall be called the "depression" caused by the artificial economic boom plotted by Labour. The coalition gov't eventually need to either increase the national debt beyond Maastrict treaty's restriction or increase the tax again...
I do not put this comment to contradict you, but this is my worry about British politics for the moment, and I wish some gentlemen like you may listen to it...
Thursday, May 13, 2010
Econometric Analysis of Employment Rate based on New Economic Geography theory
Abstract:
This project attempted to create the model to indicate the significant factors influencing the employment rate in countries. As the author was sceptical about the traditional macroeconomic concepts the new economic geography theory approach is used. European countries are assessed in this project as Europe has a flexible labour mobility and is more convenient to assess the impact of language speaking ability in labour market than the USA where majority of people speak English. The Employment Rate Index (ERI), the index of employment, was based on the exponential of the employment rate subtracting the minimum employment rate in the data and then multiplied with 10 in order to make a symmetric variable (The raw data for the employment rate was very asymmetric). There are two explanatory variables are used; one indicates the employment opportunity in the other countries, and the other indicates the advantage to speak English in trade in both with other countries and within a country. Generalised Least Squares (GLS) estimates showed these two variables are significant enough to explain about the employment rate in a country.
1. Introduction:
This research was carried out to investigate to explain how the employment rate changes in terms of the New Economic Geography theory approach.
2. The reason why the data sets in European countries are used:
Europe has a flexible labour mobility as same as the USA unlike Asia and South America where people rarely change their job in their life. Europe is more convenient to assess the impact of language speaking ability in labour market than the USA where majority of people speak English. The global research encounters with lack of data set for the employment rate figure.
3. The Simultaneous Equation Problem in the traditional Macroeconomic theories:
The traditional macroeconomic theories claim that the employment rate is negatively correlated with the real wage. However, this assumption encounters with the simultaneous equation problem. The real wage rate is highly affected by the employment rate itself. For example, when the employment rate decreases, the real wage starts being depreciated in order to encourage employers to employ labour more. A part of Keynesian wage theory claims that when the employment rate decreases, the nominal wage should increase in order to encourage employees to work more.
4. The significance of using Geographic data:
The best variable explaining the unemployment rate is considered as the Gross Domestic Product (GDP). There is a high demand for productions when the GDP rises so that the demand for labour rises whilst there is a low demand for productions when the GDP falls so that the demand for labour falls. Nonetheless, John Maynard Keynes (1936) claimed that the productivity and the demand of labour is not always positively correlated. When the productivity rises, the production method can alter the labour incentive to the capital incentive. In addition, whenever the employment rate (or any variable representing it) is regressed on the GDP, it causes the endogeneity problem. Therefore, the GDP hardly becomes the best explanatory variable.
Alternatively, geographical aspects are recommended to be used as explanatory variables. Any variables used in economics tend to be measured by a common measure such as money. All variables introduced in IS-LM model are correlated each other. For example, the investment rate, the consumption rate, and the money supply are highly correlated with the productivity, and the productivity is highly correlated with these variables as well. On the other hand, the variables representing geographical aspects are not affected by any economic data generally speaking although these geographic data may affect the economic data. For instance, the geographic distance between cities and latitude (not used in this project but commonly used in the NEG theory) are not modified by any social scientific data sets.
Instead of analysing by the real wage effect inside the countries, the real wage effect in outside the countries is used to analyse the employment rate. Focusing on the graph below, rise in the real wage implies either decrease in the labour supply or increase in the labour demand. When the labour supply decreases in a country, there is a lack of labour supply or labourers in this countries are reluctant to work anymore. Therefore, there is more employment potential for immigrant labourers from outside this country. When the labour demand increases in a country, there is also more employment potential for immigrant labourers from outside this country. By contrast, fall in the real wage implies the opposite effect to the rise in the real wage by referring to the graph below.
This project used the matrix algebra (Explained in Chapter 6) to explain the employment potential in the other countries. The variable representing this is called the Wage Potential Index (WPI) in this project. In order to show this potential, the minimum distance between capital cities is used. As the countries are closer each other the effect of the real wage on employment in a country is stronger whilst as the countries are farer each other the effect of the real wage on employment in a country is weaker. The matrix algebra enables to asses this effect of all the countries surrounding the country assessed by this analysis simultaneously.
5. Shared Language provides more employment opportunities
The NEG theory also uses a variable (variables) representing the human capital index (indices). This project focused on the effect of shared language in both an domestic and international trade. For both non-skilled and skilled workers, language skill is necessary to find a job opportunity. This project focused on English as it is the most commonly used shared language as a shared language in international academic and business activities. As many people speak English in a country, people there find more employment opportunities in the other countries trading with this country. As both a country and the other country trading with have more people speaking English it is more convenient to trade each other.
6. Formulae used:
* The Annual Inflation Rates are the average of the five years.
7. Regression Analysis:
The time periods used are 1995, 2000, and 2005. The countries used are United Kingdom, Ireland, Netherlands, Belgium, Luxembourg, France, Switzerland, Spain, Portugal, Germany, Austria, Czech Republic, Slovak Republic, Italy, Malta, Slovenia, Greece, Cyprus, Finland, Sweden, Norway, Denmark, and Iceland. The reason why the number of time periods and countries is restricted is due to the lack of data sets in some other countries not introduced in this project. But, the author's previously carried out research on the real GDP per capita in a global data showed it did not make a difference between using all countries in a globe and using some representative of the economic regions in a globe. Therefore, the author was confident enough to use the data set able to use as much as possible to analyse the employment in this project.
The Generalised Least Squares (GLS) was used because one of the explanatory variable, the LPI, does not vary across the time (The author could not find a data for this varying across the time), the fixed-effect estimator based the Ordinary Least Squares (OLS) could not be used due to the multicollinearity between the dummy variables used in the OLS and the variable not varying across the time. The pooled OLS should not be used as the unit specific effect in the countries is significant. There is a certain level of the employment rate fixed over the time period. Therefore, the unit specific effect is included in the dummy variable "inside the error term". The regression result is as follows:
Both the WPI and the LPI are significant and positively correlated. The Breusch-Pagan test indicates that the random effect estimate based on the GLS should be used, and the Pooled OLS is not appropriate to use. The Hausman test indicates that the hypothesis claiming there is not an endogeneity problem cannot be rejected. According to what this table shows, the GLS estimates are essential to do this regression, and there is not an endogeneity problem so that this regression analysis is consistent.
8. Conclution:
Having analysed the employment rate, the real wage in the other countries, which represents the potential for labourers in one country to be employed, the geographical figures (the geographical distance represented in this project), and learning English are significant factors influencing the employment rate. This project proved that the NEG theory is able to explain the employment rate in labour market.
Data Sources:
Gleditsch and Ward (2001) Minimum Distance Data // Kristian Skrede Gleditsch
http://pwt.econ.upenn.edu/php_site/pwt_index.php
http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weoselgr.aspx
http://en.wikipedia.org/wiki/List_of_countries_by_English-speaking_population
Saturday, May 01, 2010
The reason why Greece and Spain are in the Eurozone
The Eurozone, which is also called the European Monetary Union (EMU), was created in order to stimulate trade among European countries. Some advanced countries, such as the UK, and many Scandinavian countries did not choose to join the EMU because of the disharmony in their business cycle with the Eurozone economy. When there is a disharmony among the monetary union members, sharing a common currency disturbs all economies in the monetary union. As there has already been a frequent trade between nations, these nations benefit more from sharing a common currency because they are able to avoid the price uncertainty caused by the exchange rate mechanism. However, if there is not a frequent trade between nations, although sharing a common currency may increase a trade between them, it is rather a disadvantage because it disables setting their own interest rate and the volume of money supply.
Some new members from the Eastern Europe, the former communist nations, have not fulfilled the conditions to be a part of the EMU. In order to join the EMU, the fiscal structure has to be organised in order to reduce the risk of increasing the national debt and the price inflation caused by the Seigniorage effect (increasing money supply to pay for the government budget deficit). They are required to balance their budget balance without relying on the national debt and the Seigniorage effect in order to harmonise their business cycle to the Eurozone economy.
Nevertheless, there is a question arising from the current crisis caused by the negative systemic shock caused by the world financial crisis. The crisis in Greece became permanent. Greece is a typical country which has been relying on filling her budget deficit by the national debt and the Seigniorage effect due to the poorly organised fiscal structure (though it is mainly caused by her geographic nature).
As a matter of fact, Greece has never been ready to join the monetary union. Greece has had a large proportion of the international trade partners from outside the EU on the top of their fiscal structure. Therefore, joining the EMU was a disadvantage rather than an advantage. Nonetheless, the EU accepted Greece to join the EMU although the EU hardly accepts many Eastern European countries whose level of the economic structural problem is the same as or slightly less than the Greek one.
This reason shall be political rather than economical. As same as German Third Empire led by Adolf Hitler thought of Ancient Greece as an origine of European civilisation so that they claimed that German was highly influenced by Ancient Greece as well. Both Germany Third Empire and the EU seem to seek Greece as their "holy-land" as the origine of their civilisation. Therefore, including Greece into their political peer group may prove that their peer political group has a long history.
On the other hand, Spain has had an economical advantage to join the EMU unlike Greece. Spain has a large proportion of the international trade with the EU nations. For example, the investment into Spanish property market by North Western European nations is vital. Spanish tourist industry is her prominent export business. There is a significant demand for Spanish tourist from the European nations.
However, the problem of Spain for joining the EMU is a disharmony of the business cycle between Spain and the rest of the Eurozone countries. Spanish economy excessively expanded so that the positive output gap was excessively big. This factor perpetuated the negative affect of the world economic crisis. When the positive output gap has been expanded so much, as the economy started to go into the downturn the speed of decline becomes too fast. Therefore, it is easier for Spainish business cycle to result in the hard-landing so that it ends up with creating the huge negative output gap. This dramatic change would have been able to be avoided if Spain had had an autonomy in controlling their fiscal policy, especially for her national debt, and the monetary policy (the interest rate and the money supply).
Some new members from the Eastern Europe, the former communist nations, have not fulfilled the conditions to be a part of the EMU. In order to join the EMU, the fiscal structure has to be organised in order to reduce the risk of increasing the national debt and the price inflation caused by the Seigniorage effect (increasing money supply to pay for the government budget deficit). They are required to balance their budget balance without relying on the national debt and the Seigniorage effect in order to harmonise their business cycle to the Eurozone economy.
Nevertheless, there is a question arising from the current crisis caused by the negative systemic shock caused by the world financial crisis. The crisis in Greece became permanent. Greece is a typical country which has been relying on filling her budget deficit by the national debt and the Seigniorage effect due to the poorly organised fiscal structure (though it is mainly caused by her geographic nature).
As a matter of fact, Greece has never been ready to join the monetary union. Greece has had a large proportion of the international trade partners from outside the EU on the top of their fiscal structure. Therefore, joining the EMU was a disadvantage rather than an advantage. Nonetheless, the EU accepted Greece to join the EMU although the EU hardly accepts many Eastern European countries whose level of the economic structural problem is the same as or slightly less than the Greek one.
This reason shall be political rather than economical. As same as German Third Empire led by Adolf Hitler thought of Ancient Greece as an origine of European civilisation so that they claimed that German was highly influenced by Ancient Greece as well. Both Germany Third Empire and the EU seem to seek Greece as their "holy-land" as the origine of their civilisation. Therefore, including Greece into their political peer group may prove that their peer political group has a long history.
On the other hand, Spain has had an economical advantage to join the EMU unlike Greece. Spain has a large proportion of the international trade with the EU nations. For example, the investment into Spanish property market by North Western European nations is vital. Spanish tourist industry is her prominent export business. There is a significant demand for Spanish tourist from the European nations.
However, the problem of Spain for joining the EMU is a disharmony of the business cycle between Spain and the rest of the Eurozone countries. Spanish economy excessively expanded so that the positive output gap was excessively big. This factor perpetuated the negative affect of the world economic crisis. When the positive output gap has been expanded so much, as the economy started to go into the downturn the speed of decline becomes too fast. Therefore, it is easier for Spainish business cycle to result in the hard-landing so that it ends up with creating the huge negative output gap. This dramatic change would have been able to be avoided if Spain had had an autonomy in controlling their fiscal policy, especially for her national debt, and the monetary policy (the interest rate and the money supply).
Friday, April 16, 2010
"Long the "Euro" ( € ) !" : The Euro-bond and the movement toward EU Federalism may appreciate the Euro
The rescue plan by the European central government to save Greek economy has been put into practice in return for the collateral agreement between the assisting side, Germany and Great Britain, and Greece. Greece has also already incurred Geek bonds to inject a fiscal stimulus into Greek economy to fill the current budget deficit. The IMF has offered loan to the EU in order to assist Germany rescuing Greece.
Many economists have already predicted that Greek economic depression will not be ended, and the deflation spiral goes on permanently. The part of reason is that Greece is no longer able to use the own monetarist policy, which increases the money supply to finance to fill the budget deficit and/or provoke the price inflation to reduce the net present value of the cost of borrowing. Pro-Europeanists have strongly suggested that the fiscal budget of the member states should be collectively controlled by one European federal government in order to avoid the instability such as a currently ongoing fiscal crisis in the Eurozone economy.
However, at the fist stage of establishing the Europeau Union, the fast full integration into the European Federation was denied. Many European states required for a slow pace of the integration process. Pro-Europeanist monetalists (distinguished from the Euro-Sceptic monetarist such as Prof. Milton Friedman) assumed that sharing a common currency encourages trade among these sharing economic regions, and therefore the system automatically harmonises the business cycle in these regions. Many Pro-Europeanists were convinced by this theory so that the current Eurozone system was adapted without a strong federalism. But, the currently ongoing crisis contradicted the assumption claimed by the Pro-Europeanist monetarists.
Although many people once expected for the appreciation of the Euro. These people imagined that the Euro would be the world leading currency instead of US dollar because of the weakening position of US economy. This is not based on a rational hypothesis; this is totally a mobs' irrational exuberance! Although US economy has lost an initiative which the USA used to hold, the situation will be neither the USA becomes collapsed nor the Eurozone economy becomes dominant to overwhelms the world economy. The USA still has her military power financed by the half of the world total millitary expenditure. This fact implies that the USA still has a capacity to gain her finance and resources split from those spent on military. Furthermore, the USA still has a huge human capital assets which are technology, higher education, and work ethics. These human capital assets will assist US economic recovery in spite of the pressimistic prediction of US economy which many anti-US modests have ranted on. In addition, even though the Eurozone economy may become a much stronger economic region than the current situation, the Eurozone will not become the super-power nation which the USA acted as during the cold war period. The globalisation after the end of the cold war has encouraged many emerging economies to catch up to become the advanced economy. The Eurozone may be still capable to exist as "one of" the centres of the international trade. Nonetheless, it is impossible to become one dominating economic super power. The post globalised world shall not have a super power state holding the economic dominance. The world will be more globalised, but it will not be based on the autocracy of one nation. The post-globalised world will be more pluralistic than the pre-financial crisis period.
Many people now started to expect the Euro will be depreciated and then fail so that the Eurozone system will be fragmented as same as the time when the all member states had their own currency. These mobs' irrational exuberance is often disappointing. Although once they expected that the Euro would be appreciated further, they now start saying that the Euro will cease. They seem to be unable to analyse the economic situation more rationally. My perspective is "Euro-sceptic", and contradicts the over-estimation of the Euro. However, I bet on that the Euro ( € ) will still exist.
There are still a lot of sceptical aspects about this European integration under the role of European federalism. Nonetheless, it will be the fact that European federalism will be reinforced due to the mistake learnt from this crisis. Pro-Europeanists are now confident with the further European integration. Almost all of us now have realised that the current Eurozone system does not work stably. The Eurozone can only decide to do either going back to the old system or going toward the European federation.
According to the political, rather than economic, situation, majority of Europeans tend to prefer being integrated further into one European community. Therefore, they seem to prefer keeping the Euro as one of the symbols of European integration.
In order to avoid the currently ongoing financial crisis inside the Eurozone, the collective responsibility on the fiscal policy among these member state is inevitably required. The European Union will share the common fiscal policy (tax, public expenditure, and national debt).
Greek national debts will keep depreciated further. Greece herself has not a capability to repay her debt back. Although Germany and Great Britain assist Greece, Greek economy does not have strong industries and human capital assets which stimulate a boost of economic recovery to overcome from this depression spiral. Therefore, it means that Germany and Great Britain make a loss from investing on expecting for Greek recovery. It seems to a fate for Greek economy to default. When a national economy default, there are many different cases happen by means of each different situation. In this case scenario, this national economy will be "purchased" by someone. It is less likely to be bought by one individual who turns Greece into the dictatorship. As Europeans tend to think of Greece as a birth place or the origin of European civilisation and her history the EU central government is very less likely to isolate Greece to hand her to a certain dictator. Thus, the agent purchasing Greece will be the EU central government.
The situation that Greece is purchased by the EU central government means that the European central government will be in charge of Greek fiscal policy and legal system. As it happens to Greece all the other member states will be eventually looked after by the European central government to be fair. All the Eurozone member states will be enforced to relinqush their right to incur their own national debt.
Under the currently going Eurozone system, Maastrich treaty technically prohibits incurring national debt more than 3% and owning national debt more than 60% of their GDP (But, realistically not many nations follow this agreement). The reason to put such a restriction is to avoid causing a disharmony of the price inflation among the member states and the budget deficit caused by fiscal inefficiency and corruption by government bureaucrats. Allowing these states to avoid this agreement and to set their own more flexible fiscal policy relatively works well unless they keep their own monetary policy (I have mentioned a lot in the other entries in this blog).
However, this current system is highly restricted to stimulate the Eurozone economy by fiscal stimulus when the economic crisis hits all over the Eurozone member states. Some relatively well-off EU countries have agreed to spilt their government finance to rescue Greece. But, these countries are also in the recession as well! Therefore, under the current Eurozone system, helping the most deprived member state induces all the member states to be collapsed!!
If the European central government plays a role as the European federal government which is the only institution holding a right to incur a national debt (i.e. the same system as the USA), it will provide a more efficient and effective fiscal stimulus without harming the Eurozone economy. The EU is planning to call this bond as "the Euro-bond", which is not still installed but will be inevitably introduced. This idea is far more effective than the current system because the EU is simply able to issue the Euro-bond to fund for the all member states simultaneously while the recession hits all over the Eurozone. As this bond is based on the value of the whole Eurozone the credibility of this bond will be stably high. Therefore, many other national governments and many individuals will buy the Euro-bond, and the golden role will work out. All in all, it is easier to provoke the recovery which enables the Eurozone to repay back the debt if the Euro-bond is introduced.
Under this new system recommended by European federalists is more flexible to control over the whole Eurozone economy. The reason is that the larger proportion of the fiscal stimulus will be fund by the European central government than the current system, the expenditure plan in the member state has to be monitored by where the funding source is coming from. In addition, the EU central government will make sure that all its fiscal stimulus is efficiently spent to stimulate the member states' economy so that the legal system in these states will be revised and amended by the EU central government.
The opposing opinion against this European federation and the Euro-bond is that roles of the fiscal policy in all the member states have to be enforced to follow and censored very strictly. This means that all the member states will be no longer sovereign countries. They will be the states of the European federation.
If this case scenario becomes true, although the countries which are already the Eurozone member states will be integrated into the EU federalism further, the advanced non-Eurozone nations, such as Great Britain and Scandinavian countries, except for Finland, will keep a distance further in terms of their economic policy. There will be a clear distinction between members in inside and outside the Eurozone in the EU. The EU members in outside the Eurozone may avoid the censorship on their fiscal policy by the EU central government as they still keep their own monetary and fiscal policy unless they decide to join the Eurozone in the future.
Great Britain has such an independent business cycle from the Eurozone member states and has a strong own initiative of her financial market in the global market. These factors of Great Britain detests the EU fiscal integration which disturbs British business cycle. Joining the Eurozone discourages the initiative of British financial market because the power of financial market will be more concentrated on Frankfurt because Great Britain will be enforced to harmonise her business cycle to the continental Europe. Great Britain is able to keep her own market initiative as she keeps her own role of acts in financial market. Liberal Democratic party is quite happy to abandon the traditional market initiative to be integrated into the European federalism. But, due to British voting system (First Past the Post) will always elect either the Conservatives or the Labour which prefer keeping a marginal distance (not the complete Independence from the EU though) from the EU.
Scandinavian countries have a quite rigid labour market and a strong trade union power, which strongly requires a tight monetary policy to keep the price inflation level to be low. As it has been seen in the last oil price shock in 2008 the central banks in Scandinavian countries frequently changed their interest rate in order to carefully set the rate not too high but not too low. If it is too low, it perpetuates the stagflation (stagnation + inflation) caused by both the oil price and the wage bargaining. If it is too high, it discourages the economy and then induces the recession. The economy with a rigid labour market is more likely to increase unemployment. As a matter of fact, the Eurozone economy supports the flexible labour market, which means less rigid labour market (less labour right, someone may say), in order to make the wage level to be adapted to the market clearing rate. If Scandinavian countries decided to adapt the Euro, the common currency, they have to discard the rigidity of their labour market. This is one of the reasons why Denmark and Sweden do not have the full EU membership and Norway is not a member of the EU at all.
If Scotland independent from the United Kingdom, Scotland will either join the Eurozone or keep a distance from the EU as same as Scandinavian countries. But, Scottish Nationalist Party (SNP), the party insisting on Scottish independence from the UK, has not made a clear consensus to decide which way Scotland should follow.
In conclusion, it might be worth-off to long the Euro( € ) in the long run although it seems to be better to short it in the short run. It is difficult to see the best time to decide whether long or short the "Euro" ( € ). The prediction is that the value of the Euro( € ) will not be zero because of the strong political support from the European people regardless of its economic aspect. Altough the Euro( € ) will be depreciated further for a while, it will appreciate again when the Euro-bond is introduced. Ummm, difficult to make a decision. If you are willing to actively but carefully trade often in the foreign currency market, you had better short the Euro( € ) in the short run and long it in the long run. If you are bothered to cautiously watch movements and European political situations all the time, then I may recommend you to long the Euro( € ).
Many economists have already predicted that Greek economic depression will not be ended, and the deflation spiral goes on permanently. The part of reason is that Greece is no longer able to use the own monetarist policy, which increases the money supply to finance to fill the budget deficit and/or provoke the price inflation to reduce the net present value of the cost of borrowing. Pro-Europeanists have strongly suggested that the fiscal budget of the member states should be collectively controlled by one European federal government in order to avoid the instability such as a currently ongoing fiscal crisis in the Eurozone economy.
However, at the fist stage of establishing the Europeau Union, the fast full integration into the European Federation was denied. Many European states required for a slow pace of the integration process. Pro-Europeanist monetalists (distinguished from the Euro-Sceptic monetarist such as Prof. Milton Friedman) assumed that sharing a common currency encourages trade among these sharing economic regions, and therefore the system automatically harmonises the business cycle in these regions. Many Pro-Europeanists were convinced by this theory so that the current Eurozone system was adapted without a strong federalism. But, the currently ongoing crisis contradicted the assumption claimed by the Pro-Europeanist monetarists.
Although many people once expected for the appreciation of the Euro. These people imagined that the Euro would be the world leading currency instead of US dollar because of the weakening position of US economy. This is not based on a rational hypothesis; this is totally a mobs' irrational exuberance! Although US economy has lost an initiative which the USA used to hold, the situation will be neither the USA becomes collapsed nor the Eurozone economy becomes dominant to overwhelms the world economy. The USA still has her military power financed by the half of the world total millitary expenditure. This fact implies that the USA still has a capacity to gain her finance and resources split from those spent on military. Furthermore, the USA still has a huge human capital assets which are technology, higher education, and work ethics. These human capital assets will assist US economic recovery in spite of the pressimistic prediction of US economy which many anti-US modests have ranted on. In addition, even though the Eurozone economy may become a much stronger economic region than the current situation, the Eurozone will not become the super-power nation which the USA acted as during the cold war period. The globalisation after the end of the cold war has encouraged many emerging economies to catch up to become the advanced economy. The Eurozone may be still capable to exist as "one of" the centres of the international trade. Nonetheless, it is impossible to become one dominating economic super power. The post globalised world shall not have a super power state holding the economic dominance. The world will be more globalised, but it will not be based on the autocracy of one nation. The post-globalised world will be more pluralistic than the pre-financial crisis period.
Many people now started to expect the Euro will be depreciated and then fail so that the Eurozone system will be fragmented as same as the time when the all member states had their own currency. These mobs' irrational exuberance is often disappointing. Although once they expected that the Euro would be appreciated further, they now start saying that the Euro will cease. They seem to be unable to analyse the economic situation more rationally. My perspective is "Euro-sceptic", and contradicts the over-estimation of the Euro. However, I bet on that the Euro ( € ) will still exist.
There are still a lot of sceptical aspects about this European integration under the role of European federalism. Nonetheless, it will be the fact that European federalism will be reinforced due to the mistake learnt from this crisis. Pro-Europeanists are now confident with the further European integration. Almost all of us now have realised that the current Eurozone system does not work stably. The Eurozone can only decide to do either going back to the old system or going toward the European federation.
According to the political, rather than economic, situation, majority of Europeans tend to prefer being integrated further into one European community. Therefore, they seem to prefer keeping the Euro as one of the symbols of European integration.
In order to avoid the currently ongoing financial crisis inside the Eurozone, the collective responsibility on the fiscal policy among these member state is inevitably required. The European Union will share the common fiscal policy (tax, public expenditure, and national debt).
Greek national debts will keep depreciated further. Greece herself has not a capability to repay her debt back. Although Germany and Great Britain assist Greece, Greek economy does not have strong industries and human capital assets which stimulate a boost of economic recovery to overcome from this depression spiral. Therefore, it means that Germany and Great Britain make a loss from investing on expecting for Greek recovery. It seems to a fate for Greek economy to default. When a national economy default, there are many different cases happen by means of each different situation. In this case scenario, this national economy will be "purchased" by someone. It is less likely to be bought by one individual who turns Greece into the dictatorship. As Europeans tend to think of Greece as a birth place or the origin of European civilisation and her history the EU central government is very less likely to isolate Greece to hand her to a certain dictator. Thus, the agent purchasing Greece will be the EU central government.
The situation that Greece is purchased by the EU central government means that the European central government will be in charge of Greek fiscal policy and legal system. As it happens to Greece all the other member states will be eventually looked after by the European central government to be fair. All the Eurozone member states will be enforced to relinqush their right to incur their own national debt.
Under the currently going Eurozone system, Maastrich treaty technically prohibits incurring national debt more than 3% and owning national debt more than 60% of their GDP (But, realistically not many nations follow this agreement). The reason to put such a restriction is to avoid causing a disharmony of the price inflation among the member states and the budget deficit caused by fiscal inefficiency and corruption by government bureaucrats. Allowing these states to avoid this agreement and to set their own more flexible fiscal policy relatively works well unless they keep their own monetary policy (I have mentioned a lot in the other entries in this blog).
However, this current system is highly restricted to stimulate the Eurozone economy by fiscal stimulus when the economic crisis hits all over the Eurozone member states. Some relatively well-off EU countries have agreed to spilt their government finance to rescue Greece. But, these countries are also in the recession as well! Therefore, under the current Eurozone system, helping the most deprived member state induces all the member states to be collapsed!!
If the European central government plays a role as the European federal government which is the only institution holding a right to incur a national debt (i.e. the same system as the USA), it will provide a more efficient and effective fiscal stimulus without harming the Eurozone economy. The EU is planning to call this bond as "the Euro-bond", which is not still installed but will be inevitably introduced. This idea is far more effective than the current system because the EU is simply able to issue the Euro-bond to fund for the all member states simultaneously while the recession hits all over the Eurozone. As this bond is based on the value of the whole Eurozone the credibility of this bond will be stably high. Therefore, many other national governments and many individuals will buy the Euro-bond, and the golden role will work out. All in all, it is easier to provoke the recovery which enables the Eurozone to repay back the debt if the Euro-bond is introduced.
Under this new system recommended by European federalists is more flexible to control over the whole Eurozone economy. The reason is that the larger proportion of the fiscal stimulus will be fund by the European central government than the current system, the expenditure plan in the member state has to be monitored by where the funding source is coming from. In addition, the EU central government will make sure that all its fiscal stimulus is efficiently spent to stimulate the member states' economy so that the legal system in these states will be revised and amended by the EU central government.
The opposing opinion against this European federation and the Euro-bond is that roles of the fiscal policy in all the member states have to be enforced to follow and censored very strictly. This means that all the member states will be no longer sovereign countries. They will be the states of the European federation.
If this case scenario becomes true, although the countries which are already the Eurozone member states will be integrated into the EU federalism further, the advanced non-Eurozone nations, such as Great Britain and Scandinavian countries, except for Finland, will keep a distance further in terms of their economic policy. There will be a clear distinction between members in inside and outside the Eurozone in the EU. The EU members in outside the Eurozone may avoid the censorship on their fiscal policy by the EU central government as they still keep their own monetary and fiscal policy unless they decide to join the Eurozone in the future.
Great Britain has such an independent business cycle from the Eurozone member states and has a strong own initiative of her financial market in the global market. These factors of Great Britain detests the EU fiscal integration which disturbs British business cycle. Joining the Eurozone discourages the initiative of British financial market because the power of financial market will be more concentrated on Frankfurt because Great Britain will be enforced to harmonise her business cycle to the continental Europe. Great Britain is able to keep her own market initiative as she keeps her own role of acts in financial market. Liberal Democratic party is quite happy to abandon the traditional market initiative to be integrated into the European federalism. But, due to British voting system (First Past the Post) will always elect either the Conservatives or the Labour which prefer keeping a marginal distance (not the complete Independence from the EU though) from the EU.
Scandinavian countries have a quite rigid labour market and a strong trade union power, which strongly requires a tight monetary policy to keep the price inflation level to be low. As it has been seen in the last oil price shock in 2008 the central banks in Scandinavian countries frequently changed their interest rate in order to carefully set the rate not too high but not too low. If it is too low, it perpetuates the stagflation (stagnation + inflation) caused by both the oil price and the wage bargaining. If it is too high, it discourages the economy and then induces the recession. The economy with a rigid labour market is more likely to increase unemployment. As a matter of fact, the Eurozone economy supports the flexible labour market, which means less rigid labour market (less labour right, someone may say), in order to make the wage level to be adapted to the market clearing rate. If Scandinavian countries decided to adapt the Euro, the common currency, they have to discard the rigidity of their labour market. This is one of the reasons why Denmark and Sweden do not have the full EU membership and Norway is not a member of the EU at all.
If Scotland independent from the United Kingdom, Scotland will either join the Eurozone or keep a distance from the EU as same as Scandinavian countries. But, Scottish Nationalist Party (SNP), the party insisting on Scottish independence from the UK, has not made a clear consensus to decide which way Scotland should follow.
In conclusion, it might be worth-off to long the Euro( € ) in the long run although it seems to be better to short it in the short run. It is difficult to see the best time to decide whether long or short the "Euro" ( € ). The prediction is that the value of the Euro( € ) will not be zero because of the strong political support from the European people regardless of its economic aspect. Altough the Euro( € ) will be depreciated further for a while, it will appreciate again when the Euro-bond is introduced. Ummm, difficult to make a decision. If you are willing to actively but carefully trade often in the foreign currency market, you had better short the Euro( € ) in the short run and long it in the long run. If you are bothered to cautiously watch movements and European political situations all the time, then I may recommend you to long the Euro( € ).
Thursday, April 01, 2010
Health Care Issue is the most complicated and ethically controversial issue in public sector economics
I know the dispute concerning health care and the national insurance the most complicated issue in public sector economics. It is extremely controversial and concerns with the ethical issue when we declair to privatise them without a condition. But, on the other hand, the nationalisation (or any sort of public sector ownership) makes the system breaks the trust based relationship between doctors and patients (Prof. Milton Friedman mentioned in his "Freedom of Choice").
Everyone has almost the same risk to be sick or harmed regardless of any status. Generally speaking, nobody wants to be sick and harmed all the time and avoid being sick and harmed as much as possible i.e. everyone is risk averse.
Therefore, it is difficult to deal with the risk premium.
The incentive for inovators of new technilogy to make a profit is important. In the short run, and probably in the medium run as well, the price may rise dramatically. But in the long run the price will be calmed down and the technology invented will be shared among other agencies as well i.e. the supply increases.
Nonetheless, it must face the problem of monopoly in this market which has been seen in the USA. When we excessively rely on the saving of patients, economy won't be developed and progressed further as the economic multiplier will be shrunk. The private insurance scheme causes the "free riding" problem. One company with richer customers will monopolise the market and the other insurance companies faces bankruptcy or charges a huge cost on customers. Therefore, the collective responsiblity is eventually required.
In the past, the health care system was based on a very smaller schale so that we did not need a huge distribution system.
But, nowadays, there are so much stuff to administrate technology, information, and risks involved in dairy life (e.g. trafic, new diseases, longer life expectancy has brought more concerns about illnesses during the life as well).
All in all, it is very complicated, and all the economists are struggling with dealing with this issue...
Everyone has almost the same risk to be sick or harmed regardless of any status. Generally speaking, nobody wants to be sick and harmed all the time and avoid being sick and harmed as much as possible i.e. everyone is risk averse.
Therefore, it is difficult to deal with the risk premium.
The incentive for inovators of new technilogy to make a profit is important. In the short run, and probably in the medium run as well, the price may rise dramatically. But in the long run the price will be calmed down and the technology invented will be shared among other agencies as well i.e. the supply increases.
Nonetheless, it must face the problem of monopoly in this market which has been seen in the USA. When we excessively rely on the saving of patients, economy won't be developed and progressed further as the economic multiplier will be shrunk. The private insurance scheme causes the "free riding" problem. One company with richer customers will monopolise the market and the other insurance companies faces bankruptcy or charges a huge cost on customers. Therefore, the collective responsiblity is eventually required.
In the past, the health care system was based on a very smaller schale so that we did not need a huge distribution system.
But, nowadays, there are so much stuff to administrate technology, information, and risks involved in dairy life (e.g. trafic, new diseases, longer life expectancy has brought more concerns about illnesses during the life as well).
All in all, it is very complicated, and all the economists are struggling with dealing with this issue...
Wednesday, March 10, 2010
Free tade is the only fair trade
When the free trade caused an unfairness, either side of traders may have a problem. For example, some of the countries need to amend their own system by themselves to have a fair trade in free trade. The fairtrade supporters usually mourn that it is the nature of free market causing the unfairness, and ones who take an advantage of trade have to aid. But, this is ethically wrong. The fair trade these buggers support causes a major unfairness in the long-run. We had better let these weak economies to feel pain to allow them what kind of problems they have got rather than let them to be spoiled by the aid. This logic works for the colonial management of British empire. The reason why some colonies have been collapsed by trade and immoral is because these poor colonials deserved to be like that! The fact that there are many successful British colonies succeeded in prosperity via trade with British empire, their suzerein is the proof. Free trade without putting priority on fairness brings the best optimum outcome giving these economies either positive or negative sanctions owing to their paformance. All in all, the fair trade and the human right activists criticising about the free capitalist international trade are scum.
I just hate the idea and the brand-name of "fair trade" because this is very hypocritic. That's why I reject buying the product named fair trade. The margine for the labour cost is in fact not too different from the other products.
Speaking of monopoly, the floating exchange rate enables traders to adjust the rate to bring the fair outcome. When the monopoly of trade by Country A is concerned, Country B may put a higher exchange rate to restrict the monopoly power of Country A. The reason why some developing country depreciate the value of their currency rather than appreciate is to "dump" their product; it is not the case that advanced nations monopolise the market.
The free trade principles, floating exchange rate mechanism, liberated financial market, and freedom of choosing trading goods and their price, are the key figures to bring the stable equilibrium in the longer term.
* Small-scale producers in many poor countries are not necessary to be sustained to survive. As long as the products from the richer nations give better quality and quantity with a competitive price. As many commodities and services with inexpensive price become available from the import, then they can be more concentrated on investing the other sort of industries.
* The trade loss would be inevitable for these economies with a significantly lower productivity in the current globalised market. But, it is not the responsibility of richer economies and the "fair trade" is not a particular answer for decreasing the loss. The management of these poor countries have to become sophisticated. The method shall be either sending intellectuals from more advanced economy to teach then a lesson or let these poor economies to decide what they should do.
* Sometimes, these poor countries need to restrict the foreign trade when they are relying on the import too much. The reason why East-Asian economies could developed faster than the other LDCs is that their entrepreneurship and deligency to work were already capable to the global trade. However, I know some other poor economies are not capable enough. If they wish to join the global trade, they should temporary put priority on developing the entrepreneurship and civilising their own civilisation through welcoming the intellectuals from the advanced civilisations. I.e. Development dectatorship in these countries is necessary such as what Singapore did. Uncivilised economies such as all African economies and some South American economies should be isolated from the international society or become inducted by the more advanced and civilised economies.
* Extremely deprived economies with lack of natural resources still can be benefited from "free trade". They can still sell their cheap labour force! For instance, Bangladesh economy became far more developed and civilised after being involved into the global free trade. Therefore, "farmers in poor countries have few options for generating an income and many live in poverty" still can abandon their traditional income earning method and sell their cheap labour into the global economy. This industrial revolution and the dynamic change from traditional society to modern society (Westernised i.e. more civilised society) were also seen in Western nations inside their own economy in centuries ago. Now, the revolutionary movement having seen in Western economy in the past takes place in the "globe". Abandoning traditional life styles and abandoning traditional pre-industrial patterns makes the real income gain higher as the average commodity price index in the globe will go down owning to the productivity growht. Freer trade will accerelate this revolutionary movement further!
I just hate the idea and the brand-name of "fair trade" because this is very hypocritic. That's why I reject buying the product named fair trade. The margine for the labour cost is in fact not too different from the other products.
Speaking of monopoly, the floating exchange rate enables traders to adjust the rate to bring the fair outcome. When the monopoly of trade by Country A is concerned, Country B may put a higher exchange rate to restrict the monopoly power of Country A. The reason why some developing country depreciate the value of their currency rather than appreciate is to "dump" their product; it is not the case that advanced nations monopolise the market.
The free trade principles, floating exchange rate mechanism, liberated financial market, and freedom of choosing trading goods and their price, are the key figures to bring the stable equilibrium in the longer term.
* Small-scale producers in many poor countries are not necessary to be sustained to survive. As long as the products from the richer nations give better quality and quantity with a competitive price. As many commodities and services with inexpensive price become available from the import, then they can be more concentrated on investing the other sort of industries.
* The trade loss would be inevitable for these economies with a significantly lower productivity in the current globalised market. But, it is not the responsibility of richer economies and the "fair trade" is not a particular answer for decreasing the loss. The management of these poor countries have to become sophisticated. The method shall be either sending intellectuals from more advanced economy to teach then a lesson or let these poor economies to decide what they should do.
* Sometimes, these poor countries need to restrict the foreign trade when they are relying on the import too much. The reason why East-Asian economies could developed faster than the other LDCs is that their entrepreneurship and deligency to work were already capable to the global trade. However, I know some other poor economies are not capable enough. If they wish to join the global trade, they should temporary put priority on developing the entrepreneurship and civilising their own civilisation through welcoming the intellectuals from the advanced civilisations. I.e. Development dectatorship in these countries is necessary such as what Singapore did. Uncivilised economies such as all African economies and some South American economies should be isolated from the international society or become inducted by the more advanced and civilised economies.
* Extremely deprived economies with lack of natural resources still can be benefited from "free trade". They can still sell their cheap labour force! For instance, Bangladesh economy became far more developed and civilised after being involved into the global free trade. Therefore, "farmers in poor countries have few options for generating an income and many live in poverty" still can abandon their traditional income earning method and sell their cheap labour into the global economy. This industrial revolution and the dynamic change from traditional society to modern society (Westernised i.e. more civilised society) were also seen in Western nations inside their own economy in centuries ago. Now, the revolutionary movement having seen in Western economy in the past takes place in the "globe". Abandoning traditional life styles and abandoning traditional pre-industrial patterns makes the real income gain higher as the average commodity price index in the globe will go down owning to the productivity growht. Freer trade will accerelate this revolutionary movement further!
Monday, February 15, 2010
Arbroath, Scotland
Arbroath is a place in the East coast of Highland in Scotland. This is a wee small fishing village. However, this is a historically remarkable place. The declaration of independence was firstly written in 13th century. The declaration of independence in the USA is referred to this Scottish one when the US independence was declared. Furthermore, when Thomas Becket, the Archbishop of Canterbury from 1162 until his death in 1170, was assassinated, he was listed and praied as a Christian saint, and Arbroath Abbey nominates him as a saint of this Church institution.
Arbroath is famous for Smokies, the smoked fish, which is made of fish caught in local. This has a quite distinctive taste of fish, which offers us a natural taste of fresh fish with a unique taste of smokiness. This is the place where we can try a real taste of natural Scottish fish. Nonetheless, they no loger sell Fish&Chips made of the locally caught fish. This was a wee disappointing factor. But, Smokies are still made of the locally caught fish, and it is nice to eat such a traditional delicacy in a wee traditional Scottish village.
Wednesday, February 10, 2010
Proactive Macroeconomic Policy is important: The EMU fails (Econometric Analysis)
In order to prove that the European Monetary Union (EMU), which is also called the Eurozone, fails, the econometric analysis is used to see how the immediate, independent and proactive macroeconomic policy in smaller economic region is important to achieve in a stable long-run economic growth. This is the reason why Scandinavian nations keep their own monetary policy. The EMU is an ultimately unstable macroeconomic system without a doubt. Unlike the US federal government system, the EU does not have a common fiscal policy on the top of a common monetary policy. Furthermore, the population in the Eurozone is 329 million which far larger than the US population (approx. 250 million). Therefore, the Eurozone must require a federal government with a stronger fiscal enforcement and a huger scale of fiscal distribution system in order to stabilise the system.
Some pro-EU economists claimed that the trade frequency among the EU countries is so high that the business cycle among the Eurozone nations are more likely to be flexible and automatically stabilised. However, in the Eurozone legal systems are quite heterogeneous and the labour mobility is inflexible unlike the USA.
The centralised economic system eventually needs a big government in order to stabilise the system. The centralised big government in a huge size of econmic region suffers from notorious disadvantages. Labour right has to be abandoned in order to induce a frexible labour mobility to reallocate the labourers means of the change in the business cycle. The economy is more planned in order to redistribute the tax and the government expenditure. The reason why the economy has to be more planned in this system is that the monetary policy (interest rate, money supply, and capital investment plans) is no longer able to adjust to stabilise each business cycle in different areas. In addition, the transaction cost and the time consumed are high in this system to organise the fiscal policy.
On the other hand, the decentralised economic system enables the economic regions to stabilise the business cycle, react against the change in the business cycle by the fiscal policy with a smaller and more efficient transaction cost and a shorter time period, and the monetary is effective. Sweden could adjust its own interest rate immediately to react against the sudden shock in the business cycle as seen in 2009. Singapore remains a stable business cycle and long run economic growth with a smaller size government than the other nations. France is famous for a remarkably proactive macroeconomic policy. According to the econometric analysis offered by this short project proved that the proactive macroeconomic policy encourages a stable long run economic growth. This means that France seems to have a strong advantage in it. However, as France has joined the EMU, her proactive policy is more restricted because of the Maastricht treaty which is installed in order to avoid disharmony of the fiscal policy inside the EMU.
The following chapter explains how the regression analysis proved an effect of the proactive fiscal policy on the stable long run economic growth by using a macroeconomic data set based on 143 countries and 38 time periods (annual basis from 1970 to 2007). The data set is downloaded from Penn-World Table 6.3. GDP is created by multiplying the real GDP per capita (per worker) by the population. Government expenditure (denoted as "kg") is represented by Government Share of Real GDP per capita (RGDPL). Both GDP and Government Expenditure (kg) are natural-logged (denoted as l_GDP and l_kg accordingly).
Firstly, the variable representing the business cycle is created by subtracting "unit specific effects of countries (the different intercepts for countries)" and "time trend", which represent the long run trend from l_GDP as follows:
Then, the residuals are saved and named as "BizCycle" which represents the business cycle. This variable shows that the economy is in the boom when "BizCycle" is positive whilst the economy is in the recession when "BizCycle" is negative.
Secondly, the variable called "the level of fiscal stimulus", which indicates the level of government expenditure, is created by subtracting "unit specific effects of countries (the different intercepts for countries)" and "time trend", which represent the long run trend from l_kg as follows:
Then, the residuals are saved and named as "Fiscal_Stimulus" which represents the business cycle. This variable shows that "Fiscal_Stimulus" is possitve when the government expenditure is higher than the average across the time whilst "Fiscal_Stimulus" is negative when the government expenditure is lower than the average across the time.
At this stage, the variables representing the business cycle and the fiscal stimulus are created. The reason why the residuals are used instead of taking a difference of the GDP and the kg is to use the constant account of change rather than the current account. If we just use the first-difference of thees variables, it is only able to focus on the current account whici is not able to see the comparison with the average across the time period. The current account only compares the change between the current time period and the previous time period. Using the residuals instead of the first-difference does not exactly mean the constant account. However, it is able to see the dynamic impacts of these variables.
Now, in order to create the variable representing the level of proactivity, "Fiscal_Stimulus" is regressed on "the business cycle", and the kagged variables of "the business cycles" which are lagged for 1, 2, 3, 4, and 5 years, the unit specific effects, and the time trend by the fixed effect estimates (OLS) as follows:
The coefficients of the constant (the common intercept for all countries and time periods), time trend, the current business cycle, and the business cycle lagged for 5 years are significant.
The constant is significant because there is a fixed amount of the government expenditure in all countries. The time trend is significant but this variables is included in the estimates to prove effects of the main explanatory variables are strong enough across the time period. The fixed-effect is used to to prove effects of the main explanatory variables are strong enough across countries. Therefore, this OLS enables to prove the main explanatory variables, "BizCycle" and its lags, are strong enough to explain the dependent variable, "Fiscal_Stimulus".
The important figure is that "BizCycle" and "BizCycle_5" are significant. The coefficient of "BizCycle" is negative whereas "BizCycle_5" is possitive. This implies that "Fiscal_Stimulus" increases as the economy gets into the recession compared to the economy in the five years ago. By contrast, "Fiscal_Stimulus" decreases (lower expenditure and/or higher tax)as the economy recovers or gets into the bubble compared to the five years ago. All in all, this formula shows that it decides whether the economy is in recession or boom according to the comparision with the past situation. This is a quite rational explanation of proactivism, and this formula support the theory explaining how the level of fiscal stimulus is determined according to the business cycle.
The fitted values of "Model 3" is saved. The fitted values is named as "ProAct" which represents the estimated "Fiscal_Stimulus" based on the information of the constant, the time trend, "BizCycle" and "BizCycle_5".
Finally, the time trend, which represents a long run trend of the business cycle, is regressed on "ProAct" by the fixed-effect estimates. The time trend is used because this is only a variable showing its value increase by 1 a year.
The random-effect estimates (GLS) are also tried but offered a less significant level of the coefficient of "ProAct" than the fixed-effect estimates (OLS). But the random-effect estimates indicated that it is significant in the 10% siginicance level. On the other hand, the fixed-effect estimates indicated that it is significant in the 5% significance level which econometricians commonly refer to.
"ProAct" is considered as a relatively week variable because there are so many other potential explanatory variables explaining the long run economic growth. Nevertheless, despite this assymption, the coefficient of "ProAct" become significant and positive. This implies that the proactive fiscal stimulus is one of the important variables encouraging a stable long run economic growth.
Some pro-EU economists claimed that the trade frequency among the EU countries is so high that the business cycle among the Eurozone nations are more likely to be flexible and automatically stabilised. However, in the Eurozone legal systems are quite heterogeneous and the labour mobility is inflexible unlike the USA.
The centralised economic system eventually needs a big government in order to stabilise the system. The centralised big government in a huge size of econmic region suffers from notorious disadvantages. Labour right has to be abandoned in order to induce a frexible labour mobility to reallocate the labourers means of the change in the business cycle. The economy is more planned in order to redistribute the tax and the government expenditure. The reason why the economy has to be more planned in this system is that the monetary policy (interest rate, money supply, and capital investment plans) is no longer able to adjust to stabilise each business cycle in different areas. In addition, the transaction cost and the time consumed are high in this system to organise the fiscal policy.
On the other hand, the decentralised economic system enables the economic regions to stabilise the business cycle, react against the change in the business cycle by the fiscal policy with a smaller and more efficient transaction cost and a shorter time period, and the monetary is effective. Sweden could adjust its own interest rate immediately to react against the sudden shock in the business cycle as seen in 2009. Singapore remains a stable business cycle and long run economic growth with a smaller size government than the other nations. France is famous for a remarkably proactive macroeconomic policy. According to the econometric analysis offered by this short project proved that the proactive macroeconomic policy encourages a stable long run economic growth. This means that France seems to have a strong advantage in it. However, as France has joined the EMU, her proactive policy is more restricted because of the Maastricht treaty which is installed in order to avoid disharmony of the fiscal policy inside the EMU.
The following chapter explains how the regression analysis proved an effect of the proactive fiscal policy on the stable long run economic growth by using a macroeconomic data set based on 143 countries and 38 time periods (annual basis from 1970 to 2007). The data set is downloaded from Penn-World Table 6.3. GDP is created by multiplying the real GDP per capita (per worker) by the population. Government expenditure (denoted as "kg") is represented by Government Share of Real GDP per capita (RGDPL). Both GDP and Government Expenditure (kg) are natural-logged (denoted as l_GDP and l_kg accordingly).
Firstly, the variable representing the business cycle is created by subtracting "unit specific effects of countries (the different intercepts for countries)" and "time trend", which represent the long run trend from l_GDP as follows:
Then, the residuals are saved and named as "BizCycle" which represents the business cycle. This variable shows that the economy is in the boom when "BizCycle" is positive whilst the economy is in the recession when "BizCycle" is negative.
Secondly, the variable called "the level of fiscal stimulus", which indicates the level of government expenditure, is created by subtracting "unit specific effects of countries (the different intercepts for countries)" and "time trend", which represent the long run trend from l_kg as follows:
Then, the residuals are saved and named as "Fiscal_Stimulus" which represents the business cycle. This variable shows that "Fiscal_Stimulus" is possitve when the government expenditure is higher than the average across the time whilst "Fiscal_Stimulus" is negative when the government expenditure is lower than the average across the time.
At this stage, the variables representing the business cycle and the fiscal stimulus are created. The reason why the residuals are used instead of taking a difference of the GDP and the kg is to use the constant account of change rather than the current account. If we just use the first-difference of thees variables, it is only able to focus on the current account whici is not able to see the comparison with the average across the time period. The current account only compares the change between the current time period and the previous time period. Using the residuals instead of the first-difference does not exactly mean the constant account. However, it is able to see the dynamic impacts of these variables.
Now, in order to create the variable representing the level of proactivity, "Fiscal_Stimulus" is regressed on "the business cycle", and the kagged variables of "the business cycles" which are lagged for 1, 2, 3, 4, and 5 years, the unit specific effects, and the time trend by the fixed effect estimates (OLS) as follows:
The coefficients of the constant (the common intercept for all countries and time periods), time trend, the current business cycle, and the business cycle lagged for 5 years are significant.
The constant is significant because there is a fixed amount of the government expenditure in all countries. The time trend is significant but this variables is included in the estimates to prove effects of the main explanatory variables are strong enough across the time period. The fixed-effect is used to to prove effects of the main explanatory variables are strong enough across countries. Therefore, this OLS enables to prove the main explanatory variables, "BizCycle" and its lags, are strong enough to explain the dependent variable, "Fiscal_Stimulus".
The important figure is that "BizCycle" and "BizCycle_5" are significant. The coefficient of "BizCycle" is negative whereas "BizCycle_5" is possitive. This implies that "Fiscal_Stimulus" increases as the economy gets into the recession compared to the economy in the five years ago. By contrast, "Fiscal_Stimulus" decreases (lower expenditure and/or higher tax)as the economy recovers or gets into the bubble compared to the five years ago. All in all, this formula shows that it decides whether the economy is in recession or boom according to the comparision with the past situation. This is a quite rational explanation of proactivism, and this formula support the theory explaining how the level of fiscal stimulus is determined according to the business cycle.
The fitted values of "Model 3" is saved. The fitted values is named as "ProAct" which represents the estimated "Fiscal_Stimulus" based on the information of the constant, the time trend, "BizCycle" and "BizCycle_5".
Finally, the time trend, which represents a long run trend of the business cycle, is regressed on "ProAct" by the fixed-effect estimates. The time trend is used because this is only a variable showing its value increase by 1 a year.
The random-effect estimates (GLS) are also tried but offered a less significant level of the coefficient of "ProAct" than the fixed-effect estimates (OLS). But the random-effect estimates indicated that it is significant in the 10% siginicance level. On the other hand, the fixed-effect estimates indicated that it is significant in the 5% significance level which econometricians commonly refer to.
"ProAct" is considered as a relatively week variable because there are so many other potential explanatory variables explaining the long run economic growth. Nevertheless, despite this assymption, the coefficient of "ProAct" become significant and positive. This implies that the proactive fiscal stimulus is one of the important variables encouraging a stable long run economic growth.
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