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!
Wednesday, March 10, 2010
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.
Sunday, December 27, 2009
Tuesday, November 10, 2009
Tobin tax disturbs the purchasing power parity condition!
British prime minister Gordon Brown is proposing to put such a notorious economic policy into practice. This economic policy is "Tobin tax" which is levied on trade of currency across borders. This aim is to avoid an excess flow of international financial transactions which have caused the current financial crisis. He seems to be highly sceptical about liberal international system as he suspects the liberalised system has a high risk to encourage a bubble burst of financial market. However, Tobin tax also involves the high risk of disturbing the purchasing power parity (PPP) condition.
Tuesday, July 21, 2009
British Conservative party knows the monetary policy is effective and claims a more proactive and responsible central bank!
Tory's manifest about the central bank's policy reform is good and wise. The central bank should hold more power over financial market and become more proactive toward the economic situation!
Majority of economists Labour party tend to underestimate the power of monetary policy. The labour party has allowed Bank of England, the British central bank, to be independent from the political body since 1997 in order to imitate the style of European Central Bank. This means that Bank of England puts its own policies into practice regardless of the fiscal policy operated by the government. The advantage of this reform in 1997 is that the central bank can be pragmatic to operate their monetary policy. This implies that the policy is no longer disturbed by the idealistic policies claimed by the political party which always proposes the non-pragmatic policy only attracts mass. However, the disadvantage of the reform in 1997 is that the monetary policy operated by a central bank is dis-harmonised with the fiscal policy operated by a government. Labourite monetary policy is just extremely irresponsible, and causes the dis-harmony between fiscal and monetary policy units!
The failure of British Labour party is that this party has underestimated the significance of monetary policy and the responsibility of Bank of England for the financial market situation. The current financial crises are caused by the lack of responsibility of the central bank. Labour only considers the financial market stability is dependent on the fiscal policy (tax and national debt). Labour has rarely focused on the microeconomic level of financial market. The fiscal policy can control the volume of activities in the macroeconomic level. But, the important role of financial market is to analyse how the cash flows and to lead the flow of cash does not cause the trigger of financial crises. The monetary policy in the labour regime has not been able to restrict the monetary transaction taken place by Private financial institutes whose business performances are quite questionable and unstable.
The labour only considers to restrict the unstable monetary transaction by imposing extra regulations and taxes, but this causes the restriction of our glorious free market system! The financial market is already the most regulated market in all over the world. The reason why the financial market can cause such crises currently going in the world is that it is more likely to be expanded much faster than other sorts of markets. Furthermore, the financial market is quite flexible to manipulate the tax and regulation system so that a new tax and a new regulation are less effective on the financial market and discard the equity and the individual liberty in the market system.
The best way to avoid the bad cash flows without discarding equity and the individual liberty is to allow the central bank to hold the power to decide which financial institutes and private companies are eligible to lend money. The currently going financial crises are based on the failure to invest the money to the stable and responsible institutes. Bank of England does not have a greater power to decide to invest to the institutes.
Labour, the British totalitarian party, only tries to use the big government policy to censor the financial activities and even nationalise private sectors! This allows Labour to make Britain as a totalitarian nation!
In contrast, Tory (British Conservative party), the classical liberalist party, claims the best way is to avoid imposing the excess censorship in the economic activities in order to defend equity and the individual liberty. If Bank of England is enabled to act independently and hold much stronger power, it will be able to stabilise British macroeconomic circumstances without imposing the excess censorship and the nationalisation. It is important to remember that Federal Reserve Bank, the US central bank, is in fact a private financial institute (not officially a public sector). As Federal Reserve Bank act in a role of private business, it concerns about the risk and return of investment to the market. Tory wants Bank of England to act almost like Federal Reserve Bank. Although Bank of England will not be privatised, it should act very cautiously as much as private banks do. Bank of England has invested any British financial institutions without considering risk and return from the investment too loosely. Bank of England might have thought that investing and stimulating the economic activity of any sectors encourages the British economic growth, which fulfils the national interest. Nonetheless, Bank of England ought to remember the proverb "Be cruel to be kind". Bank of England should learn from the private banks which are quite selective to invest to the others. Banks' priority is to make a sufficient amount of profit from the investment and avoid the risk of investment as much as possible. Bank of England has been too ignorant about this philosophy of investment as it has been a public sector since the after the WW2. The central bank should not be the socialist bank, it should also have a strong capitalist mind!
All in all, Tory knows that monetary policy has much higher responsiveness to the macroeconomic situation than Labour. Indeed this is a damn good move that Tory offers a more sovereign power to the monetary policy unit. It shall enable the macroeconomic climate to be more stabilised without a totalitarian government's censorship, unlike the labourite fiscal policy.
Majority of economists Labour party tend to underestimate the power of monetary policy. The labour party has allowed Bank of England, the British central bank, to be independent from the political body since 1997 in order to imitate the style of European Central Bank. This means that Bank of England puts its own policies into practice regardless of the fiscal policy operated by the government. The advantage of this reform in 1997 is that the central bank can be pragmatic to operate their monetary policy. This implies that the policy is no longer disturbed by the idealistic policies claimed by the political party which always proposes the non-pragmatic policy only attracts mass. However, the disadvantage of the reform in 1997 is that the monetary policy operated by a central bank is dis-harmonised with the fiscal policy operated by a government. Labourite monetary policy is just extremely irresponsible, and causes the dis-harmony between fiscal and monetary policy units!
The failure of British Labour party is that this party has underestimated the significance of monetary policy and the responsibility of Bank of England for the financial market situation. The current financial crises are caused by the lack of responsibility of the central bank. Labour only considers the financial market stability is dependent on the fiscal policy (tax and national debt). Labour has rarely focused on the microeconomic level of financial market. The fiscal policy can control the volume of activities in the macroeconomic level. But, the important role of financial market is to analyse how the cash flows and to lead the flow of cash does not cause the trigger of financial crises. The monetary policy in the labour regime has not been able to restrict the monetary transaction taken place by Private financial institutes whose business performances are quite questionable and unstable.
The labour only considers to restrict the unstable monetary transaction by imposing extra regulations and taxes, but this causes the restriction of our glorious free market system! The financial market is already the most regulated market in all over the world. The reason why the financial market can cause such crises currently going in the world is that it is more likely to be expanded much faster than other sorts of markets. Furthermore, the financial market is quite flexible to manipulate the tax and regulation system so that a new tax and a new regulation are less effective on the financial market and discard the equity and the individual liberty in the market system.
The best way to avoid the bad cash flows without discarding equity and the individual liberty is to allow the central bank to hold the power to decide which financial institutes and private companies are eligible to lend money. The currently going financial crises are based on the failure to invest the money to the stable and responsible institutes. Bank of England does not have a greater power to decide to invest to the institutes.
Labour, the British totalitarian party, only tries to use the big government policy to censor the financial activities and even nationalise private sectors! This allows Labour to make Britain as a totalitarian nation!
In contrast, Tory (British Conservative party), the classical liberalist party, claims the best way is to avoid imposing the excess censorship in the economic activities in order to defend equity and the individual liberty. If Bank of England is enabled to act independently and hold much stronger power, it will be able to stabilise British macroeconomic circumstances without imposing the excess censorship and the nationalisation. It is important to remember that Federal Reserve Bank, the US central bank, is in fact a private financial institute (not officially a public sector). As Federal Reserve Bank act in a role of private business, it concerns about the risk and return of investment to the market. Tory wants Bank of England to act almost like Federal Reserve Bank. Although Bank of England will not be privatised, it should act very cautiously as much as private banks do. Bank of England has invested any British financial institutions without considering risk and return from the investment too loosely. Bank of England might have thought that investing and stimulating the economic activity of any sectors encourages the British economic growth, which fulfils the national interest. Nonetheless, Bank of England ought to remember the proverb "Be cruel to be kind". Bank of England should learn from the private banks which are quite selective to invest to the others. Banks' priority is to make a sufficient amount of profit from the investment and avoid the risk of investment as much as possible. Bank of England has been too ignorant about this philosophy of investment as it has been a public sector since the after the WW2. The central bank should not be the socialist bank, it should also have a strong capitalist mind!
All in all, Tory knows that monetary policy has much higher responsiveness to the macroeconomic situation than Labour. Indeed this is a damn good move that Tory offers a more sovereign power to the monetary policy unit. It shall enable the macroeconomic climate to be more stabilised without a totalitarian government's censorship, unlike the labourite fiscal policy.
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