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India loses out in free trade agreement with Thailand?

Ravi Krishnan in Indian newspaper Financial Express claims that India loses out in free trade agreement with Thailand.

His evidence is that:

During January-December 2005, Thailand's exports of items under the Early Harvest Scheme (EHS) of the Indo-Thai FTA stood at Rs 664.3 crore — an increase of 71% over calendar year 2004. In contrast, India's exports to Thailand actually declined 33.8% to Rs 195.6 crore.

His point is that: India receives less monetary revenue from trading with Thailand and thus loses out from the deal.

Ravi forgots that trade is exchange of goods for goods, goods for money, or money for goods. In any voluntary exchange/trade, when you give away goods or money, you will receive goods or money of equivalent value as compensation. 

Certainly in this deal Indians send more money to Thailand than Indians receive, but doesn’t it also indicate that Indians receive more goods from Thailand?

No one loses out from trade. As a matter of fact, both sides gain because with the same amount of money, you can get more stuff from Thailand than from inefficient domestic manufacturing sector back in India.

If you are a worker, do you think your boss always loses out when he hands you the paycheck. No, because he gets your labor of equivalent market value as exchange. Then why do you think India loses out from trade simply because Thailand exports more and receive more money from India?

China economic updates from World Bank and Bank of Finland

Introduce two publications on China current economic issues:

World Bank’s Beijing Office has released their China  “Quarterly Update” for Q1

Bank of Finland’s Institute of Transition Economy (BOFIT) has been specializing in  Chinese and Russian economy and following them very closely. They also regularly produce a quarterly report called “BOFIT China Review

Why financial deregulation was bad for OECD countries but will be good for China?

There is a theory that financial deregulation may be bad for China.  The idea is that when liquidity constraints on households are removed, people may save less, and if high saving/investment  rate is important for rapidly growing countries such as China, China may lose steam as a result of financial sector deregulation.

This is true in the history. Empirical results suggest that financial deregulation in the 1980s has contributed to the decline in national saving and growth rates in the OECD countries.

China however is a different case. She already saves too much, and now everyone agrees that domestic demand/consumption  needs to be jump started. Chinese financial sector is also terribly inefficient, and deregulation of financial sector will improve it mostly in asset allocation front instead of consumer lending front.  For cultural reasons, it is also hard to convince Chinese consumers to take out loans from banks to increase spending.

Currently consumer lending has very small share in Chinese banks’ loan portfolio. This is increasing over time because banks are seeing it as a more profitable and safer business, and foreign banks (e.g. Citibank) are particularly interested in developing products for high net-worth consumers and the rapidly emerging middle class.

Anyway, I can see no reason why cost of financial deregulation (in reducing saving rates) will outweigh its benefit (in increasing consumption and transform China’s economic growth  into a demand-driven model)

Saving, Growth, and Liquidity Constraints
By Tullio Jappelli and Marco Pagano (published in the Quarterly Journal of Economics)
Abstract : In the context of an overlapping-generations model, the authors show that liquidity constraints on households (1) raise the saving rate, (2) strengthen the effect of growth on saving, (3) increase the growth rate if productivity growth is endogenous, and (4) may increase welfare. The first three positions are supported by cross-country regressions of saving and growth rates on indicators of liquidity constraints on households. The results suggest that financial deregulation in the 1980s has contributed to the decline in national saving and growth rates in the OECD countries.

James Kynge's new book: China shakes the world

James Kynge just published a new book "China shakes the world: the rise of a hungry nation". Chris Patten, the last British governor of Hong Kong, wrote a nice book review for him.

Recently everyone is writing and publishing about China! Some sign of overheating?

By the way, James is hosting a online Q&A session on Financial Times website for his new book. Interested readers can go there to ask him tough questions.

Lenovo is embedding codes in computers to collect U.S. government secrets?

“In March, the State Department said it had purchased a batch of computers from China's Lenovo Group Ltd.. At the time, Michael Wessel, a member of the congressionally created U.S.-China Economic and Security Review Commission, said the purchase should be investigated, especially if codes embedded into the computers could be remotely activated.

Lenovo bought IBM's personal computer division last May. The computers bought by the State Department were assembled in the United States and Mexico with integrated circuits made in Taiwan, according to the company. While the computer order was for unclassified systems with removable hard drives, some experts raised concerns about the opportunity for intelligence gathering through hardware and software.” --- Reuters

Are Chinese embedding codes into Lenovo computers to collect intelligence from U.S. government? Well, it is possible, because everything is possible. It is possible too that President Bush is a robot manufactured by Chinese to take over control of America. It is possible that American never actually land on the moon. It is possible that Elvis Presley is still alive. It is possible that there is a huge conspiracy within the government to hide evidence of human contact with E.T. aliens.

There is always (slim) possibility of everything, the beauty of such trick is that no one can say for sure for 100% that something may not happen. This is why it is always convenient to divert people’s attention away from domestic problems by creating hatred against foreigners and making up horrific conspiracy stories about foreigners.

By the way, Chinese government seems to be quite happy in using Intel CPU chips and Microsoft operation systems though, although sometimes not paying for the software.

Schumer or Snow: who is the dodging the real issue?

Sen. Charles Schumer, D-N.Y., said Treasury's report last week that declined to brand China as a currency manipulator was ”a technical and legislative dodge.”

"China is a manipulator," Schumer said at a Senate Banking Committee hearing, "and the administration is afraid to say so."

Well, Mr.Schumer can accuse anyone of murder too, but when the experts disagree with him (Treasury department report did not find proof of manipulation), he may want to think carefully again whether he himself is actually dodging the real issue. It is agreed by most economists that U.S. domestic deficits are the real driver of the trade deficits. If you consume more than you produce, what else do you expect to see other than deficits? Are you going to blame obesity problems on European candy makers too?

China's surplus trade with the U.S. only accounts for one quarter of United States' trade deficit, which means that even China balances current account with the U.S. overnight, problems are still there. As Michael Woolfolk (senior currency strategist at the Bank of New York) said, "..government and investors will doubtless still be looking for another nation to blame."

"This is an incredibly important issue for my state," said Sen. Debbie Stabenow, D-Mich. "How many jobs are we going to lose from currency manipulation?"

The answer is none. The products China exports to the U.S. were previously made by South East Asian countries and Latin American countries, at a much higher costs though. Manufacturing jobs are moving from these places to China, not from U.S. mainland.  Even if the Chinese appreciates its currency or U.S. imposes high tariff on Chinese products, it is not going to bring manufacturing jobs back to U.S. It will only divert trades from China to other developing countries, and creates a huge financial burden on American consumers.

Snow acknowledged that "the sentiment is pretty strong to do something against China. The handwriting is on the wall and China needs to act."
That’s damn right. The whole trade issue is about sentiment, not about facts. It is always easy and convenient to blame on foreigners, demonize foreigners, than to face the real issues and one’s own mistakes.

Reference:

Sens. Criticize Treasury on China Currency -  Washington Post

Saving the environment from the environmentalists

I always believe that,  to protect the environment, to help the poor.... all of these tasks require not only a good intention, a faith, but also fact-based reasoning.

Peter Huber’s book “Hard Green: Saving the Environment from the Environmentalists: A Conservative Manifesto” is such a good example of scientific reasoning.

Today, all of homes, buildings and roads occupy less than three percent of the land in the lower 48 states. Thanks to efficient use of land, we have lots of trees in the US, so we actually consume more carbon dioxide than we produce. In developing countries however, the most devastating force in deforestation is actually the use of wood as energy for heating by poor people, not paper industry that usually obtains raw material from commercial forests which are not part of the wild jungle. The development of paper and pulp industry by making more efficient use of land and raising workers’ income level actually preserve forests, because locals don’t need to destroy forest for heating energy any more.  “Environmentalists” claims that by sending less post-cards you can save Amazon jungle; but the fact is that paper industry contributed very little to the deforestation of Amazon jungle.

As argued by Professor Huber, “the only way to save the wilderness is to reduce the human footprint on the land by living vertically instead of horizontally.” In the past, vast forests in New York and other states were felled by pioneers, the original “organic” farmers, to feed their families and their livestock. More than a quarter of the farmland was devoted to “turning solar energy into the renewable fuel powering their transportation system”. These buzzwords simply mean grasses and grains eaten by horses. So we used to be very “environmentalists”, but as we already see, those days were more disastrous to the environment.

In recent decades, however many of those fields have reverted to wilderness because they are no longer needed to grow food or fuel. Over the past quarter-century, Professor Huber estimates, the country has gained 70 million acres of wilderness, more than all the land occupied by cities, suburbs, roads and any other kind of development. So urbanization and economic development, opposite to what “environmentalists” have predicted, actually help preserve wilderness.

John Tierney, in his book review in New York times, highlights several of Professor Huber’s excellent points the bust the myths created by “environmentalists”

Where Soft Greens see ''urban sprawl'' destroying the countryside, Dr. Huber sees cities absorbing the farmers who once destroyed the wilderness. ''It's true that we lose a little green space at the edge of cities as suburbs grow,'' Dr. Huber said, ''but that loss is more than offset by all the wilderness gained from the farms abandoned farther away.'' You might think of New York City and its suburbs as the antidote to rural sprawl.

Where Soft Greens fret about the risks from factory farms and pesticides and genetically engineered plants, Dr. Huber exults in the land saved by new technologies. ''If you care about the open range, you should recoil from free-range chicken on the menu,'' Dr. Huber said. ''You should prefer chickens living in the agribusiness equivalent of Trump Tower. If you care about seeing more of the Vermont woods of Robert Frost, you should think twice about eating Ben & Jerry's ice cream.''

Ben & Jerry's prides itself on getting milk from small family farms in Vermont, and it opposes the use of a synthetic growth hormone to increase each cow's output. ''If farmers used that hormone, they wouldn't need so many cows,'' Dr. Huber said, ''so some of the farms could revert to forests. There would also be fewer cows emitting methane, which is one of the most powerful greenhouse gases.''

''You may want to stop someone from building new homes near you because the extra crowding reduces your quality of life,'' he said. ''But it's a fraud to confuse your self-interest with what is good for the planet. If you make it harder for people to move to cities and suburbs, they'll end up in places where cougars and eagles could be living.”

Mark Hetsgaard, in his review article also on New York Times, however disagrees with Professor Huber’s view that the answer to our environmental problems is to unleash the power of the market.

Do I have the right to blame those corporations that lay off workers?

If General Motors lays off a worker that has worked for GM for 20 years, we may be angry because this person has worked for you for 20 years and how dare you get rid of him only because he is not needed anymore!

I would never blame GM, because I don’t think I have the right to. The logic is as follows.

  • For the past 20 years, GM gives this worker a secure job and high wage; for the next 20 years, GM decides not to keep him.
  • For the past 20 years, I never give this worker a single penny, and I would not be able to give him any in the next 20 years either.
  • Between GM and me, very clearly I will be out of my mind if I say GM is more blamable than myself.
  • And I think the worker should be grateful more to GM than to any other critics who have never paid him and who only pay lip service. 

Some people see a bottle of water half full as half empty; they only see that GM is not paying this worker in the future, but never appreciate that it is GM that created  and gave him a high wage job in the first place. They didn’t complain when GM gave him this job. They should. After enjoying high wage for 20 years, he certainly loses his ability to adjust to a lower living standard that he truly deserves. In this sense, it is GM’s fault.

They only see that developing countries are stealing jobs from the U.S., but never realize that, before that American workers stole jobs from other human beings in the developing world. They complain that the competition is unfair because American workers certainly cannot live with salary of <5 dollars/hour.  You should learn to! Both you and your fellow workers in developing countries are human beings; If they, with the same level of skill as yours, are earning far less than you do, why do you think you have the right to complain at all. You should actually feel guilty because in the past you stole their jobs; You were the thief, not them.  Now they are just getting back the share they deserve.

“Every breath you take”: Glenn Hubbard can dance!

A funny parody music video “Every breath you take” is currently circulated widely on Internet. The video is about the fight for Federal Reserve chairmanship between Professor R. Glenn Hubbard (Dean of Columbia Business School) and Ben Bernanke (the final winner). Professor Hubbard, who was formerly Chairman of the President's Council of Economic Advisors, was on the short list to become the Chairman of the Federal Reserve System.

Hubbard liked the show. According to John Kiker, the business school's associate dean for marketing and communication.

"He was on the ground laughing so hard" when he saw the video a week ago at the school's "Follies," an annual show of satirical skits, songs and videos, said Kiker, who was in the audience as well. Hubbard "stood up after the video and got a standing ovation, so it was cool. . . . The students love him." Hubbard, responding to a request for comment by e-mail, wrote of his students, "I hope they will be as talented at raising productivity growth as in video making!" ---- Source: Washington Post

A paper by Professor Hubbard: “Capital-Market Imperfections, Investment, and the Monetary Transmission Mechanism”(PDF file)  (presented  at Bundesbank, Frankfurt, Germany) can help you understand his philosophy on monetary policy.

More Parody music videos on Glenn Hubbard:

Dean, Dean Baby (As funny as they want to be)

Is Asian Development Bank making poverty worse?

“Thousands of activists rallied in the southern Indian city of Hyderabad this week to protest against the Asian Development Bank, which held its annual meeting in the city. Protesters say policies of the ADB and other multinational lenders are making poverty worse in countries like India. Anjana Pasricha is in Hyderabad for VOA, where she reports the buoyant Information Technology sector there has brought enormous benefits for the middle classes, but left many behind.”–---- VOA

It is certainly debatable whether ADB is making poverty better. But it really amuses me that they are accusing ADB for making poverty worse. Unless they take money away from you, you cannot get worse.

Sometimes when I see homeless people, I may give them several dollars. Theoretically they can accuse me for making their lives worse. I do make their lives worse. Had I given them 50,000 dollars, they would have gotten out of poverty. So indeed it is me (by not giving them 50,000 dollars) that “causes” their poverty. Theoretically those people who I haven’t had a chance to meet and certainly have not given several bucks to can accuse me of making their lives worse, of leaving them behind.

But isn’t it ridiculous? This means that by doing some good deeds, you are actually become constantly more blamable. At first you are helping them out of good will, and over time the people you help take your giving as granted, and will yell at you, reprimand you when you are one day a little bit slower in delivering foods to them. They however never blame those Indian government officials who always tax them (formally and through corruption, extortions...), let alone helping.

No one is your servant. We only help those who can help themselves and who are grateful. Before accusing others, please think first what you yourselves have done for the poor, and learn to be grateful when others are trying to help.