Saturday, September 30, 2017
It is well known that within free market economy ,government has a complementary role to what market can not solve.Therefore , Government is in charge of public policies concerning health,education,social infrastructure(schools,hospitals,rural roads and the like),asides from those policy issues related to economic rules,institutional framework, and those linked to national and external security as well.So, it is hard to complain about these tasks, unless private sector can do it on its own.The problem is that the role of private sector is different from that of the Government , mainly it is to create wealth. Government instead deals with the issue of wealth distribution, which imply that first and above all ,there has to be a level of wealth available to distribute, otherwise it distributes poverty.It follows that government need those which provide it the means to do its distributive task. The second side of the story, is that Government does not use its own money for doing its distributive task.It is other`s people money.That it is when the trouble begins.- The ethics value of supporting the weaker and more vulnerable within society, is in a conflict with the ethic of using external sources of money (taxes) for doing so, which may has at the same time, other uses.Whether Government had its own money, it would not has this constraints, or if it is efficient and effective to allocate that money, government can somehow solve the ethics conflict.But unfortunately it is not that easy. Government has no control procedures capable enough, to make sure that from the social cost perspective , there is not any difference whether either one dollar or euro, is spent by either the government or the private sector, such that social cost would be compensated by the social benefit.-Reality shows that corruption,waste of resources,oversized of government offices, make impossible for that compensation to take place. There are studies already done about government management, which suggest that it goes far beyond its duty when it comes to spend .- The other side of the constraint for taxes , is on the economics field.Taxes are an outflows from the economic activity which means that it reduce the ability of the private sector to create wealth .Higher taxes impose a burden to the private initiative, such that it creates the incentive to evade it reducing tax collection and affecting government ability to do its task : it has fewer resources than those which needs.On the other side lower taxes avoids this problems because given government careless approach to money spending, it fit what seems a fair share to help those in need.Besides , in the global economy, the competition for financial resources facilitates a convergence toward lower taxes, otherwise arise a loss of competitiveness.- So, the discussion about reducing taxes ;it is more about the ethics approach of helping others, looking for the best approach possible.In fact ,aside of Government there are other alternatives such as private donations,NGO`s,which can become a strong support if they have the proper incentives.
Tuesday, August 29, 2017
Saturday, July 01, 2017
Sunday, May 28, 2017
While the financial crisis of 2008 is closer to be a close chapter , its both economics and political consequences are still in place and an open path for further development. The economics and financial consequences have made quite clear its implications: a.- Slower economic growth b.- More regulations for global Banks c.- Restrictions to a deeper globalization approach d.- Free trade in a transition to become Fair( better) trade e.- Central Banks focused on deflatonary risk All of these effects, have political implications.Some of them : a.- New risks testing the stability of the European Unión Project b.- The political dimensión of globalization, has become a constraint. Geography matter more than financial integration. c.- European Central Bank has become an unexpected power to deal with.- d.- Skepticism about the capabilites of European unión, to solve the current challenges arising from refugees flows.- e.- New threats to replace the focus from globalization on its own, to a more secure boundary for all what matters the most for it( Trade, data exchange, networks facilities, travel screening and the like) So, the world has become both more dangerous and fragile at the same time .The real issues are different global threats in the landscape, not just related to a global economic recession, but to the whole global stability. Just to mention the more urgent ones: Nuclear risk, terrorism, cyberspace war.- A sense of urgency on some of these issues , perhaps in all of them for the international community , have changed the political scenario and priorities for politicians and world leaders. Unfortunately, Latin America is not in the position to be a global political partner. Somehow it is also within the risk zone ,specially in those countries in which democracy is not longer dependent from the people will .Instead, it has become the rule of a few whose concerns are far away from the ones related to those voters who elected them. At the time that the economic consequences of the financial crisis of 2008 are closer to be overcome, with the USA economy growth on a steady track, the european unión on the path of recovery, and emerging economies, better than expected, there are pressing threats which requires coordinated solutions.-
Sunday, April 30, 2017
Once a Presidential election is done,It has been usual to ask both by the public opinión and the news media, about the first one hundred days in office for new Presidents.In fact, these days, there is an important attention to one in particular: The Mr Trump Presidency.- But what about the inertia any country has in real time?. What about its institutions?,What about its values and hopes?.After all winning any election is a matter of who fulfill better the voters hopes and expectations about the future and uncertainty : The one who better outline its key boundaries, and also shows the willingness to be in charge of each one respectively, becomes the leader. In such case, the more pressing issue for a new President, is about the change which is able to get 100 day later, in term of leaderships to keep the voters mood supportive for what may come next :The remaining of both Government program and its proposal. Besides, it is not an easy task to change a country in 100 days.However, this does not means that either different leaderships style ,or strategic focus, can not be set in 100 days. It follows that the achievement of any President in his first one hundred day in office, deal more than anything else, with the way leadership may change the course of a nation, for the sake of its economics progress,internal security, and stand in both the global economy and global affairs.Moreover, leadership imply to keep followers,a necessary condition to improve the support to a broader base . It does also matter whether it is a politician or a business man who is in charge of such task:Politicans has better connection with the formality of political process.They have at their disposal a whole set of resources beyond the legislative área, which includes ,lobbies, analist, journalist, think tank and the like, which reduce their transaction cost to learn about how to fit with institutions and the framework sorrounding government, such as special interest, and public opinion polls .- After the new leadership has been settled,to govern a country deeper into the following days, months and so on,requires valuable time to get the first outcomes done.Thus,aside from its historical base (USA), the first so called one hundred days ,becomes more of the draft of what becomes later the legacy, which is what really counts more. So,from an independent perspective, The Trump Presidency so far ,seems to fit properly to what it may become an enduring legacy. From the Latin America point of view instead, is more difficult to say anything while the judiciary process affecting most of their Governments, is in place, because in such a case ,the scope of working issues is more limited.- This year, the same question is about to be asked in Europe.Next week (May 7),is the turn of France. Then in september ,Germany and along 2017 other european countries as well. For every country, such a question has both different scope and relevance.However, In Europe, the issue to be settled this year, it is not a regular one,is about the future of the European Unión.So, in the coming months, and one hundred days later into his or her Government,French President and the New Chancellor in Germany, will face the same inquiry.Given the inertia and the French institutions, how come that the France and later Germany, will both have a leadership to make it better off in the years ahead?. For the economic stand point, these questions clarify policies and focus concerning either more or less government and the regulatory status in the economy. More government intervention mean more regulations, and less space for private sector and its wealth creation process.On the contrary, less government intervention means less regulation and better space for private sector to créate wealth. There is no way an economy may improve the standard of living without a sense of leadership.Leadership in economics, means where it is headed.During the south east asian economies crisis(1997), lack of leadership was a key restriction to make it broader early on, and later at some point , out of control.- Thus, in any case ,a hundred years later is still too early to call for definitive results in a new Government, more so when it faces the tough scrutiny of history.-
Saturday, March 25, 2017
Sixty years ago, while the ashes of the war were still on the air, six countries,(Germany, Netherland, Italy, France,Belgium and Luxemburg),signed the Rome Treaty which set the begining of the current European Union. It was thought to be a reaction to years of devastating wars,as much as a path to get and sustain peace and integration among different countries. Economic development was the driven force to acomplish such a goal.Economics ties arising from financial,capital and goods markets would be strong enough to keep the integration Project alive and as a guiding light to get the promise land : prosperity and a leading role on world affairs . . Sixty years later, the outcome looks more than promising. While nationalism strugle to get through, there is still a sense of common destiny which arise from the complexity of geopolitics, the expanding boundaries for further economic growth coming out from its human capital, technology endowment and the unique strenght of its diversity .So far, the European Union still hold up to its founding spirit , very much so in a uncertain and challenging world no less so than the one it faced 60 year ago. With more than 500 million of inhabitants, USd 38000 income per capita,(2015)and the second world economy following the USA, the European Union has actually set the road for other integration experiences, if not for the global economy as a whole. An european Central Bank, political outlines based on the European council,a common currency(euro),and a shared geopolitics stands to become the bridge between east and west.- Latin america economies in particular, has always looked the European Union as its model for economic integration.In fact a few years later after the Rome treaty, it was proposed in the sixties the so called the "Andean Pact", which included all of the west coast latin american economies. Although it did not consolidate further on, it has become an starting reference case, to avoid the mistake done by its founders members. How this integration experience can be sucessful ?. Traditionally it was thought that government should has a leading role to get the economic progress as the inspired factor for staying together.The eighties external debt problem, changed that paradigm.Private firms were also a leading force for integration. The expansion of retail, insurance, transportation,banking firms and even education organizations, in the nineties made clear that employment , investment,and welfare were not only a matter of government policies, but also of wealth creation.So, there are leading Latin America economies seeking to increase its integration beyond regional trade ,(Ocean Pacific Alliance), widening its scope to financial services integration .On the east side, the "Common South Market"(Mercosur),has fostered not only capital flow, but also human capital free movement among its members.So the seeds are in place,the trend is still toward more and stronger integration. As long as the European Union goes into the path of the next ten years, there are a lot to learn.-
Friday, February 24, 2017
Friday, February 03, 2017
Wednesday, August 31, 2016
A current issue which concern the economists, is about the ability of economic policy, to have control of the recovery path in case of a recession, such that the one the global econokmy had in 2008. On both side of the Atlantic, there has been a huge effort coming along from Central Banks about monetary policy, at the risk of its own credibility, as the key tool to get the economy out of recession first ,and stagnation later on. However. after years of such approach in both the USA and the Euro Zone, the outcome seems far from the expected,although more so in the euro zone (www.roubinimonitor.com ).- Both economies, seem reluctant to get traction based on monetary stimulus alone based upon either very low or negative interest rate, asset purchasing and forward guidance. Having said the above some questions arises: a.- Is monetary policy alone, capable of pushing a strong economic recovery? b.- Does the economy always have to react the same way to economic policies? c.- Is there the chance that beyond a certain point , the economy gets to a self adjustment path which make useless any policy intervention? The first two questions deals with the fact that reaction policy parameters, change as time moves on. So, the setting change but as the policy is slower to adjust itself to it , so its impact is lower, if there is still a chance of any impact at all ,in the following stage . It follows that any policy alone, is not enough to improve the impact of policy actions.In this case , it requires a complementary policy .But when fiscal policy is constrained by a maximum deficit rule, its ability to go along with monetary policy weaken.Besides, usually fiscal policy deals with improving output performance, while monetary policy deals with private expenditures path through financial and real channels.As MUndell Fleming models says , both policies may be more effective together than apart from one another. Thus, perhaps it is not that much about monetary policy uneffectiveness, but more about fiscal policy restrictions.In fact, Gordon (Macroeocnomics ,1983) has said that fiscal policy has higher transaction cost because of its lagged reaction due to the link with legislative discussion,such that when it is ready to be implemented , time has gone. There is a missmacht betwen both policies, unless there are some coordinated actions.But this assume that every one knows exactly when a recession may arise!.- The third question, show a more complex approach. The one which deals with the chance that the economy has some self correction ability hide all the way up to the prices level get down. In fact in a low inflationary scenario, real asset value increases, in such way that it may sustain increase in expenditures levels ,fostering income by the multiplier impact , having effect on both the real and the monetary side.It is call the "Pigou effect". Somehow, Euro zone economic performance so far is an indication of such effect. Current available data indicates that Banks are lending more,(1,4% increase in lending rates this year), no necessarily because they want to do so, with both negative interest and deposit rate , but because both consumers and investors have a greater endowment of asset in real value, which allow them to take advantage of the monetary easing, because of a better position to guarantee any loans.Therefore ,it looks like the real Private expenditures can makes its way through to get the economy out of stagnation!.- However, it is obvious that it take a long time for the economy to reach such a inflexion point stretching the social imbalances.Prices rigidity play its role in the time span to get the self adjustement path.In this case, it seems relevant to take into account to improve price flexibility, such that to get that path quickier. Finally, the issue seems to be not only about policies ,but also about prices reactions.The faster they react, which means the more flexible they adjust to the new market status, the faster the economy get its self adjustment path (PIgou effect), and the less it depends upon the policy limitations.As a matter of fact, it is not a trivial situation that while the USA economy has a more flexible prices than the Eurozone does, the later still struggle some steps behind its counterpart, to get the new "normal" stage of its economy.