Saturday, September 30, 2017

Taxes and Government (I)

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

Service sector : an alternative path for Latin America economies

When the commodities prices (metals, agriculture and energy) felt ;( 2012 - 2016) , Latin America economies had its own self- inflicted crisis. Most of these economies, were not that much well prepared, as they were for the crisis in in 2008-2009.So external debt increased, fiscal deficit get higher, and economic growth lose its momentum.- It was less than obvious to realize, how far these economics have reached on the development of the services sector. In the first five years of this century (2000-2005), services sector in Latin American economies started out to be more relevant for aggregate value process, which became more deeply active since 2010.So in the year 2011, services sector accounted for 64% of the value added ,in Latin American economies (including those of the Central America), and in 2015, 69% of the labor force; had a job in the service sector, up from 62% in the year 2010.Besides the leading area of services; are the ones which employ higher skilled human capital .Up to 20% of the best qualified human capital in these economies, have an employment in the services sector. ECLAC (2014) This structural change, is not by chance or supported in a transitory situation, like the one to replace job losses in other sector .Instead it looks to follow the usual path, associated to higher stage of economic development. (Levy, E. y Pienknagura, S. (2014)). The implications are wide and promising, given the increasing integration to global markets: a.- In the near future, Latin America economies, can reduce its vulnerability to commodity prices fluctuations.- b.- Latin America economies may be part of the Global value creation, either on its vertical (Retail management development),or the horizontal dimension(Business process outsourcing. knowledge process outsourcing)
Fuente: Latin america´s emergence in global services: a new driver of structural changes in the región? .ECLAC 2014

Saturday, July 01, 2017

The value of ideas: Individuals above the state

France has started out a new Government. But it is not the usual "in " and "out" kind of replacement , which take place regularly in that country.As far as the latest news report, both the traditional left and somehow the traditional right, lose huge amount of votes and legislators, to make them both a secondary forces within the political landscape.A whole new set of ideas has arrived to the Elysee Palace. France like most of the key European countries, has been known for its particular approach to the welfare state solution.More so, in the case of France at the time of the unique currency , the Euro which depend upon market flexibility and a complementary public policies to support both as much as social needs, as business framework at the same time, to get gains in productivity and competitiveness,which no country in the euro zone can progress without. Germany understood this in 2003, when Chancellor Gerard Schroeder was in charge of Government and implemented key reforms, heavily critized at that time, but making a turning point away from the welfare state approach, which have been fully validated years later with the lowest unemployment Germany has in 2017.Thus, unemployment in Germany; (with a decreasing trend between 2010-2015), given the refugee demand for labor,seems to be less than a problem (5,7% unemployment rate in may 2017,half the rate of that one in 2005), keeping in mind the skill of Current Government to stay the course which is working to get full employment in 2025.- Although in different moments in time, the value of that reform(2003), such as those one years earlier , of both former President of Spain Adolf Suarez (Moncloa pact, 1976) ,and Felipe Gonzalez in the eighties, while getting his country ready to become a member of the European economic community (1993)); were that those came about from leaders who made their way up to government, with skepticism about the effect of market flexibility and its ability to solve welfare issues . Markets strenght and free Enterprise to créate wealth, are not a new idea, but it is that european countries embrace it to keep the pace of prosperity. France has arrived just in the right time, to join such a formidable force already in march .- But what are the real new ideas to count on?.The world is moving toward the technology age, side by side with knowledge , wide spread information to make decisions, and different requirement for human capital to have more flexible labor skills. The multipurpose labor force requirement ,cames out directly from the incresing role of automatization, robotics and fast changes in market conditions, which do not left too much time to look for ways to keep in balance innovation driven cost. Innovation, creativity, value added do not come out from the state anymore, nor from its protectorate status.They comes out from motivated individuals, who believe in what the can look for, because opportunites are available as long as they seek for them, given their talent endowment . The rule seems to be to adjust the State to open up the path of opportunities,which otherwise are hiden from being taken by talented people.- What it is new, is the more active role individuals have in their personal lifes.Social network has increased connectivity ;such as to make old Government programs and policies to be part not only of the constraints for the economy to be more competitive, but also for individual to be themselves.- How come that in Latinamerica, we are still on the wrong side of the history concerning the role of the State?.How come that with such aan old and outdated idea about the big State as the solution, some latinoamericans are at risk of losing their liberties?. Actually there are different problems which requires different solutions, which neither government nor the state, are capable of solving them on its own.

Sunday, May 28, 2017

2008: its lasting consequences

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

One Hundred days later:An economic focus

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

The Rome Treaty: The begining of European Union

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

Fake news and economics

Recently, it has been usual to know about the publication of "fake news".Perhaps even worst, there is a new concept concerning news, which is called the "post (follow up) Thruth".Is there any relationships between these two way to inform people?.What does economics may say about it?. The post thruth, deals with the quality of the messenger to qualify any message as truth or ultimately false. It is not the quality of the message, but the quality of the messenger which make the falsehood of the message, instead of the facts which either sustain or not the thruth about the messsage.Thus, any one who say for instance that government should stay away from the economy for the purposes of well being, may be presented as an out of touch individual (either man or woman),such that to make such an argument become a complete nonsense. It follows that, any suggestion of limited government becomes such an insult for society as a whole, that only crazy individuals can believe in.So, limited government as a source of wealth become a falsehood. The outcome is to create a fake reality, which individuals have to live in ,one which excludes unconvenient truth, as much as it support convenient falsehoods, specially with those issues concerning individual responsibility, government intervention in the economy and the like.The variey goes to a wide range of topics.Like the Gresham law which explain how bad money replace the good one through inflation, "fake news" replace good private values (honesty,ethic), for public bads ones(lies,disqualification), the ones which may lead you from trusting someone, toward those who leads you not to trust anyone. In economics ,this is called adverse selection, and it implies welfare losses.- Economic analisys has a branch called the adverse selection problem, which happens when either good or services markets do not have perfect imformation about all available options ,such that consumer chose the remaining lower quality alternative . This is the case of used cars, insurance programs, where reliable participants are left out, because markets do not qualify them at their real economic value, or what it is the same , markets disqualify them as partners because it does not trust them about their own valuation. The outcome is that average quality of used cars is lower, because all good used cars are left out from the market.Nobody want to sell his or her good used car below a certain price which includes not only the mechanical aspect of it, but also the emotional ones .In the insurance case, good clients(healthier ones), are not ready to pay the more expensive charge of the average less healthy ones, leading to higher cost of insurance policies for everyone,which imply that some people may not afford an insurance policy at all.- The difference is that adverse selection, comes out from the market which is neutral about the characteristics of all of those who are in for making transaction, and as such nobody have control of its outcome.It just happens because of institucional failures, which means that institutional correction may solve the problem.In the examples above mechanical test (used cars), or hihger deductible charge to disincentive less healthy clients to get in, keeping average fee lower.This way, it is possible to correct the losses of welfare arising from adverse selection. Fake news and the follow up (post)thruth instead, means a net loss for the welfare level of society, either hard to recover or to mitigate.Besides from the economic stand point, the issue of "fake news", has nothing to do with the massive access to virtual netwotk,cell phones and the like, because it deals with the preferences of those capable of shaping massive preferences given the abstratc nature of the service(news), which becomes a public good. In the case of private good and services markets, nobody can shape simultaneously the preferences of everyone, while there are millions of customers interacting according their (own) individual preferences even with advertising along the way.-

Friday, February 03, 2017

New premises about globalization

The world is facing new definitions and premises about globalization. Since early nineties, globalization was a kind of follow up of the “End of history” assessment, very popular at that time. Democracy and fee markets stands up, as the key inputs for endless economic progress, peace and stability. There was not too much to discuss about it. Democracy spread out, such that more governments around the world (Latin America, Africa, East Europe) fit in with history. By the same token, free markets policies became the new orthodox to solve not only economic growth, but also social issues (poverty, inequality, unemployment).A few years later, it was clear that economic growth alone was not enough without complementary policies . Free trade agreement, came along as the next step to move deeper into global markets, and so the economy became global.- This process lasted almost twenty years. Its outcome was mixed. On the one side (positive one), it meant better living conditions for millions of people, who were capable of getting out of poverty, increasing the share of middle income segments. Besides, the open access to knowledge throughout internet, and low prices of computers and communication technologies, created the virtual markets, a huge space for creativity, innovations, entrepreneurship and new ways to do business, increasing the social value of global networks. On the other side (the negative one), it became clear its weakness. The most significant one, was the financial crisis of 2008, and the subsequent perception that despite free markets efficiency, there was no way to avoid its failures at a global scale .Moral hazard, information asymmetry advantages, firms collusive actions, and reckless corporative behavior, which given the policy tools to deal with it, and without a global institutional framework, made the global economy unstable and much riskier on the long run. Regulations on its own, was not sufficient to cope with global markets either. For the sake of the argument, Central Banks (USA, European Union, Japan) had to fight hard (2008-2017), to get back the fundamental of macroeconomics. From the political and geopolitical side, globalization did not make the world safer and a more peaceful place. Unconventional wars, local rivalries and short term nationalisms, killed more people in the last decade of the XX century, (United Nations, estimates 5 million people), than in the previous 25 years(1975-1990).Besides ,the gap between developed and underdeveloped countries did not close .It became wider as the winners displace the losers, which force them to act politically, no matter the economy cost . The insufficient global Governance, was out paced by events seemed unexpected, although they should have taken into account in advance. Thus, it seems that the current status of globalization and global economy, are suitable for new premises. So, Donald Trump became President of the USA, and the Brexit is already on schedule. Moreover, this year there are elections in key countries in Europe. Who can anticipate the outcome?. Uncertainty, is another unexpected outcome of globalization weakness. The pressing question in Davos (2017), was: what come next?. Is Mr Trump´s Presidency willing to leave globalization, while others countries are eager to take its leadership?. An alternative question could have been: What about the new conditions for the USA economy, a commercial blocs by itself, to be part of the globalization the way it is in 2017? . After all, the terms of negotiations about it have changed, (outdated free trade agreement, E-commerce grows, weak property rights protection, dislocation of workers, and the like).Therefore, politics have something to say about it. Furthermore like any negotiation, mutually convenient deals (globalization is a deal), are the ones which are flexible, to make them more suitable to new developments. It follows from he above that Globalization need a resetting, a new set of premises concerning the importance of stable economic growth, better (fair) trade policies, effective global governance, and more efficient way to solve social disequilibrium between the affluent and those who are left behind. The other question at Davos(2017), was about the risk of moving back the history clock, concerning the survival of globalization. The real advantage and strength of Globalization, is in its ability to cope with new challenges, the way other alternatives (closed economies, dictatorships), can not do.Moreover, a different globalization,based on the new premises, may be the beginning of an up dated world(global) order.- .-