World water day.To reflect about the uses of a key resource

Today is the so called “world water day”, which means a world wide call for caring about what we do with water. Some Celebrities and institutions (Rotary International), have made a commitment to improve the understanding about the key role, a better use of water has for mankind. They are right about it, so we should support them. The United Nations set in 1993 this day, precisely to reflect about it. Because of population increase, the demand for water has actually increased by a factor of three, while the supply remains the same, barely 1% of all water available in the planet, which have more than 95% of it, as a salty water. Whether the demand is higher than supply, there is a problem which market would solve with prices mechanism. But for prices to do its job, it requires to solve the property right issue. Water is the kind of common property good: it belong to all and none of us, would voluntarily pay a price for water, unless some claim their property right on it. Once again, markets needs an institutional framework to work properly. Thus, to allocate property right is the first step to set a price. Because its “shadow Price“ is so high, a lot of people would be interested to get such a property right because it would allow its owner to sell water, mainly for agricultural activities by far the most water intensive activity (77%), next come industry (12%),mining (6%),and at last, it is human consumption with the remaining 5%.(Data for Chilean’s economy) However, in this situation human consumption,(the least important of all alternatives of water uses), would have to pay a huge price. Besides, Markets do not take into account the ability to pay the prices it set. The State may complement markets to allow the access to all of clean water, throughout the production of public water at lower prices, just like it does with other services. The alternative option, would be to transform salty water of the sea, into the input mining activities needs, or water recycling for agricultural and industries requirements. In this two cases prices would also be lower, because supply of water for human consumption would be higher. Even so, the challenge to improve the rationality of water uses still remains on. Demand is still moving upward, at a faster pace than supply.

Productivity gains

It is usual to know reports about productivity perfomance, but it is not that much usual to understand the relevance of improving productivity.- The latest report says that Luxemburg workers are the most productive of the world.This outcome come out of the total product divided by the employed labor force in there.It is not a reliable indicator for the "true " productivity, but it says something about the standard of labor force perfomance.However, as any average it hides the details, and somehow misslead what really is the productivity level. The "true productivity " which counts is the marginal one. This is the last worker contribution to output.Inside the firm,It depends on humnan capital, specific skills,management models and policies. Outside the firm, it depends on macroeconomic and microeconmic policies, and the institutional framework which reduces transaction cost (low corruption practices, law enforcement, property rights protection,efficient public administration management). High productivity imply a lot of benefits, such as higher wages, better and more efficient access to business opportunities, better share of global output value added ,and higher per capita income.In other words better living conditions.- Besides, Countries with high productivity levels , become more competitive.Productivity becomes a source of competitiveness . The key question is why with such benefits , there are countries which seems not to care about it?.Well a proposal is that productivity is a long term goal.It is linked to education system, cultural values, and business practices and its management models.-

Reliable measures about inflation

Statistics are always on the spot light , specially when it comes down to key indicators:Poverty, inequality, inflation to mention a few .These social issues, keep the atention of speacilized media, politicians and analists ,every month as a new statistics is published. Statistics provide key information to make the proper decisions.Let take the case of inflation.This is a social tax which generates quite a lot of costs ( missallocation of resources,deterioration of real wages, profits, and it reinforce itself throughout indexation), but there are those who believe it also generates benefits (reduces real public debt, increase tax collection for Government).However, empirical evidence support the fact that costs of high inflation, are more important than its benefits. If there are some benefits , these will arise from moderate inflation , the one which Central Banks usually set as its target for monetary policy. Therefore, whenever there is inflation, it is important to have reliable measures such that it allow both to make the proper decison about it, but also to implemnent the right policies.- Latin america economies ,has made important progress to reduce inflation,implementing responsible fiscal and monetary policy, but it is not equally equivalent its progress in the field to have realiable criteria to measure it. Measuring inflation have two key componentes: The index (Laspeyres Index), and the basket used as a reference for the average consumer. Average consumer, change its consumption path becasue of change in either preferences , incomes or prices.The amount and type of goods include in the reference basquet, have to be up dated from time to time (usually ten years), as long as new products influence consumption pattern.For instance, Cell phones call,gyms attendance,rent of movies, cable TV and the like.If inflation is measured by a consumer basket relevant for the nineties, inflation data will not be worthy for any policy purpose.In the nineties the consumption pattern, was very different to the one today.- The same happens when the index is distorted by the approach used to measure prices. Recently, there have been progress to improve the quality of such measures in Chile ( up dating the consumer basket), and in Argentina(up dating its index calculation methodology). Although, both economies are at different stages of economics performance, it reflect how seriously Latin America economies are working its way to become global partners, as a source of new investment opportunities . These modifications, are on the line to make more reliable the statistics about the economic perfomance, key element for investors evaluations about these investments alternatives.-

World Economic Forum : Davos 2014

This year the WEF has important issues to be concern about. Inequality, the future of capitalism ,and sustainable economic growth will be addressed by the attendants .They are world leaders, politicians, professors ,chief executives offices, all of whom give some time to reflects abut world problems .- Inequality has become a more visible problem. Globalization mean opportunities, but hnot all have the fair chance to take advantage of them. Thus, it is important to take action about it. Otherwise globalization can be seen as the opportunity for just a few. A recent report , (WEF - 2013)has said that inequality ranks in the fourth place, among a list of factors which can potentially leads to social confrontation risks.- However, these actions should go on the line of better public policies. After all, inequality can be considered as a failure of public policies. It follows that the main responsibility for improving equality is on the side of Governments. But, do Governments have interest to solve this issue?. Somehow it is a matter of votes. The more self reliance and independent people becomes , the less likely they will depend from government´s policies. Concerning the future of capitalism, it is well know that it fit itself to new situations. Global warming is a constraint for growth, but that does not mean that it will melt away the foundations of capitalism. Instead, Capitalism should be more focused on a value added approach .This is the so called “Conscious capitalism” or “ Inclusive capitalism”. Either denomination, it will depend more on knowledge as a source of capital ,and quite contrary to some expectations it will improve middle class welfare.- Capitalism need people´s talents to sustain the “creative destruction”. This has been the case in watch industry in the past as it is in the smart phones industry today. The very nature of capitalism is tied to human capital endowments. The money creation machine, usually overcome the foundations of it. Engineers, bankers, entrepreneurs, business man, seeking to get the best from profit opportunities which arise in their path. So, give education a chance to couple with capitalism spirit.- Davos 2014 conclusions ,will certainly be interesting to reflect about.-

Monetary Policy : The path toward normality

Since the financial crisis started off in 2008, Monetary policy everywhere, has played a key role to get the economy back on track. It has been widely thought ,that in such a cases it is fiscal policy which should take the lead. The multiplier effect of higher expenditures , make a decisive impact on aggregate demand.- However, Fiscal policy in most of the advances economies (the core of the financial recession), could not work this time the way it should. Public debt and deficit above 3% , along the austerity program, placed fiscal policy in a secondary role in Europe to get over the crisis. In the USA, the debt limit constraint, and fiscal deficit worries had a similar effect. Prominent economists, argued for more aggressive fiscal expenditures programs, based on the traditional view of macroeconomic policies,(multiplier effects). However ,the nature of the crisis (huge mismatch between asset and liabilities), did not make clear the advantages of such an option. The core of the problem was in the financial , instead of the good markets. The loses of financial wealth was of such a magnitude, that it constrained the deleveraging process to the disposal of huge amount of cash, coming out only from Central Banks. Thus, fiscal austerity also played its role in the USA economy. In fact, in the year 2013 it represented almost 2,5% of Gdp, well above that one of Europe (1%).(source Edward Harrison, www.economonitor.cl). The implications of this change, was to leave a wide room for monetary policy to get more aggressive into the economic scene . The issue deals with complementary macroeconomics policies. When fiscal policy saved rather than spend, boosted the potential of monetary policy, which could display all of its instrument at full to get an impact on aggregate activity. That is what Monetary policy did in 2012, with the QE3,(purchasing of bonds).The outcome is an improvement in the pace of economic activity in the USA economy and with it, all economies with close ties to that economy, and unemployment rate is again at 2008 level. Concerning unemployment rates, it is important to consider two hypothesis: a.- The global economy has more labor mobility than previously thought. Those who retire from labor force, might go to other places to look for jobs.- b.- There is transformation under way on the key abilities required on labor force, for this knowledge based economy, substituting old abilities for new ones , which induce even higher mobility because of its scarcity. It follows that current unemployment rates do not reflect completely this dynamics, and it might not be a reliable signal to track the aggregate demand recovery pace. In a different scenario out of (a) and (b) hypothesis current unemployment ,could be lower. The interesting thing about this policy mix, is that Monetary policy effectiveness, increase significantly when it has a complementary and not competitor fiscal policy.- Now with the new Chairwoman Ms J Yellen, a prestigious economist graduated from Yale University, Monetary Policy is next to begin the path to normalization. First, gradually decreasing the purchasing bonds programs,( markets expectations are for this program to be finished by the second half of this year).- Second. To increase the interest rate level, actually within the range of 0-0,25% . Markets betting are that the increase in the interest rates will start next year (Probability of 51% by March). But, it could also be possible to start this process even before, although still in 2015.

Latin America economies: Some key facts about 2013

Looking back into this “almost done” year 2013,there are some important facts to take into consideration, when it comes to evaluate Latin America economy performance: 1.- Important reforms for its scope and implications, took place in key sectors for Latin America economy . The inter American Development Bank (march 2013),has said that whether all Latin American countries carried out reforms for boosting economic growth by an average of 1,5%, , the spillover effect would allow an additional growth by 2,4% (y/y).- 2.- The boundaries of social tolerance, get narrower concerning to politicians decisions . The experience of Brazil and Argentina, have showed that no matter economic growth, society is demanding more connection with those needs they believe are urgent to fulfill.(inclusiveness ) 3.- Latin América, has become an alternative for investments in infrastructure and the energy resources sector(oil and gas).- 4.- Economic Growth. Even though the forecast were not optimistic for this year, economic growth is still following the trend.- 5.- Lower unemployment .The unemployment rate for this year is expected to be at 6,2%,and it is within the socially acceptable rates. However, there is still the perception that this outcome is not enough, which along with other symptoms ignites higher standard of insecurity. 6.-The expectations gap, get wider between those countries which believe in economic growth to solve poverty, and those who believe in the State to be more involved into the economy . 7.- The Latin America equity market decoupled, from those ones of developed markets.(the Nikkei index has been the highest with 55% economic return for this year) The explanations for this situation go from the expected normalization process of monetary policy by the Federal Reserve, up to a price correction process on some local companies.(30% in the Chilean case, source: El Mercurio ,Friday 27th).- Thus, 2013 was not that much a bad year !.Let expect 2014 to be better

Ben Bernanke and its legacy: The foundation of a new global macroeconomics

Although it is still a matter of research, as time goes by and history says its word, the financial crisis of 2018 will probably be considered a benchmark concerning the relevance of Banks regulations for risk seeking behavior, and the role of Central Banks to save the economy from the worst: a lasting painful economic depression. The Chairman of the Board at the US Central Bank, Mr Ben Bernanke( 2006-2014)and his decisions, were crucial to change the course of the recession. Those decisions will be considered at the core of policy lessons arising from this event . It is quite different to make decisions for keeping inflation within the target, and to make decisions aimed at solving a financial crisis of global scale.. The first decisions back then(2006), was to follow up the underway normalization process increasing the interest rate, which was still well below the range of 4-6% for the 2004-to 2006 period, suggested by the Taylor Rule. Thus, it was necessary to move on adjusting upward the interest rate. Higher interest rate took its toll months later, on mortgage payments and default rates, and the second part of the history began. The worst financial crisis after that one of 1929, started off in the final quarter of 2008. The Federal Reserve had to switch to a recession mode. In December 2008, the interest rate was set at the range of 0-0,25%.Thus, less than two years after being in office, there was a unprecedented change from moderating inflation, to save the financial system from collapse. Soon became self evident that Conventional Monetary policy, was not enough to solve the liquidity problem , while there was still pending a solvency issue . Too little too late was the sentiment among key analyst at that time. A new path was open to try unconventional monetary policy. This meant a monetary Policy looking beyond inflation rates, and focused on the financial system as a whole, and markets expectations, coupled with a new ability to manage both at the same time (communicational skills). So, it was done with some principles (to select carefully interventions, safety net for controlling panics reactions , keeping a minimum above zero for interest rate) ,and a variety of instruments all based on diversification which included different time span, assets types, institutions, currencies, collaterals alternatives. It was like to implement an strategy designed to attack the systemic risk, step by step dismantling its main sources to a smaller fraction of it, in such a way to improve the chances of controlling the overall situation as a preliminary condition to manage expectations .- The different markets reacted each one favorably at its own time :equity(business value), labor,(unemployment rates) goods(consumer sentiment).They all started to consolidate its initially fragile gains .Economic growth has getting better traction, inflation kept below target, and now it is near the beginning of the exit strategy from unconventional to conventional monetary policy. A new macroeconomic is in place for the global economy. The economy got out of a severe financial recession sooner than expected, and five years later it looks back with a sense of relief for what could have been worse than 1929.-

Guidance Forward policy : Central Banks new approach for Monetary policy

After the Financial crisis of 2008 rolled on , it was clear that conventional policies would not be capable to work the crisis out. Conventional monetary policy was somehow displaced ,by the fact of financial markets under stress, and the real economy with its fundamentals in a weak position (government debt, Fiscal policy restraint, low expectations for investment projects unemployment and consumption decreases).- Given that financial crisis, means weak Banks (Some analysts characterized them as “Zombies Banks”), and disconnected from real side economy requirement ,it take longer than usual for the period of recovery to take place. Besides , this time coupled with institutional flaws concerning the ability of Governments to address more efficiently its countercyclical role , made expectations more important than policies.- Therefore, Central Banks best policy instrument, is not the interest rate (actually almost at zero nominal level, and negative real level ), but how to shape these expectations concerning its next step ,and then the expected response on the real side(Employment, consumption ,and investment).- Thus, Central Banks are in an unknown territory, where learning is by doing, the chances of mistakes are high, the quality information is key, and the path of corrective decisions implementation, has not previously being proved . What signal on the real side is the more reliable : Unemployment rate?. Consumer confidence?, Real assets prices?.Actually, the policy of quantitative easing, has boosted the financial side of the economy. Does this mean that the real side indicators, are also biased because of these approach?.- In these circumstances, one thing is also for sure more decisive : the communicational skills and policy. It might be look strange, but Central Banks are currently evaluated for the effectiveness of this policy .-

Better news for the Euro Zone and the EU

Recent reports on unemployment, economic sentiment, and progress in the Spain economy, helped to improve the mood of investors. The world economic projections show that the EU is moving out of the recessionary territory, although still far away from normality. Unemployment dropped in Germany to 6,5% in October, although a more detailed analysis, reflect the impact of migration from other weaker economies. Adjusted by seasonal effect, unemployed in Germany increased to 2.97 million people. On the other side, the economic sentiment according to IFO(Institute for economic research) fell slightly from 107,7 in September , to 107.3 in October which shows some doubts concerning the pace of economic growth for the near future. However, for the European Union as a whole, the economic sentiment of investors and consumers improved by 1,1point to 101,8 points; with stronger performance in industry than services sectors. Industry has still idle capacity to recover, which support the expectations of higher production levels in months to come. In fact for the Euro Zone, it is expected to have 0,5% of economic growth new year. Germany has the growth engine for their partner in the EU zone, and consumer moods to spend more ,seem to suggest better results for those which export to that country. Spain has the first indicators of Improving its economic situation .It has been declared technically out of the economic recession, which started three years ago. Unemployment and economic growth slight advances are signals for moderate optimism looking into 2014 to get out of the recession definitively. Tradable goods (exporters) are on the lead to sustain the recovery. Layoffs rates has slowed by 25- 30000 a month, indicating that unemployment might have been reached its bottom (www.roubini.monitor). Italy has made the fiscal adjustment in terms of structural budget, and it is on track for reducing the debt to GDP ratio required under the Euro+/ Six pack accord ,(3% each year from 2015). No matter the gains made so far , these seems to be more related with the relaxing of some austerity criteria, and the seasonal effect of summer ,than to structural changes to sustain steady economic growth. Theses structural changes will take some years to come into effect, and so it will to recover the path of meaningful growth.

BLOG ACTION DAY Human Rights: 65 year later what has changed?

When the UN set the declaration for Human rights in 1948, recognized the failure of all institutions and Government at the time, to properly guarantee them. It was necessary to propose a contract which every country in the world, should be committed to. Besides, itself also reflected a society in need to restore basic respect for civilization. A few years before, WW II had a devastating effect on key values of civilization, which it was necessary both to rescue and restore.- As time moved into the fifties, sixties and seventies, it seemed that economic progress made its way to get a wide and strong support for human rights all over the world. As Amartya Sen has said, “rights” requires first the capabilities to use them properly. Therefore, economic progress brought better living conditions, freedom and with it better access to services , goods, social mobility and upward trend in income levels. It improved the capabilities to make rights something real. After all, ignorance is self excluding concerning some rights (voting, Information, quality).- However, economic progress was heterogeneous .Some countries got an high share of it, other were left behind ,and others came on board at the end of the cycle of industrial expansion(1991), just before starting the new wave of technological development, which has lead us to the so called knowledge society.- Thus, the lasting impact of the 1948 UN declaration, could not overcome completely the political will of dictators, authoritarian regimes , nepotism and ideology. Considering the whole time span between 1948-1991, it seems that economics did better than politics, to make sure a better conditions for Human rights protection across the world. It lifted the world out of the misery of the war, poverty and indignity all over the western world . It also gave to the citizen a stronger senses of self esteem a key capability for human right claiming . With the economy transformation from industrial , manufactured production, to technology based services structures , focused on the global scale, with environment concerns on the rise, and global terrorism threat, a second stage of human rights protection is needed, and with it , an institutional framework better fitted with this century challenges .- Let check some of the up dated human rights , following this technology based society a.- The right to global sources of knowledge available in internet, twitter, and global TV.- b.-The right to have objective information and transparency, from government , non government organizations, or private entities.- c.- The right to live in a sustainable planet .- d.- The right to more reliable social networks e.-The right to good quality goods, and public services(education ,health and safety on the streets) f.-The right to have good government policies, and better institutions for markets performance.-

Global economy growth projections

The mood among analysts looking into 2014 ,is not that much optimistic about the prospect for global growth. The IMF report (October 8th, 2013) is cautious on its projections for 2013 (2,9%), and 2014(3,9%). Besides, it warns about the implications of shifting the growth sources from emerging economies, to advanced ones.- Emerging economies, although with a strong growth performance,(4,5% for 2013 ,and 5,1% in 2014) it is expected to become weaker as the round of easing monetary policies, is about to begin its normalization. Besides , there are other structural constraints such as infrastructure, labor markets rigidities, and lack of investment , which set the boundaries for potential growth for those economies. Latin America economies look not that bad. Brazil is expected to growth flat at 2,5% rate both 2013 and 2014, well below its partners of the BRIC groups .Mexico instead , will growth 1,2% in 2013 but picking up in 2014 (3,2%) .- Statistics are one thing, economic –political analysis is another. All of those projections will probably be revisited as long as the US monetary policy start its normalization path,(assuming by the way it also solves the current stand off about debt ceiling and budget ). In other words, those projections evaluations should consider the risks surrounding any 2014 growth forecast. In fact ,IMF officials have made clear this issue, warning that global economy will face in 2014 a transition period to both different financial conditions and different sources of growth. Other analysts, (www.roubinimonitor.com), have warned about the Euro Zone chances of keeping on its current recovery mode without solving key issues .- Thus, what is left out of those projections?. The global economy ,is still on its way out of the worst recession so far in this century. It will go on to match its long term growth potential, as long as policy makers deal properly with the requirements associated with it: keeping the pace of reforms, both in the euro zone and emerging economies.

Emerging markets on the path to a new crisis?

As some key analysts had announced , the Fed postponed any change in its QE program at least up to December, while the USA economy get traction to a more robust pace of recovery , with the unemployment performance closer to a sustainable level .- This decisions meant relief for anxious markets operators, who worry about the consequences of such a change in US monetary policy. Some questions arise about the ability of Emerging economies to get over with it.- A recent article by Satyajit Das (www.economonitor.com, September 25th), suggest that although some of the critical vulnerabilities for facing external shocks(fixed exchange rates, low foreign exchange reserves , and foreign currency debt ), have been addressed , the fundamentals of Emerging economies do not look strong enough to endure the impact of the expected change in monetary policy stand, on emerging economies (higher interest rate , capital outflow , currency depreciation and foreign reserves loses ),taking into consideration that the IMF is still focused in the EZ own crisis .All recent data (growth performance, Debt level, Current account balances, foreign reserves levels),support the hypothesis of a fragile situation for these economies. However, this weaker stand for emerging economies, also deals with unsolved structural constraints, lasting two stages of economic growth periods, so far : (2000-2008) with China as the growth engine, and (2008-2012), with massive credit availability as the driven force of growth. As a result of this reforms lag, the so called BRIC countries which looked as a new source of global power, is getting closer to be part of those economies which will face troubles arising with the next round of policies for the global recovery.-

FED Monetary policy : Exit strategy and its impact on Latin America economies

It is well known that Monetary Policy makers are evaluating about the timing of Normalization. It is also well known that financial markets have started to anticipate such a policy step . What it is unknown, is the path Emerging markets and Latin America economies, will follow after this adjustment is in place and its impact rolls on across global economy. Let remember that for these economies, the Fed normalization means on the one side capital outflows , currency depreciation and higher interest rates, but on the other side, it also mean a better balanced US economy growth. Thus , the expected impact goes on depending upon the proportion these economies exposures are connected with the former or the later variable.- On September 6th , the Roubini Monitor report (www.roubini.com) , proposed the Fed Normalization indicator, which is a useful tool to get a better understanding of what come next, concerning emerging markets performance after the FED normalization start. The indicator is done on the basis of two categories : Vulnerability to high external borrowing cost, and Exposure to Improved US Growth via trade channel . The outcome of the analysis is quite interesting for Latin America economies. Leaving aside Mexico and Colombia considered to be positive outliers,(high trade links ,and low exposure to higher interest rate), It shows that the less vulnerable Latin America economy to expected Fed normalization is Peru. Next, it comes out Chile and Brazil , both in a similar position for vulnerability for external borrowing cost , but with different trade links: Chile with more trade exposure than Brazil to US Growth.- Fiscal policy performance is not included in this indicator, because it is based on linkages variables(interest rate and trade) among economies at a global scale. However, from the domestic stand point , it also play a role to evaluate the net impact on the economies as a whole. A fiscal policy focused on growth , help significantly to what monetary policy has to do when it comes to confront capital outflows. The expected currency depreciation, mean a challenge hard to solve for monetary policy alone. How to cope with the expected interest rate increases , and its contractive impact on domestic economy ?. A countercyclical fiscal policy approach, can mitigate this impact. Whether Interest rate goes up, and currency depreciation take place, a countercyclical fiscal policy can compensate the contractive effect on domestic private expenditures ,by spending past accumulated saving, reducing output losses .This alternative is even more relevant if exporters have a high propensity to save .Therefore the net impact of FED normalization on Latin America economies , will depend as much their exposure to external as internal unbalances, and how both it constraints its ability to react.-

Natural talents and economics: Dreams make the difference

Economics is a science which quite different to others, such as Physics and Chemistry, do need people to make its case. Economics deals with the improvement of welfare level of a community ,counting on every one´s talent and abilities , more so whether we consider that such improvement, has to be achieved with scarce resources . Thus, people abilities and talents ,compensate for others resources scarcity . The new approaches of economic development and growth, stress the role of endogenous factors such innovation, creativity and all of those forces linked to motivation, compromise, character and attitude. This means that economics do not rule out, and cannot rule out, the contribution of anybody. It widen the boundaries of the production frontiers The only resources which is supposedly available with no restriction whatsoever, are the individual talents. Julian Simon(1932-1998), believed that population growth was a source of those talents . The innovations flows, come from individual minds, the quality of education, the family values and the external factors , which set up the conditions for creativity and inspiration . Without this flows, it would not be possible to solve the scarcity constraint. Malthus propositions , (over population growth and food supply restriction), were overcome because of these factors , just like the current global warming threat , is going to be solved because of individuals abilities to overcome challenges , when they are pushed at its most. Talented people make the difference in economics, to make it more humane, and closer to everyone needs and expectations. Economics need the individual talents .as its main source to boost the engines of wealth creation. Going deeper into the argument, dreams also count. Dreamers made capitalism the driven force of the past two centuries , to create wealth as it has never seen before in the history of mankind .Furthermore, the collapse of the state, was more the triumph of individuals and their character, than just the expected failure of a wrong policy .- So, It is in each person the seed for something better, even beyond what can be imagined, for the society as a whole. The outcome of this interaction between economics and individual talents, is to have a path for a better society without depending of Government policies , but on individual willingness to be in charge of their destiny.

Economics policy coordination: Looking for higher policy effectiveness

The financial crisis which started five years ago (2008), has challenged the main stream of macroeconomic policy and new paradigm are on the rise. In such a cases, it was used to think that each policy,(monetary or fiscal policies) properly focused on its target , would get the economy back on track. However recent experience has shown that it is not enough to implement economic policies. When it comes to implement such a policies, It has become more relevant to take into account the timing, coordination with other policies, spillover effects, expectations changes, complementary reforms, all at once!.- In its august 1st report , the IMF urges concerted policy action to reduce risk to global growth (www.imf.org). In fact ,concerted policy action to avert the risk facing global economy are estimated to have saved 2-5 % of global output, and if world ´s largest economies(“systemic 5”),could improve policy coordination, they would lift global GDP over the long run by as much as 3%., The larger volume of trade and financial linkages in the global economy, makes spillover effects more evident for implementing policies. Besides ,the current situation which has been characterized as “unstable disequilibrium” (www.economonitor.com) , requires more than just policies: It requires to go beyond the mechanics text book cases, it requires more inclusive approaches . Let takes the case of the quantitative easing (QE) applied so far. The evidence (IMF report mentioned above), finds clear evidence of positive growth spillover, but it also make clear the risk attached to the exit of such a policy : Too soon would impact growth negatively , but too late would induce asset bubbles and imbalances .In Europe, concerning the design of structural policies ,the chances are for more integration or fragmentation. Thus, there are also dilemmas attached to policy options, which demands for complementary reforms whether these policies are really to become effective .- What are the implication for global economy?. a.- In the short run, policies coordination matter. b.- In the long run, structural reforms improve the effectiveness of policy coordination(Besides, It boost stronger positive spillover effects).- c.- Macroeconomic policies isolated are not enough for effectiveness purposes. d.- The spillover effects, are important constraint for the design of economic policies. e.- Game theory has something to say about policy design(www.lawandeconhoss.blogspot.com)

The Pope Francis and the Economy

In his first visit to Latin America, The Pope Francis, who lead the 26th World Youth festival held in Brazil, gave an homework to economists : To pursue a Human economy. It was coincidentally in Brazil a decade ago, at the First World Social Forum , the effort to build up a Human Economy began. What about it? : It deals with questioning the supremacy of free markets and command models which do not consider citizens concerns ,but only statistical parameters to draw its conclusions and policy prescriptions . The risks of this “statistical approach” ,is to give a superior stand to the outcome of these models, even above citizens needs and values, to solve critical dilemmas concerning for example socials demands or cultural preferences .Reaching such a stage means somehow that the economy lose its sight .It make people´s needs to fit economic models and policies , instead the other way around : economy policies and models to fit people demands and expectations. Markets as an impersonal tools to solve the allocation of resources problem, substitute the value of human judgment to set economy priorities. Markets solve the allocation problem based only on economic considerations. Thus, key variables of human well being ,such culture , arts, literature, sports becomes commodities with prices which make them available only to those who can afford to pay for it, therefore excluding the meaning of for example a cultural policy . It becomes self evident that what The Pope Francis request set a pressing demand for such transformation to be applied for current social and economic problems, whose scope I may suspect ,goes beyond Latin America economic policies . On the other side of the issue ,Economics is a Social science which does not have the chance to work alternatives economic policies out ,based on laboratories conditions to prove what it does works or does not . Both Mathematics and statistic ,becomes useful tools to help economics modeling to represent reality in more simplified way , but in the process it get closer to miss about the essential ,if not in some cases to forget at all: Economics is a Science like other ones, to serve the well being of mankind. It follows that the outcome of such a models ,cannot substitute human judgment.- Therefore, to rely heavily on models which do not represent but a fraction of relevant variables, with the remaining ones left outside as error terms, is a risky situation as the 2008 global financial crisis has made clear. Those who were able to predict properly such a crisis, did not based their analysis but in their own judgment.- Is Human economy necessarily self excluding with both the main stream of microeconomic framework or normative macroeconomics?. Are free markets policies, contradictory with Human Economy?.I guess that it all comes down to better institutions and policies .This means to go beyond the simplistic representation of models , to stand up above it with ethic leadership . When Adam Smith (Moral Philosopher)supposed the presence of an “Invisible hand”, to solve allocation of resources , probably did not exclude faith, trust , the value of promises and hard work, honesty and honor to do business .Human values which in modern societies , laws transformed some of them in institutions. Thus ,Pope Francis is not asking for something unusual for economics , but just to go back to its roots and not missing its focus .-

Latin America and the new stage of global economy recovery

It seems that a new round of adjustment is under way in the global economy. Concerning the emerging economies it considers Lower commodity prices , capital outflow , and lower economy growth rates in the BRIC country group (4,3% on average, down from 5% for 2013)as the more relevant variables of what such a new stage look like. Besides, advanced economies have different growth paths. While the USA economy keep moving forward, with 1,8% expected GDP growth for 2013, and 2,4% GDP growth for 2014(roubinimonitor.com) ,the EU economy is still deep into the recessionary territory, (-0,6% for 2013,IMF )while Japan is pushing hard with its three arrow strategy for improving its growth prospect (2% in 2013,IMF). An Interesting feature in this stage, is that among the top ten higher economy growth for 2013, seven economies are from Latin America. It follows ,that this continent is doing what just a few expected it would be possible: Making the role of the main engine for global growth. Having said that some questions arises also: ¿Did Latin America took advantage of the first stage ?,¿ Is it over the chance of getting healthy economy growth rates with lower commodity prices?. a.- Fist the first. Latin America and the missed opportunity hypothesis. There is evidence which suggest that such hypothesis do not fully apply to the case. In its May 20th report, the IMF ´s global economy forum have an article (Adler y Maqud “ Saving Latin America´s unprecedented income windfall), which shows that the recent term of trade shocks (2000), while important has not been more so than the one of the seventies (1970).What it is different this time , deals with the use of those resources: More investment in capital equipment , less investment in foreign financial asset as saving for changing conditions in the economic cycle, and more consumption (Chile, Brazil). In the Chilean economy case, to keep the pace of the current public expenditures level with lower copper prices than current ones, would have mean an VAT of 23% instead of the actual 19%. On this regard, Brazilian economy has been on the critical watch because of its higher consumption bias following this windfall income effects, but it is important to keep in mind that Brazil has additional sources of incomes other than just commodity prices. For example new sources of oil supply in the Atlantic ocean and its expected higher revenues. Thus, it looks that overall there has been stronger preference for improving potential output and future higher rates of economic growth, instead of a passive approach of wait and see.- b.- Is it over the chance of moving through with lower commodity prices?.Latin America´s growth over the past decade has been driven by Physical capital and labor. Productivity has increased although below other fast growth regions. In the years 2010-2013 labor and capital accumulation contribute 3¾ percentage points to Latin America annual GDP growth, while total productivity Factor contribute by ¾ percentage points, therefore the chances of sustainable GDP growth goes along with higher productivity, (Werner, A , after a golden decade, Can Latin America keep its luster?)May 6th 2013 IMF direct),fiscal saving and structural reforms to improve competitiveness. All of which is not out of the policy makers priorities , at least in those economies which so far have the lead.

Foreign direct investment: Its impact in the Chilean economy

Foreign Direct Investment has been an important source for economic growth in Latin America and other countries in the world. Whether it is in services, banking, mining, information technologies, manufacturing, retail or transportation, FDI have important advantages such as the access to new technologies, new management models, “know how” for productive process , and a better approach to R&D in private firms. Some Latin America countries, have made huge progress in the competitiveness index, because of foreign investment in new technologies (Costa Rica),or financial services (Chile).- The implications of FDI are wide and relevant. A recent research done by the Chilean Ministry of Economy concerning the impact of FDI in the economy ,got interesting results: a.- Firms with foreign investor participation ,pay wages 130% higher than their national counterparts.- b.- 15% of higher employment rate between 2009-2011 , was because of FDI incoming flows c.- 18% of GDP increases and 30% of investment (2009-2011),was because of FDI flows into the Chilean economy ( due to the global financial recession, the Chilean economy GDP growth was -1% in 2009, and 3,6% on average in that period).- So , It is in the best interest of domestic economies to support policies and the institutional framework aimed at keeping the incentive to invest in Emerging economies . FDI is link to more and better business opportunities, higher employment and welfare increases.- The expectations in Chile is for further FDI flows in the near future. The average GDP growth expectation of 4,5-5% for the next years ,imply a strong incentives for investment opportunities in energy (the environment protection requirements should definitively be clarified soon) , infrastructure, private health, and banking sector. In Latin America, there also good opportunities in those economies whose GDP expectation is on the rise, such as those ones working out the transpacific partnership agreement .

Water week in Latin America: An opportunity for better water management

There are many agricultural zones in Latin America, which currently faces water scarcity . At the same time, water demand is increasing because of mining and energy sectors investments, and human consumption. The implications goes beyond supply and demand. Actually Mining investment in particular, have to be based on desalination process of sea water to cope with its water demand which compete with other needs. This change of water sources from natural to sea water, has increased mining production costs. Those agricultural product highly water intensive, cannot be produced in areas with water scarcity. Thus, Tomatoes (3237m3/acre),and Onions (2670m3 /acre) production ,requires a lot of more water, than lettuce (1668m3/acre), and carrot (1214 m3/acre). The expected prices of tomatoes and onions may be higher than anyone can anticipate. On the supply side, there is also a lack of management model of water. In Chile for example, 80% of water available fade away into the sea. Therefore, a better water management model is required. There are already some alternatives available, such as WEAP (Water evaluation and planning),SAWP (State wide agricultural production), and a combination of both the so called EconWEAP implemented in California, USA. These models are related with the improvement of decision making process, concerning the use of water in agricultural activities . The EconWEAP approach for example , provide water supply simulation to cope with water demand preferences in each area, taking into account any specific year and its characteristics, to build up a model for optimization and maximization of profits, taking into account social cost.- Last March, the First Water Week in Latin America ,was organized in Santiago ,Chile. 40 countries, 500 attendants and 40 speakers, represent a strong commitment to discuss the issue of water scarcity , trends and opportunities. The preparations already started for the next event to take place in México in 2014.- But is it this problem just a matter of Firms and Governments? .What about the consumers behavior ?.It is obvious that consumers must change the current consumption pattern. In Chile, there is no water scarcity, but a mismanagement of it. The south is plenty of water, while the north is fighting the draught and its consequences. Some have suggested the fantastic idea of a water highway,(water pipe line) which means to transport water from south to north. But other countries and areas do not have such a chance, but to face a critical problem and to solve it. So, Governments need to set new policies about water. But , Consumers are a very important part of the equation. Each one of us, consume daily at least 100 hundred liters of waters (showers, Washing hands, drinking. laundry and so forth). But also we waste a lot of water (Car washing,garden maintenance and the like).- Wiser use of water is not a matter of just better Institutions or Government policies, or business practices and Social responsibility criteria .It is also a matter of improving awareness about the importance of protecting water.Otherwise, the price we will have to pay for water consumption , will rise far above what we usually pay.

Chilean economy Model : Between skepticism and doubts(II)

In the last thirty years the State in Chile ,has changed its profile to become a complement with the private sector. It has done a magnificent job working to widening domestic market , throughout Free trade agreements (more than 60, with equivalent number of countries). It has improved the availability of public infrastructure, throughout private sector participation to build up high ways, hospitals. and other public infrastructure facilities. But it does not have yet a new identity, such as to make it the reference of last resort so to speak, for private sector and the economy as a whole. This lack of identity have some implications. Let take some few examples: a.- In the public health sector, the State do not pay its suppliers promptly. It delays payment by 120-140 days. So, the private sector do not have a clear policy of paying its suppliers promptly either .In fact it also takes more than 4 months b.- Concerning the labor relations issues. Public employees, do not have the right to negotiate or access to ruled negotiations(arbitration included), and wages are not linked to performance. Civil servants are not considered to be relevant in the achievement of competitiveness. So, the private sector, do not use negotiations the way it should ,and do not consider labor unions as strategic partners. The Chilean economy as a whole in this case lose competitive edge. c.- The quality standard for all of the State´s services do not match expectations. The consumer protection laws, are far from being effective when it comes to deal with the services the State provides. For instance, in public health hospital, people in needs, must wait for 12 hours in the emergency room before getting a bed for treatment. On the other side ,the reform for the judiciary system in the year 2003,asked for more than 1200 public attorney, but no more than (roughly)700 were finally approved.. d.- Thus, the state do not have a Social Responsibility Code to sustain its actions. So, it is not a reference for wider Social responsibility codes on the private sector.- How did this adjustment lag happened?: It seems that there is a lack of understanding about the complexities of economic development within the framework of globalization and glocalization, the wider scope and impact of the social networks , and how it influences the State role ,the community involvement, the relevance of strong local government and better focused social policies. Within the globalization framework, the State is a service provider and as such, it is a competitiveness factor. What about the “new identity” of the State?.In the XX century the State was considered as the brain for social development, citizenships and nationality. It was the driven forces for better democracies, education and self esteem. However, these days those paradigms, are no longer self reinforced. Thus ,the issue is not for more State, but for better State. Besides, this does not mean a weaker State.- Actually the world is connected throughout trade networks of goods and financial capital flows. Cultural diversity creates new links for citizenships, other than conventional and national values. Social networks also support new ways of engagement between people, and their authorities. Democracy works more in real time, (not every four or five years), and demands need to be solved quicker than before. So, trade networks, cultural diversity, and social networks create global citizenships. Therefore, the new identity of the Sate arise from the fact that it is not longer the brain of society, and it depends upon a better connection with the people needs than before. The Community needs a friendlier State, capable of being both the articulator and the coordinator between markets and firms, between growth and development. People want the State to be a good service provider, a guarantee for the rule of law and local institutions, a competitiveness factor, and a facilitator not an obstacle for people achievements. The Chilean model might not be at its final hour yet, as long as it still has space for improvements. That it is the pending task for the coming years.