Policy limitations and the self adjustment path

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.

Beyond free Trade

Last April, according the World Trade Organization (WTO)in its Press release 768, free trade growth indicators for the years 2011-2015, had a path very close to the GDP global growth. It grew less than a 3% annual rate (Y/Y).For the year 2016, the WTO is expecting that Free trade will grow at 2,8%.Before the financial crisis (2008),Trade was growing at a rate twice higher . This outcome is not somehow unexpected , and in fact it is probably the new trend:Trade growth growing a slower pace. From the above arise some hard questions, and no less both complicated and worrisome answer: a.- Does free trade by itself able to get higher welfare level for a community?. If it does , trade would be always expanding higher .The fact suggest the contrary.Free trade seem to be a necessary, but not a suficcient condition to improve welfare at a steady rate.- b.- What about the answer the mainstream models supporting free trade does provide?.The Heckscher-Olhin model, states that following key assumptions, free trade improve the welfare of a community as a whole, but not necessarily to each of its members individually considered.In other wordss, Free trade does not solve income distribution, and it may allow some people, get higher benefit than others. Thus,it follows that to improve the social value of trade, it is required an effective complementary public policy. Doing so, it allows to get the highest impact of trade upon welfare.- Moreover, free trade means that all resources are fully mobile. This means that as long as resources move everywhere any time ,coupled with trade expansion, theres is a "job creation" and a "job destruction" outcomes, which do not match each other up,such the outcome is a relocation of jobs to keep employment level at the same level.It rather means that in somes places "job destruction" may be higher than "job creation".The underlaying assumption is that because its higher prices and value added, capital intensive goods, becomes more profitable than labor intensive goods one, to be part of trade flows.Besides, two homogeneous countries in terms of technology development , capital intensive goods,complementary chain value, and high human capital and income level, may get higher benefit from trade taking place among them.- On the other side (heterogeneous contries), capital subtitute labor, at a faster rate than the arising new opportunity jobs for those left behind.No doubts, in this case, both an effective and efficient public policy, is needed to cope with this implications.- But , the following implications are even more troubling: As the world becomes interconnected and smaller, at an increasing rate ,the current approach to negotiate trade based upon regional blocs, makes geography a negotiation tool,aside from market size. Because of Geography ,there are countries , that are in a better position to get more from free trade today, than they were before. The European Union for instance, may get a better trade agreement as such, now than in the beggining of such experience (1999).Latin america pacific ocean boundaries countries, can get a better trade agreement now, than the were able in the nineties. So, geography matter for better trade deals and outcomes , which it is not just about markets. Finally, taking into account the above, some conclusions becomes clear to explain trade flows trend.Two issues becomes the most relevant: a.- Trade by itself do not seem to replace effective public policy for improving its impact on social welfare. b.- Geography is as much important as markets as input for better trade. c.- A Sucessful Globalization depend upon an evolution from free trade to better trade, which at the end imply that politics have also something to say when it comes to better trade.-

Brexit: What comes next?

For the world ,It is still hard to believe the outcome of the referendum about the Brexit,which was based on the option of leaving or remaining within the EU. Those option by themselves, stated as either "like" or "dislike", did not set clearly the whole complexity behind them both other than the economic cost, which in the balance for a country like Briatin it is posibble to recover. What if the "remain" option, would has been about "remain in a different EU", and the Brexit option, would has been about "Exit no matter a reform in the current EU project". I can bet the remain alternative would have been with more than the 48% it got.- Most of the analysis, was based upon the perception that Britih Remain option were both all that positive and desirable, which it was true but with some costs , which British citizens thought they were not ready to afford. The UK has not been too much entusiastic about the European Union, as long as they believe it is mostly a bureaucracy, with no other goal than to reinforce the welfare state, and the power of those who are in charge of regulations and european laws. It follows that, It would be hard to believe , the all mighty British would become the "yes country", for such a purpose.- Thus, no matter the economic advantage, there was a political barrier for Britain hard to avoid sooner or later, as long as the EU moved along into a deeper integration stage.- Therefore what is the meaning of Brexit?.It means that British citizens do not care about deeper ties on trade, financial and business links with Europe?.My own guess goes in another direction.I do believe they do care, but they do not in the current status of the EU project. So, what it is at stake?.They are beting for a different European Union, one in which they can participate on trade and finance links ,but at the same time to stay politically independent from Brusssel.Perhaps that would not be the European Union anymore,as much as the treaty already signed say clearly. Well,not necessarily ,except that with different boundaries and limitations.- The narrow margin of the outcome (48% to remain, 51% to leave),suggest that a midlle ground based solution upon this lines, might be possible some time in the future, taking into account the expected period of time (between 5 to 10 years),needed to close the Brexit deal, and the burden of the economic cost to become not aparent but a costly reality ,specially for those who do not expect other than benefits form such a move. Following the analysis of democratic rules, with such a narrow margin, it is hard to think there will not be a path to seek for an intermediate solution. However, such scenario actually looks far away from the negotiaton table.But what if other countries want to follow the exit path to join the British for such a different approach to the EU project?. When markets are unpredictable, Good management policies are based on the premise of "Think the unthinkable". Besides, after the Brexit, the EU is not longer the strong and forseable project it looked before june 23rd. To be blind about it, would be more complicated than the brexit itself.In the years to come ,Politics rather than economics, have much more to say , for the EU to sustain the unpredicatble.-

The moral limits of power

What is the moral foundation of power?.It depends on the kind of power . However, whether it is economic, politic,cultural or religous power it all come down to the way it gets through to both what it is focused on or , to what it stands for. Political power is based upon voters preference, as much as economic power it is based upon the economic value added to the economic activity by business groups .Thus, those who have voters preferences have the moral sustain to hold power positions on their behalf. By the same token, those who have both the higher proportion or contribution of economic value added, have the moral sustain for its influence on public affairs. From this point of view ,Business man in politics it is not unusual,as much as they create wealth, jobs opportunities, and increase value added, because of their business.While politicians get their legitimacy by their link with voters´s preferences and their expectations,business man get their legitimacy , by their abilities to create wealth also for the benefit of the comunnity .- It follow that democracy whether either political or economic one, it is the main source of moral sustain for power, as much as it does provide opportunities for everyone to get so. Quite on the contrary is the case for cultural power.The Beatles have cultural power on its own , as much as the Rolling Stones also do, or for this matter, some time ago Frank Sinatra or actually any singer of global coverage, aside from all the variety sources of cultural activities. Religious power is even a more complex issue, as long as it comes from divinity.It is not but for e few selected people, to be able to act on behalf of God. What about force as a source of power?.Very popular in then XX century in Latin America, but there are a lot of problems with this approach to power. a.- It does not have a natural link with those who are supossed to be, the main focus of the one who held the power. Besides, Force as a source of power get rid of expectations and hope, because it applies a deterministic rule of decisions, missing the feedback to reinforce itself as long as it is based on fear. So, sooner or later this kind of power gets the entropy status.- b.- Whether voters would have the chance of answering , the question about how they would prefer to be ruled by their authorities , it is highly feasible they would reject force as the key source of the social contract with Government. c.- The monopoly of force is part of a social contract, based on the need of effectiveness only in case of external .- d.- The dicentralized nature of comunications and information in this century, make force less effective than before to hold political power. Conectivity become a powerful grid, capable to overthrown those who depend on force to stay in power. Latin America has a long tradition of political power based on the use of force. Democracy, is a rather new experience in the majority of Latin American countries. The political instability of many of these countries in the XX century ,was the main reason for solutions based on force.In all cases, the outcome was not the expected one.Instead , it arose new and more complex problems, such as human rights abuses,nationalims as a threath of peace, and econoic stagnation which boosted poverty and inequality. It looked like one step forward, were matched by two step backs.- So, power has a moral sustain, when it deals with the ones who can not work solutions by themselves out (voters).Instead, politicians take the responsibility to act on their behalf up to the limit of their ability to really provide solutions, otherwise it is better to try new approaches. such as to check voters preferences out throughout new elections. Probably the founding fathers of Latin America independent countries, thought about force as the last resource in case of external threath, but not as tool against their own free citizens.- Besides, Latin America is actually moving toward democracy models based on the complementary role of institutions, the rule of law, transparency and efficiency of public policy, such that one step of progress it is followed by two step forward the well being of the community.

Politics and oligopoly: Costly Entry barriers

Free markets work as long as competiton also work,otherwsie special interest groups can colude themselves to transform markets functioning in their own advantage ,This outcome is known as Competition among a few (oligopoly) which imply that the benefits of competiton goes to those who contol the market, leaving aside consumer´s interest , and comunity welfare as a whole. Imperfect competition, in particular Oligopoly just as it is with monopoly, affect negatively the welfare level of the community, because prices are higher, product is lower, so employment is also lower, but rents of those in charge of oligopoly are higher.It follows that an economy which become organized as an oligopoly , induce income inequality and welfare losses.- Someone may wonder about regulators and regulations.Either one, the law or the regulator can only reduce the burden upon the welfare of the community, but no necessarily avoid the rent arising from lack of effective competition. Moreover , consumers who are key to enforce the law ,are disperse and ill organizaed , lacking coordination capabilities.- What about oligopoly in politics?.It would be like a competition among a few, but in this case the market are voters ,and the losses of welfare do not affect only to those who buy the products under the oligopoly scheme, but to the community as a whole, as long as it becomes hostage of those who have the control of politic frameworks for their own advantage away from community needs.- So, with Oligopoly in the economy and oligopoly in the politics field, what may be the final outcome?.It is not surprising to realize that in such scenario , both democracy and free market not longer exist at the same time. A new dictatorship arise, not the one plainly totalitarian like the XX century style .This one, is more sophisticated , it goes through the rules of democracy and competition hiding its real purpose, such that it is harder to detect and difficult to confront. Besides , as the decisions parameters do not fit with community interest, there is not control mechanism other than its own perspective of surviving time and events.- Many latin american economies ,are organized on the basis of lack of competiton and political oligopoly.The outcome is corruption, poverty, inequality, and losses because of recources are wrongly allocated to those uses which do not represent the majority welfare expectations, neither theirs best interest, but only the ones of those who have become the controllers of markets and democracy. Current crisis on key economies of South America, deal with this problem and its implications. Sooner or later , voters have something to say.Voters have better coordination capabilities than consumer ,because they identify themselves with someone in a stronger way they do with a product .- Friedman was right when he stressed that free markets economy, goes along with politics freedom , which mean no entry barriers for those who have new ideasconcerning how to improve economics perfomance ,or how to improve politcs frameweork for the benefits of the majority which add up to become real free markets and effective democracy.- The source of innovation and prosperity ,is precisely to keep freedom to shape the design of new politics approach to key issues , as much as to design new product for the benefit of consumer. However, this argument works with a the proper instituional framework with a clear set of rules,and transparency mechanisms, to sustain competition above special interests threats to get control of it for their own purposes. Friedman did not foresee that politics may be capture by special interests.

Smaller world higher interdependence

The world has witnessed two political events, one of which unthinkable a few years ago. President Obama making an historical visit to Cuba , and President Gauck visit to China.Does anyone may doubt about the common values both USA and Germany respectively, share about what they stand for in the world?.At the same time, does anyone may be confused about the restrictive legal systrem and law implementation(Human right included), both Cuba and Chine share, concerning their domestic policies?.The answer to these question get to an unexpected explanation.The political stand of appliyng a more inclusive approach to those who were left out for most of the XX century, is possible because the world has become not only flat , but also smaller.- So , when the space anyone share with their neighbours become smaller, then it is the time to care about how to get along with them.Otherwise peace and new opportunities, will be difficult to achieve. This does not imply to quit the individual values or its relevance , for the whole purpose of being able to work thing out within diversity.But it means that pragmatism becomes more relevant than ideology. Techology has made possible to reshape the world into a smaller place, without changing the fact that year by year there are more people getting on board, and each of them with their own beliefs and values.However business opportunities, make its case to reshape the strategic perspective of a more interconected world as well.Some authors called the "Buttefly effect", but it is more relevant to consider it, like the strenght of world citizens , who throughout news technology means , increase the velocity of their interaction at such a pace that their abilities to broaden up opportunities , improves exponentially. Should politics be left behind this trend?. Should democratic values become irrelevant?. Because of politics and key democratic values, this new approach becomes possible. Otherwise the world would be like a close system with no means to make reinforcement a crutail requirement to improve both its fundament and outcomes. It get into the path of entropy or self destruction.- Latin America economies in particular, feel more confortable with this approach, which make it a more active partner for business opportunities arising from a global economy in its way to the path of prosperity for all, specially the chance of better expectations for those who needed it the most.- The world is moving toward a single global community, where it becomes necessary to foster what make it better and a more reliable place for peace, rather than what make it weaker. There are a lot of pressing challenges, hard to cope without a inclusive approach.

Voters`mood in Latin America, and the impact on Government economic policies

Most of the atention of political analists in recent weeks in Latin America have been focused on the proper interpretation of election results in Argentina, Venezuela, and Bolivia.As a follow up it comes the expected outcome of Equator (2017), and Brazil Government survival of current investigation about corruption charges, against high ranking advisers of Brazilian Government. But focusing on these eletion results, what are the most likely hipothesis?: a.- Within the conventional wisdom ,there are two lines of approach:The first , deal with voters shifting away from soft government. which means government based upon people `s will, no matter the cost.In latin america it is called "Populist kind of government policies".The second one, comes out from the old left-right axis,which in this case means a supposed shift of voters to the right .There is a third line of approach, which goes on the old school of Government management policies, which split government performance on two groups: The left government comes along when public incomes are rising , so voters look for someone to spend them.The right government comes along when public incomes fall, and voters look for reponsible people to solve the situation. Although these hipothesis are both relevant and not self excluded explanations, they do not cope with some fact which represent a new trend for future elections.This line of approach, goes on the side of non conventional analisis, but get closer with the changing mood of voters in latin america.Let review some issues about it: a.- The economic boom of the beginning of the 2000 decade, and the moderate expansion afterwards(2006-2014),average of 3,3%,meant that average GDP per capita increased from USD 5500(2006) to USD 9100(2014).These economic outcomes changed the social landscape of latin america, as long as poverty and unemployment decreased, and at the same time middle class segment, became an important segment of the new voters.- b.- These new voters, demand different kind of policies from Government.They focus on the quality of health, education, and public service as a whole:They do not require the Governmenet to do what they can do by themselves.They realize how important is to count on their proper means to prosper as entrepreneurs,small business activities, complementary services and the like.These people cares more about inflation, social stability and a good environment for pursuing their goals, and so imporve their expectations about the future.So, they are in the stage , such that they no longer whant a paternalist government , but an efficient and effective one. c.-These days, people have better means to make clear what it is like to be uneasy about a government which do not fulfill their expectations, or to care more actively about corruption,and other social bads, such as nepotism,discrimination, and its implications.The access to new technology tools (cell phone, On line communication,Internet facilities , and the like),increase citizens involvement in public affairs. So, What is it really happening?.An alternative hipothesis would be that , Latin American voters mood,changed as a result of years of high economic growth, such that on this regard it was no a missed opportunity for them.It rather seems that it was a missed opportunity for Governments , specially those which did not bother to become closer to voter needs and expectation, and instead focused on their own interests and self benefits.Thus, The success of incoming government and policies will depend upon the identification with what new voters need and expect, more than what government ideology may suggest.

Technology : the missing variable

What technology means for economic analysis?. It is surprising that very much of the unexplained exogenous source of growth,(aside from labor and capital rate of change) deals with total factor productivity, which may be affected by a variety of variables ,including technology change.Endogenous sources of growth instead, deal with human capital , innovation and business initiative, which have an impact on the quality conditions for economic growth. Usually the former than the later approach ,get the most when it comes to explain the economic growth trend against the potential output which allow the well known output gap. It is s, because it make easier to influence the design and implementation of economic policy.(Taylor´Rule). Technology impact growth throughout factors productivity. Thus, all the technology progress since the nineties aplied to production and management, has increased productivity of both capital and labor,changing both the quality of capital goods, and the profile of labor demand increases toward better and different complementary skills. Having said all the above, the main constraint for growth is still the resource scarcity.The premise is that technology, somehow it only change the way resources are mixed.Those which are freed in some sector, goes to other ones, given a total unchanged endowment. But What if the technology becomes more efficient?.Let say to download 18 movies in one second, or within supermarkets throughout the lighting system, the manager send information to consumers iphone about the new bargaing in some specific aisle?. Technology is about to surprise everyone of us changing from the wi-fi, to the light-fidelity (LI-Fi), which will increse the speed of data and information flow, to such an impressive level hard to cath up for human understanding abilities.- Leaving aside the implication for the development of robotic of higher generation (intelligent machine), the fact which concern to the economcy as the science focused on solving resources scarcity, is that these will no be scarce any more.We will be plenty of resources because technology will widen up the available supply. Actually 1% of labor force, is able to supply food in developed countries. However, whithin the framework of knowledge society, information is what count the most. With the new faster pace of technology ability to cope with data volumen, economic agents will have more information they are capable of dealing with. Thus ,the real problem will not be to maximize, because it will be out of reaching for humans, to be able to understand millions of data available at the light speed, in any monet in time (one second), before making a decision. Therefore, the challenge will be to minimize losses from missing information.To minimize losses from wasteful of higher endowment of resources, such as for instance ; time.Tehcnology will free time for aditional uses,aside from the trade off between leisure and work.- How well prepared is the economic sience for this new framework, away from resources scarcity as the key restriction, to be replaced by human understanding and emotions (feelings) as the new one?

Chile 2015: What went wrong?

In the latest years, Chile has become a darker if not a falling star, and it seems that its path to be the first developed country among its peers, has melted away. There is not a single field, which Chile has not deteriorated its performance: competitiveness, corruption level, business social responsibility, political institutions, ethic rules on civil servants, public policies focus, Governance standard. Such a negative scenario , has a lot of explanations and it may be the usual blame each other game. While Government claims that inequality was a moral shame, and it was not possible to delay reforms, the opposition claims that those reforms were technically wrong designed such that spoiled economic growth, business expectations, and investment. However, to be fair neither side of the political spectrum can walk away from explanations to the current citizens. Oligopoly, in the Chilean economy did not fall from the sky. Besides, quite on the contrary to the usual view, the Chilean economic model foundation was far enough, to be labeled as a neoliberal one, because there was not neither really effective (sufficient) political, nor economic freedom, nor efficient institutions, to make possible economic democracy. The usual comparison, with others Latin American economies was somehow misleading. In fact, concerning freedom limitations, Neoliberals may say “We told you so”. Let take a brief review to support this approach. The cost of oligopoly (competition among a few), is very well known in basic economic. Besides, if it is coupled with a political oligopoly, both become complementary, and the risk of collusion between business and politics increase, and with it corruption is inevitable. Thus, the premise of self regulation did not apply, and efficient institutions become a “must”. But, as long as few politicians were the guardian of the “economic Model”, they delay any change either to open politics to a keener scrutiny and competition, or to improve the quality of regulation to take care of the welfare losses arising from oligopoly , or to make more efficient the financial support for entrepreneurs and small firms, and the protection to consumers. At the same time, some of them had financial support from private firms to constraint their ability to work on improving laws. Chilean economy has become a case study, of an Oligopoly failure. But it is not only about oligopoly by itself, it is also about weak ethics rules to design the boundaries of doing social responsible business. Some Chilean firms ( a few important ones), went far beyond what it was expected from them, which is basically to create wealth for the benefit of its owners, the stake holders, and the shareholders, but not for expropriate it from others either directly or indirectly. At the end of the year, it looks like many Chilean leaders lacked the character to change course for the benefit of the ones who trusted them. This has nothing to do with neoliberals proposals.-

2015 A critical Balance

It is usual to make balances when the end of the year is coming closer. 2015 is not different, expect for the fact that it means half of the second decade of this XXI century.So it represents what make trends for the remaining of the decade. 2015 will be remenbered as the year of anguish and horror, from the refugees crisis, the terror threath in any place in the world, the painful consequences of those more vulnerable to Climate change, and the narrower boundaries to have a stable peace. It looks like war it is just around the corner. In fact, the world has begun a war against who do not consider other values than those they believe in, such as to get to the extreme to make them possible. Nobody knows what this war will look like in 2020, but it is a fact that the world is less safer than it was at the begining of this century.- The global economy, is still strugling to improve its performance.What it gains some where (USA and Europe), it lose it elsewhere (Japan, China).It was expected that the USA economy, would be the first to be on the track of economic growth, after the financial crisis of 2008.However, It was no expected the rise and fall ,so to speak of emerging economies, from being the engine leading the recovery, to become the last wagon.A lot of question arise about whether these economies are really out of the growth path either as a permanent situation, or a transitory one.I do believe it is a transitory stage.The traction of global growth will soon work to get on board, those economy which still keep its core fundamentals of good economic policies. In Latin America, there are not too many economies whithin the fundamentals: Inflation has been rising, output growth has been declining, fiscal deficit has been on the rise and the majority of these economies face the problem of lower prices for its main exporting products.However, some of these economies, specially those focused on the pacific grim seem to be in a better shape, to overcome what some analist have called the "Perfect storm".- Voters in Latin America are exhausted with the proposal which they have to decide. When the economies goes up it is easier to settle down, what it fits with every one expectations, but when the economy is on the down side of the growth path, the options are narrower, and the decision for the voter become thougher and the chance of mistakes higher.Perhaps an example of that in 2015, was Brazil, and on the contrary side was Argentina.It is not easy for voters to make the right decisions , it requires not only good information, but also good faith of the candidates they vote for to tell them what it closer to reality instead of illusions.- The expectations at the year end, and the regional-global mood , are not optimistic on every field of public affairs.Climate change, global and regional economy, world peace and stability , all looks like we end this year with an huge cloud above us, which only coordinated leaderships can overcome.

China and the world economy

These days there are a lot of atention on the chinese economy and its new slower rate of growth path.Most of the market concern deals with the uncertainty about the outcome of the economic transformation from export to consumpion, which is taking place. Some issues related to this change are: a.-It is not an easy process, specially for those countries which depend of exporting commodities to China whose prices have decreased in the last year and the trend seems to stay at the new level for a while. b.-Besides, the issue of the quality of the data, about how the chinese economy is performing affect preciseness of the conclusions.- c.-How does the adjustment path may become?, either hard, bumpy or soft landing so to speak?.The consensus seem to settle down in between the extremes options. d.-The Chinese authorities seem to have a better control than previously thought, about the adjustment path.- In the mean time , the world economy watch the new chinese economy profile to take full shape, and work some policy options out, to deal with its consequences. How long is it going to take?. Current most developed economies, needed decades to close the transition from production to consumption. But the Chinese economy depend on its own, because of its huge internal market.This means that while it carry out its transformation, the expected outcome of a slower rate of growth (6%-6,5% range) , is not necessarily fully negative for the world economy.There are few economies,actually if any , with such a rate of economic growth.So, the Chinese economy may be able to keep its role to make the world economy recovery sustainable, although at a lower rate.-

Sustainable development: The UN goals 2015-2030

The UN has announced its 17 goals for a sustainable development, including the years 2015-2030.The previous experience (The milenium goals) should be a relevant path to evaluate what may be expected fifteen years from now.- Rougly the main issues within this coming goals are :(summary by categories) 1.- End poverty and hunger 2.- Increase concern about elderly health and well being 3.- Improve quality of education 4.- Better awareness about natural resources(water,oceans,forest,land degraddation, desertification) sources of energy supplies,infrastructure for sustainable consumption, production , economic growth and development.Above all, to take urgent action to protect the environment 5.- To protecdt women rights, genrder equality ,labor decency and productive employment 6.- To reduce inequality among countries .It means to increase convergence about each country GDP 7.- To make cities a better place to live 8.- Strenghten global partnerships for sustainable development Which one is more important?.Are they all complementary with a single purpose?.What about the necessary institutional framework to carry on these goals? The recent experience (2000-2015),shows that institutions matter for dealing with the risk of corruption, biased policies toward a few instead of those who require them most,government ineficiency and lack of transparency.- In some countries (Bnagladesh and others in Asia),was no possible to end poverty, and hunger among child population because of failures to improve first the quality management, its control standard and capabilities to deal with the isses at stake.- It is positive that the UN make a call for global partneship to deal with the sustainable development challenege.It is the lack of global gobernability criteria, the main cause of negative externalities arising from inmigration, wasteful of key resources, and Government failures to cope with internal gobernability.-

On the recent slowdown in global trade | VOX, CEPR’s Policy Portal

On the recent slowdown in global trade | VOX, CEPR’s Policy Portal

Fifteen Years into the XXI century in Latin America

It may be too early to assess this century trends, but for Latin America it is important because there was great expectations, following the lost decade (1980-1990), and the reforms which followed since then. Besides, it is unusual and risky, to analyze a century which is still on, and so much about to happen. However, it is interesting to make some evaluation when it comes to some facts about Latin America economies in this century quite different from the previous one, such as: a.- Market oriented economic policies, as an alternative for the state led inward economic development ones. (XX century).- b.- Democracy as a legitimate way to solve political differences, as much as to provide solutions for people ´s demands as well.- c.- Better institutional design for economic policies, such as Autonomous Central Banks , Fiscal policy responsibility, and better designed financial markets.- d.- Higher level of trade and financial integration with the world economies, such as to make Latin America a potential global partner.- e.- The lasting effect of the Asian economies crisis (1997-1998), such as higher country risks and outflow of foreign investment. So, what can be said as a preliminary balance so far?: a.- There has been an important expansion of opportunities arising from social mobility, economic growth, and both lower unemployment and poverty level.- b.- The new middle class, has become the key market target , for business expansion within Latin America economies.- c.- Firms and business man, have become the alternative for the state when it comes to economic integration, economic growth, and solving some publics investment needs such as infrastructure(energy, railroads and the like).- d.- Technology change focused on good consumers ,has been widely accessible to an important proportion of population.- e.- Government and politicians, have not been up to the challenge of coping with the demands arising from a more complex society, making gobernance more difficult . Seven elected Presidents since the year 2000,could not finish their period which they were elected for.(Peru,Bolivia, Equator(twice), Argentina,(three cases), Paraguay , Honduras and a few days ago Guatemala).- f.- Climate change is increasingly a pressing issue for this continent, as it is for the world,which required more coordinated policies.- However, even though it seems that there are more positive than negative events, the net outcome is far from being positive. Governments seemed to be unprepared for both decentralized and complementary solutions, instead it has been captured by those who looks to serve themselves, than others.This approach to public policies as a whole,has made an important difference for this preliminary evaluation to have a net positive outcome.-

Economics ,instability and uncertainty : Is it the weakest science of all?

Among different sciences, economics looks at first glance, like the one with more pending issues. Physics, and Mathematics are the sciences which allow us to be in the space, to go to the moon, and to get to Pluto and Mars. Chemistry and Biology are fitted to provide food, at a faster pace to an increasing global population .In all of these areas, there is few space for mistakes. So, these sciences, are precise enough in its foundations such that there is little doubt about the final outcome.- Very much of that performance, is further improving with applied information technology and stronger capacity of new computers. Virtual reality increase the options, to reduce even further the error margin.- What a difference economics science does, regarding its inability to control uncertainty and instability. The implication is that there is no way to guarantee the preciseness of the outcome. It follows that ,economics will always fluctuate between what it is expected and what it real . Thus , How come a society may become dependent upon economics , to solve key issues ?.The risk is very high that in such a case, it would be hard to avoid the wrong path for society as a whole .- . Gary Becker made a huge contribution to the economics science, with its economics approach to human behavior. It stressed the rational nature of economics decisions made by humans, who keep in mind the benefits and the cost of its actions. Fertility, Marriage, Labor-leisure, rural-urban migration, crime were all subjects which could be explained by economics, so it defined policies to deal with them. So strong was the argument, that at macroeconomic level, it went that far as to suggest that economic policies , were not such a useful tool, for solving key unbalances between aggregate expenditure and incomes, unless nobody expected that policy intervention was necessary to coming in. The whole issue of right or wrong, became somehow also solved by economics, depending upon the cost and benefits involved. Unfortunately for its expectations as a science, this approach turned out to be insufficient to guarantee an outcome all events proof. When it seemed economics reached its highest stage to be at a same level with other sciences, it failed with the control of uncertainty and instability. Just a few economists, predicted what the remaining ones the whole economic science and its followers ,could not foresee.- The financial crisis of 2008, made a huge setback for the proposal of economics as the supreme master of all sciences. Economics alone is not enough to deal with uncertainty and instability. It needs complementary forces. Politics arise at the first place. Greek philosophers suggested, that politics instead economic should decide about the driven values and purposes of society, as long as values are permanent not transitory, and society become also more stable and peaceful. Let take an example, the meaning of freedom is based upon of its economics or politics implications?. It seems that politics has a wider response to justify freedom. Let check them out a.- Freedom is a necessary condition for justice. Freedom is the way to justice, Without freedom there is no path to justice. b.- Freedom allow citizen to become happier and richer, bot spiritually and economically so to speak.- c.- Freedom allow society to increase wealth, and with it more people living better than otherwise .- d.- Freedom allow a better allocation of resources to increase the welfare of society.- One out of five reason to justify freedom, deal with economics, and keeping in mind that economics needs for such a purpose(d), an institutional framework. So, Let politics to get through, and make it work with economics.

The EU integration project and its influence in Latin America

Because of the debt negotiations between the EU, IMF and Greece, it seems the chance of EU project breaking apart goes higher than the expected. The discussion of the EU model ability to address the challenges arising from within and from outside its borders, should take into account how strong has been the influence of this integration project around the world. It is not just the survival of the EU what it counts, but the fact that in many places in the world, especially in Latin America, the EU model ,is a path to follow for future trade flows and economic growth to become stronger, cultural ties to become part of common history, and social constraint such unemployment , poverty, and inequality to be properly solved . Integration has long been a complex process in Latin America countries full of expectations, but short of solutions. The experience in the sixties (Ecuador, Peru Chile, Colombia), did not get what it was expected, because it was wrapped by the rhetoric related to the confrontation North - South , and the argument of countries in the periphery lacking development because of industrialized economies from the north, exploit its raw material endowment at low cost . Thus, the orientation of such a process, on the one side, had a bias toward foreign investment, free markets policies, and on the other the conviction that a Strong state was part of the solution, to take the lead of economic development and social improvements. The outcome, was less promising, the external debt crisis of the eighties make it all a huge failure, with inflation, poverty and inequality worse than at the beginning of the experience. Those years, between 1980 and 1990, were considered the “lost decade”. But the “lost decade” concept real meaning and implications, was deeper for the integration dream. Tough questions arose at that time about the next step to confront the unsolved issues of inequality, poverty low rates of economic progress, and lack of institutional framework to deal with the dynamic of development. The EU integration path under way at that time,was the benchmark to follow. So, it came about different initiatives based upon the premise that trade and investment flows, work better through economic integration.

China Investment in Latin America:Some thoughts about Its implications

In january this year, the Chinese Government announced an investment plan for USD 250.000 millions, to be implemented in the next ten years in Latin America. Most of these investments, deal with infrastructure projects which would allow a better trade flow between China and its counterparts in Latin America. Last year, China start off a Global Bank,specially designed for infrastrucute projects to be implemented in many economies in the world. Actually ,this trade flow is slower than desirable, imposing higher transaction cost affecting the eficiency gains of such trade for everyone. Just to give an idea, while a trip for a cargo ships by the pacific, takes 12 to 15 days, the same trip by the atlantic ocean ,requires 23 or so, days. So ,it is obvious that there is a necessity for Chinese Government and its partners to improve the logistics of its trade chanels. Quite different to other countries with the same requirement, China does have the capacity to look for these changes within its partners borders, instead of waiting for free trade agrement alone, to be fully in place .These treaties need complementary investment, so they finance them. This week , China made official its partnership with Brazil, for implementing investments in railroads projects and others projects, from 2015 up to 2021 for USD 53.000 millons. So, it is doing a similar project with Argentina and Colombia, to improve railroad networks to get a faster speed toward the pacific ports.Raw material better disposal, is also a justification for these invesment flows. What are the gains for Latin America?. a.-It does not have the resources to implement such investement on its own,and a lot of research done by the international organisms ,call the atention on the weak instructure in Latin American economies as a restriction for growth. b.- It will improve Latin America capabilities, to engage in deeper integration with global markets.- c.- It will support economic growth potential, which it will have a lasting effect on the quality of living of its citizen, whether this growth is complemented with better public policies. A sensitive issue is about the influence China is getting in the region,and its consequences for the strategic equilibrium between global partners. Concerning this influence ,it is hard to argue that it is decisive for its policy decisions, and commercial ties within each country, or with other economic blocs such as the European Union. The issue rather is, that Latin American economies have a new commercial ally , for its integration into the global economy , to get fully the advantages from it. A stronger Latin America, is also a good condition for better trade flows , with this traditional partners . However, from the political and geostrategic point of view, it is for sure that it will arise a scenario with a different setting for diplomacy.-

The new mediocrity: an alternative meaning

At first glance it may looks that the notion of mediocrity as a rule for global economy and local economies in particular, is unfair. The fact is that policy makers, are doing their best to overcome the lasting effect of the worst financial recesion of this century.They did not create that recesion because of their policies, but because they lacked of them,otherwise it is hard to understand the reason why smart people did nothing to prevent it.This fact, some how shift the burden of responsibility to markets economic agent, however, not any of them ,but those innovators who lead the new way to do business with high risk financial products.- Financial Innovation went through markets transaction at a faster pace, than policy makers were able to design the proper approach first , then the proper policy, to deal with its higher than usual risk profile in financial transactions. Therefore ,the new mediocrity hypothesis arise from the fact that no matter its consequences, a lot of the most promiment financial institution in the world ,followed that innovation bet,and aside from almost the usual innovation flow coming from information and communication technologies , there is no current innovation on the global economy capable of matching that one which led to the financial crisis.The obvious implication is that those innovation failed, but that is the path for better and stronger innovation in the future. Perhaps, unconventional Monetary policy match such an innovation label, but it is unusual to count on that indefinitely,sooner or later it will back to normal, which is the opposite of lasting innovation(creative destruction).Fiscal policy, still is depending on taxes, and worst of all on higher taxes. This macro economy policy , should follow the innovation path of the monetary policy, but this one, to last for longer period of time. Let take the case of a partnership with the private sector to provide better services, protecting the state from corruption with better laws ,or to get rid of centralized solutions away where the problems come from Thus, given that none of these macroeconomic policies are even close to be innovative, so the sources of economic growth will not be either.The endogeneous source of growth, arise from talented people who have the chance of following their way up to the top, within a supportive environment, with clear and stable rules,and the right incentives, which asumes an innovative State. At the end of daily analisys, economic growth still depend upon the same approach applied in the past, more State and less private initiative.If this is the case, there are two implications: a.-The new mediocrity means, lacking of new ideas to lift both investors and consumers expectations up.To get rid of traditional text books solutions to solve old problems, but inefficient to deal with new problems arising from konwledge and information, as the driving force of the global economy, and economy growth. b.-The new mediocrity will stay for a long period of time,unless innovation also apply to fiscal policy.

Commodities prices and Latin America economies

Commodities prices has been declining.This means that those economies whose public budget depend upon commodities prices , will have troubles to make the balance whether public expedenditures keep the pace without adjustment. But ,the implications of this situation go even further : a.- According to the Interamerican Development Bank, there is a reasonable probability for latin american economcies to have a lower rate of economic growth, in case that Europe, China and Japan have also lower economic growth than expected.The decrease in the rate of economic growth though ,is different within different groups of economcies, such as those oil exporter. metal exporter and so on.The estimated average economic growth for South America is 3,8%( (2015-2017), in the best scenario,and 2,9% in the weaker scenario.- b.- If the USA economy keep the pace even with higher interest rate, economic growth for South America would be 3% instead of 2,9% according to the EDB.(source : www.latercera.com).- c.- Foreign investment could be affected in commodities sector, because of commodities prices volatility.So, even it is not that much relevant its share in these countries ´s GDP, the ECB suggest better policies to manage prices uncertainty.- d.- The more complex problem for those econimies more vulnerable to commodities prices fluctuations, is to adjust expenditures, and the path they will follow to implement it, unless the get external financial resources , but sooner or later expenditures will have to be revisited.This will put more pressure on economic growth, to the downward side specially if affects consumption. The positive side of the story is that global economy seems to have found the track of economy growth back from the financial crisis of 2008.In Europe, Germany and Spain are in the position to lead the recovery to a more sustainable level, and lower prices of oil will push that performance further.-

The Strenght of free market policies:to fullfill its promises

How come that it is not usual in Latin America presidential elections, for free market ideas, to take control of government policies?. What make free markets ideas weaker , such that it does not get good voters approval? These two questions arises, because of the recent presidential elections in Latin America, none were for candidates who believe in free markets ideas. Instead, in all cases a stronger role of the State prevailed. The empirical evidence available, shows that as far as the outcome is concern, free markets proposals ,overcome those arising from more an active state in the economy. The explanation for it, goes on the line of which of the two proposal, has the ability to provide better chances for steady economic progress and wealth accumulation: a.-Given an institutional framework, free markets work, on the basis of self coordinated actions and decisions made by individuals, with no other purpose than to increase the outcome they get, which otherwise would not be possible to get it alone. The key for such outcome ,is to have an institutional framework effective enough, to guarantee that the decisions process goes smoothly toward its wealth objective, which as a by product can generate value and innovation.- b.-On the other side, the State is vulnerable to be captured either by politicians , bureaucrats, or special interest groups, which change the path of public policies to their own purposes instead of the whole community. Besides the risk of corruptions, make it more difficult for the State to keep close to its promise of well being for everyone. By its nature, the State must keep distance from those risks of being captured, limiting itself to fulfill the effective conditions. This means, to do what it have to do, with a sense of Social responsibility. After all, markets need the State to do the complementary task of correcting its failures. If the State fail because it has been captured, the whole society have a welfare loss. However, the outcomes of recent elections in Latin America, seem to suggest that voters prefer to stay away from policies dealing with free markets proposals. But does this means that they really prefer more State?. Given the performance of markets and the State, the only explanation for this adverse selection, is that voters look for some kind of protection. If voters do prefer protection over well being, it means that they get the wrong message about free markets ,which based on freedom suggest that it assumes everyone is in the same possibility to take advantage of their freedom. Some people obviously are better off regarding freedom, because they have better education, good quality social networks , accumulated wealth and so forth. Those who do not, because of poverty, hunger, mal nutrition and the like, will stay behind, depending upon some one to give them, what they can not get by themselves. They do not know what freedom is about. They live on their fears, instead of the their freedom.- Thus, what matters most for voters are not the appealing of free markets outcome elsewhere, but how these ideas and policies , may give them better protection than the one arising from the State promises, which as it has been demonstrated by past experience, most ot the time are just that, promises.-