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Monthly Archives: December 2009

More upsetting news about trade battles between China and the US. Last time it was tires, now it is steel pipe. The International Trade Commission gave approval for an import tariff of 10 to 16% on Chinese steel pipe.

Maybe not that much to be afraid of. The International Trade Commission is not international at all, but an independent federal agency that only gives advice to congress and the white house. They themselves have no legislative power, so the news is not that bad, though the commerce department has approved the tariff.

The United Steelworkers union, which was the driving force behind the tires case, joined with the Maverick Tube Corporation, the United States Steel Corporation and other American manufacturers in asking for import duties on Chinese-made pipe.

No surprise of course that American steel and pipe manufacturers are pushing for the tariffs. What I don’t understand is where are the American oil companies? The oil companies and their customers will be the ones paying the higher prices that result from the tariff.

The real fear is that the US is going to go even further with protectionist policy, and many countries will follow in retaliation. Like during the Great Depression, protectionism gets politically easier during hard times, and you can not get any more counterproductive.

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This is a great article and a must-read for economics students. The title–Markets fail. That’s why we need markets–pretty much tells the story, but you need to be at least slightly familiar with market economics to understand.

 The article begins by describing the never ending macroeconomic debate–classical market theory, where the market can do no wrong–vs. interventionist theory, where government is needed to prevent market imbalances.

markets are unpredictable, prone to booms and busts, characterized by bouts of exuberance that are rational or irrational only in hindsight.But markets are also the only reliable mechanism for sorting out this messy process quickly. In spite of the booms and busts, markets drive genuine long-run innovation and wealth creation. 

When governments attempt to impose order on this chaotic and inherently risky process, they immediately run up against two serious dangers. 

The first is that they strangle new innovations before they can emerge. Thus proposals for a Consumer Financial Protection Agency, a systemic risk regulator, a public health insurance plan, a green jobs policy, or any attempt at top-down planning may do more harm than good.

The authors claim that both sides of the debate are wrong and that a new view is taking hold–market economics is good because it allows failure.

I would argue only that this is not new at all, but has always been a part of classical theory, at least since Carl Menger and the rest of the Austrian school.

China has passed a law requiring power companies to buy-up all the electricity generated from renewable sources. My first thought was, “Damn. Wish I had bought stock.”

Second thought is that this is quite a response to the supposed controversy of the recent Copenhagen climate talks. The new law–

empowers the State Council’s energy department, the electricity regulatory agency and its finance departments to determine the amount of renewable energy available in the country’s overall power generating capacity.Power companies will be obliged to take up all of that capacity, and those refusing to do so will be fined an amount up to double that of the economic loss of the renewable energy company,

I would bet now that this story–sadly–will not get much notice in the US. Even less likely–double sad–is that the US will not be able to make a similar gesture to confirm their commitment to emissions controls.

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Christmas posting, here is an article that points to new job opportunities for those trained in rock climbing. Maybe a good example to use when discussing structural unemployment.

Of course wind turbines are not a terribly new technology, but their use has become increasingly  economically viable, replacing some coal and oil  for electricity generation. As fewer workers and resources are used in traditional generation plants, some people will not find viable job opportunities until they get training in a new skill, perhaps turbine climbing.

Merry Christmas!

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This story brings some perspective to the Obama administration’s plan to “renew its push for stimulus dollars to be directed to minority groups and women.” It is pointed out that–

Three-quarters of the recession’s total job losses have fallen on blue collar workers. Two-thirds of all Americans who have lost jobs are blue collar men. And more than four-in-10 of the total job losses are blue collar white men.

It seems obvious that a plan focused on minority groups and women will not be effective for a huge segment of the unemployed. It is pointed out that, because of the smaller number of black, blue collar workers, the percentage of–

(Black men) have suffered most as a group. The number of jobs held by white men has fallen by 6 percent. Hispanic men by 5 percent. But the number of black men employed has fallen by 11 percent.

It is also noted that women have lost a smaller percentage of jobs than men. So why focus recovery policy on minorities and women? It is vaguely suggested that the policy is based on outdated views of prejudice against those minorities. The statistics do not support that view.

I do wonder about something–I wonder if the unemployment statistics are skewed by different participation rates with unemployment benefits. Finding unemployment we only measure those looking for work compared to those working. It may be that white men have easier access to the unemployment lists, for whatever reason. Maybe some women–when losing a job–are more likely to just stay at home rather than go to the employment office.

Another question–Will policy create opportunities for those who have opted out of the system and are not counted as unemployed? Or will it focus only on those on the unemployment lists now?

I was intrigued by this, though it is a bit of a stretch to say this is really an economics story–Aussie scientists find coconut-carrying octopus.

Well–sure it is economics–how do we use resources to best advantage? What to do with discarded coconut shells?

Live in them of course.

This is obviously a learned behavior, so it is also interesting to consider how long the discarded coconut shells have been available. As many octopi are using them, they must have taught one another about how best to use the shells.

US president Obama is meeting soon with executives from some of the biggest banks in the country. The article is not completely clear on what Obama expects to happen in the meeting, but two goals are hinted at.

One is for the banks to submit to greater regulatory control. You might have thought that was one of the conditions for getting 700 billion in bail-out money last year.

Another goal is less clear, but probably more important, and that is getting the banks to start getting money out in the communities, encouraging spending and investment. Not sure how the government can leverage that kind of policy with the banks. Say, “Pretty please?”

It was also reported that Obama’s approval rating has dropped below 50%. At least he seems to understand some of the criticism.

“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Obama said.

US banks are reported today to be very hesitant in refinancing homes. When I was in school, the liquidity trap was explained to me to be a drain on savings, because the interest rate was less than the value of keeping money in your pocket, ready to spend as you please.

This also seems a sort of liquidity trap, though perhaps the terminology needs to change. Banks can also horde money, but the reason is not liquidity, but the promise of higher returns at a later date. With mortgage rates at under 5%, lowest since the 1950’s, there must be promise of higher returns in the near future.

The real question returns, why was the US bailout focused on the banking sector? It seems to have made the problem worse, with more money being withdrawn from spending, and consumers ever more hesitant to spend. They are now trying to redirect money towards job creation. A worthy policy, but why was that not the focus to begin with?

The Copenhagen climate talks are reported here to have graduated to the stage where they are negotiating the costs to different countries, the developed world financing most of the cost of reducing carbon emissions. One dispute appears to me to be a bit of resentment over trade balances.

Todd Stern, the special U.S. climate envoy, called the text “constructive” but singled out the section on helping poor countries lower their growth of carbon emissions as “unbalanced.” He said the requirements on industrial countries were tougher than on developing nations and the section was not “a basis for negotiation.”

China’s public stance remained unyielding, and Vice Foreign Minister He Yafei took Stern to task for remarks Wednesday that no U.S. climate money would go to Beijing. In unusually blunt language, He said Stern either “lacks common sense” or was “extremely irresponsible.”

Restrictions are less for developing countries based on the observation that the developed world is mostly responsible for climate change when developing themselves. Perhaps it is sensible though that today–with better technology and cleaner energy available–the undeveloped world can make progress without the same costs to the environment.

I have yet to see comparisons of what emissions were for comparable energy consumption, say 40 years ago compared to today. I do remember living in Long Beach, CA in 1969-1970. There were regular news warnings for people not to exercise outside because of the poor atmosphere. It sometimes hurt my throat and lungs to take a deep breath.

Now in China, the smoggy air is often obvious. It is/was a problem worth avoiding in both times.

Living in China, I was not surprised today by this headline: Recession Elsewhere, but It is Booming in China. Some of the details though took me back a bit. Like this–

For the first time, Chinese will buy more cars this year than Americans. Demand is so high that drivers put their names on long waiting lists for the most popular models.

And it is not just cars. For more and more consumer goods, China is surpassing the United States as the world’s biggest market — from cars to refrigerators to washing machines, even desktop computers.

Not really so surprising when you remember that China has four times the U.S. population, and surprise is dampened even more when you see that Americans are still spending more money for all that stuff, the Chinese buying greater numbers of cheaper cars and appliances, and–

Total consumer spending in China is still less than a sixth of American consumer spending at current prices and exchange rates. That is mainly because China has relatively few restaurants, hotels and other service businesses, even as sales of manufactured goods have risen.

Chinese consumer spending has risen, but savings rates are still around 40%.

Meanwhile, recent stories out of Copenhagen and the climate talks there include statements from both China and the US accusing each other of not going far enough with their proposals and not living up to past commitments. Maybe sacrificing some of this rampant consumerism would make it lots easier to meet a target of lower emissions.

And I would not mind seeing fewer cars on the streets either. I commute on a bike every day, rain or shine, and it is getting harder to dodge the cars–especially when they drive on the bike lane.