Orientalmix

Adventures from the Far East and Beyond

The Canucks are out but Jeffrey Sachs was in town! May 13, 2009

Filed under: Economics — orientalmix @ 12:32 am
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OTTAWA – Spent most of the morning with a cloud hanging over my head. My beloved Canucks are out of the Stanley Cup playoffs. Uggg. They lost 7-5 last night. Was full of gloom all morning but then fun developments in the world of economics in Ottawa were taking place. Jeffrey Sachs was in town this afternoon giving a lecture on financial reform and sustainable development. The lecture was hosted by the Department of Finance under the title of the “second annual Thomas K. Shoyama lecture series” – this was a treat to discover. Thomas (Tommy) Shoyama was born in 1916 in Kamloops, BC, attended UBC, and was a reporter for the Vancouver-based Japanese-Canadian newspaper, The New Canadian. It was the only Japanese-Canadian newspaper that was allowed to go to print after the attack on Pearl Harbor. He had a long and distinguished career as a civil servant and I think he even worked his way up to Deputy Minister of Finance – hence the lecture series. It’s always great to hear about distinguished Japanese-Canadians, especially during our 80th anniversary of diplomatic relations. The Canadian Embassy in Tokyo first opened in 1929.

Ahh but back to Jeffrey Sachs. It’s always nice to have the chance to meet someone who you have been following through the course of your academic career. PLUS it was great to see many other young professionals at the lecture who were ready to engage one of Time magazine’s “100 most influential people.”

p.s. Yes, I did have him sign my copy of Common Wealth.

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Decoupling Debunked? March 10, 2009

Filed under: Economics — orientalmix @ 2:48 am
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I’m still struggling with this one but the global value chains that link country to country have changed (should change) the way we think about globalization.

 

Last September, the failure of Lehman Brothers sent global stock markets tumbling, causing billions of dollars of losses across the world and severely shaking the foundations of the international banking system. The world’s largest economy is now officially in a recession, consumer demand has slumped, and millions have lost their jobs across the globe. Many emerging Asian economies have been hit much harder than their Western counterparts. For the past few years, emerging markets such as China and India were new engines of global growth. Even when the United States experienced a slowdown in 2007, these economies continued to record high growth rates and large current-account surpluses. Some economists even wondered whether the US and the rest of the global economy were headed in different ways. But the idea that much of the world economy has “decoupled” from the US may be based more on investor strategy than a sound investment theory.

 

No one will argue that against the fact that the United States is still the dominant power in the global economy even in this current mess. What about China? What impact will this financial crisis have on China’s economic output? I have a sneaking suspicion that the financial crisis will affect China’s economic output in the short run but will help China achieve a stronger relative global position in the long run.

>Will have more meat to back up these claims later. Stay tuned.

 

Advocates of decoupling argue that European and Asian economies, especially emerging ones, have become robust and diversified enough that they no longer need to depend on American growth, leaving them largely insulated from a severe slowdown in the world’s biggest economy. Over the last two decades, the global economy has changed significantly. Emerging economies have integrated into the global economy and have experienced strong growth. Some, like China and India, have even continuously outpaced developed economies. Countries such as China, Singapore, and the oil-producing states of the Persian Gulf have realized enormous financial surpluses, while the United States has become the world’s largest debtor. This is in stark contrast to the early 1990s when many of the emerging economies ran balance-of-payments deficits as they imported capital to finance their growth.

 

The US has functioned as the main engine of growth in the global economy for the last several decades. However, financial experts began to question if there was a genuine shift in economic power after a slowdown in the American economy in 2001. Investors on Wall Street noticed that emerging economies such as China and India continued to grow steadily, even when the American economy was stagnating. Michael Avery, chief investment officer of Waddell & Reed, has noted that the concept of decoupling began to “pop into the heads of professional investors, including his, during the last US recession, in 2001-2, although it had not yet achieved buzzword status”. This set in motion the thinking that the US might not be the leading economic force in the future. Many have speculated that China in particular is moving from being export-dependent to enjoying strong internally driven growth due to rising incomes and higher consumer demand. In an industry based on perception, faith in decoupling generated impressive performances for stocks of emerging economies, encouraging greater investment. High returns made it easier for investment bankers and economists to sell their idea of a decoupled world.

 

Economic trends in 2007 helped support the decoupling argument. A major slump in the US in the first quarter did not pull the reins on growth in Europe or Asia. China, India, Central and Eastern Europe, along with the Middle East purchased larger shares of capital goods and injected capital into European and Japanese economies. While the American economy decelerated, emerging economies were growing at full speed, adding fuel to the decoupling debate. For example, China’s exports to America slowed to 5 percent in 2007-2008, but exports to the other BRIC economies (Brazil, India, and Russia), increased by more than 60 percent and were up 45 percent to oil-exporting economies. As the number of economies that traded with one another grew, some economists began to speculate if the US and the rest of the global economy were going their separate ways. Investors, in particular, stood to gain financially if the decoupling theory were to be true.

 

 The Chinese government is undeterred. They  even announced recently that they will grow at 8% in 2009. However, it’s difficult to know what kinds of “statistics” the Chinese economists have based this prediction on – especially since they have been advertising the fact that GDP needs to grow at 8% a year to continue their economic advancements. 


 

Krugman and other influences March 9, 2009

Filed under: Economics — orientalmix @ 5:42 pm
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Though most of my blog has been dedicated to Japanese baseball… I’ve decided that it’s time to share my thoughts on various developments in my understanding of macroeconomic theory and the impact global financial crisis. Still debating if I should create a separate blog but will blame my indecisiveness on my Gemini characteristics.

I was checking out Paul Krugman’s blog on the NY Times last week and found that he had referenced Nick Rowe – an economist teaching at Carleton University in Ottawa. I heard him speak as a part of a panel discussion on the 2009 Conservative Budget. It was really quite interesting to hear what Prof. Rowe’s thoughts on the budget in contrast to another professor’s views from a microeconomic standpoint.

Macroeconomists tend to argue that the amount put aside by the Conservatives and other G7 nations to get our economies going isn’t enough. When you ask the microeconomist, they are much more cautious to look at where the money is being allocated exactly.

People have been predicting that this recession is going to be deep and costly to the gains made by developed and developing nations alike. Judging by how many jobs have been lost over the past few months, things are not looking good. It’s really quite frightening, especially when you consider the impact on countries without social safety nets and countries already in need of massive influxes of foreign currency to keep afloat.

I’m finally starting to notice more media reports that are saying that this recession is going to hit developing nations  – HARD. It’s true. The decoupling debate is over. A flight to safe haven means that more and more people are less willing to take risks and that people are going to invest in developed countries – most likely the US – instead of countries that desperately need foreign capital.

(And yes, these are the thoughts that have been occupying my mind when I’m not around my favorite baseball teams. Can’t believe South Korea beat Japan today 1-0.)

>Kyle – I think you should start your own blog. No, really.