Welcome to Dr Lincoln's blog

Welcome for visiting my blog. Hope you enjoy the visit and always welcome back again. Have a nice day!

2016-06-30

Briexit may not necessarily be as bad as many people think!

Comments on Editors, East Asia Forum "Can Asia shield the world against Europe’s Brexit woes?" 28/06/2016

While there is no question that the Brexit has and will continue to be a source of uncertainty, particularly for financial market, the scenarios presented in this post may appear to be too and overly pessimistic.

While the EU integration in general has been a good thing, the economic woos in some Euro zone economies in the wake of the GFC undoubtedly suggest there is a need for an exit mechanism for a member of an integrated regional organisation, such as the Euro zone or, for that matter EU. Such a mechanism, with good wills and intentions of all involved, would allow the exit of a member with either some difficulties or political determinations.

Such a mechanism should be friendly, as opposed to punitive.

Greece, with its painful economic, political and social problems, would have benefited if a helpful exit mechanism allowed it to use a national currency as an adjustment tool, as opposed to cuts to nominal wages, social securities and pensions.

Married couples may divorce and most countries have laws allow that to happen. Then why not allow a member of an integrated organisation to exit?

We should not just think in only one direction, that is, to integrate with no exist possibility and mechanism. That way of think is problematic itself. And that is one of the key sources of uncertainty in the wake of the Brexit vote outcome.

It is unhelpful and unproductive to blame or complain the Brexit.

I believe that Britain and the EU will negotiate creatively with mutual benefits for a successful Britain exit. They should and will create a workable framework to facilitate the Britain exit.

2016-06-01

Changes in the terms of trade should be reflected in GDP measure

Comments on Peter Martin "Election 2016: GDP growth nowhere near as good as it seems, but it'll do for the prime minister", 1/06/2016

It seems there is a need to incorporate the very different effects on the living standard of changes in the terms of trade in the GDP measure. This is because that changes in the terms of trade is quite qualitatively different from changes in domestic relative prices irrespective they are inflationary or deflationary.

While changes in prices generally have the effects of transfering wealth from one group to another, the effects have quite different impacts if they occur through changes in the terms of trade.

Changes in prices purely domestically, the transfer of wealth is within a country and therefore they total wealth of the nation has not changed.

When changes in the terms of trade, the transfer, however, is between two different nations. As a result, the nation's wealth will increase if the terms of trade increases and it will decrease with the deterioration in the nation's terms of of trade.

To conclude, there should be some measure to distinguish these two kind of changes in relative prices to capture the changes in the terms of trade on a nation's living standard for any given real GSP growth as currently measured.

Australian dollar, industry policy and economic transition

Comments on Shiro Armstrong "Asian integration a key part of Australia’s economic transition", 29/05/2016

The author argues that “As the dollar strengthened and productive resources shifted to the mining sector, manufacturing became less competitive and many industries suffered or shut down.”

That can only be partly true, as the falling Australian dollar in recent two years will not in any way to stop the closure of the only remaining car manufacturing plants in Australia.
As a result, there are more important factors than the fluctuating Aussie dollar in determining manufacturing in Australia.
The issues with the future submarines to be manufactured by the France, possibly with some part of that making process in Australia, may not necessarily represent a good policy, if Australia can not maintain a car manufacturing plant while attempts to be part of manufacturing and maintaining submarines. It may be actually a loss if Australia does not have that comparative advantages in doing the submarines, if the standard trade theories are to be believed!
It could be an example of poor industry policy at the taxpayers expense.

Australia do need to find its comparative advantages!

China still searching for an effective governance system

Comments on Neil Thomas "The Cultural Revolution will not be revived", 1/06/2016

The statement by the author that “‘What the Cultural Revolution did was to teach the Party not to trust its own people’”, does not seem to be a correct characterisation of the Party’s official line. The party’s official line on the key lessons from the Cultural Revolution has been to prevent excessive personal power and authoritarian at the expense of collective leadership style, at all levels, particularly at the very top level of party leadership. It was Mao’s huge popularity with the people and with people’s trust through the revolutionary struggle against Guomingdang regime led by Jiang Jieshi and the establishment of the PRC that made it possible for Mao to launch the Cultural Revolution in the mid 1960s.

However, personal power has the power of addiction, not just in China but also in the west (e.g. JH’s stay as the prime minister until he lost his seat and the changes to prime ministership in the past few years in Australia, as good examples), even though the Communism system has made it much easier to occur. The person, whoever is on the top, would like to continue that power.

Having said that, China has developed and established a system of power transition at the party’s very top, as the past three transitions indicate. It will still be a long way to go for China to have a complete system where power transition is not just a matter for the elites but the people to have a true and more effective democratic voice in deciding who will be the leader or in the leadership team.

No system is perfect and that is why we have see the Trump factor in the USA now and surprises many people have and have expressed worldwide.

The above mentioned changes in the prime ministership in Australia, in conjunction with the difficulties for the government to carry out much needed reforms to further raise living standard and improve equality, also reflect some shortcomings in the west system.

China is still searching for an effective and stable system of governance. How long it will take to have it is a question of interests by many.

2016-05-05

China's SOEs should be seen in factual light

Comments on Paul Hubbard "China’s global economic impact is no longer state-owned", 5/05/2016

Thank you Paul Hubbard for a fact based, balanced and well argued article in this particular field.

The point on China’s SOEs’ overseas investment reflected in the following statements are excellent:

“Foreign engagement with SOEs provides an opportunity for Chinese state business to experience and be subject to the discipline of competitive markets, without special privileges, in well-regulated economies.

“Foreign investment into China helped align China’s nascent private sector with the rules of the global trading system. Likewise, Chinese state investment overseas can be a channel to take back to China international standards for transparency, corporate governance and market behaviour.”

I highly appreciate and commend this article.

PS: More importantly, the point on the fact that SOEs exist in virtually all countries including advanced western economies. The differences are a matter of degree not a matter of having or not.

Understandably, there have been a privatisation process in many countries, particularly in advanced western economies. In Australia, for example, a number of big former SOEs have been privatised, such as the Commonwealth Bank of Australia, Qantas, Telstra (formerly Telcom).

Notwithstanding the privatisation process, there are still SOEs in western economies.

In Australia, for example, you still have SOEs including Australia Post, Medibank Private and Defence Housing at the national level, some electricity and water enterprises owned by the State and Territory government at the state level. The Snowy Mountain hydro electricity is jointly owned by the federal and some state governments. Some ports, rails and buses in Australia are government owned entities.