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Daily Archives: May 15, 2008

Roach China Interview

Stephen Roach, Chairman of Morgan Stanley Asia, talks about China's earthquake and its impact, China's economic outlook, decoupling theme, Arthur Burns, inflation and monetary policy, and China bashing in election year. (source: Bloomberg radio)

Larry Summers is being blasted

Arvind Subramanian et al. blasted Larry Summers on FT for his nationalistic argument against liberal economic tradition:

Is a liberal international economic order losing intellectual support? Should developing economies be worried? If Larry Summers is the canary in the intellectual mine, his two columns in the Financial Times (April 28 and May 5) suggest that the answers to both questions are yes.

The liberal economic order of the last several decades was premised on two assumptions. First, that the proliferation of prosperity across countries was a good thing. Second, there would be winners and losers but, on balance, a majority of people in both developing and developed countries would benefit. Mr Summers now appears to be questioning both assumptions. He has not stated outright that the proliferation of prosperity is undesirable but his ­columns do suggest that globalisation creates competition for America.

I feel sympathetic to their view. American policy makers in last several decades have been promoting around the world the liberal policies as demonstrated in Washiongton Censensus: free trade, free capital flow, competition, etc. But when the developing countries begin to widely adopt these policies, economists in the U.S. as prominent as Larry Summers are saying, "It's time to rethink, we don't want our workers to be hurt in the process".  Oh well, what about the workers in developing countries?  I smell hypocrisy, and Summers is seeking his Keynesian roots.

Carbon trade: next big thing

Carbon trade, especially the trades between developed and developing countries, which I think is one of the most brilliant ideas in mechanism design, will be the next big thing in financial innovation. A democrats president in November will only expedite the process.

(source: wsj)

Bernanke on the origin of financial meltdown

Bernanke summarizes the origin of current financial meltdown in a nice 2 min video.

(source: CNBC)

Oil speculation 101

CNN Money has a nice basic discussion on oil speculation. Be aware: speculation can drive up price for a considerable period of time (Brad DeLong had a nice piece on this), and speculation can become a huge source of "demand" in a time of euphoria. But eventually fundamentals (supply/demand) will dominate.  

Another farm bill

Congress passed another farm bill, at $290 billion. With agri-commodity soaring, the US famers enjoy the windfall at the expense of greater social welfare.
Read this opinion piece from wsj: "Who Wants to Be a Millionaire?"

Inflation, price control and earthquake rescue

In watching China’s earthquake rescue, I was stunned by one interview clip in which local official complained that due to lack of diesel oil, the heavy rescue equipment could not be put into use. At every gas station, diesel is sold out.

Why is there a shortage of diesel in China? That’s because Chinese government thinks price control is the way to deal with inflation. The unintended policy consequence is the suppliers (such as SINOPEC and China Petro) all cut down their supplies. This reminds me of the price and wage control in the US back in 70s under President Nixon, and the long wait line at the gas station… Politicians just don’t learn their lessons.

Also, with commodities prices all time high, I think it’s a good time for Chinese government to re-evaluate their policy toward auto industry: Whether public transportation should be preferred in a country with 1.4 billion population? Whether gas guzzlers like GM’s Hummer shall ever be allowed to be produced in China? Yes, there are plenty of Hummers in China.

Behind the food crisis

The silent Tsunami:

(This is a 45 min video, coutesy of Bloombergy TV)
Background reading from Economist.com