Coase: China needs to have a free market for “ideas”
Ronald Coase, Nobel-winning economist, whose economic theory on property rights has had a profound impact on China’s economic reform in the past 30 years, prescribes medicine for China’s long-term sustained economic growth: to have a free market for ideas.
What Coase essentially argued was that China needed to have a free and open society. This would immediately mean the transformation of the current political regime.
Watch this ten-minute video:
A recent coversation with Jim Rogers
Part 1:
Part 2:
Part 3:
US labor market shows major improvement
The recent initial claims on unemployment benefits shows a major improvement in the US labor market:
“Soft” Budget Rules
Similar to the soft budget constraints (or SBC) under former socialist countries, the budget rule under EU treaty is also “soft” in a sense that violating the rule won’t be really punished. Punishments, such as kicking the “rogue” member country out of the union, run contradictory to the political ambition of the European Union and would risk breaking the union altogether.
The other option is to rein in the government spending of the member countries. But that would require a centralized authority with direct control of the member countries, especially on their fiscal policies, i.e., how governments spend their money. At current stage, Europe is not ready for such radical change, which requires a big surrender of their own sovereignty. So what Europe will likely end up is a fake fiscal union with soft budget rules. The moral hazard problem is unsolved. Rest assured to see more budget rule violations in the future.
The following map from WSJ gives a very nice summary of how the union’s budget rule had been violated in the past.
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China’s advantage as world’s manufacturing base
Two sharp charts on why China will remain as global manufacturing base for a long time, despite the sharp rise of its worker’s wages recently.
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When debt contagion arrives…
Now it looks like no matter what Europeans are trying to do, and how many summits politicians rush to put together, things just keep getting worse.
If PIGS (Portugal, Italy, Greece and Spain) were to ‘fly ‘, and debt contagion were to spread, and Europe’s Lehman moment finally to arrive, you probably want to at least have a slightest hint of where the next domino is likely to fall. That’s the purpose of this short post.
The following four charts are from researchers at BIS, including my former Brandeis teacher Steve Cecchetti. I suggest that everybody take a minimum of five minutes going through these tables. For nerds like me, I stick them on the wall in my office.
All debt:
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Government debt:
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Household debt:
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Corporate debt:
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Why German bond yields are rising?
From WSJ, what it signals when the German bond yields are rising:
Yields on German 10-year government bonds have risen 0.25 percentage point in the past week to 2.15% even as the euro-zone crisis has deepened. Until now, whenever the crisis has intensified, German yields have fallen and the yield premium for southern European bonds has risen. This shift is a sign the end-game is approaching.
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The difference is that buyers of U.S. and U.K. debt can be certain which country’s debt they are getting—and what currency it is denominated in. The euro-zone crisis is becoming binary. One possibility is greater integration, such as common bond issuance, which implies greater costs for Germany and fiscal dilution. The other is break-up, which implies costs for every country but which may favor short-dated German paper given the possibility of currency appreciation.