I spend a lot of time reading your article elmat - certainly trade, oil, and currency flows are the big issues as they always have been. Now with events seeming to repeat what happen in the 20's with protectionism - even Slagle saying we need it - seems we should give much time to subject.
Krugman and Bhagwati are academics. I know this lot. Those guys learned about trade reading books on Universities' libraries. They are not involved.
Those than can do - those that can't teach eh?
Why so down on this guy - he was the international econ teacher to many economists and policy makers. He seems genuine and sincere and well studied in international trade and wanting to help people using empirical studies - not book theory - did he run over your cat once?
cfr.org
The Chaff: Assaults on Freer Trade
Sadly, the critics who are most off the mark, and indeed off the wall, are to be found among the well-meaning NGOs. Enormously rich charities have now turned to agitating about trade issues with much energy but little understanding, prompting the witticism -- when Oxfam agitators at the WTO meeting in Cancun in 2002 were parading with G-8 masks -- that these were a bunch of dummies masquerading as another bunch of dummies.
Oxfam's annual spending is over $350 million; that of Action Aid nearly $140 million: These are now very big businesses. They are under the same pressure to diversify into new areas of public policy (regardless of expertise) as they pursue fund-raising opportunities as are the corporations keen to diversify into new industries as they reach out for profits. These charities have unfortunately signed on to several fallacies about trade that do serious harm to the cause of the poor nations.
Thus, they regularly allege that poor countries suffer from systematic rich-country "hypocrisy" leading to "double standards" in trade policy, with rich countries having more trade barriers than poor ones. The facts, however, are exactly the opposite for the most part. There is greater tariff protection on manufactures in the poor countries: This has followed from the fact that the poor countries, not the rich ones, have long been given special and differential treatment in trade negotiations.
The charities also say that, while rich-country trade liberalization is good for the poor countries, poor-country trade liberalization is bad for them. What is sauce for the rich goose is not sauce for the poor gander. In this fallacy, they are arguing against a mass of empirical evidence which shows that infant industry protection is often counterproductive and costly. Moreover, what postwar trade analyses show, and what the charities do not understand, is that autarkic trade barriers make domestic markets more lucrative than exports, leading therefore to an incentive bias against exports. So even when the rich-country markets are opened further, one's own trade barriers can prevent the penetration of these markets.
Perhaps the greatest damage they have done is in their energetic campaign against agricultural subsidies in the rich countries. The removal of these subsidies is, of course, desirable as it promises aggregate income gains; and many economists have therefore argued for their removal for nearly four decades. But the charities, the heads of international aid institutions such as the World Bank, and the liberal media have now added the twist that the removal of these subsidies will also help the poorest countries known as the "least developed countries" (LDCs). Yet this is dangerous nonsense.
The economists Alberto Vales and Alex McCalla have shown that as many as 45 LDCs, out of 49, are net food importers; and as many as 33 are net importers of all agricultural products. As prices rise with the removal of subsidies, surely importers will be harmed, not helped, except in the singular cases where the importers switch to becoming significant exporters.
Are the rich-country subsidies to agriculture to be put down to hypocrisy? A substantial role in their continuance despite economists' complaints was simply that the poor countries themselves were not interested in agricultural development. They identified development with industrialization; and their own trade policies created a substantial bias against agricultural development. Thus, rich countries wanted to protect their agriculture; the poor countries wanted to decimate theirs. So a Faustian bargain resulted: Hypocrisy is hardly the way to characterize it.
(now elmat my friend from japan said america was blessed with rich lands and forest and good soil and he couldn't grow a lot of ag back home on the islands - but he could do a lot of engineering and knowledge work - so perhaps there developing an AG base is not best?)
The Wheat: The World Trading System
But if many criticisms of freer trade in the public domain today are to be dismissed, as the WTO report argues, there are also many concerns about the WTO itself, and the world trading system it presides over, that merit attention. There are threats to the WTO's -- indeed the multilateral trading system's -- well-being; and there are institutional features that require correction at the WTO.
The threats come from two directions: the escalating erosion of nondiscrimination and the steady encroachment by rich-country lobbies seeking to impose their trade-unrelated agendas on trade agreements and institutions. The institutional reform requires, in particular, a re-examination of the procedures by which contentious new issues are introduced into the WTO, and of ways to augment its minuscule resources to enable the WTO to play the role that is expected of it today.
Nondiscrimination was at the heart of the General Agreement on Tariffs and Trade (GATT) that merged into the WTO in 1995. The most-favored nation (MFN) clause ensured that every GATT member faced the lowest tariffs that any other member enjoyed. The few exceptions were explicit: For instance, Article 24 exempted countries entering into Preferential Trade Agreements (PTAs) such as a Free Trade Agreement or a Customs Union, from having to extend their tariff cuts for one another within the PTA automatically to non-member countries despite the MFN commitment.
But today, this central principle of nondiscrimination has been virtually destroyed. Thus, PTAs have proliferated beyond imagination: They are close to 300 and are growing by the week. There is now a systemic problem: The PTAs, which the architects of the GATT thought would be minor exceptions, have now swallowed up the trading system.
At the same time, developing countries enjoy preferential access to rich-country markets, and to one another, under several exemptions; and the practice of discriminating yet further among LDCs and other poor countries has become widespread. In consequence, the EU's MFN tariffs now apply only to five countries, with all others enjoying politically driven lower-tariff access under different terms to the EU under multiple PTAs, differentiated GSP (Generalized Scheme of Preferences), EBA (Everything but Arms) and other schemes. Evidently, MFN in the EU has now become LFN -- the least favored nation tariff.
Yet another threat to the multilateral trading system arises from the progressive capture by the rich-country lobbies, good and bad, of the trade liberalization process to advance their trade-unrelated agendas. These lobbies pretend, of course, that "fair trade" and what the European Commission under Pascal Lamy has been calling respect for "collective preferences" -- both self-serving phrases that conceal the pernicious nature of the demands -- require that their pet concerns such as labor standards be worked into FTAs and into the WTO .
This has pitted the major developing countries such as India and Brazil against the inclusion of such extraneous issues into trade negotiations and institutions. The Free Trade Agreement of the Americas has also been held up by Brazil, which insists, correctly, on confining it to trade liberalization; the U.S. wishes otherwise. Revealingly, none of the many PTAs among the poor countries ever include these extraneous issues: Their inclusion arises only when the U.S. and the EU, the major powers, are members.
Jagdish Bhagwati is the André Meyer Senior Fellow in International Economics at the Council on Foreign Relations and University Professor at Columbia University. An external adviser to the Director General of the World Trade Organization, he has been Economic Policy Adviser to the Director General, GATT, and Special Adviser to the United Nations on Globalization.
2 recent articles I read about national savings:
asiantribune.com
A criticism aimed at those affected was that they were standing in queues to collect more than what they needed. An interesting scientific study done long time ago showed that when mice are given less food than they needed, they ironically hoarded some of the little food given although inadequate. Even when they were given what was needed later on (in adult life), they still hoarded some food, compared to the other group of mice who were given adequate amounts from early days.
Whether they were given less or more later on they never hoarded any food. This example fits in well with what we saw and comparable especially to people in developing countries whose future is insecure and unpredictable. When it comes to savings (as compared to investment) of money the middle class in a developing country saves relatively more than the middle class in a developed country. It may be worth comparing the first generation in developed country expatriates with the second generation as regards savings. The justification for this phenomenon of taking excesses may be, “If there was an excess of dry rations going around, It would be better to be distributed in excess to the people rather than getting into hands of corrupt officials as long as the excesses were not sold or bartered for cigarettes, alcohol, or drugs (although not widespread some instances have been recorded).
Other opportunists included mushrooming NGO’s, some of which were spurious, who brought in, ladies shoes, computers cell-phones and other luxury items duty free in the name of “relief”. (didn't bhagwati talk about these NGO's already?) The “knee Jerk” reaction to stop all new NGO’s by government was also inappropriate since it may have “Chased” away genuine aid organizations. A good screening process should have been a better choice. There were other international agencies even with creditability, taking anything from 10% -40% for logistics. Although it may be an accepted norm, is it right for anybody’s conscience to collect millions of dollars and take a large percentage as opposed to a fixed amount? Other internationals paid themselves 1000 US dollars per day for their “humanitarian sacrifice”. There were others who brought in duty-free luxury cars and shipped it back own countries in weeks. Some tried to bring helicopters without prior permission. Other mushroom agencies collected money in Western countries (money collected in developing countries with a low per capital income would be insignificant). Although individual donors have eased their conscience by “giving”, are those collector “opportunists” accountable to any system, either locally or internationally. Each of the foreign countries should think about accountability of their own citizens, while Sri Lanka should not keep quiet.
Another major issue was: donor groups wanting to give money for only “tangible” projects. Projects that could be seen and shown to donors were what most people wanted, like building houses, giving boats, temporary shelter, books, school bags and uniforms. Another human weakness! When money is raised ad hoc without verifying real needs (that would take a long time to assess), neither the donors nor the collectors can be blamed. But the donors want to know what exactly what was done with their money and tangible projects are the best to show with pictures or movies! At the same time in most developed countries, moneys have to be used for what it was collected whether it be appropriate or not! Before any assessments were done and before the actual extent of the tragedy was known, money for orphanages was collected in the West, and now they have to build these orphanages whether it is needed or not. However, orphanages were not the most appropriate. Initial estimates were Tens of thousand of orphans.
nytimes.com
Saving money just for CHUMPS?
ON a recent tour of Europe, Treasury Secretary John W. Snow talked about the need for Americans to save more. Alan Greenspan, the Federal Reserve chairman, recently told Congress that "our household saving rate remains negligible." From time to time, various economists, pundits and others in the financial peanut gallery chime in on this theme as well. If there's one thing Americans have to do more of, everyone seems to agree, it's save.
But why should we? What if there are good reasons for the seemingly low savings rate? If there really is such a thing as the wisdom of crowds, maybe it makes sense to consider whether most Americans know something that all the worrywarts don't.
I think they do. I think they've noticed that, given the way society is organized and the way the securities markets have been acting lately, saving doesn't make a lot of sense.
First, how can anybody take savings exhortations seriously from a government that seems to revel in fiscal profligacy? Secretary Snow is part of an administration whose policies have plunged the federal budget deep into the red with tax cuts, an expensive prescription plan for older Americans and a costly war in Iraq.
The government's shortfalls are seriously undermining national savings, and they strongly imply higher taxes down the road. Somebody will have to cover all those deficits, and a climbing ratio of retirees to workers will mean increased levies to pay for Social Security and health care for the elderly.
Higher taxes tomorrow make saving less appealing by reducing future after-tax investment returns. That is especially the case for tax-deferred retirement savings: why defer taxes if they're going only higher?
Retirement savers may also worry that when the great waves of baby-boomer retirees hit the Social Security system without adequate private savings, the prudent will be taxed even more to cover the costs of the imprudent. That's another reason not to save.
Maybe parents have noticed that the same reasoning can be applied to saving for college - a process that is unlikely to help get financial aid. Why show up on campus with your piggy bank full if the bursar is likely to expropriate the money?
Taxpayers have had decades to notice that the income tax system, which penalizes working and saving by taxing the earnings from each, is yet another good reason not to save.
In a rational world, we would have a progressive consumption tax that would penalize high levels of spending instead of earning and saving. As it stands now, the system encourages gigantic homes and commensurately large mortgages, because mortgage interest is tax deductible.
Potential savers have certainly noticed, too, that there is no good place to invest their money. Returns are dismal across the board. That makes saving less attractive - and requires extra risk to achieve any given level of reward.
There is also the problem of purchasing power. Signs that inflation may be reviving suggest that your money may be worth less later than it is now. And sooner or later, the dollar will fall against the yuan, making much of what we buy - from China, anyway - cost more.
Given all this, perhaps what we have here is not truly a failure to save. Perhaps it's something closer to rational profligacy.
Under the circumstances, is it any wonder that our main savings vehicle is our homes - or that home prices are soaring? In the long run, houses outperform inflation, provide tax-advantaged financing and capital gains, tend not to implode like Enron and, at the very least, provide a comfortable place to live.
The funny thing is that while society discourages saving, Americans probably save more than the numbers suggest. The government's system of measuring personal saving fails to capture changing asset values, mishandles pensions and has other shortcomings that cause it to understate actual savings, at least in the opinion of some economists.
EVERYONE needs a rainy-day fund, of course. But if we really want society to save more, we have to stop penalizing thrift, stop taxing earned income and stop the federal deficits.
Until that happens, consider the bright side. If Americans started saving seriously, they would have to cut back on consumer spending. That would kick the last prop out from under the global economy. Instead, we're gamely fighting world poverty, one purchase at a time.
papers.nber.org
Now this paper was referenced by your original FT article:
We argue that a chronic US current account deficit is an integral and sustainable feature of a successful international monetary system. The US deficit supplies international collateral to the periphery. International collateral in turn supports two-way trade in financial assets that liberates capital formation in poor countries from inefficient domestic financial markets. The implicit international contract is analogous to a total return swap in domestic financial markets. Using market-determined collateral arrangements from these transactions we compute the collateral requirements consistent with recent foreign direct investment in China. The data are remarkably consistent with such calculations. The analysis helps explain why net capital flows from poor to rich countries and recent evidence that net outflows of capital are associated with relatively high growth rates in emerging markets. It also clarifies the role of the reserve currency in the system.
nber.org
And another from the NBER:
For decades, politicians and economists have puzzled over how to alleviate severe poverty in the world more quickly. More than half of the world's inhabitants, 2.7 billion people, lived on less than $2 a day in 2001, and 1.1 billion lived on less than $1 a day.
One way to help, economists Thorsten Beck, Asli Demirguc-Kunt, and Ross Levine find, would be to encourage financial development in poorer nations. Their research, outlined in Finance, Inequality, and Poverty: Cross Country Evidence (NBER Working Paper No. 10979), indicates that increased financial development in a poor country induces the incomes of the poorest people in that nation to grow faster than the average per capita gross domestic product (GDP) -- that is, the nation's output of goods and services divided by its population. In turn, income inequality falls more rapidly, and poverty rates decrease at a faster rate, than would otherwise be the case.
For example, consider Brazil: the average income of the poor in Brazil would have grown at more than 1.5 percent per year instead of not at all from 1960-99 if Brazil had the same level of financial intermediary development as Korea.
These research results are somewhat of a surprise. Much of the economic literature finds that financial development produces faster economic growth, but it has been unclear whether it also shrinks poverty. Researchers have not determined whether financial development benefits the whole population, whether it primarily benefits the rich, or whether it disproportionately helps the poor.
One theory suggests that financial market imperfections, such as inadequate information, transactions costs, and contract enforcement costs, may be especially binding on poor entrepreneurs who lack collateral, credit histories, and connections. Such credit constraints could impede the flow of capital to poor individuals with high-return projects, thereby intensifying inequality. So, more financial development reduces poverty by easing credit constraints on the poor, reduces income inequality, and improves the allocation of capital. It thereby accelerates economic growth.
Another theory, however, suggests that since the poor primarily rely on informal, family connections for capital, improvements in the formal financial sector primarily help the rich. At early stages of development, only the rich can afford to access and profit from financial markets. Thus financial development intensifies income inequality. If financial development increases average growth only by increasing the incomes of the rich, and hence increases income inequality, it may not lower poverty rates.
To assess the merits of these competing theories, the three authors analyze the impact of financial development on poverty alleviation in two ways, both involving comparisons between countries. First, they use data on the economies of 52 developing and developed nations, over the period 1960 to 1999, to test the relationship between financial development and changes in the distribution of income. Second, they use data on 58 developing countries for the period 1980 to 2000 to assess the direct relationship between financial development and poverty alleviation. Their data indicate that financial development reduces poverty by exerting a disproportionately positive effect on the poor.
To analyze financial development, the authors measure "private credit" which is defined as the value of credit by financial intermediaries to the private sector, divided by GDP. This measure excludes credit issued by the central bank, development banks, and credit to state-owned enterprises. Thus it captures the amount of credit channeled from savers, through financial intermediaries of all sorts, to private firms.
In one example, in Chile -- with a high private credit ratio of 54 percent -- the percentage of the population living on less than $1 a day shrank at an annual rate of 14 percent between 1987 and 2000. By contrast, Peru -- with a low private credit ratio of 13 percent -- saw the number of people living on $1-a-day increase at an annual rate of 19 percent. If Peru had had the same level of development among financial intermediaries as Chile, then the number of extremely poor people in the country would have increased at only 5 percent per year. So, the share of Peruvians living on less than $1 would have been about 2 percent in 2000 rather than the actual 15 percent.
"Thus," the authors note, "the impact of financial development on poverty is quite large." It lowers income inequality and boosts growth without the potential disincentives to entrepreneurs and others resulting from policies that directly redistribute income and other resources
-- David R. Francis
It seems to me after reading all that, free trade is good for the aggregate, long term markets adjust to the invisible hand if left to work properly with reasonable controls - rich power mongers blindly doing things without empirical research or using lobbies and their power to do EVIL things is hurting the poor.
The road to hell is pave with good intentions and fear and greed the 2 most powerful human emotions.
I keep reminding myself Ted Turner had to shame bill gates into donating to poor and Buffet one of the cheapest bastards in the world when it come to helping poor. |
