Recently in trade Category

A common theme in much of the political rhetoric during both this election cycle and the last four years has been complaining about China as a "currency manipulator." The truth is that China has kept the value of its currency artificially low, thereby increasing the cost of U.S. exports to China and decreasing the costs of U.S. imports from China. Just like a coin has two sides, it is clear that changes in value of the Chinese currency simultaneously helps some groups while it hurts others. The novelty is that much of the media and political focus has been on the U.S. groups that get hurt by this policy, while stories about the benefits are neglected. And it is likely that the benefits outweigh the costs--possible by a landslide.
I couldn't resist posting and responding to this Glenn Beck video (1/29/09) because I know that he has been advised by multiple parties against the arguments that he is pushing. We all should have reason to be worried about the economy, but not for the reasons Beck is trumpeting.

The second post ever posted on this blog in October 2008 is entitled, "International bailout arms race." I characterized the flush of bailout commitments that we saw across almost every major developed country as a strategic optimal response in the face of the bailout plans of the United States. With this model in mind, I predicted that the bailouts would develop into a situation similar to the nuclear arms race of the 1980s in which the U.S. defeated Russia by outspending them on weapons. The same thing is happening now as predicted among developed countries with respect to bailouts. The list of countries hitting their spending capacity and "folding their hand" started with Iceland and Hungary, and now looks to include Spain, Greece, Ireland, Germany, the U.K., Belgium, and the E.U. as a whole (see Iceland/Ireland joke).
The December 2008 Journal of Economic Literature published the 105th annual list of doctoral dissertations in economics published between July 2007 and July 2008. This is really just a shameless plug by Rick and Jason for our two of favorite entries in this year's JEL list. The first is entitled, Three Essays on Openness, International Pricing, and Optimal Monetary Policy, and the second is entitled, Essays on Dynamic Political Economy.

Some positives in global forecasts

The Globalization and Monetary Policy Institute (GMPI) at the Federal Reserve Bank of Dallas just released its most recent International Economic Update today. One bright spot in this report comes from the chart below that forecasts that the global economy (as represented by the U.K., Euro-area, and Japan) will return to positive growth in the second quarter of 2009. I think this forecast, taken from Consensus Economics, might be a little overly optimistic.

WorldGrowthForecast2008-12.gif

Argument against the gold bugs

John Tamny had a post today on Real Clear Markets arguing that the way to make the value of the dollar more stable against currency depreciation is to tie it to some commodity like gold. I would argue that his timing is off and his argument is flawed.
This article from the Globalization and Monetary Policy Institute at the Federal Reserve Bank of Dallas details how Europe is being pummeled by the current financial crisis. In a previous post, I characterized the bailout reaction of the U.S. and the subsequent proposed bailouts by most other countries as an "international bailout arms race." It looks like Europe is quickly showing signs of losing that race. The most powerful graph is the following which details the increased credit spreads and the flight to quality in Europe.

EuropeSpreads2008-10-30.gif

The Economics of McCain and Obama

I'm  talking to the Economics Society here at UGA tonight.  It's a panel on the economic policies of the Presidential candidates.  Oddly, I'm the only faculty member from the Economics Department (the other two panelists are Professor Grafstein from the Political Science Department and Professor Fertig from the College of Public Health).  The topics I'll cover include the tax and trade policies of the two candidates.

I'm tempted to start off the discussion by reading Don Boudreaux's letter to an Obama supporter.  As with most of Boudreaux's writing this one has some great lines: "Very few of them [politicians] have any knowledge of the subject [economics], and even fewer of them are courageous enough to speak about it honestly."

If not that, I'd like to make a case for not voting at all, but maybe George Carlin has already done this better than I ever could.

But I think I'll be more PC.  Below are my summaries of the candidates stances on taxes and  trade as well as some opinions about fiscal policy in general and the chances the candidates will push us into the next Great Depression.
In honor of Paul Krugman receiving the 2008 Nobel Prize in Economics, I thought it appropriate to point out this underappreciated contribution of his. Regardless of how you might feel about the ideological leanings of Krugman, this 1978 paper of his, "The Theory of Interstellar Trade," can only increase your respect for him (I'm serious). The paper is rich with sarcasm, parody, and inside jokes. On the title page, Krugman thanks the Committee to Re-elect William Proxmire who was a U.S. Senator (D-WI, 1957-1989) who felt that NASA was a wasteful expenditure of government funds. Krugman also cites an unwritten paper of his nine years in the future (1987). Here are some highlights.

"These complications make the theory of interstellar trade appear at first quite alien to our usual trade models; presumably it seems equally human to alien trade theorists."

"This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics."

The concluding paragraph is great as well. Thanks to Jason for bringing this paper to my attention.

International Bailout Arms Race

In an opinion piece in Tuesday's Wall Street Journal, Federal Reserve Chairman Ben Bernanke found it "heartening that we are seeing not just a national response but a global response to the crisis, commensurate with its global nature." In contrast, I see the current flash of national bailout news conferences as evidence of an international bailout arms race.