Comment on Economist article by Scott Sumner (January 2, 2012) “Bad Trade Deficits Typically Indicate Insufficient Saving”
It is important to realize the impact of policies relating to savings in Australia. Since the late 1980s Australia has had a national superannuation scheme in which every employee is required to put 9% (soon to go to 12%) into a tax protected savings pool. These are then invested (under specific guidelines) into a variety of income generating investments, about one-third of which are offshore. The size of this fund far exceeds the Singaporean model, and its investments are market driven, rather than government directed as in Singapore. In Australia also because there is so little government debt, financing of external deficits are largely done through private banks and are generally “income related” as opposed to financing recurrent expenditures.
The effect of this is that through enforced lifetime savings Australian retirement incomes are substantially funded, and the Australian economy has access to a multi trillion investment pool which it would not otherwise have. It is interesting to note that Australia is one of the few places in the world where retirement benefits for federal public servants past and present are fully funded via a future fund.
The superannuation pool also turns “the man in the street” into shareholders as much of this savings pool is invested in the stock market. It is not an accident that all mainstream media in Australia is obsessed with the performance of shares, in my view more than anywhere in the world.
There are many reasons for the Australian economic success story, but amongst the raft of economic reforms carried out in the last 30 years, the Australian superannuation model is one of the most important.
This is the sort of quirk of economics that makes it be known as “the dismal science”. Nevertheless, it is certainly true that Japan is in the much better position than the US or Europe to finance a rebuild. If they can unlock domestic savings, and provide market based mechanisms for the allocation of resources above the obvious need to renew destroyed infrastructure, they will benefit the economy enormously.
In the meantime,quantitative easing (ie printing money) via the Bank of Japan to kick-start spending on reconstruction seems like a sensible thing to do without the inflationary pressure apparent in other first world countries. Since Japan appears to be in a deflationary environment, a boost to NGDP growth could only be a beneficial thing. These policy changes may indeed kick-start the Japanese economy back to life to the considerable benefit of the rest of the world.
If they do this, I predict they will return to more “normal” growth of 3-4% quite quickly and reduce their deficits very rapidly. No other countries have these opportunities in this way. Notwithstanding the tragic loss of life, in the long run for Japan it may open up a new chapter in their proud history, not all of it bad.
Comment on the Economist article (31 May 2010) “A Deadly Raid”
Until both sides realise that incidents like this will continue until there is a peace deal, this situation is unavoidable. Israel continues to believe that a country with a population of 5 million can use military force to suppress 100m plus around its borders.
The only solution is to stop the settlements, withdraw to the pre 1967 borders, and make peace with the whole of the Arab world. Then have this supported by a million plus troops from UN peace keepers paid for largely by petro dollars, and allow Palestine (Gaza and the West Bank) to develop peacefully into a low cost economic haven right in the middle of the middle eastern powers.
Heaven forbid, Israel may well get on with their neighbours very well, share a common prosperity, even eventually participate in a middel eastern common market. The region could then become a force for good in the world rather than be the reason for most of the world’s conflicts between islam and the West.
Comment on Economist article (31 May 2010) “No Waving, Just Drowning”
Yes a trade-off with between Taiwanese unification and Korean unification with the South in control maybe is something which could be put on the table. However, this would not get rid of China’s fear of having American troops at their borders. Maybe they could agree to leave the GIs in the South or even have then withdraw completely and replace by a UN international force. In any case, if South Korea controls the entire peninsula the need for US troops is not as great and South Korea itself has considerable military capability in its own right. With American military aid, surely this could be worked out.
There remains though the financial challenges of unification. There were many major mistakes in the German unification where it cost West Germany far more than it need have, principally moving to full unification immediately. Some sort of interim phase should be looked at where the market can adjust and investment can flow to the lower cost North Korea and with South Korean economic stability, management and institutions, as well as democratic base, there is no reason why North Korea could not morph into a low-cost economic tiger right on the doorstep of South Korea, Japan and China. Rather than costing the South, this could enhance the prosperity of the whole north asian region, including North China. In this though, unlike the two Germanies, it would be essential that for a time the North and South have two currencies, and their relative value can converge as the north approaches the South’s prosperity. This could take 50 years, but it would give the South (and China) a low-cost manufacturing tiger at their doorstep and provide a huge incentive for both the South and China to invest in a successful economic future for the North.
These same principles incidentally would come into play in a political solution to a Palestinian/Israeli settlement: Palestine (Gaza and the West Bank) becomes the low-cost economic tiger next door to high-cost, high-tech Israel and the emerging economy of newly democratic Egypt with its huge consumer base..
Comment on the Economist article (31 May 2010) “Zapatero’s Cuts”
There is a slow reality beginning to creep into the EuroZone. After years of bagging English speaking markets for their free market practices (which caused the GFC!!), and patronising them for their uncaring welfare free states, they have been forced down that track to survive as individual states, and as a Union.
Hopefully the crisis upon Europe will force long sought after reforms of labour markets, fiscal policies, and trade which will allow the world as a whole to operate much more efficiently and prosperously. Gone will be the days when a relatively few French and Belgium farmers can hold the whole world to ransom via the common agriculture policy ensuring (heaven forbid) that the world may at last get realism into the World Trade Talks.
Or am I living in a dream-world? Is this just another false start in Europe, and when a modicum of prosperity returns so will the same shonky practices? I very much hope not.
Comment on Economist article (31 May 2010) “No Waving, Just Drowning”
Isn’t it about time the North Pacific powers acted to dismantle the North Korean regime. I know they say they fear instability, but that is what they have now, and without coordinated action, this desperate regime just might turn their bluster into action soon. Nukes on Seoul or Tokyo would be far worse than a refugee problem at either end of the country.
Surely it is possible via the secret talks the Economist is suggesting, that the US, China, South Korea, Japan and perhaps Russia plan out coordinated action to move on a dismantling of the regime. China just needs to cut off power and water and the regime will collapse, but that would need to be followed by coordinated action in a way the Bush Regime didn’t act after the fall of Bagdad.
Even China may agree that a unified Korea would be preferrable to a trigger happy divided one. Oh and by the way, there are ways to avoid the cost of the German unification model. The single biggest mistake the Germans made was to initially unify their currency. A unified country, but with borders between North and South, but with a program of moving towards common institutions including political institutions, would not only create a lot bigger market, but would see a shift of investment from the high cost South to the low-cost North , and open up a flowering of economic activity that over the years would see the countries totally coming together. It may take 50 years, but increasing economic prosperity and political stability would be in everyone’s interests, not least China.
This is one instance where coordinated action is justified, just like Pol Pot, Bosnia, East Timor, and Nazi Germany.
Comment on Economist article (19 May, 2010) “No Going Back”
I just hope this is not an exercise in throwing good money after bad. European Governments, and by extension the EU, have an appalling record in unravelling profligacy in their economic structures: the common agricultural policy; pension allowances way above the rest of the western world; ridiculous early retirement allowances; running up sovereign debt.
This has come to a head with the backlash in Germany when the German populace realised their government was about to prop up a state which allowed, no encouraged, its citizenry to retire at an age well before they themselves were allowed. This is just the tip of the iceberg in terms of profligate spending by western European governments, including Germany.
The reforms recently announced for Greece, and the additional monies, will go to waste unless all Western European Governments seriously tackle their fiscal deficits, as well as doing something about the fundamental structures of their economies.
The waste of the past is catching up to Western Europe, and unless these spending binges are seriously reined in (including the CAP), recovery will not only be a long way off, but will probably mean a permanent recession in Western Europe for the next ten years. If you don’t believe me, examine Japan in the 1990’s. The circumstances in Europe are almost identical.
I seriously doubt the political will is there, either at the national level (including UK), or at the European Union level.
Comment in response to the blogs about the Economist article (March 26. 2010) “Wall of Suspicion”
Stefanek, if you are going to accuse others of not getting their facts straight, then how about it yourself.
Quote from you: “Tiny Israel has one of the ten biggest economies in the world without any natural resources except brain power”.
According to the UN for 2009 (no doubt you would regard this as an anti Israeli conspiracy as well), the top fifty economies in the world by GDP were:
1 US; 2 China; 3 Japan; 4 Germany; 5 France; 6 United Kingdom; 7 Italy; 8 Russia; 9. Spain; 10 Brazil; 11 Canada; 12 India; 13 Mexico; 14 Australia; 15 South Korea; 16. Netherlands; 17. Turkey; 18. Poland; 19. Indonesia; 20. Belgium; 21.Switzerland22. Sweden; 23. Saudi Arabia; 24. Norway; 25. Austria; 26. Taiwan; 27. Greece; 28. Denmark; 29. Iran; 30. Argentina; 31. Venezuela; 32. South Africa; 33 Thailand; 34. Finland; 35. Ireland; 36. UAE; 37. Portugal; 38. Columbia; 39 Malaysia; 40 Czech Republic; 41. Nigeria; 42.Israel; 43. Romania; 44. Singapore; 45. Ukraine; 46 Chile; 47. Phillipines; 48. Pakistan; 49. Egypt; 50. Algeria
No doubt some of this order has change as a result of the GFC, but not by much and this puts Israel 42nd, far from the top ten as you claim. There is no need to exaggerate Israel’s importance or achievements, but if you are going to tell others to get their facts straight, how about you do the same?
Comment in response to Economist article (March 26. 2010) “Wall of Suspicion”
Good on you Obama. It is about time the US started standing up for its own interests and those of the Western World in the Middle East. This is the only hope that there will be an historic settlement in that region, and a wider one between the Western world and the Islamic world.
The cancer that is the right wing of Israel’s body politic’s hold on Israeli policy means that without American intervention, the renegade behaviour of the Israeli government will continue indefinitely leading to increasing dispair and violence from
Palestinian extremists. It also leaves the moderates within the Palestinian factions nowhere else to go but join the extremists. Obama’s strength now gives everyone hope that there may be a breakthough, from which moderates from both sides can negotiate a compromise.
Obama may prove to be a GREAT President yet. Other posts here comparing him to Jimmy Carter just indicate how out of touch the US Right has become. Also, how silly and cynical the Jewish lobby is in the US: the fact that they thought that the Israeli Government could cheer the US right on and Obama not know about it just smacks of hubris, and then exacerbate it by insulting the vice president in Israel and then again at the national US jewish lobby convention and expect no come back really does show how they have under estimated this President. All power to his future success….