Archive for international economics

Who Pockets the Gains from a Weak Euro?

5857407803_014e7e9994_mNew EU stimulus measures will begin next month with aggressive purchases of asset-backed securities and covered bonds, and will eventually increase the ECB balance sheet by approximately €1 trillion. Among their touted benefits—higher asset prices, increases in bank lending and employment, rivers of milk and honey—many expect an upswing in exports, as the depreciation of the euro will make them cheaper and more attractive to foreigners. In fact, because Eurozone monetary inflation lagged behind the Japan and the U.S. in recent years, it has—among other things—turned the exchange rate against European exporters. “Perhaps the main immediate benefit of the additional policy action is a weakening of the exchange rate,” claims the chief economist of Markit, Chris Williamson. “The lower exchange rate will undoubtedly provide a boost to exporters’ competitiveness.”

Mises dealt with the alleged stimulating effect of inflation on trade for the first time in 1907 in an essay titled “The Political-Economic Motives of the Austrian Currency Reform”. Mises explained that interest groups in Austria at the end of the 19th century pushed for currency reform so as to favor their commercial ventures. The depreciation of the Austrian florin which followed “functioned like a protective tariff against the import of foreign manufactured goods, and assisted the export of domestic products like an export premium” (Mises 2012 [1907], 13).

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The Neo-Mercantilist Hysteria Over US Trade Deficits

imports2Mises Daily Thursday by Joseph Salerno:

Keynesians are fond of overstating both the magnitude of the trade deficit and its alleged negative effects. In spite of the fact that trade deficits are not an actual problem for our economy, Keynesians propose to “fix” the problem by devaluing the dollar.

Does Economic Openness Lead to Better Food Access?

800px-Farming_near_Klingerstown,_PennsylvaniaBy Sterling T. Terrell 

Maybe better access to quality food leads to obesity and related health problems for much of the developed world.  That, however, is a non-issue for the bulk of nations and people that lack access to quality food.

My question is:  On average, would a more open nation lead to better food access, quality, etc.?

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Economic Sanctions Not Key Cause of Russia’s Possible Recession

shost1Frank Shostak writes in today’s Mises Daily: 

According to commentators, sanctions imposed by the US and the European Union are pushing Russia toward a recession. However, we hold that some key Russian economic data have been displaying a weakening prior to the annexation of the Crimea to Russia. This raises the likelihood that sanctions might not be the key factor for an emerging recession…

Now, to counter a further weakening in the ruble against the US dollar, the Russian central bank has raised the seven day repo rate by 1.5 percent to 7 percent. The price of the US dollar in ruble terms rose to 36.3 in March from 30.8 rubles in March last year — an increase of 18 percent.

The President’s Foreign Policy: Speak Loudly and Carry a Small Stick

-Getting_em_up-_at_U.S.Naval_Training_Camp,_Seattle,_Washington._Webster_&_Stevens._-_NARA_-_533698.tifAt the beginning of the twentieth century, President Teddy Roosevelt’s foreign policy was, “Speak softly and carry a big stick.” At the beginning of the twenty-first, President Obama’s policy appears to the the opposite: “Speak loudly and carry a small stick.”

President Obama threatened Syria not to step over a “red line” by using chemical weapons or they would face serious repercussions, but they did, without the serious repercussions. He threatened Iran if they continued their nuclear enrichment programs, but they continue as we ease sanctions on them. More recently, he warned Putin “there would be costs for any military intervention in Ukraine,” but realistically, what could he do? Everybody can see it’s big talk with no stick to back it up.

Meanwhile, Putin has indicated a retreat in Ukraine, not because of the big talk from Obama, but because Russia’s hand was slapped by the response of markets. Russian stocks fell by 12% after Russian military forces moved into the Ukraine, and the ruble took a serious hit as well. The reaction of the market had a bigger effect on Putin’s aggression than Obama’s small stick.

The discipline of the market in international affairs is not new to Russia. The Berlin Wall fell, and the Soviet Union dissolved, not because of the military might of the Cold War nations, but because of the economic strength of capitalism compared to socialism.

Because our Cold War adversaries are increasingly a part of the global economy, markets generate repercussions to belligerent actions beyond those of any prudent political responses.

I don’t expect the Russians to pull out of the Ukraine. They are still occupying a part of the Republic of Georgia after having invaded there in 2008. What I’m saying is that any moderation of Russian policy there is more directed by the market’s response rather than any international political response.

I am not too concerned about President Obama’s actual policy responses. The small stick is OK with me, and we can see in Iraq and Afghanistan what can go wrong when we try to play the role of the world’s policeman. The problem is the “speaking loudly” part, because it costs our president, and our country, some credibility when people know the president won’t follow through on his big talk.

Austrian Economics and Interventionism in Japan

6629Writes Marc Abela in today’s Mises Daily: 

As is the case with Canada and Sweden, Japan has succeeded in achieving a relatively decent economy despite the very invasive and massive burden imposed by the taxing authorities. Taxes are very high at all levels in Japan. The rate is 50 percent for inheritance and death taxes; corporate taxes hit 40 percent very rapidly for almost all businesses; any decent individual income will put you in the 40 percent bracket; and then you have municipal taxes, prefectural taxes, property, vehicle, liquor, tobacco, gasoline, and others taxes. The list is nearly endless. Numerous and cumbersome government regulations prevent new entries to industry and being able to compete with the archaic corporate mammoths known as “zaibatsu” (Mitsubishi, Mitsui, Sumitomo, Yasuda, and a few others) who control and own most of the industries, and make changes at a glacial pace. In fact, since government regulations are so exceedingly high, it can be argued that most businesses and most industries are defacto “nationalized” and behave like state-owned enterprises.