Dead Wrong® with Johan Norberg – Did China Take Our Jobs?
14 Jun 2017 Leave a comment
in applied price theory, applied welfare economics, development economics, growth miracles, international economics Tags: China, free trade
Holland vs the Netherlands
14 Jun 2017 Leave a comment
in international economics, International law Tags: maps
Arguments Against International Trade
08 Jun 2017 Leave a comment
in applied price theory, applied welfare economics, international economics Tags: anti-foreign bias, anti-market bias, free trade
Free To Choose in Under 2 Minutes – Episode 1 The Power of the Market
09 May 2017 Leave a comment
in applied price theory, industrial organisation, international economics, labour economics, labour supply, Milton Friedman, occupational choice, survivor principle Tags: capitalism and freedom
Making trouble again for @stevenljoyce for @TaxpayersUnion
21 Apr 2017 Leave a comment
in applied price theory, applied welfare economics, industrial organisation, international economics, politics - New Zealand, Public Choice, rentseeking, survivor principle Tags: picking winners
The territorial exchange between Belgium and the Netherlands
20 Apr 2017 Leave a comment
in international economics, International law Tags: economics of borders, maps
The Dutch disease for the benefit of #GarethMorgan @stevenljoyce
18 Apr 2017 1 Comment
in applied price theory, applied welfare economics, economic history, industrial organisation, international economics, politics - New Zealand, Public Choice, rentseeking, survivor principle Tags: Dutch disease, export subsidies, picking winners
I am putting in a Official Information Act request to see if anyone advise ministers that a export promotion target results in a matching increase in imports along with a large appreciation in the New Zealand dollar. Did New Zealand dodge the Dutch disease from this foolhardy export promotion policy? The Dutch Disease story is one of sectoral shifts.
In the 1960s, with fixed exchange rates under the Bretton Woods system, the Netherlands discovered off-shore natural gas. As natural gas was extracted, it increased domestic income and spending. Investment was redirected toward the natural gas sector. Dutch wages and prices began to rise gradually. The Dutch guilder became overvalued in real terms, their industrial products became uncompetitive, and the manufacturing sector shrunk. This phenomenon of de-industrialization in the presence of rich natural resources was called the Dutch disease. They got natural gas but lost manufacturing.
In the late 1970s and early 80s, the UK experienced similar de-industrialization under a floating exchange rate regime. They discovered and exploited the North Sea oil fields. Since the global oil price was rising, the UK was expected to earn a great amount of foreign exchange in the future. But even before these earnings were realized, the British pound appreciated suddenly in both nominal and real terms. This damaged the British manufacturing sector.
Source: MF model – float
If there is an increasing demand for New Zealand exports if the Business Growth Agenda target of increasing New Zealand exports was successful, there is an increase in demand for New Zealand dollars to pay for these exports. This will result in an appreciation of the New Zealand dollar making imports cheaper. This will switch demand for New Zealand competing industries to these imports.
This process of currency appreciation and expenditure switching will continue until export match exports again. There is nothing wrong with an export boom as long as it is based on comparative advantage rather than subsidies.
President Trump’s trade policy is simple. The consequences are not.
03 Apr 2017 Leave a comment
in applied price theory, international economics, politics - USA Tags: NAFTA
We’ve triggered Article 50 – what happens next? #Brexit
03 Apr 2017 Leave a comment
in economics, international economics Tags: Brexit, Common market
Yes, Minister explains the #Brexit
01 Apr 2017 Leave a comment
in defence economics, economic history, international economics Tags: Common market
Waiting for @stevenljoyce’s great leap forward
09 Mar 2017 1 Comment
in international economics, politics - New Zealand
When I first heard of this idea to increase exports by 1/3rd, I immediately thought that the balance of payment balances. Any increase in exports will require a matching increase in imports unless we want to start exporting 10% of our GDP, running a trade surplus of 10% of our GDP relative to where it is now.
Countries do not normally embrace the Dutch disease. This is a large appreciation of the currency after an export boom will deindustrialise the import competing sectors and the non-booming export sectors. The exchange rate appreciation brought on by the export boom and heavy demand for New Zealand foreign exchange by foreigners will cause a large switch in consumer spending towards imports.
If exports are to go up by 10% of GDP, imports must too unless there is a change in incentives to invest and save in New Zealand and abroad. As Barro explains
The current-account balance is the difference between a country’s total income and its spending on consumption and investment (and net transfers abroad).
The current account is the difference between national saving — income not spent on consumption — and domestic investment. To think about why the ratio of the current-account deficit to GDP is large, ask why the ratio of investment to GDP is high or why the national saving rate is low.
Current accounts go into surplus or deficit because there is an international trade in savings. We either import the savings of others or export NZ savings. When net exports are positive, we are exporting our savings, when exports are negative, we are importing the savings of others.
The capital account surplus, otherwise known to scaremongering and export fetish types as the current account deficit, is the extent to which foreigners are willing to lend their savings to New Zealanders to buy imports in excess of export receipts.
When the current account is in surplus as it certainly must if we increased exports by 10 percentage points of GDP, New Zealanders would be lending a substantial amount of their savings to the rest of the world. What is the point of an export boom if we do not spend some of it?
It is just pedantic to point out the few countries outside of the European Union export more than 1/3rd of their GDP. That is just raining on Steven Joyce’s parade. Exports are still less than 30% of GDP in 2016 as the graphic below shows.
Source: OECD Factbook 2016.
Utopia, you are standing in it! 
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