
via Defaulting Debtors.
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
11 Jul 2015 Leave a comment
in currency unions, economic history, Euro crisis, international economics, law and economics, macroeconomics Tags: Argentina, Greece, Russia, sovereign defaults

via Defaulting Debtors.
09 Jul 2015 Leave a comment
in economic history, financial economics, fiscal policy, international economics, macroeconomics, monetarism, monetary economics Tags: Anna Schwartz, bank runs, banking panics, China, contagion, evidence-based policy, financial crises, financial stability, inflation targeting, international systemic risk, Michael Bordo, monetary history, pseudo financial crises, pseudo international systemic risk
If we could take time out from the breathless journalism about the Chinese stock market, which some people may have heard of before this week, it’s crash should be seen through the lens that Anna Schwartz developed in 1987 of a pseudo financial crisis and a financial crisis.
This is why so many Chinese companies are suspended bloom.bg/1UA7TbA http://t.co/5awEt6B23u—
Bloomberg Business (@business) July 08, 2015
Her paper is written at the same time as the 1987 stock market crash. On financial crises, Anna Schwartz said:
As for those pseudo financial crises, she said:
Schwartz’s principal concern with regard to pseudo financial crisis was:
proposals to deal with pseudo-financial crises is the perpetuation of policies that promote inflation and waste of economic resources
As we are talking about the Chinese stock market, Anna Schwartz also wrote about the concepts of real systemic international risk and and pseudo international systemic risk.
Once again, and as with pseudo financial crises and real financial crises, what distinguishes real systemic international risk and pseudo international systemic risk is a threat to the payment system. The threat of bank runs, which can easily be eliminated through lender of last resort facilities:
As always it is about the security of the payments system – of avoiding bank runs, not private losses:
The lesson for the day is that when people start panicking about the economy or the stock market or international markets, don’t go to a macroeconomist for advice, go to a monetary historian. They have seen it all before.

09 Jul 2015 Leave a comment
in industrial organisation, international economics, politics - Australia, politics - New Zealand, politics - USA Tags: antiforeign bias, antimarket bias, expressive voting, free trade, rational ignorance, rational irrationality, voter demographics
Who favors free trade?
(The affluent.)
nytimes.com/2015/05/28/ups… @BrendanNyhan http://t.co/kojmUWUtH0—
Justin Wolfers (@JustinWolfers) May 27, 2015
07 Jul 2015 Leave a comment
in applied price theory, applied welfare economics, development economics, economic growth, economic history, energy economics, environmental economics, growth disasters, growth miracles, health and safety, industrial organisation, international economics, labour economics, law and economics, liberalism, property rights, public economics Tags: healthier is wealthier, Japan, Kuznets environmental curve, richer is greener, richer is safer
The Kuznets environmental curve describes an empirical regularity between environmental quality and economic growth. Outdoor water, air and other pollution first worse and then improves as a country first experiences economic growth and development.

While many pollutants exhibit this pattern in the Kuznets environmental curve, peak pollution levels occur at different income levels for different pollutants, countries and time periods. John Tierney explains:
In dozens of studies, researchers identified Kuznets curves for a variety of environmental problems.
There are exceptions to the trend, especially in countries with inept governments and poor systems of property rights, but in general, richer is eventually greener.
As incomes go up, people often focus first on cleaning up their drinking water, and then later on air pollutants like sulphur dioxide.
As their wealth grows, people consume more energy, but they move to more efficient and cleaner sources — from wood to coal and oil, and then to natural gas and nuclear power, progressively emitting less carbon per unit of energy.
When I was living in Japan in the mid 1990s, they just completed a period of rapid operation of the Kuznets environmental curve. I was told by my professors at Graduate School that in the 1960s, cities and prefectures welcomed polluting industries because of the better paid jobs they offered. At that time, shipping companies used like to go to Tokyo because the pollution in Tokyo Bay was so bad that it would clean all the barnacles off their ships. That made them sail faster.
Japanese incomes and wages doubled over the course of the 1960s. The Japanese voter was now prepared to support stricter pollution standards and environmental controls.
Life expectancy is at an all time high: buff.ly/1ICraAi http://t.co/jgRqKy8LfQ—
HumanProgress.org (@humanprogress) June 28, 2015
In the early 1970s, the ruling LDP stole the long-standing environmental policies of their opponents in a big crack down on pollution because the country could now afforded them.
Poverty has plummeted in East Asia and the world. buff.ly/1NtIDyY http://t.co/SsY3sf3kyH—
HumanProgress.org (@humanprogress) July 01, 2015
Plenty of developing countries are democracies now. Their people could demand through the ballot box higher environmental standards and clean tap water but they don’t because of its cost to economic development.
These 4 nations are 50% of mankind. That's 3.5 billion people who are living longer. buff.ly/1Kle6mU #health http://t.co/949oqisMsL—
HumanProgress.org (@humanprogress) June 30, 2015
The environmental movement lives in a state of denial regarding the relationship between economic growth and environmental quality.
OECD Better Life Index correlates with GDP
But US lower than poorer countries
& NZL higher than richer countries http://t.co/yrTCnO1B0l—
Max Roser (@MaxCRoser) June 26, 2015
06 Jul 2015 Leave a comment
in applied price theory, applied welfare economics, budget deficits, business cycles, comparative institutional analysis, constitutional political economy, currency unions, economic growth, economic history, Euro crisis, fiscal policy, fisheries economics, global financial crisis (GFC), international economics, macroeconomics, Public Choice, rentseeking Tags: Euro sclerosis, Greece, insurance attacks, sovereign defaults, speculative attacks
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk.
After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.

Michael Dooley put forward a theory of speculative attacks on currencies as insurance attacks on currencies for emerging markets after the East Asian financial crisis:
First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behaviour.
Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations.
In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets.
Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks.
We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time.
His model was not within the context of a currency union but his basic theory is correct.
There are speculative attacks on a currency or a bank run after foreign markets revises their estimates of the available central bank reserves and international lines of credit to bail out the banking systems and/or foreign debt.
Michael Dooley was dealing with the emerging economies of Southeast Asia and their official lines of credit that insure their foreign exchange liabilities and domestic banking system. Greece is about lines of credit for similar purposes to other European union member states.
via 12 charts and maps that explain the Greek crisis – Vox and The Most Important Graphs of 2011 – The Atlantic.
05 Jul 2015 Leave a comment
in applied price theory, applied welfare economics, comparative institutional analysis, economics of regulation, entrepreneurship, industrial organisation, international economics, law and economics, property rights, survivor principle Tags: doing business, Eurosclerosis, Italy, rule of law, Russia, transitional economies
Figure 1: Doing Business rankings, Russia and Italy, 2014
Source: World Bank Doing Business 2015.
It is rather disturbing that it is a lot easier to register property and enforce contracts in Russia than in Italy and far harder to pay your taxes in Italy. Once again, Italy’s saving grace is the ability to trade across borders Because of its membership of the European Union.
05 Jul 2015 Leave a comment
in international economics, politics - Australia, politics - New Zealand, politics - USA Tags: free trade agreements, globalisation, preferential trading agreements, regional trade agreements, trade creation, trade version, unilateral free trade
04 Jul 2015 Leave a comment
in international economics Tags: globalisation, overseas trade
The largest global exporters and why everyone is so keen to agree new trade deals econ.st/1eOdcEj http://t.co/TXZCYkUToU—
The Economist (@EconEconomics) June 27, 2015
30 Jun 2015 Leave a comment
in economics of media and culture, industrial organisation, international economics, politics - Australia, politics - New Zealand, politics - USA, survivor principle, war and peace Tags: economics of tourism, war on terror
Daily chart: Tourist visits before and after African terror attacks econ.st/1JmvUN3 http://t.co/5nWKUQbey8—
The Economist (@TheEconomist) June 30, 2015
29 Jun 2015 Leave a comment
in business cycles, currency unions, economic growth, Euro crisis, fiscal policy, global financial crisis (GFC), international economic law, international economics, macroeconomics Tags: game theory, Greece, Patrick Kehoe, sovereign default
27 Jun 2015 Leave a comment
in international economic law, international economics, politics - USA, Public Choice, rentseeking Tags: 2016 presidential election, antiforeign bias, antimarket bias, crony capitalism, Donald Trump, expressive voting, left-wing populists, populists, right-wing populists
24 Jun 2015 Leave a comment
in comparative institutional analysis, constitutional political economy, development economics, growth disasters, growth miracles, international economic law, international economics, law and economics, property rights, Public Choice, rentseeking, Richard Posner Tags: European Court of Justice, free trade agreements, International Court of Justice, international law, investor state dispute settlement, ODA, overseas development assistance, preferential trade agreements, regional trade agreements, WTO
Would objections to the Investor State Dispute Settlement provisions in the proposed Trans-Pacific Partnership wilt away if the adjudicating body was the International Court of Justice? The left-wing opponents of investor state dispute settlement genuflect at the very mention of the International Court of Justice and international law generally (unless it is international economic law).

Disputes over the provisions of European union treaties are adjudicated by the European Court of Justice. The judgements of that court brought by individuals against member states so annoy the British that it is a leading reason for many British wanting to leave the European Union and replace the Human Rights Act 1998 with a British Bill Of Rights policed by British courts rather than by the European Court of Justice and European human rights law.
It is routine for any treaty to have some provision for arbitration of disputes. This includes trade and investment treaties.
The World Trade Organisation treaty includes a dispute settlement provision with arbitrators based in Geneva. Some of the more than 400 cases heard have been motivated by discrimination against imports on the basis of a breached environmental protection policies of the importing country.

A number of countries want to ban imports that are produced in ways that upset them. Others want to include labour and environmental standards in trade agreements to impose developed country standards on developing countries in what is a new form of colonialism.
I have previously said that investor State Dispute Settlement provisions have no place in trade and investment treaties between democracies. I must now admit there are good reasons to have arbitration clauses in treaties between democracies.
The puzzle is why refer these trade and investment disputes to a little-known arbitration body adjunct to the World Bank rather than the far more prestigious International Court of Justice.
Perhaps the reason is both sides want an arbitrator who is not too strong and not too credible. It would look very bad if the International Court of Justice was to rule against you.
William Landes and Richard Posner contended that judicial independence maximises the value of legislative deals with interest groups by enhancing the durability of those deals.
Why no International Court of Commercial Law? When deciding what type in judiciary to enforce international trade bargains, the signatories may prefer a less credible adjudication and enforcement mechanism in case they want to opt out of it or chip around the decision.
The jurisdiction of the International Court of Justice is to settle, in accordance with international law, legal disputes submitted to it by special agreement and matters specifically provided for in treaties and conventions in force.
UN member states are the parties to any litigation but that doesn’t stop them raising cases on behalf of individuals. That said, organizations, private enterprises, and individuals cannot have their cases taken to the International Court, such as to appeal a national supreme court’s ruling. Only the states can bring the cases and become the defendants of the cases.
The International Court of Justice is different from the European Court of Justice because individuals cannot easily bring complaints before it. One of the causes of action before the European Court of Adjusters is under European competition law over member states providing financial aid to industries.
Democratic countries with high levels of economic and social integration, such as the European union, do find it in advantage to set up a European wide Court to adjudicate disputes over rights under European law.
Why then would a democracy sign up to an investment protection treaty with a developing country? One reason is overseas development assistance.
Developing countries with corrupt and incompetent courts, politicians and bureaucracies sign international treaties as a way of assuring foreign investors and trading partners of some degree of security of their property rights and their ability to enforce contracts with suppliers and buyers.
By folding these assurances into trade treaties, the developing country has a stronger incentive to honour its promises. There will be domestic constituencies wanting to retain reciprocal export market access who will lobby for the honouring of the promises of legal protection to investors and businesses in their home country.
New Zealand signing up to the Trans-Pacific Partnership is an example of this form of overseas development assistance. Exporters and investors from the developing country who export and invest in New Zealand have another reason to support more secure property rights and better enforcement of contracts in their home country as a way of securing their treaty rights to export and invest in New Zealand.
The Left of the political spectrum should be keen on this form of overseas development considering their general belief in greatly increasing the amount spent on overseas development assistance. Rather than pay cash to the development country, the payment is in kind as reciprocal legal promises.
Trade treaties that include investor state dispute settlement are forms of governance assistance to developing countries. The reciprocal exchange of promises about investor protection and the enforcement of contracts and property rights improves the quality of governance in the developing country.
The countries most likely to be subject to investor state dispute settlement are those with weaker governance. Even in the European Union, the member states most likely to be sued are former communist countries. The most common course of action was the cancellation of a licence or permit.

Investor state dispute settlement clauses are no different from any other international treaty include environmental and human rights treaties. All these treaties require countries to give up part of their sovereignty.

Democracies give up their sovereignty in investor state dispute settlement in the hope that developing country partners to the treaty will improve the development potential of their country through better governance and more secure property rights.
That is an overseas development aid objective the Left of the political spectrum should support, but it does not. The Left of the political spectrum is happy to use trade agreements to impose developed country labour and environmental standards on poor countries desperate for access to rich country markets, but is not willing to give up anything in return.
18 Jun 2015 Leave a comment
in applied price theory, applied welfare economics, industrial organisation, international economics Tags: antimarket bias, import competition, international trade, protectionism, quotas, tariffs
What’s the difference between #tariffs and #quotas? Let’s find out buff.ly/1FS7QkZ http://t.co/hsx2VVG5e6—
MRUniversity (@MRevUniversity) May 30, 2015
13 Jun 2015 Leave a comment
in international economics, politics - USA Tags: globalisation, international trade
As the House votes on trade, see last month's post on what the US actually imports and exports pewrsr.ch/1Jsonh0 http://t.co/B976iVeDjg—
PewResearch FactTank (@FactTank) June 12, 2015
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