Archive for November, 2008

Nov 07 2008

Welker’s daily links 11/06/2008

Published by under Daily Links

  • The Folly of Obama’s Tax Plan — The American, A Magazine of Ideas

    “Senator Obama’s proposed ‘tax cuts for the middle class’ are actually marginal rate hikes in disguise.

    Senator Barack Obama declared recently that he wants to “reform our tax code so that it rewards work and not just wealth.” We think that is a great goal if it means a simple tax system with low marginal tax rates. Unfortunately, a close inspection of Obama’s proposals reveals something disquieting: he would raise marginal tax rates for many middle-income taxpayers, a bad move for anyone seeking to promote economic growth.

    Although Obama is offering a new series of tax breaks, they undermine rather than improve economic incentives. First, whether or not you get those breaks will depend on your income. In Washington, taking away tax breaks as families work harder to make more money is called a “phase-out.” Economists have a different name for it—we call it a tax. Reducing a person’s tax credit as his income goes up also reduces his incentive to earn more income.”

    I just don’t know if I buy the whole “Laffer curve” argument this article seems to support. The disincetive to work hard when tax credits are phased out as a household moves into a higher income bracket. Of course tax credits need to be phased out as households become less dependent on them due to higher incomes.

    Referring to higher marginal taxes as “penalties to work” is a rhetorical trick. Higher income earners pay higher marginal taxes in every developed country the world over. The evidence that progressive taxes discourage hard work and professional advancement lacks empirical evidence, despite Arthur Laffer’s famous curve and the “trickle-down” Reaganomics of the ’80s.

    tags: economics

  • As the daily procession of disheartening numbers continues, it’s clear that many bulwarks of the global economy are heading into recession. Even fast-growing countries in the developing world are preparing for a downshift. At moments like this, it’s worth asking: What will make the global economy grow again?

    Economic growth is the reason we are not living in shelters made from brush and collecting nuts and berries to survive. The first step was using experience and technology to improve the way we produced food. Once a person could make more than enough food for himself, he could trade some of it with someone else or spend some of his time producing something else.

    From those early days forward, economic growth has had only four sources: discovery of natural resources, a bigger or better labor force, innovations in technology and the linking of markets. The first two factors are self-explanatory. The third involves finding new ways to combine labor, tools and raw materials, either to make new products or to make old ones more efficiently. The fourth is a matter of scale and synergies.

    tags: Economics

Posted from Diigo. The rest of my favorite links are here.

2 responses so far

Nov 06 2008

Trading blocs and economic integration – IB student case studies

A trading bloc is “a group of countries that join together in some form of agreement in order to increase trade between themselves and/or to gain economic benefits from cooperation on some level.”

Below is a list of some of the regional trading blocs. The assignment is to:

  • Identify the nations involved in your assigned trading bloc
  • Identify the kind of trading bloc (customs union, free trade area, common market, monetary union)
  • Discuss the impact that membership in the trading bloc has had on the economy of one member nation

Research your assigned trading bloc, prepare a short summary of the points above, and post your findings as a comment below.

  • Pacific Regional Trade Agreement (PARTA or PIF) – Christina, Myrthe and Manka
  • European Economic Area (EEA) – Lisa and Pia, Lis and Livia
  • Caribbean Community (CARICOM) – Catherine and Sean, Maddie
  • Union of South American Nations (Unasur/Unasul) – Eithan and Wilhelm, Alex and Gorka
  • East African Community (EAC) – Miguel and Ross, Nick and Dierdre
  • Southern African Customs Union (SACU) – Horia,
  • Greater Arab Free Trade Area (GAFTA) – Calvin, Magda and Robin
  • North American Free Trade Agreement (NAFTA) – Nic
  • Association of Southeast Asian Nations (ASEAN) – Matteo, Sebastian and Moritz
  • Central European Free Trade Agreement (CEFTA) – Meri and Natasha
  • African Economic Community (AEC) – Palmi and Celine

83 responses so far

Nov 05 2008

Yes we can… Obama wins!

Published by under Hope

And this is what he said to the world.

…This election had many firsts and many stories that will be told for generations. But one that’s on my mind tonight is about a woman who cast her ballot in Atlanta. She’s a lot like the millions of others who stood in line to make their voice heard in this election except for one thing – Ann Nixon Cooper is 106 years old.

She was born just a generation past slavery; a time when there were no cars on the road or planes in the sky; when someone like her couldn’t vote for two reasons – because she was a woman and because of the color of her skin.

And tonight, I think about all that she’s seen throughout her century in America – the heartache and the hope; the struggle and the progress; the times we were told that we can’t, and the people who pressed on with that American creed: Yes we can.

At a time when women’s voices were silenced and their hopes dismissed, she lived to see them stand up and speak out and reach for the ballot. Yes we can.

When there was despair in the dust bowl and depression across the land, she saw a nation conquer fear itself with a New Deal, new jobs and a new sense of common purpose. Yes we can.

When the bombs fell on our harbor and tyranny threatened the world, she was there to witness a generation rise to greatness and a democracy was saved. Yes we can.

She was there for the buses in Montgomery, the hoses in Birmingham, a bridge in Selma, and a preacher from Atlanta who told a people that “We Shall Overcome.” Yes we can.

A man touched down on the moon, a wall came down in Berlin, a world was connected by our own science and imagination. And this year, in this election, she touched her finger to a screen, and cast her vote, because after 106 years in America, through the best of times and the darkest of hours, she knows how America can change. Yes we can.

America, we have come so far. We have seen so much. But there is so much more to do. So tonight, let us ask ourselves – if our children should live to see the next century; if my daughters should be so lucky to live as long as Ann Nixon Cooper, what change will they see? What progress will we have made?

This is our chance to answer that call. This is our moment. This is our time – to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American Dream and reaffirm that fundamental truth – that out of many, we are one; that while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can’t, we will respond with that timeless creed that sums up the spirit of a people:

Yes We Can. Thank you, God bless you, and may God Bless the United States of America

11 responses so far

Nov 05 2008

Up, up, and away! Why are the dollar and the yen on the rise?

Chart for JPY to USD (JPYUSD=X)In the last three months, the Japanese Yen has appreciated 15% against the US dollar. At the same, the dollar itself has appreciated 25% against the euro.

The appreciation of these two major currencies seems strange in a time when both country’s economies are experiencing major slowdowns. In most cases, currencies appreciate when one of two things happens:

  • If foreigners demand more of a country’s exports, demand for its currency drives up its value, causing appreciation.
  • If a country’s interest rates rise relative to other country’s, then demand for its currency rises as investors want to buy assets in that country to earn the higher interest rates.

Lately, however, the Yen and the Dollar have seen staggering rises in the absence of rising exports or rising interest rates in Japan or the US. So what IS causing the rapid and drastic appreciation of these two currencies? The Economist newspaper explains:

Many investors have been following a version of the “carry trade”, borrowing money in a low-yielding currency. All they had to do was earn a higher return from assets than the cost of their financing. Since the two big currencies with the lowest yields over the past year have been the dollar and the yen, those were the natural ones to borrow.

When asset prices fall, however, this strategy is disastrous. Investors dash to sell assets and repay their debts. Since those debts were incurred in dollars and yen, that means they have to buy back those two currencies—hence their sharp recent rises.

In the midst of today’s global financial meltdown, it seems that every day, phenomena new to mainstream economic theory are being witnessed. It would seem that from now on, when we learn about the determinants of exchange rates, we may have to take a look at the “carry trade” example.

In this case, it would seem, LOW interest rates combined with falling stock prices can lead to a currency’s appreciation. An investor looking to make a deal would borrow Yen from a Japanese bank charging low interest rates, convert it to, let’s say Brazilian real, to buy stocks in a Brazilian company. As long as the stocks gain value at a rate higher than the interest rate in Japan, the investor is making an easy profit. He can pay back the money he borrowed from Japan at the low interest rate, earn a high return on his investment in Brazil, and pocket the difference.

The problem arises when the value of the assets the investor has bought in Brazil begins to fall. With stock markets plummeting between 20-50% this year in most countries, asset values have fallen through the floor, meaning those investors who borrowed yen to buy foreign assets have rushed to sell the falling assets as quickly as possible to pay back their Japanese lenders before it’s too late. This causes a huge increase in demand for Yen on foreign exchange markets in a very short period, hence the yen’s appreciation.

Recently, the Yen and USD have managed to appreciate for a reason not conventionally understood. The rapid and drastic appreciation of these currencies is further exacerbating the weak aggregate demand in Japan and the US. A strong currency, while good for consumers for whom imports appear cheaper, can have debilitating effect on a country’s export sector. Not surprisingly, both the US Fed and the Japanese central bank have both cut interest rates in the last week in the hope of slowing their currency’s appreciation and protect export demand.

5 responses so far

Nov 05 2008

Insights on trade from Martin Luther King, Jr.

Published by under Philosophy,Trade

Some profound insight on the interdependence of all men from Dr. Martin Luther King Jr:

“It really boils down to this: that all life is interrelated. We are all caught in an inescapable network of mutuality, tied into a single garment of destiny. Whatever affects one directly, affects all indirectly. We are made to live together because of the interrelated structure of reality. Did you ever stop to think that you can’t leave for your job in the morning without being dependent on most of the world? You get up in the morning and go to the bathroom and reach over for the sponge, and that’s handed to you by a Pacific islander. You reach for a bar of soap, and that’s given to you at the hands of a Frenchman. And then you go into the kitchen to drink your coffee for the morning, and that’s poured into your cup by a South American. And maybe you want tea: that’s poured into your cup by a Chinese. Or maybe you’re desirous of having cocoa for breakfast, and that’s poured into your cup by a West African. And then you reach over for your toast, and that’s given to you at the hands of an English-speaking farmer, not to mention the baker. And before you finish eating breakfast in the morning, you’ve depended on more than half the world. This is the way our universe is structured, this is its interrelated quality. We aren’t going to have peace on Earth until we recognize this basic fact of the interrelated structure of all reality. ” Dr. Martin Luther King, Jr. 1967

4 responses so far

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