Monday, April 28, 2008

Where have all the posts gone?

Anyone who has been checking this blog for the last while may have noticed the drop-off in blog entries in recent months. My experiment with blogging is coming to an end, at least for now. As a posted back when I began the blog on March 8 2007, "The purpose of this blog is primarily to meet the needs of my students." I believe the blog has served this purpose very well. I've answered questions, written brief commentaries on economic events, and linked to news items that are relevent to my Macroeconomics students.

But for the next year I won't have any students! I'll be on leave from HKU, and will taking up a position at the Bank for International Settlements.

Thanks to those who have read the entries, emailed questions, and posted comments. I'll leave the site up, but for now, HongKongMacro will just have to languish in cyberspace....

Saturday, April 5, 2008

Candy Money.....

What happens when an economy runs out of fiat money? Just such an outcome has occured in Argentina. With coins in short supply, stores have taken to using candy in place of small change. If candy can in turn be used to make small payments in other stores, then candy has become a form of commodity money. But if it cannot be used as payment, then the only beneficiaries of this practice will be the dentists! See this Freakonomics link for more.

Wednesday, March 19, 2008

Measuring Growth...

When we talk about economic growth, we commonly focus on GDP. Implicitly, we think of an economy with rapid GDP growth as doing well, and one with only slow GDP growth is doing poorly. We do so because we associate rapid GDP growth as implying that living standards are improving.

But in a world in which some countries have rapid population growth (India and Brazil), others have very slow population growth (China, Europe) and others have falling populations (Japan, Russia), this may be a poor way of viewing the world. Once we adjust for population growth rates, by focusing on per capita GDP growth, India, Brazil, and Australia look a lot less impressive, while tardy Japan is actually doing just fine. See this link for more.

Friday, March 7, 2008

Rent Seeking... US Style

"Rent Seeking"- using resources to try to influence governments (legally) to pass laws that assist you financially- leads to economic inefficiency, and ultimately lower economic growth. But rent seeking is common, even in high income economies. It also leads to some strange behaviours. For example, fruit and vegetable producers (who do not receive subsidies) lobby the US government to keep subsidies for producers of other crops as it means that fewer producers switch to producing fruit and vegetables, and therefore reduces the competition that they face! It sounds like a win-win for everyone, EXCEPT the consumer- who ends up paying a higher price for non-subsidised crops- and the taxpayer, who finances the subsidies! See this Marginal Revolution link for more.

US Recession...

Here's some excellent analysis on the US business cycle by James Hamilton. The news is bad.....

Thursday, February 28, 2008

Walmart and the Recession....

The US appears to be in recession, but not everyone is suffering. Yesterday we argued that the effects of the recession on China, for example, depend on the kinds of goods and services that China exports to the United States. If these exports are mostly necessities, there will be minimal effects.

Walmart may also buck the trend, as this Slate article suggests.....

Tuesday, February 26, 2008

China Trade and US Recession...

"If the US experiences a recession, might that not be good for China's exports? After all, China exports low-priced goods, and US households may consume more of these during a recession" - DuOo

You raise a good point. During a recession, consumption of luxury goods falls dramatically, while consumption of necessities may barely change. Thus depending on the kind of goods China is exporting, a US recession may not necessary hurt China's economy. I expect that a US recession will negatively impact on China, for two reasons:

1) There's a difference between low priced goods and necessities. Yes, demand for necessities is relatively resillient during a recession, but necessities are items like food and medicine. These are not the largest part of Chinese exports to the United States. Instead China's exports are mostly made up of consumer goods that, while (relatively) cheap, are not essential consumption items to US households.

2) China's exports are increasingly in the "luxury" and durable goods sector, which are highly vulnerable to the business cycle. There are very few cars, for example, that do not contain some parts that were made in China. An anecdote that I heard recently from a friend in the watch industry is that the mechanisms in nearly all "Swiss" watches are made in China. The watch is still assembled in Switzerland, so that it can still be claimed to be "Swiss" for marketing reasons, but much of the actual manufacturing is now taking place in China.

For these reasons, I expect that a US recession will negatively impact on China.

Thursday, February 21, 2008

The US Recession will be Bad....

.... by Martin Feldstein, Harvard Professor and current head of the NBER, the organisation that dates US recessions. See this link on Calculated Risk for more.

Here's an earlier take by me on the US business cycle.