The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups—Henry Hazlitt
Wednesday, September 18, 2013
Video: How a Romanian Internet Campaign Undermined a UK Anti Immigration Propaganda
Tuesday, May 21, 2013
Abenomics Fails to Spur Business Spending
As Japan’s cherry trees bloomed and the stock market soared, Kohetsu Watanabe flew to a blossom-viewing party in Tokyo hosted by Prime Minister Shinzo Abe to tell the premier personally how bad things really are.When the head of machine-parts maker Daikyo Seiki Co. shook hands with Abe at the 12,000-guest event in Shinjuku Gyoen park, he says he begged the premier to help small- and medium-sized companies that make up 70 percent of Japan’s industry.“Stocks and the yen may have come back, but the state of the real economy is very different,” said Watanabe, 49, who has no plans to raise wages for his 17 employees and hasn’t paid a bonus since 2008. “It’s impossible for me to be optimistic.”His company in Akita, northern Japan, highlights the hurdle Abe faces in his quest to end 15 years of deflation and reinstate Japan as a pillar of the global economy. The first two “arrows” of so-called Abenomics, fiscal and monetary stimulus, have caused shares to rise and the yen to slump. While that helps exporters, it means more expensive imported materials and energy for Watanabe. With sales taxes set to rise in April, Abe’s third arrow -- restructuring rules to help businesses -- probably will take too long or be too watered down to prevent a drop in domestic demand next year.
With executives such as Watanabe waiting for earnings to improve before raising salaries, that pain may last beyond next year as the government faces opposition to dismantling decades-old policies, such as labor laws that make it difficult to fire workers.
In his May 17 speech, Abe said he wants to boost private investment to 70 trillion yen ($683 billion) a year -- the level before the 2008 financial crisis -- through deregulation, taxes, spending and equipment-leasing deals. He aims to triple infrastructure exports to about 30 trillion yen by 2020…
The measures announced so far don’t go far enough, according to Izumi Devalier, an economist at HSBC Holdings Plc in Hong Kong, who says major restructuring is needed in agriculture, health care and labor laws…“The Cabinet appears to be shying away from deregulation, opting instead to use subsidies and usual government-support programs,” Devalier wrote in a May 14 research note.
The Japanese government didn’t just leave matters to the monetary authorities. Between 1992-1995, it tried six stimulus plans totaling 65.5 trillion yen and even cut tax rates in 1994. It tried cutting taxes again in 1998, but government spending was never cut.In 1998, another stimulus package of 16.7 trillion yen was rolled out, nearly half of which was for public works projects. Later in the same year, another stimulus package was announced, totaling 23.9 trillion yen. The very next year, an 18 trillion yen stimulus was tried, and in October 2000, another stimulus of 11 trillion yen was announced.During the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession.In spring 2001, the BOJ switched to a policy of quantitative easing — targeting the growth of the money supply, instead of nominal interest rates — in order to engineer a rebound in demand growth.The BOJ’s quantitative easing and large increase in liquidity stopped the fall in land prices by 2003. Japan’s central bank held interest rates at zero until early 2007, when it boosted its discount rate back to 0.5% in two steps by midyear. But the BOJ quickly reverted back to its zero interest rate policy.In August 2008, the Japanese government unveiled an 11.5 trillion yen stimulus. The package, which included 1.8 trillion yen in new spending and nearly 10 trillion yen in government loans and credit guarantees, was in response to news that the Japanese economy the previous month suffered its biggest contraction in seven years and inflation had topped 2% for the first time in a decade.In December 2009, Reuters reported, “The Bank of Japan reinforced its commitment to maintain very low interest rates on Friday and set the scene for a further easing of monetary policy to fight deflation. The bank said that it would not tolerate zero inflation or falling prices.”In a paper for the International Monetary Fund entitled Bank of Japan’s Monetary Easing Measures: Are They Powerful and Comprehensive?, W. Raphael Lam wrote that the BOJ had “expanded its tool kit through a series of monetary easing measures since early 2009.” The BOJ instituted new asset purchase programs allowing the central bank to purchase corporate bonds, commercial paper, exchange-traded funds (ETFs), and real estate investment trusts (REITs).According to Lam’s work, the BOJ bought 134.8 trillion yen worth of government and corporate paper between December 2008 and August 2011. Lam described the impact of these purchases as “broad-based and comprehensive,” but it failed to impact “inflation expectations.”For more than two decades, the Japanese central bank and government have emptied the Keynesian tool chest looking for anything that would slay the deflation dragon. Reading the hysterics of the financial press and Japanese central bankers, one would think prices are plunging. Or that borrowers cannot repay loans and the economy is not just at a standstill, but in a tailspin. Tokyo must be one big soup line.
Abenomics operates in an incorrigible self-contradiction: Abenomics has been designed to produce substantial price inflation but expects interest rates at permanently zero bound. Such two variables are like polar opposites. Thus expectations for their harmonious combination are founded on whims rather from economic reality.
Wednesday, March 20, 2013
Quote of the Day: Free Migration would be Great for the World
If First World governments simply respected everyone’s right to accept job offers from willing employers, most of the world’s poor wouldn’t need charity. They could take care of themselves. Any able-bodied person living in poverty would be free to sell his labor to the highest bidder in the world. Instead of paying years of income to coyotes, the global poor could migrate for the cost of a bus or boat ticket. Instead of crossing the border in fear to compete for illegal jobs, the global poor could cross the border openly to compete for any job they’re qualified to do.Wouldn’t this simply drive First World wages down to Third World levels? No. Basic economics tells us that trade barriers don’t just redistribute wealth; they destroy wealth. Confining able-bodied workers to the Third World is like confining agriculture to Antarctica. Standard economic estimates say that open borders would roughly double world output. While trade liberalization never benefits absolutely everyone, free migration would be great for the world and great for the world’s poor.
Wednesday, December 19, 2012
Many Wealthy Chinese Exit China
A new report in China shows that 150,000 Chinese – most of them wealthy – emigrated to other countries in 2011. While that number may not seem high for a country of more than a billion people, the flight of China's richest – and the offshoring of their fortunes – could cost the country jobs and economic growth, according to the study from the Center for China and Globalization and the Beijing Institute of Technology."The private economy contributes more than 60 percent of China's GDP and it absorbs a majority of employees. So if private business owners emigrate with their capital, it would mean less investment in the domestic market, so fewer jobs would be created," Wang Huiyao, director of the Center for China and Globalization, told the state-run China Daily today.The fleeing millionaires mainly made their money in real estate, foreign currency and deposits and stocks, among other fields, according to the report. They are mainly leaving Beijing, Shanghai and coastal provinces such as Zhejiang, Guangdong and Jiangsu.
China's wealth flight, however, has been America's gain. The United States was the top destination for wealthy Chinese in 2011, according to the report. Canada and Australia came second and third.The report said that the United States had granted 87,000 permanent resident permits to Chinese nationals in 2011. Of those, 3,340 were approved through special investment visas, which allows wealthy foreigners to apply for American citizenship if they agree to invest more than $500,000 on job-creation projects. The program has become largely Chinese, with more than more than two thirds of all of the visas granted going wealthy citizens of mainland.
Tuesday, July 10, 2012
Celebrity Denise Rich Abandons US Citizenship
There has been a growing trend of wealthy Americans giving up on their citizenship.
I earlier noted that this controversial trend may have been accentuated by Eduardo Saverin, one of Facebook founder.
Another celebrity, Denise Rich, has opted to vote with their feet in response to the intensifying class warfare politics which is being passed off through repressive tax policies.
From the Wall Street Journal,
Denise Rich, the songwriter and socialite who was once married to pardoned financier Marc Rich, has given up her U.S. citizenship, a move that could also help shield her from future U.S. taxes.
“In order to be closer to her longtime life partner, as well as her family and loved ones, she made the decision to become an Austrian citizen. That was in November 2011,” said Judy Smith, a spokeswoman for Ms. Rich.
Ms. Rich’s name showed up in an April 30 list of those who had given up their U.S. citizenship. She was listed under her maiden name of Denise Eisenberg. The move was first reported by Reuters.
Ms. Rich and many others adds to the statistics of nearly 1,800 Americans whom have renounced their citizenship.
The absolute number may indeed be small (yes that’s because they are the detestable 1%), but they are the source of productive capital.
Daily Reckoning’s Erics Fry rightly concludes
Surrendering US citizen was absolutely unthinkable. But not anymore. Now it is “thinkable,” albeit still relatively rare. The absolute numbers are still tiny, but the trend conveys a very large message: Discontent is on the rise.
Intervention begets intervention, taxes begets taxes, repressive actions by the desperate political class will only exacerbate. Ultimately these would affect everyone and vented through a crisis. Hence discontent will snowball.
Interesting signs of times and the reversal of what used to be seen as entrenched trends.
Saturday, July 07, 2012
More Brain Drain Canard: When All You Have is a Hammer, Everything is a Nail
The politically colored term “Brain drain” can be seen as an example of what George Orwell labeled as “doublespeak” or language that deliberately disguises, distorts, or reverses the meaning of words.
Here is the Inquirer,
The brain drain has become a bigger problem in the last 12 years, as the yearly exodus of people trained in science and technology (S&T) grew by about two and a half times from 1998 to 2009.
According to a Bureau of Labor and Employment Statistics (BLES) report, the number of S&T workers who opted for overseas jobs rose from 9,877 in 1998 to 24,502 in 2009.
The numbers refer only to new hires or those leaving the country for jobs for the first time.
The BLES cited data from a study titled “International Migration of Science and Technology Manpower-OFWs,” which the Department of Science and Technology’s Science Education Institute (SEI-DOST) published in 2011.
S&T deployment
Results showed that during the 12-year period, S&T deployment grew by an average of 11 percent yearly, peaking at a 59-percent increase in 2001 when 17,756 professionals left, compared with 11,186 the previous year.
Based on the SEI-DOST study, S&T manpower includes physicists, chemists, mathematicians, statisticians, computing professionals, engineers, life science professionals, health professionals (except nurses), and nurses and midwives.
The study found that nurses and midwives represented the biggest group with an average of 9,348 deployed yearly, or 60 percent of the total S&T average of 15,555.
Brain drain is essentially OFWs in different attires.
How can migration be a “problem” when they are representative of individual choices and responses to the current political economic environment?
Have OFWs not been acclaimed as modern day heroes based on mainstream politics?
Whether it is about greener pastures or about career advancement or many other reasons, the point is that OFWs VOTED with their feet. Thus, the actions of science, math and technology graduates, simply reveals of the lack of income, if not career opportunities in the Philippines. These people are simply looking out for their welfare.
Are they not in a better state than becoming unemployed tertiary or college graduates which not only adds to political dependency and the government's fiscal problems but also dehumanizes or demoralizes the individual and their families?
So it is ok to send graduates of different courses or undergraduates, but it isn’t ok to send (S&T) graduates? So the government discriminates or plays favorite with different segments of OFWs? How moral is this?
I have dealt with this bromide lengthily here
Ah but of course, it said that when all you have is a hammer, everything else is a nail. When the government sees a problem they have the typical solution: spend, spend, spend and spend more of other people’s money
From the same article,
When the national budget for 2012 was pending in Congress last year and Malacañang was pushing for a 10-percent increase in allocations for state universities and colleges (SUCS), Budget Secretary Florencio B. Abad said the Executive supports the development of SUCs toward five priority areas that are expected to drive economic growth and employment.
So there you have it.
“Brain drain” has not been a problem when it gives the political authorities free advertisement, as “modern day heroes”, to advance on their political goals.
But “Brain drain” becomes a problem when the government has been itching to spend money other people’s money.
Doublespeak it is.
EU’s Growing Border Controls Undermines the Principle of Freedom of Movement
While European politicians desperately try to keep the European Union from falling apart, through frantic rescues of insolvent sovereigns and banks, the reality is that their actions have already been gnawing at the foundations of the union: freedom of movement.
Sovereign Man’s Simon Black observes of EU’s growing border patrols:
Speaking of travel restrictions and border controls, though, European authorities seem to have no qualms about implementing them.
For the last several days, I’ve been weaving between northern Italy and Switzerland checking out great places to bank, new places to store gold, and taking in these gorgeous lake views.
Every single time I’ve crossed the border, I’ve been met by rather snarly police on both sides; they’re stopping cars, turning people’s trunks inside out, and causing major traffic problems.
A friend of mine who came up on the train from Florence to meet me for lunch in Lugano said he was stopped at the border for nearly an hour as thuggish customs agents randomly questioned train passengers and demanded to see their IDs.
So much for Europe’s 26-country ‘borderless area.’
Based on Europe’s 1985 Schengen Treaty and 1997 Amsterdam Treaty, you’re supposed to be able to drive from Tallinn, Estonia to Lisbon, Portgual without so much as slowing down at the border.
This is not dissimilar from driving between states in the US or provinces in Canada.
Yet as Europe descends into greater financial and social chaos, leaders are starting to ignore these agreements which guarantee freedom of movement across the continent.
No big surprise, electing Marxists and Neo-Nazis tends to bring that sort of change. Border controls, currency controls, wage and price controls– these are the usual tactics of desperate, insolvent governments.
As times get tougher, they tighten their grip, foolishly believing that they can decree and legislate their country back to health.
In the early 4th century AD after decades of economic turmoil and social strife within the Roman Empire, Diocletian issued his infamous Edictum De Pretiis Rerum Venalium, or Edict on Prices.
In addition to setting a fixed ceiling on over 1,000 products, services, and wages, Diocletian also commanded the death penalty for currency and commodity speculators who he blamed for inflation (as opposed to the steady debasement of the currency).
Obviously very little has changed.
Capital controls usually follow; these amount to the direct confiscation of wealth by a government from its citizens.
Often capital controls take the form of legal requirements which prevent people from moving money abroad, holding foreign currencies, or buying precious metals.
Just yesterday, in fact, Argentina’s central bank formally banned people from buying US dollars– forcing them to hold rapidly depreciating pesos and watch their savings inflate away.
At some point, people finally reach their breaking points and spill out into the streets to be beaten by the police. This is when we see social controls implemented– turning off mobile and Internet infrastructure, curfews, etc.
These tactics have been all too common over the last 18-months.
And finally, if things get really bad, border controls are implemented as a way to prevent a flood of people from leaving. After all, the government needs as many milk cows as it can get.
Here is an example of principles sacrificed at the altar for politics
Yet such self contradictory policies are signs of the growing desperation by the political elites and can be seen as the proverbial writing on the wall for the EU: the ballooning social controls via various despotic measures are likely inflame regional animosity (nationalism) that leads to the breakdown of division of labor and rouse civil strife that amplifies the risks of war.
Through politics, noble intentions backfire.
Saturday, May 12, 2012
More on US Exodus: Facebook co-founder Gives up US citizenship
Wow. Wealthy Americans giving up on their citizenship seems to be snowballing.
Now we’ve got a high profile case; one of Facebook’s founders has reportedly renounced his citizenship before the company’s IPO.
From Bloomberg,
Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.
Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin’s stake is about 4 percent, according to the website Who Owns Facebook. At the high end of the IPO valuation, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.
Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in that country. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dorm and stand to reap billions of dollars after the world’s largest social network holds its IPO.
“Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.
Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published by the Internal Revenue Service. Saverin renounced his U.S. citizenship “around September” of last year, according to his spokesman.
Singapore doesn’t have a capital gains tax. It does tax income earned in that nation, as well as “certain foreign- sourced income,” according to a government website on tax policies there.
Exit Tax
Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold.
Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, said Avi-Yonah. “Once it’s public you can’t fool around with the value.”
The tax bill from Facebook’s IPO, I believe, could be just one issue seen by the media.
Future taxes and civil liberties, I think, could be of the more important unnoticed concern.
Of course, America’s loss, in the case of Mr Saverin, should likely benefit Singapore, which is another sign of wealth convergence or productive capital moving to Asia and emerging markets. Another wow, the billionaire is only 30 years old (signs of how technology has been reshaping industries).
Unless the political trend towards repressiveness in the US reverses, there will be more cases of exiting wealthy Americans.
And speaking of taxes, globalization and the information age seems to have conspired to create opportunities for technology companies to use legal loopholes to arbitrage away taxes through overseas corporate vehicles.
From the New York Times
The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)
Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.
Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.
So class warfare politicians appear to be increasingly caught in the bind of economic reality. Raise taxes, capital flees.
Tuesday, January 31, 2012
Japan to Ease Requirements for Foreign Workers
I’ve been saying that the current unsustainable demographical trends in Japan will require the liberalization of migration policies which would allow inflows of foreign workers to offset the nation’s swiftly declining fertility rate (negative population growth).
Chart from Wikipedia.org
So far, rigid bureaucratic requirements has posed as a stumbling block, but this seems likely to change.
From Japan Times,
Non-Japanese applicants hoping to become certified nurses could see the government's notoriously rigorous exams get easier with the inclusion of English-language tests and a new set of communication exams based on basic Japanese.
Non-Japanese hoping to become care workers took the certification test for the first time Sunday, while those aspiring to become certified nurses have been applying for the exam since fiscal 2008.
But the low pass rate is prompting the Health, Labor and Welfare Ministry to consider changing the system.
As I wrote last year
I’d bet cultural inhibitions extrapolated through politics will eventually pave way to embracing reality.
And reality check translates to policy changes.
Thursday, February 17, 2011
Japan Likely To Open To More Migrants Workers
We have been forecasting that Japan, given its demographics, will eventually be compelled to liberalize its labor markets, despite the popular aversion to accept migrant workers.
Here is what I wrote in 2009,
And as its economy recovers, Japan's dwindling population (see the above chart from japanfocus.org) will endure strains from labor shortages.
While Japan can easily absorb more foreign workers when it is deemed as politically convenient, it would bear additional costs from the "learning curve" to integrate foreign workers to its society.
I guess the political pressures for such liberalization appears to be mounting, and seems even to emanate from the political class.
It isn’t just Japan’s demographic conditions that have been impelling for such changes but likewise China’s demographic trends—where the latter may provide competition for foreign workers.
This from Japan Times,
Foreign Minister Seiji Maehara called Wednesday for appropriate rules to accept more foreign workers ahead of an anticipated severe labor shortage in rapidly aging Japan, warning that China's eventual "supergraying society" could soak up migrant workers…
"If China seeks nurses and caregivers from neighboring Asian countries in 10 to 20 years' time, Japan, which already suffers from a shortage of staff, will compete with a country that has 10 times more people to secure medical workers," he said.
The foreign minister criticized the health ministry for being reluctant to accept more foreign nurses and caregivers and prioritizing the employment of existing qualified Japanese who are not working right now.
I’d bet cultural inhibitions extrapolated through politics will eventually pave way to embracing reality.