Daily Archives: January 28, 2016

Obama Jabs at China as he Defends TPP Trade Deal

Once approved by all the signatories, the TPP could be the largest regional trade pact ever.

“Without this agreement, competitors that don’t share our values, like China, will write the rules of the global economy,” Obama said.

“They’ll keep selling into our markets and try to lure companies over there, meanwhile they’re going to keep their markets closed to us,” the president added.

Spanning about two-fifths of the global economy, the TPP aims to set the rules for 21st century trade and marks one of Obama’s key diplomatic and economic achievements.

via Obama Jabs at China as he Defends TPP Trade Deal.

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‘China’s Bumpy New Normal’ by Joseph Stiglitz

All markets need rules and regulations. Good rules can help stabilize markets. Badly designed rules, no matter how well intentioned, can have the opposite effect.

For example, since the 1987 stock-market crash in the United States, the importance of having circuit breakers has been recognized; but if improperly designed, such reforms can increase volatility. If there are two levels of circuit breaker – a short-term and a long-term suspension of trading – and they are set too close to each other, once the first is triggered, market participants, realizing the second is likely to kick in as well, could stampede out of the market.

Moreover, what happens in markets may be only loosely coupled with the real economy. The recent Great Recession illustrates this. While the US stock market has had a robust recovery, the real economy has remained in the doldrums. Still, stock-market and exchange-rate volatility can have real effects. Uncertainty may lead to lower consumption and investment (which is why governments should aim for rules that buttress stability).

What matters more, though, are the rules governing the real economy. In China today, as in the US 35 years ago, there is a debate about whether supply-side or demand-side measures are most likely to restore growth. The US experience and many other cases provide some answers.

For starters, supply-side measures can best be undertaken when there is full employment. In the absence of sufficient demand, improving supply-side efficiency simply leads to more underutilization of resources. Moving labor from low-productivity uses to zero-productivity unemployment does not increase output. Today, deficient global aggregate demand requires governments to undertake measures that boost spending.

via ‘China’s Bumpy New Normal’ by Joseph Stiglitz.