Rightways to Success

Wednesday, 15 September 2010

US economists oppose imposing punitive measures against China

Nobel Laureate economists on Wednesday urged American politicians to restrain from imposing punitive measures against imports of Chinese goods, calling it both unwise and useless.

"This is crude populism and represents the attempt of the two parties to win voters," said James Heckman, professor of economics at the University of Chicago, in an exclusive interview with Xinhua.

"What I do worry about is that there has been a lot of talking about taxing the Chinese and punishing them," said Heckman on the sidelines of a forum celebrating the opening of University of Chicago Center in Beijing.

The statement comes two days after 93 U.S. lawmakers signed a letter urging Democratic leaders in the House of Representatives to schedule a vote on a bill to get tougher with China.

The bill would allow the U.S. Commerce Department to slap countervailing and anti-dumping duties on "injurious imports from any country that persistently undervalues its currency."

The Chinese currency has seen increased volatility in the trading days since the People's Bank of China (PBOC), the central bank, announced on June 19 that it would increase the currency's exchange rate flexibility.

The yuan's central parity against the U.S. dollar has risen by 1.5 percent from the rate of 6.8275 per U.S. dollar, set a day before the PBOC's pledge to increase flexibility.

A more expensive Chinese currency would help, in some sense, but the key problem was in the U.S. economic policies which had proven to be ineffective, said Heckman, who won the Nobel Prize in Economic Sciences in 2000.

He said the current difficulties facing the U.S. economy in the form of high unemployment and a staggering deficit mainly stemmed from its own "unwise policies" that finance consumption and practice large tax cuts.

"There is an issue that China and the rest of the world has to be worried about -- How much will America continue to live beyond its means and whether America has the political will to solve the problem?"

He called upon the U.S. leadership to wake up to a deeper understanding of the nature of the deficit problem and look to a much longer-term solution, and deemed the proposed action as pure politics.

"Every serious person in economics said we have to deal with the deficit, but the government has not listened to it," Heckman said.

He said America's soft money policy and its consumption patterns were not sustainable and had to be adjusted, but "We don't even have a serious discussion about the nature of the deficit problem in America."

"It is easy to attack China, and so many people in the US will say it is the Chinese who are responsible for the lack of jobs, but they don't look at the deep structural questions," Heckman said.

"I don't believe that any American with any integrity would advocate this kind of punitive policy toward China, which is pure politics."

Echoing Heckman's words, another Nobel Laureate economist present at the opening ceremony, Gary Becker, said it was the U.S. who should take significant responsibility for its problems.

"The U.S. has a very low savings rate which has contributed in a very important manner to its current difficult situations and the global financial crisis, as well," said Becker, a professor of economics and sociology at the University of Chicago.

Heckman and Becker called for caution, as some economists suggest China sell down its vast holdings of U.S. Treasuries, which makes up some two-thirds of its 2.45 trillion U.S. dollars in international reserves.

"If China dumps a lot of U.S. dollars, that would be unwise, because that would create a currency crisis in the currency market," he said.

Source: Xinhua
Newscribe : get free news in real time

UCLA Anderson Forecast predicts 'very sluggish growth' accompanied by high unemployment

By Hilary Rehder

In its third quarterly report of 2010, the UCLA Anderson Forecast predicts "very sluggish growth" for the foreseeable future as the U.S. economy continues to recover from the recession. As for the California economy, the state is looking at a difficult period ahead as it attempts to regenerate not only the 1.3 million jobs lost during the recession but also create additional jobs needed for new entrants into the job market over the past two-and-a-half years.

The National Forecast

In a report titled "The Uncertain Economy," UCLA Anderson Forecast senior economist David Shulman offers two explanations for the ailing national economy. The first is the "balance-sheet hypothesis" put forth by the Forecast nearly two years ago, which is analogous to the work done by economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University. These economists noted that recoveries from the bursting of debt-fueled financial bubbles are invariably slow and are associated with high unemployment rates and rising government debt. Given that, Shulman suggests that a quick recovery is not likely.

Shulman also writes that, "the recovery from the balance-sheet recession is being exacerbated by an extraordinary increase in policy uncertainty, which is amplifying the usual economic uncertainties associated with recessions." Simply put, he believes that the nation's businesses are unsure of the implications of their investments — whether new hires or new computers — given the uncertainty surrounding tax, environmental, energy, financial, labor and health care policies.

"At present," Shulman said, "business firms can only make the wildest guesses as to what corporate and individual taxes will be next year, and, for that matter, three years from now what the cost of health care will be, whether or not there will be a revived cap-and-trade policy with respect to carbon emissions or whether the Environmental Protection Agency will step in with regulations of their own absent a statute, and whether it will be easier or more difficult to hedge risks with financial derivatives."

Given these factors, the Forecast expects very sluggish growth accompanied by high unemployment.
"As time passes," Shulman said, "the economy will naturally heal and the policy uncertainties will resolve themselves to allow growth to return to a 3 percent path, causing unemployment to begin a long-awaited downward trajectory. We forecast that these more ebullient trends will become noticeable by 2012."
The Forecast predicts the national unemployment rate will be 9.7 percent by year's end and 9.5 percent in 2011.

The California Forecast

Considering the California economy, UCLA Anderson Forecast senior economist Jerry Nickelsburg writes that "all the evidence suggests that California is ever so slowly coming out of the recession … but slow growth means that while the groundwork for faster growth is being put down, there is not a lot or perceptible change."

The Forecast implies that the weak growth will continue in the absence of any imminent changes in consumer or business behavior. According to the report, the very slow growth period will remain until next year. The recovery from the recession will be driven by education, health care, exports and technology and, to a lesser extent, growth in the battered residential construction sector.

On an annual basis, the expectation is that California employment will contract by -0.7 percent in 2010 and that once employment growth returns in 2011, employment will begin to grow faster than the labor force, at a 1.9 percent rate, and the unemployment rate will begin to fall.

Real personal income growth is forecast to be 0.6 percent in 2010, 2.2 percent in 2001, and 4.1 percent in 2012. The unemployment rate — currently at its high point of 12.6 percent — is expected to fall slowly through the balance of 2010 and average 12.2 percent for the year. The unemployment rate won't fall below double digits until 2012.

More information: http://uclaforecast.com/
Provided by University of California Los Angeles (news : web)

Newscribe : get free news in real time

Boeing subsidies should be withdrawn says WTO

Boeing has always said that all US support was above board

The World Trade Organization (WTO) has ordered more than $20bn (£13bn) in US government subsidies should be withdrawn from Boeing, according to agency reports.

A confidential interim report released on Wednesday is said to back European complaints over $17bn in research contracts from Nasa and the Pentagon.

Another $4bn tax breaks came from Washington state.
The US says there are a "number of inaccuracies" in press reports.

Nefeterius McPherson, a spokeswoman for the US Trade Representative' s Office told the BBC: "The report is confidential, so I can't speak about the contents."

The WTO report on Boeing was prompted by complaints from the European Union, which argued that Boeing was being given support that was anti-competitive.

European Trade Commissioner Karel De Gucht said the report backed the EU's case: "Some of the findings of the WTO Panel Report on subsidies to Boeing have already been leaked and commented upon. I would like to limit myself to saying that the analysis conducted appeared very thorough and its conclusions support the EU's view."

The EU has itself fallen foul of the WTO.

Earlier this year, the organisation ruled that the EU paid illegal subsidies to the European firm, EADS, the parent company of Boeing's arch-rival Airbus.

The acrimonious tit-for-tat spat has dragged on for almost six years. Brussels brought its case to the WTO in October 2004 - on the same day that Washington complained about EU subsidies to Airbus.

Aerospace and Defence

Wednesday's WTO report is said to have found the Boeing aid "actionable" and has called for it to be withdrawn but has stopped short of labelling the state incentives "prohibited," which would require faster remedies, according to sources.

The EU is appealing against the earlier decision by the WTO that it itself was guilty of giving EADS illegal subsidies in the form of support for the A380 plane.

It added that it would also contest the ruling that there had been a causal link between support to Airbus and adverse effects to Boeing.

Truce?

Some analysts have said that such an agreement would be in the best interests of both companies - allowing them to focus instead on developing their aircraft.

Earlier, an Airbus spokeswoman said the two rivals may negotiate a settlement.

Mr De Gucht said more time was needed to absorb the WTO's report, but that he believed "even more strongly than before that the question of subsidies to aircraft manufacturers can be settled only by way of negotiations".

Ms McPherson said the US had been happy to hold talks for some years: "We were interested six years ago. We were interested four years ago. We were interested two years ago. And we're still interested."

Violation claim

The EU complaint accused Washington of funnelling subsidies to civil aviation through military research funds.
Boeing, the maker of the long-delayed 787 Dreamliner, insisted that all US support was above board.

In a statement ahead of the WTO's preliminary decision, it said none of Washington's actions had "the market-distorting impact of launch aid nor even approach the sheer scale of European subsidy practices".