Japan calls for transparent labor rules in China

Japan called for "transparent policies" governing workers in China, saying labor disputes that halted operations at dozens of factories this year were troubling to Japanese companies.

Foreign Minister Katsuya Okada brought up the issue at a high-level economic meeting between China and Japan — the world's second and third largest economies — held in Beijing to discuss ways to recover from the economic crisis and foster regional cooperation. Chinese Premier Wen Jiabao met with the Japanese delegation on Sunday.

"At the request of Japanese enterprises in China, we discussed ensuring transparent policies" during talks on how to improve the business environment in China, Okada said Saturday. "As to the recent frequent labor dispute issue, the Japanese side expressed willingness to further strengthen discussion."

The widespread strikes were rare for China but the government permitted them, apparently trying to put more money in workers' pockets as part of efforts to boost consumer spending.

The Chinese delegation at the meeting said the strikes were to be expected because wages had been frozen for two years to help companies ride out the economic crisis, Japan Foreign Ministry spokesman Satoru Sato told reporters at a briefing late Saturday.

The Japanese were "not so satisfied with this explanation, we still think this is very important to Japanese companies operating here," he said.

They also urged China to ease export controls on rare metals used in computers, hybrid electric cars and other high-tech products.

"These limitations are affecting the global production chain," Sato said.

But China's restrictions on exports of rare earths are necessary for environmental protection, Commerce Minister Chen Deming said, according to Xinhua News Agency.

Vice Premier Wang Qishan, who led the Chinese delegation, said the economies of the two counties are interdependent and China has "huge market potential."

"The economies of both countries highly rely on each other. Economic and trade cooperation have been improved in a firm manner. Bilateral trade has recovered rapidly and has exceeded levels from before the financial crisis," Wang said

The meeting came after government statistics released earlier this month showed that China had surpassed Japan as the world's second-biggest economy after three decades of blistering growth that puts overtaking the U.S. in reach within 10 years.

Japan is still far richer per person, but the news is more proof of the arrival of China, with 10 times Japan's population, as a force that is altering the global balance of commercial, political and military power.

This was the third high-level economic dialogue between the two sides, following talks in June last year in Tokyo and a first round in December 2007 in Beijing.

Discussion topics on Saturday also included cooperation in high-end manufacturing, energy conservation, environmental protection, food safety and opposition to protectionism, Wang said.

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Ron Paul on MSNBC discussing Economic Theory with Praise for Ron Paul's Accuracy

Ron Paul being interviewed on MSNBC Discussing Austrian vs. Keynesian Economics and how his stance on Fanny May and Freddie Mac were absolutley correct back in 2004.

Markets dive as depression fears grow

Bank of England warns of 'choppy recovery' as it cuts growth outlook amid slew of gloomy data, Economics Theory.

Fears that Britain could slip into a protracted depression intensified tonight as markets took fright at the US central bank's wary economic outlook, the Bank of England's own warnings on the UK, and a slew of gloomy data.

With businesses and households fretting over swingeing public sector spending cuts and shaky economic prospects around the world, the Bank cut its growth outlook and warned that Britain faces a long and "choppy recovery".

The move came as official figures showed a sharp rise in long-term unemployment and a smaller than expected fall in the number of people claiming jobless benefits.

The Bank's outlook intensified the debate over whether the economy is heading for a double-dip recession, or at least a period of depression. The National Institute of Economic and Social Research thinktank defines depression as a period when output is below its previous peak, and has predicted that in the UK's case this will last until 2012.

Faced with calls from trade unions to scale back its cuts or risk seeing growth peter out, David Cameron's coalition at least got some support for its austerity measures from the Bank's governor, Mervyn King, who reiterated that a fiscal squeeze now would reduce longer-term risks to the economy.

But the Bank also cited the cuts as at least part of the reason why it was more cautious on growth. Also blaming tight credit conditions and increasingly fragile confidence among consumers and companies, its quarterly inflation report, which forecasts economic prospects two years ahead, sees growth nearer 3% then, down from its previous prediction for about 3.5%.

The softer outlook and the Bank's view that inflation will finally fall back in 2012 left financial markets scrambling to reassess the outlook for interest rates. The cost of borrowing for the government on a five-year bond fell to its lowest level in almost 20 years, as traders raised their bets that interest rates will remain at their record lows for many months to come. The FTSE 100 suffered its biggest drop in six weeks.

But many economists said the Bank was still too optimistic about growth. Even the government's own fiscal watchdog is less upbeat and the market consensus is closer to 2% growth for two years from now.

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Video: Slow Job Creation Keeps Unemployment Up - Economics Theory

Slow Job Creation Keeps Unemployment Up in the United States.

The Art of Tax War - Economics Theory

The highly charged partisan debate over the future of the Bush tax cuts (scheduled to expire at the end of December) is a kind of war. Whether you term it a class war depends on what you mean by class, but it is certainly a war between the very rich (the top 2 percent of income earners) and a host of other individuals allied with them, against everybody else who gives a darn.

Battlefield success will be largely determined by the outcomes in the coming Congressional elections. A key issue in these races will be public perceptions of President Obama’s proposal to let expire the federal income-tax cuts put in place by the Bush administration for the very rich, while maintaining those tax cuts – and others implemented by his administration – for everybody else.

Voters’ perceptions are not primarily driven by facts. A February CBS poll showed that only 12 percent of voters recognize that the Obama administration has cut taxes. About 24 percent of voters (and about 64 percent of Tea Party supporters) said they believed it had raised taxes.

Many explanations come to mind. The tax issue is often a lightning rod for other frustrations. Most people find discussions of tax policy complicated and boring, and highly charged partisan debates excite some, but upset others, discouraging them from learning more.

The dynamics of collective conflict also come into play. Precisely because they are such a small group, the very rich stand to lose much more per person than others will gain per person from increased tax revenues. They also have more resources to invest in the fight, enabling them to make bigger contributions to Congressional campaigns.

One important strategic goal of this camp is to persuade voters that tax increases at the top will hurt the economy as a whole. Here’s where supply-side economics comes in, with its claims that tax cuts increase revenues and promote economic growth.

Historical trends, including a comparison of trends during the Clinton and Bush administrations, do not support these claims. But in a world in which most people believe their livelihoods depend on rich investors, many people are fearful. As Brit Hume of Fox News put it on July 25, “When’s the last time one of these poor people offered you a job?”

As a corollary, it is strategically important to argue that increased taxes at the top will hurt small business owners, who are generally more liked and better respected than individuals in the economic stratosphere. But as William Gale of the Urban Institute explains, very few small-business owners are in the top 2 percent, and most individuals in that category don’t heavily rely on business income.

In a counterattack, a group called Business and Investors Against Tax Haven Abuse has released a report arguing that corporate tax havens provide an unfair advantage to large chain retailers and financial companies over locally owned retailers and community banks.

This report doesn’t speak directly to the issue of federal income taxes, but nonetheless lands some relevant blows. Apparently Goldman Sachs, taking brilliant advantage of offshore tax havens in 2008, paid federal taxes at an effective tax rate of 1 percent, proffering a sum less than one-third what it paid its chief executive, Lloyd Blankfein.

It seems unlikely that taxing Mr. Blankfein himself at a higher rate would cause any harm.

Another strategic goal of opponents of the tax increase is to split and weaken the coalition favoring it. In this context, it is advantageous to label those receiving public assistance (including unemployment insurance) as slackers and cheats. About 47 percent of Americans owed no federal income tax in 2009, which you might think people opposed to federal income taxes would consider good news. Instead, the conservative radio commentator Rush Limbaugh characterized this as a form of fraud, “worse than anything Bernie Madoff ever thought about doing.”

On the battlefield, in the fog of war, it is often difficult to know exactly what is happening, and why. But those resisting change have the most to gain from fog – or even from blowing smoke – because uncertainty often works in favor of the status quo.

In my view, Citizens for Tax Justice, which describes itself as an advocacy group that strives “to give ordinary people a greater voice” against the “armies of special interest lobbyists for corporations and the wealthy,” offers the most specific and well-documented analysis of the two competing approaches to the Bush tax cuts, those of President Obama and the Congressional Republicans. Unfortunately, it doesn’t seem to have gotten much attention from the news media.

I’m not sure whose fault that is, and if Sun Tzu were alive today, I’m not sure whom he would be working for. But it’s pretty clear that the Republicans would offer him a higher salary.

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Chinese Yuan vs. the US demand - Economics Theory

The conventional wisdom is that once the value of the Chinese Yuan is increased, the USA’s trade deficit with China would start falling. This reasoning has prompted many Americans to push for further, faster revaluation of the Yuan even after China changed its currency policy.

For those who endorse this rationale, the Yuan’s value is a paramount factor behind China’s, and their country’s trade balances.

But for John Ross, former deputy mayor of London in charge of economic and business policy, the trade gap between a country and China would widen instead of narrowing down, at least in the short term, if the Yuan’s values go up.

Mr. Ross, a visiting professor at Antai College of Economics and Management in Shanghai Jiaotong University, says that once the Yuan’s value rises the Americans would demand further revaluation, ultimately forcing the Yuan to rise to a level that would not only disrupt China’s trade and economy, but also pose a threat to the entire World’s economy.

Moreover, the number of jobs in the US would not increase unless the federal government changes its economic policy and raises investments, which is the real solution to its problem. Pressuring China to raise the Yuan’s value sharply will not help. “Most people, particularly those abroad, don’t know the real situation. The reason they want the Yuan to be revaluated further is because they think it would reduce China’s trade surplus, this is simply not true.”

From what happened between Y’s 2005 and 2008, when the Yuan rose 21% against the USD, it’s clear that China’s “trade surplus rose, too”, Ross said. Any revaluation of the Yuan raises the price of exports and reduces the price of imports, which means China’s trade surplus would get bigger as its currency rises.

By examining historical data, Ross has found that China’s exports and imports grew simultaneously after Y 2005 in terms of volume, but the prices of exports rose more relative to import thanks to the revaluation of the yuan. “That’s why its trade surplus with the USA is bigger today.”

There’s a big debate among economists over what would happen in the long term if the Yuan rose further, he says. Some people think China’s trade surplus would increase, while others think it would fall in the long run. “But there’s no difference in what they say would happen in the short term.”

Seen from the history of US trade, its overall trade deficit rose at nearly US$70B a month until Y 2006, he says. Then it stabilized before rising again after the passage of the worst period of the Global financial crisis. “That’s why the American people are getting agitated because it has worsened, but it is not rising because of China, for, I’m using US figures, not Chinese figures, the trade surplus of China with the US is rather stable, slightly under US$20B a month.”

In other words, claiming that the trade deficit of the US is rising because of China is simply not true, he says. “It’s because its America’s trade deficit with the rest of the world is rising, too.”

The US has a trade deficit with about 90 countries. “If you reduce its trade deficit with China, all that would happen is that its trade deficit with some other country would increase.”

US hawks, however, have always targeted China and pressured it to dance to the tune of their demand. Even if China has pledged to make the yuan more flexible by reforming its exchange rate mechanism further and peg it to a basket of currencies to better reflect the demand of the market, some US politicians and industrial leaders say it’s “too little too late” and demand the Chinese currency be revaluated by up to 40 percent.

Forcing the value of the yuan to rise would cause further uncertainties in the world economy, which today faces other big challenges such as the European Union debt crisis. “We are not (living) in a normal stable economic environment; we are just about recovering from a very bad financial crisis and what happens in the next 6 to 18 months is very important and would have a very big effect,” he says. “The last thing the world needs at present is a short-term increase in China’s trade surplus because of an increase in the value of the yuan.”