International Trade's True Picture

Doha is a Phoney Bill Of Goods 
By Marshall Auerback 

“The rules for admission into the world economy not only reflect little awareness of development priorities, they are often completely unrelated to sensible economic principles. For instance, wto agreements on anti-dumping, subsidies and countervailing measures, agriculture, textiles, and trade-related intellectual property rights lack any economic rationale beyond the mercantilist interests of a narrow set of powerful groups in advanced industrial countries.” – Dani Rodrik, “Trading in illusions,” Foreign Policy (123) March/April, 2001
 
The Doha round of multilateral trade negotiations is, yet again, on the brink of failure. We are told that a failure to resolve ongoing tensions between the developed and developing world will engender a collapse of free trade and a corresponding reduction in economic growth, particularly ominous given the apparent slowdowns increasingly manifesting themselves in the US and China.
 
Not so fast.  The doomsayers largely predicate their negativism on the so-called “Washington consensus” school of thought, which holds that the only viable option for developing countries is maximum integration into the world economy plus domestic reforms to stabilize integration and make domestic markets more efficient (including “good governance” reforms to bring the poor into the process). Sectoral-industrial policy, and anything intended to foster nationally controlled industries over foreign-owned, or to transfer technology beyond the speed desired by private foreign firms, is out.  It seems to us that this line of thinking has little to do with free trade and much to do with an increasingly discredited ideology that has done much to impoverish both American workers and the developing world it purports to help.

Within the realms of policy making and academia, there are finally some challenges being proffered in opposition to the market fundamentalism embodied in the Washington Consensus.  In recent co-authored work, Joseph Stiglitz, the former chief economist of the World Bank, argues that the development focus of the Doha round is a myth. He wrote in the FT on June 21: "Recent negotiations have not only failed to push an agenda that would promote development; they have included a host of issues that are of tangential interest, or even detrimental, to developing countries."

A real development agenda, argue Prof Stiglitz and Andrew Charlton, the Oxford economist, would be very different from the one on offer at the current talks. Above all, they argue, “trade negotiations must begin from the premise that the less developed countries are deserving of special and differential treatment, both because they have been disadvantaged in the past and because of differences in their current circumstances. This will entail a movement away from the principles of reciprocity and bargaining…It will entail unilateral concessions by the developed countries, both to redress the imbalances of the past and to further the development of the poorest countries of the world.”

The views of Stiglitz and Charlton may seem heretical to free trade ideologues, but their notions of special and differential treatment are consistent with successful growth strategies adopted by virtually every developing economy.  Britain was protectionist when it was trying to catch up with Holland. Germany was protectionist when trying to catch up with Britain.  Japan was protectionist for most of the twentieth century up to the 1970s, Korea and Taiwan to the 1990s. Hong Kong and Singapore are the great exceptions on the trade front, in that they did have free trade and they did catch up—but they are city-states and not to be treated as economic countries. By and large, countries that have caught up with the club of wealthy industrial countries have tended to follow the prescription of Friedrich List, the German catch-up theorist writing in the 1840s: “In order to allow freedom of trade to operate naturally, the less advanced nation [read: Germany] must first be raised by artificial measures to that stage of cultivation to which the English nation has been artificially elevated.”
 
Within the “transitional” countries (moving from communism to capitalism) the comparison between Russia and China provides the extreme case in point: Russia—massive liberalization and privatization (shock therapy), catastrophic economic performance; China—gradual liberalization and privatization, excellent economic performance (by standard measures). Within each region (central Europe, southeastern Europe, the former Soviet Union, East Asia), one finds that the more radical liberalizers performed worse economically in the 1990s than those that moved more gradually. Even in countries of comparable economic development and maturity, the claims made on behalf of economic liberalization per se ring rather hollow:  From 1984 to the late 1990s the New Zealand government undertook much more radical liberalization than Australia’s, and economic performance has been substantially worse.
 
The US itself embraced a more classically “protectionist” or “developmentalist” strategy in its early post-colonial phase. Alexander Hamilton, the first U.S. Secretary of the Treasury (1789–95), set out a strategy for building up American industry behind tariffs to the point where American manufacturers would be able to compete against foreign competition unaided, in Reports of the Secretary of the Treasury on the Subject of Manufactures, 1791.  The United States followed a protectionist industrial strategy for most of the period from then right up to the early post–World War II years, when U.S. industry had achieved supremacy. Only at this point did the U.S. government begin to champion free trade. Ironically, this is doing little for the American economy today, yet a resort to outright protectionism will likely doom the country to a bout of capital flight.

Washington has been hoisted on its own petard.  Policy makers have embraced an unthinking acceptance of “free market” globalization.  The reality, however, is that America has becoming a hemorrhaging debtor nation compelled to retain its role as “buyer of last resort” for the global economy, even as it totters on the threshold of true bankruptcy.  The facts are not secret. Despite ebbs and surges, the gap between US exports and imports has been steadily widening across three decades.  The trade deficits of the early 1970s (due mainly to soaring oil prices) were trivial in size, but Americans were shocked in 1978 when the deficit hit $30 billion in one YEAR (TV sets and some cars were now made in Japan).

Needless to say, things have progressively worsened:  During the 1980s, the trade deficit expanded enormously, as Washington's strong- dollar policy crippled US manufacturers and companies moved jobs and production offshore in swelling volume. After a recession and dollar devaluation, the gap shrank briefly, but soon began expanding again.  For all of the positive spin placed on the latest monthly trade deficit figure of $46bn, this is still one of the highest monthly figures in history.  Annualized, it would still place the US perilously closer to third world debt trap dynamics.

American leaders and policy-makers remain uniquely dedicated to a faith in “free market” globalization, and they have regularly promised Americans that despite the disruptions, this policy guarantees their long-term prosperity. Present facts make these long-held convictions look like gross illusion. By 1998, the trade deficit was back to a new high and expanding ferociously, despite supposed improvements in US competitiveness. Last year it set another new record: $489 billion.

The latest Doha round will not solve this problem, nor will it do anything for the so-called “G-90” developing nations, which are mounting an increasingly unified and sophisticated campaign against what is on offer in the latest round of trade negotiations.  Indeed, to describe these talks as “free trade” negotiations is Orwellian sophistry at its finest.

Lowering tariffs and other trade barriers have been a minor aspect of global trade negotiations or any bilateral U.S. trade agreements such as those between the US and Chile and Singapore respectively (which place much more focus on the issue of free moving capital, in effect attacking the symptom of the current problem, namely America’s growing dependency on foreign capital flows as a consequence of decades of misguided trade policy). If free trade were the only purpose of these trade pacts, the agreements could be written on a few sheets of paper. Instead these deals fill large volumes. They contain chapter after chapter setting strict rules governing the treatment of investment, capital account convertability, and other areas of commercial law.

One of the main purposes of these agreements has been to impose U.S.type laws governing intellectual property claims (patents and copyrights) on nations throughout the world. The United States has used its full diplomatic and economic power to get nations from Latin America to China to respect U.S.-type laws in these areas. These laws are gross intrusions into the workings of a free market. As a result of this form of government protection, books, movies, music, and software that could be produced at virtually zero cost are instead sold at hundreds or even thousands of times the cost of production. (There are far less intrusive ways to finance the intellectual and artistic work that produces this material.)  It may be perfectably supportable to support intellectual property in this manner, but those who do so must also recognise the inherent contradiction whereby it is deemed perfectly acceptable to impose the big regulatory hand on foreign governments in order to enforce Microsoft’s intellectual property rights, but antithetical to free trade to enforce minimal environmental and labor standards on the developing world. 

This double-standard is not addressed in the most recent round of negotiations at Doha.  Indeed, high tech in particular seems to be accorded particularly sacrosanct protected status.  Any attempts by the developing world to nurture new industries and new technologies and to diffuse innovations to established industries—that might have the unwanted consequence of raising the competitive pressure on industries in the industrialized countries are frowned upon most severely.

Similarly, “free trade” is not interpreted as meaning that bright students from Mexico, India, China, and elsewhere will be able to come to the United States to finish their education and compete on an even footing with our doctors, lawyers, accountants, and other highly paid professionals. The immigration and professional licensing restrictions that rule out this competition are rarely serious topics of trade negotiations, especially post 9/11.

“Free trade”, therefore, has come to mean having U.S. manufacturing workers compete against the poorest workers in the developing world, while highly paid professionals remain protected, and the concept of “intellectual property” is used to restrict flows of commerce around the world.  Capital, on the other hand, is not to be restricted at all, despite the fact that most developing nations have been adversely affected by the premature removal of restrictions on free capital mobility, legitimized by the U.S. Treasury and the imf.  
 
Taken in aggregate, the WTO, as currently constituted, neither helps US workers (who find themselves persistently subject to wage pressures as more and more compete against the poorest workers of the world), nor the developing countries, which are precluded by the same rules to enable their governments to pursue most of the industrial policies successfully implemented in East Asia.  In the words of Professor Robert Wade from the London School of Economics:
 
“Before the Uruguay Round (1986–94) the international trade regime recognized the right of ‘special and differential treatment’ for developing countries, and allowed this to qualify the basic norm of  ‘no discrimination’ (no discrimination between suppliers based in different countries, as in the ‘most favored nation’ principle). At that time the policies of developing country governments and the thrust of multilateral trade and investment negotiations concerned the terms on which goods from developed countries would get access to developing country markets. But during the Uruguay Round and the negotiations of the three capstone agreements—the Trade-Related Intellectual Property agreement (trips), the Trade-Related Investment Measures agreement (trims), and the General Agreement on Trade in Services (gats)—all this changed.
 
The agreements at the end of the Uruguay Round represent a basic change of norms governing world trade. ‘Reciprocity’ eclipsed ‘development’; or more exactly, ‘reciprocity,’ ‘uniform rights and obligations,’ and ‘all countries (except the smallest and poorest) as equal players’ eclipsed ‘special and differential treatment for developing countries.’ At the same time, the earlier norm of ‘no discrimination’ between national suppliers became the norm of ‘no (trade and investment) distortions.’  The ‘no distortions’ rule makes it against wto rules for a government to use policies that “distort” trade and investment flows—including performance requirements on incoming foreign direct investment (such as local content requirements, trade balancing requirements, export requirements, technology transfer requirements, r&d requirements, joint venturing requirements, public procurement tied to local suppliers, and the like).  As a specific example, Article 27.1 of the trips agreement says that a ‘patent shall be available and patent rights enjoyable without discrimination as to … whether products are imported or locally produced.’  This makes it illegal for a government to curb a patent for a product whose domestic production the government wishes to encourage but whose producer refuses to establish a local production facility, thus blocking the process of import replacement.” – Governing the Market, Creating Capitalisms: Introduction to the 2003 Printing.    
 
From this set of premises, the whole process becomes a “heads I win, tail you lose” proposition for the developing world.   So when commentators, such as Martin Wolf dispute the notion that demands for liberalization by developing countries are economically harmful, he is only looking at this issue within the narrow confines of free trade parameters traditionally designed by the apologists for organizations such as the WTO, rather than looking at the broader issues raised by Wade and others.  Wade’s work in “Governing the Market” provides ample illustrations which refute the notion that the creation of efficient, rent-free markets coupled with efficient, corruption-free public sectors is even close to being a necessary or sufficient condition for a dynamic capitalist economy.  His book provides numerous examples to show how all now-developed countries went through stages of industrial assistance policy before the capabilities of their firms reached the point where a policy of (more or less) free trade was declared to be in the national interest. 
 
And, in the greatest irony of all, today’s “free trade” is doing nothing to help the US economy in slightest, except insofar as any future “trade liberalization” agreements enshrine America’s ability to satisfy its unremitting reliance on capricious, unregulated global capital flows.  Perhaps, therefore, the collapse of Doha is what is required in order to devise a development/growth agenda focused on creating capitalist systems able to generate mass affluence and a decent quality of life, whilst discarding this misplaced economic shibboleth that, liberalization, deregulation, strengthening participation and eliminating rents and corruption is all that is required to get us all back to the road to prosperity. ...Link

China and India Will Entrench Western Dominance

This is an excellent post by Daniel Lian on S.E.Asia's big picture. He captures a view not yet mentioned by his peers Roach and Xie.

Daniel Lian

...China and India Will Entrench Western Dominance
Just like the Japan enthusiasts two decades ago, some new Asia enthusiasts believe the rapid rise of China’s economy coupled with a probable new Indian economic powerhouse will help usher in a Pacific-centric economic century centered on two new Asian economic giants. I see the opposite. A rapidly developing China and India based on the same “cheap” manufacturing and service outsourcing model will facilitate and prolong Western economic dominance for reasons outlined above. ...Link

Trade Policy Prescriptions

MacroMouse - Trade Policy Prescriptions
MacroMouse - Trade Treaties - What Is and What Can Be
WTO Information - Why Have A World Trade Organization?
And The New Zealand Trade Liberalisation Network
Institute for International Economics - Trade
The WorldGrowth Organization
The Official WTO Site

This is America - we can do anything. Right now we're simply evolving through the academic rational ignorance of the internet - but, all we're looking for is balance, and real social balance is only created through law - truly balanced law. Kenneth Dam in "The Rules of The Glabal Game" has stated "Currency is a country's most important price" - I concur. So, in my opinion, we need a WTO with a gold plus standard, or global tax and markets equality. It should include a declaration of international democratic sovereignty - but, that must be defined as balanced price treaties. We need an international constitution of commercial trade and democratic rights based on knowing these five principles:

1. The public good is best served by best pricing practices in our, and all global, capital markets.
2. The public good is best served by best policy taxing systems, and by best tax haven reform.
3. The public good is best served by best currency and monetary system reform policy.
4. The public good is best served by best purchasing price parity equilibriums.
5. The public good is best served by best balanced sovereignty and autonomy practices - and laws of said.

- Otherwise, money is simply the law of the world!

Here are five short summery paragraphs explaining the above principles:

1. CEO Henry Paulson Jr. of Goldman Sachs first suggested this idea on the PBS Charlie Rose show. He stated that if the powers that be integrated the five U.S. commodities markets, better pricing practices would be achieved. He further stated the better idea of moving from the specialist system of the New York Stock Exchange to one of computerized market makers, and better pricing practices would also be achieved, and I concur. If we computer united the five commodities exchanges into one integrated market system of trades, the public and stakeholders would be saved billions of dollars in unnecessary market transactions. Under such a system all traders would be trading into one market, saving the divergences of arbitrage and speculative pricing moves, that presently exist. In the commodities markets, this same idea could be integrated globally, to save many billions of dollars in divergent market arbitrage and speculative needless systemic costs, involved in the many nations' trading systems. And, by going to computerized trades over specialists, the markets would also be saved much needless expense in this market. These ideas, if instituted, would work toward improving the public good realized from our and other's capital markets' experiences, and thus realize real savings of these increased efficiencies - not to mention, more stability and balance.

2. Tax systems and the tax havens are without a doubt the most difficult and controversial area where improvement is required. The political hurdles to surmount this mountain of troubles is huge, yet achievable if we had just one president willing to use the bully pulpit, of his office, to awaken the world to this massive problem, and work toward real reform globally - as this one must be done simultaneously - globally. To act alone is to cut your own nation-state's throat, as the corporations are too free to move away from any one nation's increase in taxes and real reform to reign in the tax havens. The problem is so severe that last year corporate tax collections dropped to an average of 5%, and less than 0% for many. All the world's nation states are in real competition for needed public funds with the corporate virtual state and its 90% share of all global international transactions - and 95% if derivatives are fully counted. I think you can quickly see the problem from the above, and all figures can be checked at C.H.I.P.S. and the B.I.S. I see no way to resolve this serious political/financial problem except a concerted political action by many to put pressure on the president or finance and trade institutes to take real action, yet it must be done if we are to survive the future, without losing everything we have socially gained over the last 100 years.

3. As stated above by Kenneth Dam, "Currency is a country's most important price." It is the crucial balance of our entire monetary and law system - destroy this central balance and you can destroy the nation. Currency and monetary reform policy have been put forward by many notable economists, such as Paul Davidson, Jane D'Arista, James Robertson and even myself. In my opinion Paul Davidson's is the best in print. He covers the subject in its entirety, and has been writing about it since the seventies, in many articles and books. Paul holds a Ph.D. in economics and is the head economics professor at the University of Tennessee. His and other's listed works are below and I would refer you to said articles for a full explanation of this principle. I will state that the world of capitalism is a competition of sovereignties, all fighting for best prices for their own individual autonomies. Trade treaties must be negotiated to achieve the most balanced sovereignty and autonomy for all concerned - this is a humongous task, not to be taken lightly. All nations must work toward better balances in currencies and monetary systems' laws - through a concerted cooperation, lead by the U.S. Though the job be daunting, it is possible.

4. I will simply explain this principle by entering a paragraph I have often quoted: We should support laws toward re-aligning currencies, wages, and prices to true purchasing price parity equilibrium, to create a level playing field, to stop excess offshoring, outsourcing and insourcing, neutralize nefarious trade and transactions' extractions, return the IMF, World Bank, and WTO to work the public good again, rebuild global subsidiarity to sustainable levels, to found truly viable comparative advantage - globally, reduce speculation and excess debt and create jobs - by saving trillions of dollars through said global re-balancing. I am not alone in my opinions, many other professional economists are also calling for a similar real global re-balancing. Even Greenspan and Bernanke, at the Fed, have supported reform but fear of action yet rules supreme. It should be further explained that capitalism is simply or profoundly the negotiation of prices. In the international field this takes on mammoth proportions as all nations must negotiate the inter-meshing of all nations national sovereignties and autonomies, through their associated prices - yet our eye must be centered on a true future purchasing price parity balance.

5. This fifth principle more or less explains itself. It is the combination of all the above. The only point I would make is that all must be accomplished through a fair and balanced process of the creation of new laws, centered on a goal toward a true future equilibrium. Here's a quote to explain why the above is necessary: "We need a fixed value monetary system. At the present time, we have none. Under floating exchanges, America is simply a powerful ship on an ocean, with no rudder. Old gold, silver, and other known standards will no longer work. They will not work due to the massive increases in communication's speed, the varied endowments of nations' natural resources, and encrypted international speculative opportunities. Therefore, we need a new system."

Purchasing Power/Price Parity

It seems after 80 odd years of ppp theory being around, and searching all day for valid information, there's still much work to be done. There seem to be a few more than several different ways of mathematically figuring it, although I prefer the original author's ideas of the theory and math put forward by Gustav Cassel in the twenties. I feel we still need this price system broken down further, into export items and import items - labor costs - commodity and goods and services costs, instead of grouping them together which simply pollutes the outcomes. I guess I'll have to take a trip to China, as this is the country I'm most interested in, to do my own real statistics collections and then figure the real and total internal and external exchange rate to the dollar - in all the areas I'm interested in - most all prices in the different geographic areas of China. Then maybe I can write statistically sensible ideas about international economics. Enjoy the most straightforward article I came across, although I do not entirely agree:

Check this one out for a more serious view:
And this one:

OzWatch Economics: Purchasing Power Parity

02 May 2001 The other day, if you have been watching television on channel 7, the spin is there. David Koch was talking up the dollar. Using the Mac Index, ala purchase parity power (PPP), he points out that the Australian dollar was undervalued by as much as 40%. What he forgets to tell you that the Chinese RMB and the Indonesian rupiah were also undervalued. Using the same calculations, they were respectively about 60% and over 70% undervalued. How inane and stupid can you get? It is no wonder this country is on the skids when you have economic commentators offering such analyses.

The Problem with Statistics
Ok, so what’s this PPP, you ask? It is a tool used by economists and businesses who argued that they are better indicators than the standard Gross National product indicators. They measure relativities and differences across countries giving us better and more realistic assessment of competitiveness of a country. And what better than the ubiquitous global Big Mac.
Our economists and businesses argue, that the problem with international cost comparisons is the conversion of different currencies from the countries involved into a base currency, which is necessary if a cost comparison is to be done. Four major problems can be discerned: When costs in one country are identified they do not provide indicators of quality, durability or other performance measures. For example there are office buildings completed in Shanghai in 1997 at a low cost relative to Australia that have facades detaching from the frame and are cracking across the floors after 18 months. Straight cost/m2 comparisons are particularly poor in this regard. If the cost in local currencies is analysed to find the all-up cost the advantages of cheap labour and materials are typically lost through poor productivity, ie. labour at half Australian or US rates may only be half as productive.

There are differences in relative prices between countries, and these differences can be due to a range of factors such as resource endowments or availability of capital. Finally, exchange rates are volatile and currencies are prone to "overshooting" (going above or below their expected ranges). Conversion of domestic prices at current exchange rates (or even 12 month average exchange rates) often reflect the state of the foreign exchange market rather than domestic prices and values. There are no easy or simple ways to adjust for the quality and productivity problems. Likewise, differences in relative prices and foreign exchange market fluctuations affect international comparisons of costs.

Enter the PPP
Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries. Per capita volume indices based on PPP converted data reflect only differences in the volume of goods and services produced. Comparative price levels are defined as the ratios of PPPs to exchange rates. They provide measures of the differences in price levels between countries. The PPPs are given in national currency units per US dollar. Since 1967 a UN sponsored research project has been running - the International Comparison Program (ICP) - to develop and refine PPP measures. The 1985 ICP created a global framework that was extended by the World Bank in 1995 to 130 countries. There have been a number of tables published that rank these countries by quality of life, GDP per capita, by development indicators and so on. In some cases the ranking of individual countries can change markedly according to the criteria used.
PPP is the accepted method used by the UN, World Bank and other international organisations for inter-country cost comparisons. PPP typically attempts to establish living standards using the real value of local costs, by incorporating local prices and calculating the purchasing power of local incomes. This purchasing power is then converted into a common currency, usually US dollars, and a comparison made. Despite the theory of PPP, it is more common to find purchasing power disparity in global currency markets. ICP collects data on prices paid for a large set of comparable items in many countries. A country's international price level is the ratio of its PPP rate to its official exchange rate for US dollars.

PPPs can, therefore, be thought of as the exchange rate of dollars for goods in the local economy, while the US dollar exchange rate measures the relative cost of domestic currency in dollars. Thus the international price level is an index measuring the cost of goods in one country at the current rate of exchange relative to a numeraire country, in this case the United States. An international price level above 100 means that the general price level in the country is higher than that in the United States. For example, Japan's international price level of 137 in 1997 implies that the price of goods and services in Japan is 37 percent higher than the price of comparable goods and services in the United States. By contrast, Kenya's price level of 30 means that a bundle of goods and services purchased for $100 in the United States costs only $30 in Kenya. A figure above 100 indicates that the price of that component is higher than the average price level of GDP. This is not the same as saying that the component is more expensive in that country than in the United States. It indicates only that the price for that component is higher than the general price level prevailing in that country.

There have been ongoing efforts to make international comparisons of living costs and standards. In order to overcome the cost comparison problem PPP has been used. This has a theoretical base in the `law of one price' (the same commodity should cost the same in different countries) and an extensive empirical literature. PPP attempts to value domestic production (GDP) by using international prices.

The main areas for which PPPs are important, besides international comparisons of living costs, are determination of interest rate differentials and exchange rate management. In both of these areas the key factor is relative rates of inflation between countries, and expectations of movements in interest rate differentials and long-run exchange rates based on inflation.

Problems with Tools
The measurement of income levels at PPPs raises conceptual and practical problems which are not fully dealt with by the explanations that international prices have been used to value domestic production, or that the estimates are not always directly comparable. Even if all of these difficulties could be overcome, there would be marked shifts in the rankings of countries depending of which concept of income or output was used. The effect on building costs of international cost comparisons and purchasing power parity has highlighted the general issues involved. When applied to a specific industry and product these problems are compounded. The scope for egregious errors in the analysis and method of comparison is great, and many assumptions have to be made for the comparisons to be useful.
Established PPP indices are usually dated as they take several years to be published. For developed countries this may not be a significant problem, but with developing countries the effect of recent economic events may render the indices unreliable. Commodity Adjustment An alternative to using international exchange rates to determine comparative value, adopting the principle of purchasing power parity, is to express the local currency costs as a ratio to a standard commodity which is of constant quality and specification and sold in all countries. Exchange rate fluctuations are therefore removed from the equation. Such an approach also takes account of variations in living standards, and it is suggested that the outcome may be a better basis for cost comparison across different economic environments than PPP. Nevertheless, it is a particular form of purchasing power parity.

The Big Mac
The Economist has explained that its "Big Mac" index was devised as a rough guide to determine whether currencies are at a correct PPP level. The worldwide survey of the price of a standard hamburger at McDonald's is at the opposite extreme to the ICP. Instead of pricing hundreds of commodities, services and labour inputs in a country and then weighting the resulting price relativities by expenditure, the price of a single commodity is taken as representative of all final prices. The index does capture many significant intermediate prices in the final price, including those of several foodstuffs, packaging, various categories of labour services, fuel and power, commercial rents and so on.
There is a limited choice for such a benchmark commodity. The Economist magazine publish an index regularly which compares countries on the basis of a McDonalds Big Mac hamburger. Known as the "Big Mac Index", it offers a guide to whether currencies are at their correct level. It is based on purchasing power parity - the notion that an identical basket of goods and services should cost the same in all countries. It therefore shows the under or over valuation of currencies by translating the normal price of a Big Mac hamburger into US dollars. Countries where the adjusted price is greater than the US have an overvalued currency, and vice versa.

In other words, when someone next talks of PPP or the Big Mac, you know they are actually taking of pay cuts or have another agenda. PPPs and its like are actually tools used to legitimise widening income inequalities and gap between nations. Sadly, it also reinforces western consumption behaviour but more to the point, they cannot ever factor in all the variables – it’s just make believe. So, when you meet and/or read/hear these pearls of wisdom think again and if you can respond, tell them to eat crow. Better still, tell them to take a pay cut, especially if they are expatriates in developing countries. ...Link

SEC Eyes Hedge Fund Regs

SEC Eyes Hedge Fund Regs
By JENNY ANDERSON

The Securities and Exchange Commission has discovered more than 40 hedge funds that have been involved in improper and illegal mutual fund trading, Laura Cox, senior adviser to SEC chairman William Donaldson, told the Post.
That figure is among the reasons Donaldson and two of the SEC's five Commissioners are eager to intensify the agency's scrutiny of the hedge fund industry by requiring that they register as investment advisers.

Such a requirement would allow the SEC to conduct routine audits and to learn more about the approximately $850 billion industry.

The SEC is expected to vote in mid-July to put forth for comment a proposal to require registration.

Commissioners Paul Atkins and Cynthia Glasssman — the SEC's two Republican representatives — have expressed skepticism about the measure. Atkins has questioned whether the agency had the resources to police the massive and growing industry, while Glassman is fearful registration could be interpreted as an SEC seal of approval, attracting small investors.

Opponents of regulation have pointed out that about two-thirds of the largest 100 hedge funds are already registered with the Commodity Futures Trading Commission, and about 25 percent of hedge fund managers are currently registered as investment advisers.

Hedge funds are largely unregulated investment vehicles that generally cater to the rich. In a report published last fall, the SEC disclosed that it had filed 41 fraud cases against hedge funds.