Go Lean Commentary
The global financial crisis is not over. Some countries, like in Europe, are doing better while some places are not. This quotation from the foregoing article stands out in significance:
Whereas joblessness has fallen in Germany, from 10.1% to 5.1%, it has soared in Spain, from 11.1% to 25.3%.
The experiences have also been similar in the United States. In 2008, California’s unemployment rate exceeded 10%, while Nebraska enjoyed a 4% rate. Why do some member-states dive, some survive and others thrive? This is the scope of the social science of economics. But it is not a perfect science. A joke lampooning the folly of economists states that “an economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today”.
By: Staff Reporting.
One thing that the European Central Bank (ECB) does not lack is advice on tackling low inflation. This week the OECD added its voice to that of the IMF in April in urging prompt action, calling for a cut in the bank’s main lending rate, from the already low 0.25% reached in November to zero. The ECB’s governing council, meeting on May 8th (after The Economist had gone to press), was not expected to respond to this plea any more than it did to the IMF’s.
The difficulty facing the 24-strong council is highlighted by the euro zone’s differing labour-market trajectories over the past decade (a period during which it expanded from 12 to 18 countries). Whereas joblessness has fallen in Germany, from 10.1% to 5.1%, it has soared in Spain, from 11.1% to 25.3%.
High unemployment has contributed to the onset of deflation in parts of southern Europe. But even in northern countries inflation is low, and though it has risen in the euro zone as a whole from 0.5% in March to 0.7% in April, that is still a long way off the ECB’s target of close to 2%. The main reasons why the council prefers to wait and see are that the recovery is strengthening and bond investors are falling over themselves to lend to southern Europe, even without any further policy stimulus.
The Economist Magazine – Online Edition – May 10th, 2014 http://www.economist.com/news/finance-and-economics/21601878-one- currency-divergent-economies
Europe’s and the US experience is different than that of the Caribbean. For us, it’s some countries are doing bad, others worse.
The best practice for effective stewards of an economy is the recovery, to bounce back quickly. In the US, the economy lost $11 Trillion in the 2008 Great Recession, but recovered $13.5 Trillion back a few years later, by December 2012 (Page 69).
Europe has the safety net of the economies-of-scale of 508 million people and a GDP of $15 Trillion in 28 member-states in the EU; (the Eurozone subset is 18 states, 333 million people and $13.1 Trillion GDP). The US has 50 states and 320 million people. Shocks and dips can therefore be absorbed and leveraged across the entire region .The EU is still the #1 economy in the world; the US is #2.
The Caribbean has no safety-net, no shock absorption, and no integration. This is the quest of the book Go Lean…Caribbean; it urges the introduction and implementation of the Caribbean Union Trade Federation. The book serves as a roadmap for this goal, with turn-by-turn directions to integrate the 30 member-states of the region and forge an $800 Billion economy.
This is a big idea for the small Caribbean!
At the outset, the roadmap identified an urgent need to contend with, since the Caribbean is still in the throes of the financial crisis (commenced in 2008). This is pronounced in this clause in the opening Declaration of Interdependence (Page 13):
xxv. Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the Federation and of the member-states.
The Go Lean roadmap signals change for the region. It introduces new measures, new opportunities and new recoveries. Economies will rise and fall; the recovery is key. Prices will inflate and deflate; as depicted in the foregoing article, there are curative measures to manage these indices. The roadmap calls for the establishment of the allied Caribbean Central Bank (CCB) to manage the monetary affairs of this region. The book describes the breath-and-width of the CCB, modeled in many ways after the ECB.
The foregoing news article is short (3 paragraphs), but like most topics in economics, a quick phrase on the surface connotes a deep field of study underneath. This field of study in this article is inflation and deflation.
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. [a] Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). [b]
Stewardship of the economy was envisioned and pronounced in the roadmap’s Declaration of Interdependence (Page 13):
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
The role of central banking and commercial banking is pivotal to the CU roadmap. The Caribbean Central Bank will manage the monetary policy and reserves of the Caribbean Dollar single currency – shepherding inflation, deflation and foreign currency matters for the region. On the other hand, commercial banks operate with the simultaneous goal of providing credit/holding deposits for the public and maximizing shareholder value for their investors. A conflict of these two goals can endanger the macro-economy. The CU/CCB structure, a cooperative among existing member-state central banks, constitutes a new administration for the regional economy’s monetary and currency concerns.
If there is the need to spur or suppress inflation/deflation, the CCB will have the required tools. As depicted in the foregoing article, this can affect unemployment and the general performance of local economies.
We therefore need good stewards or shepherds.
The CU roadmap drives change among the economic, security and governing engines. These solutions are as new community ethos, strategies, tactics, implementations and advocacies; as follows:
| Community Ethos – Money Multiplier | Page 22 |
| Community Ethos – Job Multiplier | Page 22 |
| Community Ethos – Cooperatives | Page 25 |
| Community Ethos – Impact the Greater Good | Page 37 |
| Strategy – CU Vision and Mission | Page 45 |
| Strategy – Recruiting Foreign Direct Investors | Page 48 |
| Tactical – Fostering a Technocracy | Page 64 |
| Tactical – $800 Billion Economy – How and When | Page 67 |
| Tactical – Recovering from Economic Bubbles | Page 69 |
| Tactical – Separation-of-Powers – Central Bank | Page 73 |
| Implementation – Assemble Caribbean Central Bank | Page 96 |
| Implementation – Ways to Better Manage Debt | Page 114 |
| Planning – Ways to Model the EU | Page 119 |
| Planning – Lessons Learned from 2008 | Page 136 |
| Anecdote – Caribbean Currencies | Page 149 |
| Advocacy – Ways to Grow the Economy | Page 151 |
| Advocacy – Ways to Create Jobs | Page 152 |
| Advocacy – Ways to Control Inflation | Page 153 |
| Advocacy – Ways to Better Manage Foreign Exchange | Page 154 |
| Advocacy – Reforms for Banking Regulations | Page 199 |
| Advocacy – Battles in the War on Poverty | Page 222 |
| Advocacy – Ways to Help the Middle Class | Page 223 |
| Appendix – Optimizing Remittances | Page 270 |
We must protect Caribbean value, monetarily and culturally, from past investments and for future prospects.
Shepherding the economy is no simple task. It requires the best practices of skilled technocrats…and a measure of luck. It’s time to get lucky! The CU roadmap equals preparation. That’s how luck is created, by preparation meeting opportunity.
References:
a. Paul H. Walgenbach, Norman E. Dittrich and Ernest I. Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429.
b. Robert J. Barro and Vittorio Grilli (1994), European Macroeconomics, chap. 8, p. 142. ISBN 0-333-57764-7
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