Re: Re: Question about dutch disease
On Sunday, February 24, 2002 at 20:40:53 (-0800) Eugene Coyle writes: Why wouldn't the cheaper natural resource, as an input to the productive process, lower the cost of manufactured goods and make them MORE competitive with other nations? Exactly my question. As I understand it, the US has benefited very much from having cheap natural resources, which it has (had?) used primarily to fuel its industrialization. Bill
RE: Re: Re: Question about dutch disease
Dutch disease was an absolutely massively fashionable topic when I was at university, mainly because Nickell and Muellbauer had declared it to be interesting. The idea is that, if you've struck natural gas or some such, then you're very likely to be running a massive current account surplus for the foreseeable future (cf: the UK and North Sea Oil). Because you're running a current a/c surplus in the whole economy, the likelihood is that you're going to be running a deficit in the non-oil economy; you're paying for some overseas goods with oil rather than manufactures (it's easiest to make this argument by assuming an exchange rate model, but it can be done using only accounting identities and flow of funds). The argument then ran that there is path-dependency in manufacturing production (hysteresis was the then popular term), and that for this reason, if manufacturing production was run down during the oil period, it would find itself in a weakened, under-invested state when the oil ran out, and your economy would have Dutch disease. NB that this is a one-sector argument and entirely consistent with striking oil being a Good Thing for the economy as a whole -- Nickell viewed the idea as actually laughable that it could be bad to strike oil. I'm showing my age, aren't I? dd -Original Message- From: Bill Lear [mailto:[EMAIL PROTECTED]] Sent: 25 February 2002 12:55 To: [EMAIL PROTECTED] Subject: [PEN-L:23185] Re: Re: Question about dutch disease On Sunday, February 24, 2002 at 20:40:53 (-0800) Eugene Coyle writes: Why wouldn't the cheaper natural resource, as an input to the productive process, lower the cost of manufactured goods and make them MORE competitive with other nations? Exactly my question. As I understand it, the US has benefited very much from having cheap natural resources, which it has (had?) used primarily to fuel its industrialization. Bill ___ Email Disclaimer This communication is for the attention of the named recipient only and should not be passed on to any other person. Information relating to any company or security, is for information purposes only and should not be interpreted as a solicitation or offer to buy or sell any security. The information on which this communication is based has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy or completeness. All expressions of opinion are subject to change without notice. All e-mail messages, and associated attachments, are subject to interception and monitoring for lawful business purposes. ___
RE: Re: Re: Question about dutch disease
On Sunday, February 24, 2002 at 20:40:53 (-0800) Eugene Coyle writes: Why wouldn't the cheaper natural resource, as an input to the productive process, lower the cost of manufactured goods and make them MORE competitive with other nations? Bill Lear writes: Exactly my question. As I understand it, the US has benefited very much from having cheap natural resources, which it has (had?) used primarily to fuel its industrialization. --- One obvious thing that makes Holland different from the US is that Holland would be exporting most of the oil it gets. The US has had a very large internal market for quite awhile. (BTW, I've never heard of Holland finding oil. Am I simply an ignorant schmuck (don't all say yes until you hear the alternative), or is it some other natuaral resource?) Jim Devine
Re: RE: Re: Re: Question about dutch disease
They found nat. gas in the North Sea. On Mon, Feb 25, 2002 at 06:38:59AM -0800, Devine, James wrote: (BTW, I've never heard of Holland finding oil. Am I simply an ignorant schmuck (don't all say yes until you hear the alternative), or is it some other natuaral resource?) Jim Devine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Re: Question about dutch disease
Who is they? You know the famous American question: what is our oil doing under their sand. On Sun, Feb 24, 2002 at 11:17:01PM -0800, ALI KADRI wrote: One person said if oil is so bad why don't they leave it in the ground -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Question about dutch disease
Supposdly, the Dutch boom caused resources to be drawn away from the manufacturing sector, making it less competitive. Some have drawn parallels with the influx of gold to Spain from L. America. On Sun, Feb 24, 2002 at 08:40:53PM -0800, Eugene Coyle wrote: Why wouldn't the cheaper natural resource, as an input to the productive process, lower the cost of manufactured goods and make them MORE competitive with other nations? Further, the cheaper natural resource, to the extent it is a consumer commodity as well, e. g. home heating, reduces the cost of living doesn't it? And then the additional real income can be spent on domestic products, adding to employment and creating a general boom. As I write this I wonder if the assumption of the country being already at full employment isn't crucial to the onset of the disease. That assumption distorts everything -- and as old as I am I have never seen or read of actual full employment. Gene Coyle Bill Lear wrote: According to investorwords.com, dutch disease is: The deindustrialization of a nation's economy that occurs when the discovery of a natural resource raises the value of that nation's currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. The term originated in Holland after the discovery of North Sea gas. A nephew of mine who is majoring in economics here in Austin asked me about this, and I was entirely ignorant of it, but it from what he told me, it sounded suspicious. The definition here makes the claim that when the value of a nation's currency increases, deindustrialization occurs. It also claims that discovery of a natural resource can lead to a rise in a nation's currency. Simplistic formula like this are often used to mask the operations of nefarious power, so I'm curious if this is a valid concept, etc. If a natural resource were discovered, why would it necessarily result in a rise in value of the currency? If Nigeria discovers lots of oil, why could it not use the proceeds from the sale to *increase* industrialization? Policy decisions seem to me to be operative here, but I need some help figuring this out... Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Question about dutch disease
This begs the question: do the Gulf states exhibit a Dutch disease syndrome? 1 they had no manufacturing sector to begin with. 2 they continued to import nearly all consumer goods and export a single product 3 Saudi Arabia (the biggest)also has a huge debt. I have seen some argue that the Gulf is inflicted with Dutch disease, but this seems wholly inappropriate or misplaced. One person said if oil is so bad why don't they leave it in the ground --- Michael Perelman [EMAIL PROTECTED] wrote: Supposdly, the Dutch boom caused resources to be drawn away from the manufacturing sector, making it less competitive. Some have drawn parallels with the influx of gold to Spain from L. America. On Sun, Feb 24, 2002 at 08:40:53PM -0800, Eugene Coyle wrote: Why wouldn't the cheaper natural resource, as an input to the productive process, lower the cost of manufactured goods and make them MORE competitive with other nations? Further, the cheaper natural resource, to the extent it is a consumer commodity as well, e. g. home heating, reduces the cost of living doesn't it? And then the additional real income can be spent on domestic products, adding to employment and creating a general boom. As I write this I wonder if the assumption of the country being already at full employment isn't crucial to the onset of the disease. That assumption distorts everything -- and as old as I am I have never seen or read of actual full employment. Gene Coyle Bill Lear wrote: According to investorwords.com, dutch disease is: The deindustrialization of a nation's economy that occurs when the discovery of a natural resource raises the value of that nation's currency, making manufactured goods less competitive with other nations, increasing imports and decreasing exports. The term originated in Holland after the discovery of North Sea gas. A nephew of mine who is majoring in economics here in Austin asked me about this, and I was entirely ignorant of it, but it from what he told me, it sounded suspicious. The definition here makes the claim that when the value of a nation's currency increases, deindustrialization occurs. It also claims that discovery of a natural resource can lead to a rise in a nation's currency. Simplistic formula like this are often used to mask the operations of nefarious power, so I'm curious if this is a valid concept, etc. If a natural resource were discovered, why would it necessarily result in a rise in value of the currency? If Nigeria discovers lots of oil, why could it not use the proceeds from the sale to *increase* industrialization? Policy decisions seem to me to be operative here, but I need some help figuring this out... Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED] __ Do You Yahoo!? Yahoo! Sports - Coverage of the 2002 Olympic Games http://sports.yahoo.com
