Thursday, 13 August 2009

Hans Werner Sinn is wrong


Your featured opinion article from Hans Werner Sinn (Monday 2nd March) along with your headline article from Crystal Hsu the following day was yet another example of your publication's continuing incoherence with respect to economic affairs.

Sinn argued that deflation is now a more likely prospect than that of inflation. His basis for this argument was that since private individuals are 'hoarding' cash, the demand for additional money for other purposes (consumption and investment) is rising. Such an increase in the demand for money must, in Sinn's view, be expected to outstrip the increase in the supply of money if monetary deflation is to be expected.

Yet just the very next day, your own headline article, based on a telephone conversation with an anonymous currency trader, claimed that further depreciation of the NT dollar is likely - which would mean increased inflation.

It was the currency trader who was correct. Further currency depreciation to boost exports and its' accompanying monetary inflation is by far the more likely prospect for the NT dollar.

The German professor's claim that hoarding increases the demand for money ignores the simple fact that 'hoarding' is itself merely one form of the demand for money. The truth of this is easily revealed on a moment's reflection; many individuals are choosing to 'hoard' their money rather than invest or consume because they are currently in doubt as to appropriate investments and advantageous areas of consumption. This being the case, it will not do to suppose that 'hoarding' affects an increase in the demand for money. Rather, it is the demand for money.

Consequently, Sinn's forecast of monetary deflation is incorrect. The policies of central banks in increasing the money supply could well lead to greater inflation if such policies are continued or intensified, as I predict they will be.

Incidentally, the source of Professor Sin's error seems likely to be the perspective of one long accustomed to thinking of the economy from the point of view of the State - that is in terms of actions performed by social aggregates e.g. 'the private sector' rather than of myriad human actions performed by individual people (and as if they have no right to decide what to do with their own money).

The publication of Professor Sin's article on the monday, followed by Crystal Hsu's headliner on the tuesday did not reflect a coherent perspective on economic affairs.

What articles like that of Professor Sin's do reflect is the tacit political bias of the Taipei Times - not on China-Taiwan relations - but on the age old central political conflict between the liberty and rights of the individual qua individual and the group mentality of nationalists, communists and socialists all alike. The Taipei Times has been coming down on the wrong side of that conflict for far too long now without even knowing it.

Once again, I urge you toward a basic reassessment of all aspects of your editorial policy from the premise of individual liberty.

Yours sincerely,

Michael Fagan.

(Sent: Monday 4th March 2009. Unpublished by the Taipei Times)