Category — Norway

The authors of this blog merrily receive about 82000 Norwegian kroner (NOK, €10 000) every academic year in living support for students from the Government of Norway. As we study in Estonia and do not engage in currency hedging, our standard of living (in economic terms) is subject to the NOK/EUR exchange rate. (Estonia has pegged its currency to the Euro and is most probably joining next year)

Over at Financial Times they report that Credit Suisse has made its currency predictions for the next year and betting on the strength of the krone and selling the Euro. With the budget balance and current account surplus larger than 10 percent of GDP, lowest unemployment rate in Europe and buoyant stock and housing markets Norway looks like a sure bet. It looks like we can expect a lenient new year in Tallinn.

Of course there are certain caveats to such a prediction. Foreign exchange markets are notoriously hard to predict and from what I remember investment banks tend to fare worse than just predicting the current exchange rate. Further, as a small economy, Norway would suffer under the curse of small currencies if a new financial crisis was to arise (which many are predicting). Last, the krone correlates rather well with the oil price which might / might not be a benefit for an eventual speculator.

Thanks go to Radu, a loyal evolution-revolution reader, for sharing the FT-article.

Update (May 4th, 2010): More on the Future Prospects of the Norwegian Krone (it’s still on the way up) – New article

Me and the Sundance Kid have recently to an old Norwegian economist by the name of Torkel H. Aschehoug. Although he died a little more than a hundred years ago, his economics – and especially his approach to economics – remain highly relevant today. As opposed to presenting a single theory or logical system as proven and true, his work is characterized by broad inclusiveness. Firmly rooted in the history of economic thought, he consistently presents the work of several different schools of thought when dealing with economic questons, as if creating a “smorgasbord” of economics for the critical reader to pick and taste from. In the first edition of his 2400-page magnum opus, Socialøkonomik (Economics), written during the last years of his life, he cites almost 900 different economists, and more than a thousand in the second. He examines the work of different and disagreeing economists critically – often pointing out weak points in the various theories presented – but refrains from canonizing any one as indisputable and true. Rather, his epistemology is founded on the attitude that objectivity is achieved by viewing a particular question from as many different angles as possible. Above the age of 80, the old conservative eagerly read new and critical writings, constantly revising his manuscripts in order to include and reflect upon new and interesting directions taken in economics.

This “Smorgarbord Approach” to economics is radically different from what is the norm in mainstream economics today. In the latter, theory tend to be presented without reference to their origin or author – implying a timelessness and irrefutability far beyond what most of it deserves. And while some academic conflics are laid out, the vast majority of mainstream economics is not presented as the view of a particular school of thought – the Neoclassical one – in conflict with other schools, but rather as established truth. More importantly, its epistemological foundations suffer from an increased emphasis on the ability of new theory to be derived from particular mathematical methods and fit within the established axiomatic framework. Importantly, while there may be furious disagreements within the school, the theories of the various belligerents tend to be based on very similar methods and theoretical foundations. Still, empirical work within the mainstream has to some extent helped it stay more relevant and connected to reality. It has also tended to produce conclusions less consistent with established theory. However, econometric research also suffers from the fact that it largely emanates from a single school of thought, with biases and holy ghosts like any academic school of thought is bound to suffer from. There are always endless questions of what to control for and how to define variables, and as my econometrics professor at William & Mary tellingly taught his students: “If in doubt, we go with the theory.” – a rather dubious doctrine from a Popperian perspective.

I am not amongst those that think the methods, models, and theories of the Neoclassical school are devoid of value and relevance – far from it. I do, however, think that it is extremely damaging for Economics as well as the quality of work in the Neoclassical school that the latter is a de-facto “academic monopolist”. Neoclassical economists are right in their claim that structural monopolies tend to stifle both innovation and product quality – the same is true in academic research. Comparative advantage also applies – while Neoclassical economics may have a comparative advantage in dealing with some economic issues, other schools have a comparative advantage in areas that have been strongly dominated by the mainstream. Development economics is one field where this is particularly true, financial macroeconomics and (in)stability is another.

It is time for a return to a much more diverse Smorgasbord. As any nutritionist can tell you, a varied diet is key to good health. Even broccoli is unhealthy if you eat nothing but it.

Aftenposten reports, that Nortura, the farmer-controlled cooperative that has a de facto monopoly on meat and egg distribution in Norway, is in trouble; prices are regulated and have to be adjusted in such a manner that everything produced is sold, but at the highest possible price. This has led to 2.3 million metric tons of beef being stored in warehouses around Norway, which is close to the government regulated maximum of 2.5 million.

Action is needed, and the econometric modellers at Nortura expect that a price decrease of 2 Norwegian kroner combined with decreased production next year, will ensure that storages don’t exceed government limits. FrP, the populist party that wants do deregulate the agricultural market, is not impressed, and points out that one can buy beef across the border to Sweden for half the price. Today, in parliament, the agriculture minister has to explain why a price reduction of 2 kroner will be sufficient. Good times.