Letter from Delhi, Part 2

What to do?

James K. Boyce

This is the conclusion of a two-part series on air pollution in Delhi. Part 1, on inequality in exposure—on environmental injustice—is available here.

Public awareness of air pollution in Delhi lags behind that in China, where face masks are a common sight and the remarkable film “Under the Dome” received 100 million views within 48 hours when it was posted in March (before being banned by Chinese authorities). But this may be starting to change.

This spring, the Indian Express, one of the country’s leading newspapers, ran a searching multi-part investigative series on Delhi’s air pollution called “Death by Breath.” The Centre for Science and Environment, which successfully campaigned a decade ago for conversion of Delhi’s buses and auto-rickshaws to compressed natural gas, continues to raise public consciousness and advocate for policy remedies.

In the expatriate community, Delhi’s toxic air is viewed with rising alarm. In the past year, the U.S. embassy imported 1,800 top-of-the-line air purifiers for its personnel. “My business has just taken off,” the director of a local firm selling air filtration units told the New York Times. “It started in the diplomatic community, but it’s spread to the high-level Indian community, too.”

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What We’re Writing

C.P. Chandrasekhar, The Search for India’s Bulky Middle

C.P. Chandrasekhar and Jayati Ghosh, Looking Back at Debt Relief for the Germans

Gerald Epstein and Juan Antonio Montecino, Banking From Financial Crisis to Dodd-Frank: Five Years On, How Much Has Changed?

Sunita Narain, Food for nutrition, nature and livelihood

Matias Vernengo, Europe in its Labyrinth, Greece on its Knees

Triple Crisis welcomes your comments. Please share your thoughts below.

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What’s Next for Greece?

Harry Konstantinidis, Guest Blogger

Harry Konstantinidis is an assistant professor of economics at the University of Massachusetts-Boston.

Most readers already probably know the sequence of events around Greece and its creditors over the last month, but they are worth reviewing: a fruitless and frustrating negotiation leading to a take-it-or-leave-it offer from the creditors; the announcement of a referendum (the first in more than 40 years) for the people of Greece to decide whether to accept the offer; a triumph of the No vote with 61.3% rejecting the offer, despite a visceral campaign in favor of the Yes vote by the Greek media and foreign politicians; the resignation of Finance Minister Yanis Varoufakis; a retreat by Syriza offering austerity for a deal; the creditors’ outrageous demand in a rather open attempt to push Greece or Syriza towards exit; and finally a roadmap towards a deal that no party really believes in.

The terms of the agreement reflect the creditors’ attempt to make Syriza renege on all its promises and cross all its “red lines,” except for euro membership. Sharp value-added tax (VAT) increases, the establishment of a privatization fund including 50 billion euros worth of assets, no restoration of collective bargaining rights or minimum wages, automatic cuts when fiscal targets are not achieved, vetting of all legislation by the Troika (European Commission, European Central Bank, and IMF), and the depoliticization of Greek public administration. The deal passed the Greek parliament without the support of almost one-fourth of Syriza MPs, rendering Syriza effectively a minority government and prompting a cabinet reshuffle. How could Syriza have agreed to such a deal? Wouldn’t Greece be better off introducing its own currency, rather than conceding both fiscal and monetary policy?

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Development Central Banking, Part 2

Answering the Questions about Development Central Banking

Gerald Epstein

This is part 2 of a two-part series by regular contributor and Political Economy Research Institute (PERI) co-director Gerald Epstein, adapted from his recent International Labour Office (ILO) working paper “Development Central Banking: A Review of Issues and Experiences.” Part 1 is available here. The full paper is available here.

In both the developed and developing world, countries face significant transformational challenges. According to the International Labour Organization (ILO), global unemployment is over 200 million, with vulnerable employment being almost 50% of the total; among youth the unemployment rate stands at 13.1% but, in some places, such as the southern European countries, it is significantly higher. If current trends continue, these levels of unemployment and unemployment rates are unlikely to decline appreciably (ILO, 2014). In fact, in some respects, current trends are virtually guaranteed to get worse. Specifically, climate change, which is already creating considerable economic dislocations in many parts of the world, is predicted to accelerate over the next decades. It will especially harm poor and economically vulnerable communities (IPCC, 2014).

Historically, central banks have often been part of the policy apparatus that has helped to guide and provide financing for important development and transformational projects. (Bloomfield, 1957; Brimmer, 1971; Chandavarkar, 1987; Epstein, 2007). However, with the rise of the “Washington Consensus”, the global drive toward financial liberalization and the elimination of so-called “financial repression”, central banks were instructed or chose to follow the increasingly prevalent norm of the “inflation targeting” approach to central banking. This approach eschews virtually all goals other than keeping inflation in the low single digits. Its tool-kit was limited to just a few and ideally only one instrument – a short term interest rate (Bernanke et al., 1999; Anwar and Islam, 2011).

This approach to goals and instruments was accompanied by a drive to change the governance structure of central banks. Hitherto, they had tended to be integrated into the government’s policy apparatus but were also potentially subject to inappropriate influence by government officials. Now, they were able to “independently” implement inflation targeting policy structures and, especially, resist excessive financing of government expenditures.

If inflation targeting is not the best monetary policy framework for achieving broad economic and social goals, then what kind of central bank frameworks—goals, governance and instruments—are likely to best help developing countries address the key problems they face? Important lessons can be learned from history with respect to the kinds of central bank frameworks that have been tried and those that have been successful in achieving macroeconomic stability and economic development (Epstein, 2007, 2013).

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Letter from Delhi, Part 1

Air Pollution as Environmental Injustice

This is part 1 of a two-part series from UMass-Amherst professor of economics and regular Triple Crisis contributor James K. Boyce. This part focuses on disparate exposure to air pollution in Dehli. Part 2, to be posted next week, focuses on solutions to the problem.

James K. Boyce

Arriving in Delhi in January, at the height of the winter pollution season, you notice the air as soon as you step off the plane. A pungent smell with hints of burning rubber and diesel fumes assaults the nose and stings the eyes. On the highway into the city center, a digital screen shining through the smog displays the current level for suspended particulate matter. You don’t need to understand what the number means to know it’s bad.

Delhi has extensive parks, broad avenues, beautiful buildings (like the tomb of Mughal emperor Humayan, shown below), and a vibrant culture. But casting a pall – quite literally – over it all is the worst air pollution of any major city in the world.

Humayan's tomb

Humayan’s Tomb

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The Failed Project of Europe

Jayati Ghosh

There is a stereotypical image of an abusive husband, who batters his wife and then beats her even more mercilessly if she dares to protest. It is self-evident that such violent behaviour reflects a failed relationship, one that is unlikely to be resolved through superficial bandaging of wounds. And it is usually stomach-churningly hard to watch such bullies in action, or even read about them.

Much of the world has been watching the negotiations in Europe over the fate of Greece in the eurozone with the same sickening sense of horror and disbelief, as leaders of Germany and some other countries behave in similar fashion.

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Development Central Banking, Part 1

What’s Wrong with Inflation Targeting?

Gerald Epstein

This is part 1 of a two-part series by regular contributor and Political Economy Research Institute (PERI) co-director Gerald Epstein, adapted from his recent International Labour Office (ILO) working paper “Development Central Banking: A Review of Issues and Experiences.” This post focuses on the “inflation targeting” central-bank policy pushed on developing countries under the “Washington Consensus” and what is wrong with it. Part 2, next week, will follow with answers to the principal mainstream objections to a broader “development central banking.”

In its strict form, “inflation targeting” posits that central banks should have only one objective—low and stable inflation—and should utilize only one policy instrument—usually a short-term interest rate. As a corollary, the conventional wisdom usually promotes the idea that central banks should be “independent” of the government, in order to enhance their ability to reach the inflation target. This is usually justified on the basis of avoiding time inconsistency and resisting pressures from governments to finance fiscal deficits. No matter how much policy makers such as Olivier Blanchard question inflation targeting in the rich countries, as they have in recent years, it is still widely seen as the current “best practice” for developing countries.

Even if one believes that this general approach is a good one, a key question arises: what is the appropriate inflation rate? The standard practice is that countries should try to maintain inflation in the low single digits (Anwar and Islam, 2011). Where does this number come from? One might expect that a number designed to guide the making of monetary policy in many parts of the globe would come from rigorous research and a broad consensus that the optimal rate of inflation for developing countries is in the low single digits. However, nothing could be further from the truth.

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The Age of Megaprojects

Nancy Alexander, Guest Blogger

We seem to be entering a new age of megaprojects, as countries, in particular those of the G-20, mobilize the private sector to invest heavily in multi-million (if not multi-billion or multi-trillion) dollar infrastructure initiatives, such as pipelines, dams, water and electricity systems, and road networks.
Already, spending on megaprojects amounts to some $6-9 trillion a year, roughly 8% of global GDP, making this the “biggest investment boom in human history.” And geopolitics, the pursuit of economic growth, the quest for new markets, and the search for natural resources is driving even more funding into large-scale infrastructure projects. On the cusp of this potentially unprecedented explosion in such projects, world leaders and lenders appear relatively oblivious to the costly lessons of the past.

To be sure, investments in infrastructure can serve real needs, helping meet an expected surge in the demand for food, water, and energy. But, unless the explosion in megaprojects is carefully redirected and managed, the effort is likely to be counterproductive and unsustainable. Without democratic controls, investors may privatize gains and socialize losses, while locking in carbon-intensive and other environmentally and socially damaging approaches.

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Why Some Leaders in Poorer Countries are Championing the Environment

Robin Broad and John Cavanagh

We have heard surprise expressed that two religious leaders from poorer countries, Pope Francis from Argentina and Cardinal Turskon from Ghana, have emerged as leading voices for action on the environment with their compelling June 2015 encyclical.  The surprise comes from the assumption that poorer countries invariably prioritize economic growth and financial revenues—not the environment—and that only when beyond a certain threshold of per capita income do they shift priorities and take action in favor of the environment. As many readers know, this theory that only richer people in richer countries care about the environment is what some call the Environmental Kuznets Curve or the post-materialist hypothesis.

Our research on decisive action to protect the environment in El Salvador and Costa Rica suggests that this stereotype is outdated and the theory wrong. We zeroed in on El Salvador and Costa Rica because both have halted potentially lucrative metallic mining within the last decade due to its negative environmental impact.

In our new article in the journal World Development, we ask “why did these two governments do this?” Our goal now is to share our answers to that question. We posit three conditions under which governments of poorer countries take action to protect the environment, at times sacrificing large-scale financial gain.

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The Greeks Have Said No to Failed Policies, Not to Europe or the Euro

Matias Vernengo

Originally published by The Wire.

The referendum that just took place in Greece in which 61.3% of voters rejected the terms of an international ‘bailout’ package should not be read as a vote in favour of leaving the euro. The ‘No’ vote – όχι in Greek – is, as correctly pointed out by James K. Galbraith, the only hope for Europe. On the other hand, it may very well be used by the Troika – the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF) – as an instrument for expelling Greece from the monetary union. If that happens, we have a Grexpulsion and not a Grexit, the more common name for the abandonment of the euro. After all, it is very clear that SYRIZA knows that the costs of leaving the euro may very well outweigh the advantages, and that Greece is not Argentina, as noted by its Finance Minister Yanis Varoufakis recently.

The relationship between West European powers and the Greek Left has been problematic for a long while. In the aftermath of World War II, the British and then the Americans, sided with collaborationists, rather than with the resistance, which had communist leanings, and was seen potentially allied to the Soviets. As Tony Judt says of Greece in Postwar: A History of Europe Since 1945, “despite a significant level of wartime collaboration among the bureaucratic and business elites, post-war purges were directed not at the Right but the Left. This was a unique case but a revealing one.” The British and Americans preferred a conservative government, even if it meant dealing with businessmen who had collaborated with Fascists, rather deal with a communist or socialist threat.

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