Ask an Economist: Reforming the IMF and World Bank

Ilene Grabel

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Absolute poverty and increasing inequality remain serious issues in spite of WB/IMF development loans, even in countries with high economic growth.  What reforms would you suggest to ensure that aid actually reaches the people who are suffering? How can these organizations take steps to move away from the ideology of neo-liberalism towards developing scientifically-based economic policies that are pro-poor? How can the Bretton Woods Institutions best measure implementation of pro-poor government policies?

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Gallagher and Ghosh call for Financial Reforms

Triple Crisis co-chairs sat down this month to discuss the rationale for the Triple Crisis blog and for Kevin Gallagher to ask Jayati Ghosh for insights on US financial regulatory reform, IMF reform, and the G-20 from a development perspective…

Ask an Economist: How Much is the Yuan Overvalued?

Alejandro Nadal

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader asked:

Q: There has been a lot of discussion recently about the over-valuation of the Chinese currency. How do we know how much it is overvalued? What would the implications be for US and Chinese workers if the government were to decide to devalue it?

NADAL: There is a debate on whether the Chinese yuan is over or undervaluated. The American Manufacturing Association sets the undervaluation of the yuan at 40%. But the Federal Reserve argues that the yuan appreciated 16% between June 2008 and February 2009. According to the Bank of International Settlements (BIS) in Basle the yuan appreciated between February 2007 and January 2010 the yuan appreciated by 10.7% while the US dollar lost 8% of its value.

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Ask an Economist: Lessons from the Financial Crisis

Ilene Grabel

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader asked:

Q: What will be the impact of the economic crisis on the financial literacy of the Developing Countries?

Grabel: It may well be that financial literacy in developing countries improves as a consequence of the economic crisis. This may be due to the experiences of rich countries, where it turns out that levels of financial literacy were quite low.

Certainly there are many structural reasons why corporations, municipal governments, and households deployed exotic, opaque and highly risky financing strategies and instruments in the run up to the crisis. And we know that credit rating agencies understood the risks of these instruments and financing strategies to much less of an extent than we would have imagined prior to the crisis. Thus, we may see a reduction in the developing world of enthusiasm for replicating the financial models of the rich countries. This would be a kind of silver lining associated with the current crisis.

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Ecological Economics: Money Matters, Mr. Daly

Alejandro Nadal

Let me put the positive up front. Professor Herman Daly and his colleagues in the school of ecological economics (SEE) have made important contributions to the study of sustainability and have increased awareness on the relations between economics and the environment. But there are serious problems with their approach that will hamper the future development of SEE. This is why I want to raise a couple of critical issues. What follows is a discussion on value theory that may sound old fashioned, but it needs to be brought out if we want to move ahead with a more meaningful discussion on economic forces and the environment.

According to Daly and colleagues, the fundamental problem with mainstream economic theory is its inability to analyze physical flows in economic systems. The story line is that conventional economic theory relies on the fallacy of a circular flow of commodities in a system in which natural resources are not finite. The flows are expressed in abstract or monetary units and can therefore be expanded indefinitely. According to Daly, from this flawed beginning of “money fetishism” economics erroneously concludes that physical quantities are also amenable to infinite growth.

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Greeks Bearing Gifts? An opportunity in the financial crisis

Dr. Gerhard Schick, MdB
In his recent blog piece, Mathias Vernengo invokes the Brazilian phrase “The Greek Present” (Presente de Grego) or unwelcome gift, to make his point that the Euro was an unwelcome present for Greece.  Rather than looking back and speculating about whether the Euro was introduced in a timely way in Greece, I want to look ahead and assert that the Greek crisis is an opportunity.  Never waste a crisis.  In a few years, if we succeed in overcoming the current problems, we might say that the progress made in economic governance in the wake of the Greek crisis was a gift.

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Ask an Economist: Regulating Multinational Agribusiness

Timothy A. Wise

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. A reader offered a detailed comment, partly in response to my post, “Agribusiness and the food crisis: a new thrust at antitrust.” Following is the reader’s comment (slightly edited for length) followed by a few responses to some of the important questions he raises, in particular about the limited regulation of uncompetitive practices across borders.

Q: “[There is a need for] further research on the abuse of monopoly and monopsony power of agro conglomerates…. The dismantling of commodity boards in developing countries in the 1980s in the context of structural adjustment programmes put the nail in the coffin of any attempt at regulating the commodity markets and ensuring equitable prices for producers…. The problem is that there is no universal anti trust law which can deal with the anti- competitive behaviour of TNCs and the international community has fallen … shy of adopting such legislation. Moreover, attempts at stabilizing commodity prices through negotiations between consuming and producing countries, which had begun in the 1970s in the context of the UN and UNCTAD, were subsequently shelved with the onset of the recession in the early 1980s and the emergence of market fundamentalism. Perhaps these issues would need to be revisited.”

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Estimating the Social Cost of Carbon

Frank Ackerman

For the first time, the U.S. government is working to limit carbon emissions – most notably through new fuel efficiency standards unveiled April 1. To inform cost-benefit analyses of proposed policies, the Obama administration has relied on an interagency group’s estimates of the “social cost of carbon,” the socioeconomic impact of every ton of carbon dioxide that goes into the atmosphere. The higher the social cost of carbon (SCC), the more stringent the regulatory standards that will be deemed to be worthwhile.

So far, no definite SCC has been set, but the interagency group has proposed $21 per ton. In a new Economics for Equity and the Environment (E3 Network) white paper, Liz Stanton and I analyze the economic models used by the interagency group. They find significant shortcomings, and show how they lead to substantial underestimates of the risks and costs of climate change.

New Economic Thinking

Earlier this month George Soros created an “Institute for New Economic Thinking,” and sponsored an inaugural conference with the aim to kick start a re-thinking of macroeconomics.  Click here and below for video interviews with Soros, Joseph Stigltiz, and Robert Skidelsky who share some of their thoughts at the conference.

What are your thoughts on this project and these proposals?  Is this the new economic thinking we need to prevent future crises?

Will America Buy a New Climate Policy?

James Boyce

Without much fanfare, U.S. legislators last December unveiled a new climate bill that just might succeed in breaking the political gridlock that has blocked action on global climate change. The bill, co-sponsored by Senator Maria Cantwell (D-WA) and Susan Collins (R-ME), is a sharp departure from the cap-and-trade bill that passed the House of Representatives last June but subsequently died in the Senate.

The Carbon Limits and Energy for America’s Renewal (CLEAR) Act proposed by Cantwell and Collins is a “100-75-25-0” policy:

  • 100 percent of the permits to bring fossil carbon into the U.S. economy will be auctioned. Polluters won’t get any permit giveaways, and there will be no scope for speculation and market manipulation by Wall Street traders.
  • 75 percent of the auction revenue is recycled directly to the public as equal per-person dividends. The majority of households will receive more in these monthly dividends than they pay in higher energy costs.
  • 25 percent of the auction revenue is dedicated to investments in energy efficiency, clean energy, adaptation to climate change, and assistance for sectors hurt by the transition away from the fossil-fueled economy.
  • Zero offsets are allowed. In other words, polluters can’t avoid curbing use of fossil fuels by paying someone else to clean up after them.

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