To Sustain Economic Recovery: Re-regulate

Timothy A. Wise

The World Policy Journal, in its Spring 2011 issue, asked nine global experts – including Esther Duflo, Jomo K.S., and Triple Crisis blogger Timothy A. Wise, among others – to provide short answers to the journal’s “big question”: What policy fixes or new innovations are needed to sustain the global economic recovery? Wise’s answer – continue re-regulating global markets – follows. Read all the responses here.

The global economic collapse was caused in part by the deregulation of an increasingly complex global economy. Re-regulating the areas that failed most spectacularly will be critical to securing a sustainable recovery. Efforts to do so include the Dodd-Frank measures to regulate Wall Street, new rules to rein in commodity speculation, a revived global discussion of food reserves to address food-price volatility, and policies that allow countries to regulate capital inflows and outflows to prevent financial contagion. These approaches put public institutions back in charge, setting and enforcing the rules of the game for global markets.

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Regulating Wall Street: Exploring the Political Economy of the Possible

Gerald Epstein and Robert Pollin

Triple Crisis blogger Gerald Epstein co-authored the following working paper with PERI co-director Robert Pollin on three areas of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act where effective regulations can be established.

The Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010 is the most ambitious measure aimed at regulating U.S. financial markets since the Glass-Steagall Act was implemented in the midst of the 1930s Depression.  However, it remains an open question as to whether Dodd-Frank is capable of controlling the wide variety of hyper-speculative practices that produced the near total global financial collapse of 2008-09.  This is because the legislation mainly lays out a broad framework for a new financial regulatory system.  It leaves the details of implementation to ten different regulatory bodies in the U.S.  The lack of specificity in setting down new financial regulations was widely viewed as a victory for Wall Street, and equally, a defeat for proponents of a strong new regulatory system.

Read the full working paper at PERI.

Product RED, Brand Aid and Celebrity-Driven Development

Lisa Ann Richey and Stefano Ponte, Guest Bloggers

Bono’s Product RED is ‘a business model to raise awareness and money for The Global Fund by team­ing up with the world’s most iconic brands to produce RED-branded products.’ A proportion of the profits from the sale of RED products is donated to the Global Fund to Fight HIV/AIDS, TB and Malaria.  The Irish singer from the world famous rock band U2 is the front man for the first attempt to fund one of the largest providers of global AIDS treatment through the purchasing power of Western consumers.

In its first five years of operation, RED donated $160 million to the Fund. RED grants are made through the Fund’s standard disbursement processes and have been dedicated to the best-performing programs for AIDS in Africa–so far, RED funds have gone to Ghana, Lesotho, Rwanda, Swaziland, South Africa and Zambia.

Product RED is an innovative modality of international development financing, and one that is likely to spawn a variety of similar interventions of what we call ‘Brand Aid’. Brand Aid is the combined meaning of ‘aid to brands’ and ‘brands that provide aid’. It is ‘aid to brands’ because it helps sell branded products and improve a brand’s ethical profile and value. It is ‘brands that provide aid’ because, like other cause-related marketing initiatives, a proportion of the profit or sales is devoted to helping others. As a response to the crisis of legitimacy in international aid to Africa, Brand Aid also helps to re-brand aid itself and aid to Africa in particular.

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Europe: Fiscal or External Crisis?

Matías Vernengo

Central to the different views of conservative and progressive authors, with respect to the European crisis, is the question of causality relating the fiscal and external crises.  Although causality is a thorny issue, the empirical evidence may illuminate the matter.  The following graph (Fig. 1)  shows the evolution of unit labor costs in Germany, and the group of peripheral countries, sometimes referred by their acronym (PIIGS), that were hit by the crisis, or are close to that position.

It shows that while German unit labor costs remain essentially constant, increasing merely 6 percent, in all the other countries the increases were of the order of more than 30 percent.  This translates into significant real appreciation of the real exchange rate in the periphery of Europe.

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The Transmission of Global Food Prices

Triple Crisis bloggers C.P. Chandrasekhar and Jayati Ghosh published the following article for International Development Economics Associates (IDEAs) on the high transmission of recent international food price changes to domestic food prices in many developing countries.

Clearly, we are back in another phase of sharply rising global food prices, which is wreaking further devastation on populations in developing countries that have already been ravaged by several years of rising prices and falling employment chances. The food price index of the FAO in December 2010 surpassed its previous peak of June 2008, the month that is still thought of as the extreme peak of the world food crisis.

Some of the biggest increases have come in the prices of sugar and edible oils. But even staple prices have shown sharp increases, with the biggest increase in wheat prices, which doubled in the second half of 2010 and have been increasing since then. Rice prices have been relatively stable in global trade over the past year in comparison, but are still much higher (by around 48 per cent) than they were at the start of 2008.

Read the full article at IDEAs.

Climate Change Negotiations: An updated resource list

Miquel Muñoz

Climate change negotiations are set to resume in Bangkok in early April. Three weeks ago, we published links to a broad range of analyses of the Cancun Climate Summit. We asked readers to suggest resources that we may have missed, and we have now updated the original post by adding the following resources below. We hope you find them useful, and we look forward to further discussion during and after the Bangkok meetings. (See the recent video interview with Nicholas Stern and the talks by Martin Weitzman and Lord Stern on “Toward a New Economics of Climate Change,” and see further extensive coverage on this blog.)

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World Bank Energy Strategy Must Address Energy Poverty and Climate Change

Athena Ballesteros and Tom Nagle, Guest Bloggers, cross-posted with permission from the World Resources Institute

The World Bank is in the final stages of drafting a new energy strategy due late April 2011. The strategy has drawn so much attention because of its potential to address two major challenges confronting developing countries – energy poverty and climate change. While the strategy could be an opportunity for the institution to tackle both challenges simultaneously, some stakeholders are concerned that it may sway too much in one direction, addressing one challenge while undermining the other.

To balance these differing opinions, the World Bank embarked on an eight month consultative process with input from client and donor countries, civil society, the private sector, and others. We studied the reports of the consultations carefully to distill important messages emerging from the process. There appears to be some areas of resounding agreement, while in other areas, differing perspectives emerged. The overarching message delivered to the World Bank is a demand for investments in the energy sector that produce sustainable development outcomes.

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Popular Climate Economics Model Needs Major Overhaul

Frank Ackerman, re-posted from the Real Climate Economics Blog, a Triple Crisis partner.

True or false: Risks of a climate catastrophe can be ignored, even as temperatures rise? The economic impact of climate change is no greater than the increased cost of air conditioning in a warmer future? The ideal temperature for agriculture could be 17oC above historical levels?

All true, according to the increasingly popular FUND model of climate economics. It is one of three models used by the federal government’s Interagency Working Group to estimate the “social cost of carbon” – that is, the monetary value of the long-term damages done by greenhouse gas emissions. According to FUND, as used by the Working Group, the social cost of carbon is a mere $6 per ton of CO2. That translates into $0.06 per gallon of gasoline. Do you believe that a tax of $0.06 per gallon at the gas pump (and equivalent taxes on other fossil fuels) would solve the climate problem and pay for all future climate damages?

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U.S. Trade Policy: Obama’s Tricky Trip to El Salvador

Kevin P. Gallagher

United States President Barack Obama will travel to El Salvador this week.  Coming into office, Obama seemed to be more in tune with Latin America in terms of economic policy than his predecessor.  In recent weeks, however, Obama has done an about-face and his economic policy toward Latin America is now worse than the draconian policies of George Bush.

The Bush-era was marked by attempts to push NAFTA-style trade treaties in Latin America, despite NAFTA’s poor record in Mexico and the rejection of the Washington Consensus in Latin America.  Many nations rejected this push—with Brazil shutting down negotiations for a Free Trade Area of the Americas, and Ecuador, Uruquay, and Bolivia pulling out of negotiations with the US.

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The Brazilian Economy after Lula: What to Expect?

Matías Vernengo

As President Obama completes his state tour of Brazil hoping to strengthen economic and diplomatic ties between the U.S. and Latin America’s largest economy, Triple Crisis blogger Matías Vernengo discusses what macroeconomic policies may characterize post-Lula Brazil. This article was published in the latest issue of the CESifo Forum.

Like Chile, which was governed by a left of center coalition for twenty years after the fall of Pinochet, Brazil, for the last sixteen years, has been ran by left of center parties under Fernando Henrique Cardoso and Luis Inácio Lula da Silva. The assumption of Dilma Rousseff guarantees the continuity of the left of center parties for another four years. Yet, contrary to the Chilean experience, in which Christian Democrats and Socialists, the main political parties in opposition to the dictatorship, formed a coalition, in Brazil the two main parties, the Party of Brazilian Social Democracy (PSDB) and the Worker’s Party (PT) have been political rivals.

Read the full article at the Center for Economic Studies at the Faculty of Economics of Ludwig-Maximilians-Universität.