The U.S. economy continues to have a hard time recovering from the biggest financial crisis since the Great Depression.
So the last thing one would expect the U.S. government to do is to engage in policies that open the floodgates to severe risks in financial markets once again.
And yet, that is precisely what’s going on.
Average national income is a notoriously imperfect measure of the average person’s well-being. The 2010 BP oil spill in the Gulf of Mexico – with clean-up and damage costs of $90 billion – added about $300 to the average American’s “income.” But it added nothing to our well-being. The world’s most expensive prison system, costing almost $40 billion per year, adds another $125 per person. This doesn’t make us better-off than people living in countries that don’t incarcerate one in every 100 adults.
Of course, national income includes many good things, too. Growing food and building homes add to national income. So does public spending on education and health care. Unlike oil spills and jails, these really do add to our well-being.
If you know that a sector has arrived when it makes for trade wars between countries, then solar energy clearly has. Last year, the US imposed anti-dumping duties on Chinese imports of solar panels; now the EU has proposed the same. The Chinese have in turn threatened that they will take action against European exports of poly-silicon, the material used for manufacturing solar panels. In February this year, the US filed a case against India at the World Trade Organization (WTO) for “favouring sourcing of panels from domestic manufacturers”. Earlier this month, Canada lost a similar case filed against it at WTO for its support to domestic manufacturers in procurement of solar panels. So, what you thought was all good and nice has suddenly become the biggest bugbear in international trade relations. It tells you that this sector is growing, it is lucrative and it makes for fierce trade politics and competitiveness.
But this is only part of the story. The big issue underlying these “wars” is the role of solar energy—a new source of power to lead the world to a low-carbon future and thus, away from the looming climate crisis. It has big objectives.
First, it has to become cheap so that it can achieve grid parity and compete with the dinosaur in the market: coal and oil. This can only happen when its deployment is greatly scaled up. Secondly, it has to reinvent green growth. This is why solar energy has been “sold” as an alternative industry, which will add to employment. It is the economy of the future. Thirdly, it has to secure needs of the most energy-poor. In other words, this relatively expensive and certainly most modern energy system should reach the poorest millions living in darkness. This would mean cutting the cost of supply, building networks to distribute and doing all that has not been done before.
Solar energy, therefore, has a tall order to deliver. The problem is countries have never considered the competing and often conflicting objectives. As a result, solar energy instead of becoming the messenger of the new cooperative world is getting embroiled in battles.
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The revelations of data collection on a massive scale by the United States’ security agencies of details of telephone calls and internet use of its citizens and foreigners are having reverberations around the world.
Much of the responses have been on the potential invasion of privacy of individuals not only in the US but anywhere in the world who use US-based internet servers.
Also revealed is a US presidential directive to security agencies to draw up a list of potential overseas targets for US cyber-attacks.
This lays the US open to charges of double standards and hypocrisy: accusing other countries of engaging in internet snooping or hacking and cyber warfare, when it has itself established the systems to do both on a mega scale.
Who does it hurt? The IMF on fiscal consolidation
In 2010 Alberto Alesina from Harvard University was celebrate by Business Week for his series of papers on fiscal consolidation. This was ‘his hour’ the article argued. The surprising argument that he and his coauthors made that was that the best way forward for several countries facing debt issues was to undertake “Large, credible and decisive spending cuts”. Such cuts would work to change the expectations of market participants and bring forward investment that was held back by the uncertainty surrounding policies in the recession.
The idea of ‘expansionary austerity’ has failed spectacularly by any account. Martin Wolf’s latest article in the New York Review of Books goes over this, as does Paul Krugman’s earlier piece in the same outlet. In a forthcoming paper written by Josh and I (which I will blog about later), we argue that austerity succeeded at least in part because of the nature of consensus macroeconomics (by which we mean both New Keynesian and Real Business Cycle approaches).
One paper that I had wanted to write was to discuss the distributional implications of austerity. For many reasons, including those elucidated by Jim Crotty, Josh and Jerry Epstein, austerian policies and should really be seen as class conflict—protecting the interests of the wealthy and attacking those of the poor.
I never got to the empirical tracing out of this argument- but the IMF has. And the abstract really does say it all:
“This paper examines the distributional effects of fiscal consolidation. Using episodes of fiscal consolidation for a sample of 17 OECD countries over the period 1978–2009, we find that fiscal consolidation has typically had significant distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment. The evidence also suggests that spending-based adjustments have had, on average, larger distributional effects than tax-based adjustments”
In other words—it does hurt, and it hurts the relatively poor more. Even more importantly, the claim that spending cuts are ‘better’ for the economy than tax raises as argued by Alesina and some coauthors forgets to ask for whom this is better. The IMF’s answer is that spending cuts are definitely not good for the working class and that advocating spending cuts rather than tax increases imposes distributional costs to those least capable of bearing it.
What a surprise!
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The U.N. Food and Agriculture Organization (FAO) created a stir last October with its revised estimates of global hunger. After revising the methodology used in its annual State of Food Insecurity (SOFI) reports, the FAO reported that the number of hungry had not surpassed one billion following the 2008 food price spikes, as previously reported. Indeed, the new estimates showed barely an upward blip during the food price spikes. Moreover, new trend lines based on revised estimates of past hunger suggested significant progress in reducing the incidence of hunger.
“New estimates show that progress in reducing hunger during the past 20 years has been better than previously believed,” the FAO concluded, “and … given renewed efforts, it may be possible to reach the MDG hunger target [of halving world hunger] at the global level by 2015.”
Now, a group of hunger researchers led by Frances Moore Lappe, and including Triple Crisis bloggers Jennifer Clapp, Robin Broad, and Timothy A. Wise, have published a detailed critique of the SOFI 2012 estimates and report. “Framing Hunger: A Response to ‘The State of Food Insecurity in the World 2012,’” offers recommendations to the FAO, as much in relation to the presentation of its hunger estimates as on the methodology itself.
James K. Boyce is professor of economics at the University of Massachusetts, Amherst, and director of the environment program at the Political Economy Research Institute. His latest book is Economics, the Environment, and Our Common Wealth (Edward Elgar, 2013).
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More than five years since the outbreak of the global financial crisis, the world economy shows little sign of stabilizing and moving towards strong and sustained growth. Because of policy shortcomings in removing the debt overhang and providing strong fiscal stimulus to make up for private sector retrenchment, the crisis in the US and Europe has been taking too long to resolve. While deleveraging continues to stifle private demand, economic activity is further restrained by fiscal drag in these two epicentres of the crisis as governments have turned to fiscal orthodoxy after an initial reflation. There has been excessive reliance on monetary policy through provision of large amounts of liquidity to financial markets and institutions at close-to-zero interest rates, using unconventional means, generating financial fragility and exchange rate instability in emerging economies, as well as potential unintended and not well-understood consequences for future financial stability in AEs.
Developing countries (DCs) are not decoupled from AEs, contrary to what was widely believed during their unprecedented growth in the run-up to the global crisis. With continued instability and downturn in AEs, the structural weaknesses in DCs are exposed. Although conditions in global financial and commodity markets have generally remained favourable since 2009, the strong upward trends in capital flows and commodity prices that had started in 2003 have come to an end and exports to AEs have slowed considerably. Growth in most major DCs has now decelerated significantly compared to the rates achieved before the onset of the crisis, after showing some resilience in the first couple of years of the crisis thanks to a strong countercyclical policy response made possible by their improved macroeconomic conditions during the earlier expansion. In Asia, the most dynamic developing region, growth in 2012 was some 5 percentage points below the rate achieved before the onset of the crisis; in Latin America it was almost half of the pre-crisis rate.
The Great Recession of 2008 has become a marker for many turns of the tide, including the relative position of nations in the global economic hierarchy. Among the many ways in which emerging economic powers (like the BRICS) are supposed to be doing better than developed countries in patterns of bank lending. So while the credit crunch continues for many businesses and households in the US and Europe, banks in the developing world are said to be providing larger and larger amounts of credit to enable investment and economic expansion.
Between December 2008 and 2011, the BRICS countries expanded bank lending to businesses in their domestic economies by 62 per cent, whereas in the G-8 countries such lending fell by 4 per cent. Much of the increase in bank credit to business in the BRICS came from China, and much of the decrease in the developed countries came from troubled European economies.
On May 29 2013 James Wolfensohn, president of the World Bank from 1995 to 2005, gave the Amartya Sen lecture at the London School of Economics, on the subject, “Reflections on a changing world, 1950-2050”.
His reflections on the changing world were mainly reflections on what he achieved as World Bank president. He emphasised five.