Macroeconomic Policies and the Costs of Climate Change

Alejandro Nadal (also available in Portuguese)

Stabilizing concentrations of greenhouse gasses (GHG) in the atmosphere, and adapting to the impact of climate change, have significant economic costs. Can these costs be met under the macroeconomic policy posture currently embraced by most countries? This is an important question given the massive scale of resources that are involved in a sustained time horizon.

In spite of the global economic and financial crisis, most advanced capitalist countries still adopt a view of macroeconomic polices dominated by the overarching objectives of price stability and fiscal discipline. In fact, this is what is guiding today the policy response to the crisis in Europe and the United States. In the developing world, the picture is a bit more complicated, but it is fair to say that most countries still define their macroeconomic priorities in terms that closely resemble the dogmas of neoliberalism.

Read the rest of this entry »

The Occupy Wall Street Victory: Filling a Hole in Democracy

Jeff Madrick

The general scorn for the Occupy Wall Street movement (OWS), now spread to hundreds of cities in the U.S., reveals a lot about Wall Street, the press, and the state of economics. I was invited to speak there early in their campaign and found the people eager to learn, courteous and hell-bent for justice, not revenge.

The scorn has subsided somewhat as the movement grows and has withstood the threat of police and Michael Bloomberg’s demand that they should clear out of the park they occupy because the owners of the park wanted to clean it. It is called Zuccotti Park because it is privately owned by the Zuccotti family with the proviso that it is made available to the public at all times. Now it has become available to all America, and arguably all the world.

The unions joined in and this week, OWS has yet another clear victory. President Obama will announce some kind of student loan relief plan. He is also proposing a more aggressive mortgage refinancing scheme for under-water homeowners. This too may be partly the result of OWS.

Read the rest of this entry »

Would Women Leaders Have Prevented the Global Financial Crisis?

Julie A. Nelson, Guest Blogger

Some have asked whether things would have turned out differently if Lehman Brothers investment bank, which went so spectacularly bankrupt, had been Lehman Sisters, instead. Would having more women in leadership positions in finance naturally lead to a kinder, gentler, and tidier economy?

While there is an important gender angle to the financial crisis, it is not about differences in traits that men and women presumably “bring with them” to their work.  In a recent paper, I discuss how low-quality behavioral research and associated media hype have caused a resurgence in stereotyped thinking about men’s and women’s financial behavior and attitudes towards risk. Yes, men and women are different, but we are not nearly as different as those literatures would have us believe.

Read the rest of this entry »

Why the Green New Deal is a Response to the European Debt Crisis

Gerhard Schick

The global economic crisis has not been overcome; its character has merely changed. For us parliamentarians, its most tangible characteristic is the smoldering debt crisis in some Euro countries. Similar to the crisis in the banking sector, the European government debt crisis is typical of a large-scale financial crisis, the “Second Great Depression,” and managing it has to be addressed in this context. If it were only an uncontrolled government debt accumulation in Europe, then it would now be appropriate to simply apply debt brakes to manage the public debt, and to work with stronger sanction options. But would this have prevented the problems in Ireland or Spain? No. The financial crises in Spain and Ireland have absolutely nothing to do with government irresponsibly incurring debt. The government debt only increased when the government had to react to the excessive indebtedness of the private households and banks that it had previously permitted.

The conservative reinterpretation of the debt crisis as a purely governmental debt crisis due to excessive government spending is politically smart but factually incorrect. Drastic austerity programs alone are therefore not very useful in overcoming the crisis. On the contrary, the current crisis policy aggravates the crisis in many areas.

Read the rest of this entry »

Latin America and its counter-measures to the crisis

Fander Falconí

If they are brought to fruition, a few Latin American proposals might prove truly significant as measures to counter the negative aspects of capitalist globalization and its recurrent crises.

Capitalism in the core, advanced economies has not yet overcome one of its most serious financial crises, comparable only to the Great Depression in the 1930s. The volatility of financial markets,  speculative practices, and the precarious state of even weak regulatory proposals bring into question the commercial and financial structure of the globalized economy, which is responsible for the crises faced by the world in recent years.

In the present world crisis, Latin America faces circumstances in which its systems of production have been dismantled. In response, the region is now experiencing renewed political momentum towards a new system of economic and financial governance, as an effective alternative to international integration. The new system features the Union of South American Nations (Unión de Naciones Suramericanas, UNASUR) and the Community of Latin American and Caribbean States (Comunidad de Estados Latinoamericanos y Caribeños, CELAC).

Read the rest of this entry »

Spotlight G20: What should developing countries demand?

Matías Vernengo (also available in Portuguese)

Last weekend, strange news circulated by the Sunday Times claimed that the Chinese government would be willing to inject money to rescue the euro.  The idea would be that China would buy large amounts of European sovereign debt, supposedly in exchange, even more bizarrely, for a greater commitment to fiscal austerity.  Basically, China wants to be the new International Monetary Fund (IMF). If this is true, it is exactly what China and the other developing countries in the G20 should NOT do!

First, it must be understood that the European crisis is not a typical debt crisis, since the Greek debt (and the other peripheral countries’ debt) is denominated in euros, and the European Central Bank (ECB), an European institution, has the power to create euros, if the member countries deem it necessary.  In other words, they do NOT need yuans, dollars, yens, or pesos for that matter, as it would be the case in a foreign debt crisis. [For that point see the interview with Jamie Galbraith linked here].

Read the rest of this entry »

An uneasy comparison

Ali Kadri

Compared to the East Asian economic results, the poor performance of the Arab world is remarkable. Since 1980, the bulk of the Arab economies composing the Arab Mashreq experienced a less than one percent yearly average growth of real GPD per capita, the highest income inequality and unemployment rates globally, the lowest rates of investment of all regions and, plainly, the highest rate of armed conflict. The developmental comparative with East Asia’s impressive economic results in the last three decades appears always to go in the direction of how successful economies questioned and dodged the neoliberal recipe. The East Asian performance is said to have offered an alternative to the existing model, one grounded in the tangible economic success of a number of economies and, in some way, a model to emulate.

Notwithstanding that if all countries grew at astonishing rates for thirty years, mankind would perish by asphyxiation, or that if they all grew together they would paradoxically fail together by the adding up fallacy, the fact remains that capitalism develops in a highly uneven fashion and not all can grow. Nonetheless, the very emergence of the ‘East Asian Model’ has broadened the scope for thinking about developmental policies and the necessity for some sort of dirigisme.

Read the rest of this entry »

How Capital Flight Drains Africa: Stolen Money and Lost Lives

James K. Boyce and Léonce Ndikumana

In most financial scams, the victims simply lose their money. In Africa, some lose their lives.

Sub-Saharan Africa experienced an exodus of more than $700 billion in capital flight since 1970, a sum that far surpasses the region’s external debt outstanding of roughly $175 billion. Some of the money wound up in private accounts at the same banks that were making loans to African governments.

Inflows of foreign borrowing and outflows of capital flight are closely intertwined. As we document in Africa’s Odious Debts, there is a strong correlation between the two. For every dollar of foreign borrowing, on average more than 50 cents leaves the borrower country in the same year. This tight relationship suggests that Africa’s public external debts and private external assets are connected by a financial revolving door.

Read the rest of this entry »

Spotlight G20: More Fodder for the Food Price Debates: Ethanol, speculation drove prices

Timothy A. Wise, part of our 2011 Spotlight G20 series

As the G20 takes its November meetings into the belly of the eurozone crisis, its food security agenda drifts toward irrelevance. Or worse. Early promises to address commodity speculation and market volatility have given way to tepid recommendations from G20 agricultural ministers in June and last month’s underwhelming communiqué from its Washington meeting on development, with its one snappy paragraph on food security issues. Now that finance ministers on their gilded steeds have turned and fled from the dragons of commodity speculation, the G20 is unlikely to slay any of the monsters threatening global food security – biofuels expansion, land grabs, speculation, price volatility, low public investment.

Fortunately, new research keeps coming, and it should inform the debate. The latest is from a group of researchers at New England Complex Systems Institute (NECSI). As their name would indicate, these are modelers, and their paper, “The Food Crises: A quantitative model of food prices including speculators and ethanol conversion,” offers evidence that the underlying cause of rising food prices over the last decade is primarily the US corn ethanol program, while the cause of the two recent price spikes is speculation.

Read the rest of this entry »

Greece, Lehman, and the politics of Too Big To Fail

Mark Blyth

The collapse of Lehman Brothers in 2008 introduced three new concepts to the public: Moral Hazard, Systemic Risk, and Too Big To Fail. The first was well-known but misunderstood, the second wasn’t supposed to exist but did, and the third has helped morph the legacy of the 2008 banking crisis, the explosion of government debt across Europe, into a secondary banking crisis with a pernicious twist that is perhaps the real lesson of Lehman.

Before the 2008 crisis, 30 years of “markets-are-good” thinking produced an understanding of the economy where agents with rational expectations reacted to “the fundamentals” to produce efficient market outcomes. Armed with such ideas, regulatory authorities let banks regulate themselves. After all, it was their “skin in the game,” so who better than the self-interested banker to look after the interests of the bank?

Read the rest of this entry »