How to Add Value to the G20 Agriculture Ministers' Meeting

Jennifer Clapp

The G20 Agriculture Ministers will gather together for their first ever meeting next week in Paris (June 22-23) to discuss potential measures for the G20 governments to endorse regarding food price volatility. Many are sceptical about what the G20 can accomplish in this area. This scepticism was reinforced by the fact that some G20 members did not even want the meeting to take place when it was first suggested by France, this year’s G20 host.

But the meeting is going ahead. So let’s give the Ministers the benefit of the doubt for a moment. How can they add the most value?

Before they release any statements, the Ministers will likely spend time reviewing recommendations in the policy report Price Volatility in Food and Agriculture Markets: Policy Responses written by ten international organizations, released on June 2. This document is the latest version of a report which has gone through several iterations since it was first leaked back in March.

There is much to applaud in the latest version of this IO report to the G20. Among the various measures proposed are: boosting investment in food production in developing countries, establishing agricultural information systems, improving transparency in commodity futures markets, removing trade barriers, reducing conflicts between food and fuel, instituting emergency reserves, and so on. It is a long shopping list, covering the gamut of potential factors that influence food price volatility.

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How to Add Value to the G20 Agriculture Ministers’ Meeting

Jennifer Clapp

The G20 Agriculture Ministers will gather together for their first ever meeting next week in Paris (June 22-23) to discuss potential measures for the G20 governments to endorse regarding food price volatility. Many are sceptical about what the G20 can accomplish in this area. This scepticism was reinforced by the fact that some G20 members did not even want the meeting to take place when it was first suggested by France, this year’s G20 host.

But the meeting is going ahead. So let’s give the Ministers the benefit of the doubt for a moment. How can they add the most value?

Before they release any statements, the Ministers will likely spend time reviewing recommendations in the policy report Price Volatility in Food and Agriculture Markets: Policy Responses written by ten international organizations, released on June 2. This document is the latest version of a report which has gone through several iterations since it was first leaked back in March.

There is much to applaud in the latest version of this IO report to the G20. Among the various measures proposed are: boosting investment in food production in developing countries, establishing agricultural information systems, improving transparency in commodity futures markets, removing trade barriers, reducing conflicts between food and fuel, instituting emergency reserves, and so on. It is a long shopping list, covering the gamut of potential factors that influence food price volatility.

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The IMF’s ‘social justice’ ruse in Cairo

Patrick Bond, Guest Blogger

After the International Monetary Fund’s long support for tyranny, dictatorship and rampant corruption in Egypt, the last few weeks have witnessed the incongruous appearance of the two words, ‘social justice’, in official statements. The June 4 loan of $3 billion adds to an existing $33 billion in foreign debt inherited from Hosni Mubarak’s regime, which a genuinely new, free democracy would  have grounds to default on because of its ‘odious’ nature in legal and technical terms.

To legitimize that debt requires new loans that have an aura of relevance. As Ratna Sahay, IMF mission head in Egypt, said on June 2, “We share the draft budget’s overarching goal aimed at promoting social justice. The measures go in the right direction of supporting economic recovery, generating jobs and assisting low income households, while maintaining macroeconomic stability.”

Three days later, acting Managing Director John Lipsky claimed, “We are optimistic that the program’s objectives of promoting social justice, fostering recovery, and maintaining macroeconomic stability and generating jobs will bring positive results for the Egyptian people.”

The same day, Sahay repeated, “Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice.”

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Financial Reform: Why credit the rating agencies?

Ilene Grabel

The credit rating industry is firing from both barrels.  The industry has launched a public relations effort that aims to delegitimize proposed regulations announced for public comment last month by the US Securities and Exchange Commission (SEC). The proposed regulations stem from the Dodd-Frank Act of 2010. At the same time the industry is taking its hubris to new levels by inserting itself aggressively and directly into public policy debates in the US and Europe.

This is a rather stunning reversal of fortunes for the rating agencies.  In the early days of the financial crisis, it looked as if the industry was in for a fundamental overhaul. At that time, it seemed that there was momentum in the US around the creation of a new rating industry model—in the new model they would operate as public utilities. Elsewhere in the world, discussion of the failings of this industry was part of broader conversations about the need to move away from a US-centered financial architecture. In Europe and Asia, in particular, the misdeeds of the rating industry led to calls to create new regional and/or national entities that would credibly and ethically perform this work.

An overhaul of the rating industry was long overdue. The current crisis made it simply impossible to paper over the industry’s multiple failings.  These include, but are not limited to, the conflict of interest that is an intrinsic feature of a business model wherein those whose securities are being rated pay for their ratings. Moreover, the industry’s analysts and the models they use have consistently failed to assess sovereign and private risk accurately. There is a revolving door between analysts and the entities that they rate. The structure of the industry means that rating firms have incentives to build business by offering more lenient ratings than their competitors. And the monopoly power of the industry is maintained by the fact that some entities (such as insurance companies) can only invest in assets that are rated, and these ratings must be performed only by firms that the SEC designates as nationally recognized statistical rating organizations.  And though the report by the US Financial Crisis Inquiry Commission (a Congressional panel) was disappointing in so many respects, it did correctly indict the credit rating industry, calling its three biggest firms “essential cogs in the wheels of financial destruction.” 

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What Food Crisis? Measuring Global Hunger

Timothy A Wise

Last week, Oxfam launched its new international campaign, GROW, to fight food insecurity. The advocacy organization’s campaign materials cite many of the statistics with which the post-food-crisis world has become familiar. Most common is the estimate that more than one billion people in the world are now hungry as a result of the combined impacts of rising food prices and the global economic recession. The estimate comes from the UN’s Food and Agriculture Organization (FAO), and few have questioned the validity of the numbers.

Now two studies suggest the estimate may be inflated. In the May/June special issue of Foreign Policy magazine on food, Abhijit Bannerjee and Esther Duflo, from their perches at MIT’s Poverty Lab Project, have an article with the provocative subtitle, “but what if the experts are wrong?” Meanwhile, IFPRI’s Derek Headey, in a VoxEU post, examines the prevailing FAO/World Bank methodologies for estimating global hunger and suggests that these institutions are overestimating hunger, mainly because they discount the positive impacts of economic growth in some of the world’s most populous countries.

On closer inspection, Bannerjee and Duflo deepen our understanding of the nature of hunger in developing countries, but they offer little here to call into question the billion-hungry estimate. Headey, on the other hand, is onto something, but it’s worth going deeper still to understand the relationship between poverty, high food and agricultural prices, economic growth, and government policy.

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What is the Correct Keynes Solution?

Paul Davidson, Guest Blogger

The financial market crisis and the Great Recession of 2008-2010 provided the empirical nails for the coffin of the efficient market hypothesis.  Since the 1970s, efficient market theorists, government policy makers, and central bankers insisted that (1) government regulations of markets and large government spending policies are the cause of all our economic problems, and (2) ending big government and freeing markets, especially financial markets, from regulatory controls is the solution to our economic problems, domestically and internationally. Stickiness in wages and prices – including financial market prices– caused our economic problems.  Flexible market prices was the solution.

The fundamental principles underlying Keynes’s theory of liquidity can explain why free markets, free trade, freely flexible exchange rates and free international capital funds mobility are ultimately incompatible with the economic goal of global full employment and rapid economic growth. Moreover, Keynes’s liquidity analysis suggests policy prescriptions to completely prevent or at least quickly alleviate the distress caused by financial market problems.

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Bracing for an unknown future

Triple Crisis Blogger Martin Khor first published the following article in The Star Online, on the need for developing nations to make a collaborative effort to learn from the current financial crisis and prepare for the next one.

There is great uncertainty about the future of the world economy and developing countries should prepare now for the next crisis, according to prominent experts at a finance seminar in Geneva last week.

THE world economy will be going through a period of uncertainty and turbulence in the next few years and the developing countries should prepare to face this challenge and avoid being overwhelmed.

Several experts gave this warning at a workshop on options for developing countries in the global financial turbulence held in Geneva on May 25.

If the lessons of the last financial crisis are not acted on through coordinated global action, there will be a bigger crisis soon, and an even bigger one after that, warned Yilmaz Akyuz, chief economist of the South Centre.

Read the full article at The Star Online.

The next managing director of the IMF

Kevin Gallagher

The Dominique Strauss-Kahn debacle has brought significant attention to the International Monetary Fund (IMF) and who might head it as next managing director.  The discussion is a vast improvement over the past, when the Europeans could simply pick their own head of the IMF, with US approval.  That said, the debate has become “who is better than Christine Lagarde?” the French Finance minister.  A handful of names have popped up, which is welcome.  Columbia University’s Joe Stiglitz has said we should just go with Lagarde, Paul Krugman has endorsed Stanley Fischer, the former MIT economist and current head of the Israeli central bank.

What is shockingly missing from these and other commentaries is a discussion regarding what a new IMF needs to do and then who is up to that task.  We know that the IMF is knee-deep in the European debt crisis with billions in commitments (whether that was the right thing to do is hardly questioned), so why don’t Stiglitz and others discuss the fact that Lagarde has been at the center of the botched bailouts there?

The IMF has made some significant steps toward reform as of late.  One key development has been their recognition that the free flow of capital is not always beneficial in terms of financial stability.  So it comes as a bit of a shock that someone like Paul Krugman would endorse Stanley Fischer.  Fischer was behind the capital account liberalization push at the IMF in the 1990s that brought down Asian governments.

The debate has brought up the valid idea that the IMF top job shouldn’t go to someone in the West given that the West it largely responsibile for the financial crisis.  The leading emerging market candidate is Augustin Carstens from Mexico.  In the following piece I argue he would be just as bad or worse than many of the advanced country picks.  His economics and record have been right out of the Fischer et al., playbook.

Read Kevin Gallagher’s full post in The Guardian, Why Agustín Carstens should not be the next head of the IMF.

Reckless Endangerment: Making Debt Owe-nership Easy

Gerald Epstein

In search of a new angle on the financial crisis, Gretchen Morgenson and Joshua Rosner’s (M&R) new book, Reckless Endangerment, seems to pin a lot of the blame on misguided do-gooders who were trying to make the dream of “home ownership” in America a reality for all. These include Bill Clinton, who they say pushed for making home ownership easy through his “National Partnership in Home Ownership” (p. 1), the Federal Reserve Bank of Boston’s researchers who did a path-breaking study of discrimination in lending, and even community organizing groups like ACORN. M&R say that ACORN and other housing groups let themselves be taken in and bought off by James A. Johnson, the CEO of Fannie Mae.

To be sure, Johnson, his successor Franklin Raines and other Fannie Mae executives, got very, very rich (Johnson pocketed more than $100 million in pay and Raines made more than $90 million, though he had to give more than $20 million back in a settlement for accounting fraud). While Johnson and Raines were making their fortunes, they were hiding under a protective cloak of pretending to make home ownership easy in America, viciously attacking their enemies while paying off their friends on both sides of the aisle.

But in spite of the authors’ desire to highlight the role of Fannie and Freddie, (the so called Government sponsored enterprises (GSEs) that helped finance home mortgages and after failing in 2008 have been taken over to the tune of 180 Billion dollars by the tax payers) what comes through clearly from the dozens of interviews and reporting in Reckless Endangerment, the real culprits were not primarily Johnson and his pals, but rather  the political establishment. These included the financial regulators, like Alan Greenspan and his subordinates at the Federal Reserve, the credit rating agencies, like Moody’s and S&P and the big bankers at Goldman, Country Wide, Citibank and elsewhere, who were dedicated to only one thing: paving their own road to riches by promoting widespread “debt owe-nership” that would lead to the ruin of millions of middle class and poor Americans.

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Climate Policy for Conservatives

Stephen DeCanio published the following article on the Real Climate Economics blog, a Triple Crisis partner. In it, DeCanio explains that US actions on climate change will be ineffective unless there is global action, and that addressing climate change is in the US’ national interest.

Suppose you believe, as I do, in basic conservative principles (free enterprise and a market economy, limited government, and minimal change in established institutions that work well), but also acknowledge that anthropogenic climate change presents a sufficient danger that something needs to be done about it.  The risk is that even as little as 2° Celsius (about 3.6° Fahrenheit) of warming might push one of a number of different earth systems past a tipping point that is both catastrophic and irreversible.  In other words, the problem is one of risk management, in which prudence calls for taking action before it is too late to make a mid-course correction.  What would be a conservative response to this threat? 

It is unfortunate that the climate issue has been co-opted by liberals, because conservative policy prescriptions would not be the same as those that have been put forward by the Democrats and their allies among the environmental groups.  The Waxman-Markey cap-and-trade bill that passed the House in 2010 (then died in the Senate) was a 1400-page monstrosity; it catered to special interests, placed undue burdens on people with low incomes, and had no connection to a coherent US international negotiating strategy on climate.  Just as misguided is the EPA’s intention to regulate CO2 as a pollutant by executive fiat – a scheme that also is inefficient, non-transparent, and regressive.  Virtually all economists would agree that either approach is inferior to a well-designed carbon tax or auctioned emissions permits, with revenues returned to citizens on a per capita basis or used to cut other taxes.

Read the full post at the Real Climate Economics Blog.