President Barack Obama’s call for a five-year freeze in non-security, discretionary spending during his State of the Union address is exactly what should not be done, for the economy and for the future of his presidency. The President’s call for a government that lives within its means shows that, at least in terms of ideas, he has caved to what Krugman has suitably termed the “war on demand.” The great Polish economist Michael Kalecki long ago explained the reasons for the dislike of demand policies in his classic on “The Political Aspects of Full Employment,” in which he argues that it is the elites’ abhorrence of empowering the lower classes that is behind the doctrine of “sound finance” (i.e. balanced budgets).
Nothing Lasts Forever: The Future of the Dollar in the International Monetary System
David Nelson Black, re-posted from the World Policy Institute’s World Policy Blog, a Triple Crisis partner. We periodically cross-post items of interest.
For the foreseeable future, the US government’s inability — or refusal — to embrace fiscal responsibility will likely remain one of the global economy’s most pressing issues and one of its most reliable constants. Barring any radical and unforeseen change of course, this means that the US dollar is likely to continue to decline in importance. Private investors, along with foreign governments and their central banks, will gradually lose confidence in the notion that the US possesses the political will or ability to preserve the underpinnings of a healthy monetary system. Gone will be the latitude afforded by being the world’s financial capital and holder of its reserve currency — what Charles DeGaulle and his finance minister 50 years ago labeled the United States’ “exorbitant privilege.”
Should Economists Declare Conflicts of Interest?
Triple Crisis blogger Gerald Epstein was recently interviewed by the Real News Network on his and Jessica Carrick-Hagenbarth’s study on the failure of economists to disclose conflicts of interest when providing financial analysis in the media. They spearheaded an effort to get the American Economic Association to adopt an ethics code for economists with a sign-on letter that garnered the support of close to 300 economists. In this video, Epstein discusses the letter’s impact at this month’s AEA annual meeting, which resulted in the creation of a committee to research and consider new ethics standards for economists.
Read more of Epstein’s commentary on economists’ conflicts of interest in two recent blog posts (here and here).
Approaches to Competitiveness: Double Standards and Hypocrisy
There is a double standard in the way the concept of “competitiveness” is applied by governments of developed countries and the manner in which they impose it on developing countries. Developed countries aim at achieving competitiveness at a high level of development through specialization based on dynamic comparative advantage. By contrast, they advocate to, and impose on, developing countries policies that will lead to specialization based on static comparative advantage and will keep them at low level of development.
Complex Implications of the Cancún Climate Conference
Triple Crisis blogger Martin Khor originally published this commentary on the shallow successes and deeper failures of December’s Cancún climate change conference in Economic and Political Weekly.
Complex Implications of the Cancún Climate Conference
When the dust settles after the Cancun climate change conference of the United Nations, a careful analysis will find that the adoption of the “Cancun Agreements” may have given the multilateral climate system a shot in the arm, but that the meeting also failed to save the planet from climate change and helped pass the burden of climate mitigation onto developing countries. Instead of being strengthened, the international climate regime was weakened by the now serious threat to close the legally binding and top-down Kyoto Protocol system and to replace it with a voluntary pledge system.
Frenzy in Food Markets
So now 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 for 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. The US import price of sugar doubled over the second half of 2010. Traded prices of edible oils like soya bean oil and palm oil increased by an average of 50 per cent over the same period. But even staple prices have shown sharp increases, with the biggest increase in wheat prices, which went up by 95 per cent between June and December 2010. Rice prices have been relatively stable in global trade over the past year in comparison, but in fact the FAO reports that domestic rice prices in major rice producing and consuming countries, especially in Asia, continued to increase and are now at their highest ever levels.
Latin America’s China Challenge
China Petrochemical Corporation bought Occidental Petroleum’s Argentina operations, capping close to $15 US billion of Chinese foreign investment in Latin America for 2010. In addition to this new source of foreign investment, China has become a new export market for Latin America. Well over $50 billion of Latin American products, chiefly iron and copper ores, soya, and crude oil, will reach China this year as well.
China’s unprecedented and impressive growth has been a great boon to Latin America in the short-term. It is up to Latin American nations to translate these short-term gains into longer-run economic development.
The Case for Controlling Capital Outflows
Emerging countries, and even some low-income ones, are being flooded by short-term capital flows which they do not need; much of this money originates via the carry trade from the second wave of US quantitative easing (QE2). The intent of the US Federal Reserve is to expand the supply of credit in the US, so as to support the recovery and to lower long-term interest rates in the US.
So the impact of the carry trade is negative both for the US (as it undermines the aims of QE2) and for developing countries, which see their exchange rates become overvalued and their asset prices increase excessively.
The response of developing countries has been varied, but increasingly many of them are beginning to impose capital controls, both of the traditional kind, but also more innovative ones, that is those which deal with the new ways in which capital enters developing countries, in particular via derivatives. Indeed, many of these derivatives were initially invented to avoid precisely regulations on capital inflows or other types of financial activity.
The Fundamentals of the Fed
Jane D’Arista, occasional guest blogger for Triple Crisis, was recently interviewed by the Real News Network on the development of the banking sector’s influence on the Federal Reserve and her opinions on Fed reform. This video is re-posted from the Political Economy Research Institute, a Triple Crisis partner. We periodically cross-post items of interest.
Jane D’Arista is a research associate and co-coordinator of the SAFER Project at the Political Economy Research Institute (PERI), University of Massachusetts at Amherst.
Full Disclosure in Economics— the Role of the Economic Associations
George DeMartino, Guest Blogger
Last Thursday the Executive Committee of the American Economic Association (AEA) ratified a proposal of AEA President Robert Hall to establish a committee “to consider the Association’s existing disclosure and other ethical standards and potential extensions to those standards.” To non-economists that may not sound like much, but it represents a substantial break with a century-long practice of avoiding the issue. When the American Association of University Professors (AAUP) and others voiced concern about conflicts of interest in economics and the need for disclosure during the 1920s and 1930s, the AEA largely ignored the matter.