What We’re Reading:
Yilmaz Akyuz on what to do now?!
UN World Economic and Social Survey: Climate Change
Crotty and Epstein on proprietary trading and “the Volcker Rule”
Listen to the IMF on capital controls
What We’re Writing:
James K. Boyce on Clear Economics
Chandrasekhar & Ghosh on FDI and the Balance of Payments
Gallagher and Wise on development and the Doha Round
The world has been holding its breath to see what Barack Obama’s campaign promise of a renewed multilateralism would bring to the world trading system. Global trade talks have soured since 2008 when the Bush administration refused to grant the developing countries the right to safeguard their farmers in the event of import surges.
After nearly a year in office, Obama finally unveiled his trade agenda just last week. Rather than bringing a breath of fresh air into the world trading system in a time of crisis, the administration’s agenda has brought gasps across the world—especially in developing countries.
The role of ideas in promoting the financial crisis has been often disregarded. It seems as if the development of complex financial instruments and the deregulation of financial markets have taken place in an economic thinking vacuum. However, the opposite is the case, and modern finance developed and taught in the finance and economic departments, particularly of business schools, has been central for creating the conditions for the current crisis. Esteban Pérez-Caldentey and I deal with the issue in a recent paper published in the Real World Economic Review.
It is fairly obvious that in the immediate future, and probably for some time to come, the United States cannot continue to be the engine of growth for the world economy. For various reasons, consumption demand (especially that emanating from wage incomes broadly defined) is likely to remain suppressed for some time, and this will prevent a more balanced recovery. Household savings rates have already started rising from their very low levels. It was expected that increased public spending would substitute for the repairing of private balance sheets, and that has actually been the case in the past year. However, the remarkably rapid political backlash against “excessive” government spending – even though it has little validity within a Keynesian macroeconomic framework – seems to have already affected the ability and the willingness of the US government to engage in further spending to ward off potential recession. The dangers of early withdrawal of stimulus measures are thus very high.
Andong Zhu
Guest Blogger, Tsinghua University, Beijing, China
After the biggest, multi-trillion dollar stimulus plan in human history was implemented by the governments of many countries, financial indicators, world trade volume and industrial production all show positive signs. According to a recent calculation by American economist Barry Eichengreen, world equity markets, world trade, and world industrial production all recovered from the trough (50%,20%,13% below the previous peak, respectively) to the current situation (25%,8%,6% below the previous peak, respectively). The latest World Bank forecasts of world GDP growth in 2010 and 2011 are 2.7% and 3.2%, after a decline of 2.2% in 2009.
The United States Congress is expected to take up the Carbon Limits and Energy for America’s Renewal (CLEAR) Act in the coming months. The bill – a potential breakthrough in U.S. climate policy – was proposed in December by Senators Maria Cantwell of Washington and Susan Collins of Maine. In preparation for that debate, Matthew E. Riddle and I have analyzed the household-level impacts of the bill’s cap-and-dividend climate policy and how these differ across the income spectrum and across the states.
A new report, Clear Economics, shares our findings that the CLEAR Act delivers positive net benefits to the majority of households in every state: what these households will receive in dividends exceeds what they will pay as a result of higher fossil fuel prices. We also suggest ways in which the interstate differences in impacts could be further reduced or eliminated altogether, and assess state-by-state job creation that will result from public investments in the clean energy transition.
International conferences on poverty and the environment come and go. There’s always a big pachyderm in the meeting room. It’s got the words “macroeconomic policy” written on its forehead. Nobody wants to talk about it.
Consider the following. The Millennium Development Goals were debated in many conferences, but nobody spoke about the macroeconomic policy framework needed to achieve them. As if reducing hunger and extreme poverty, generating employment and providing health services and education had nothing to do with fiscal policy, monetary policy and financial deregulation. Aside from some pious words about financing and overseas development assistance, the implicit message was to carry on with the same macroeconomic policies. That could only have been based on faith in the trickle-down potential of neo-liberal globalization.
According to UNDP, limiting global warming to less than 2° Celsius above the pre-industrial era is estimated to require about $250 billion a year in additional investment to “green” the world economy in 2010-2015. Governments would be wise to meet this target by investing in low-carbon development – particularly since the cost of the alternative is much more expensive. However, high and rising government debts will significantly preclude this path.
Who produces the knowledge some believe we have about development? And who consumes it? Plentiful experiential evidence suggests that ideas about development are largely produced in the developed countries, and crucially, legitimated in them. They are also often peddled in Southern countries by Northern institutions, where to varying degrees they receive ‘take up’.
When things have been so bleak for so long, when yesterday’s mistakes routinely become tomorrow’s blueprints, it is understandable that we fail to recognize change when it begins to unfold. This is certainly true of those of us who for so long have railed against the extension of neo-liberalism across the global South at the hands of the IMF/World Bank, Wall Street, leading governments, neo-liberal reformers in the developing world and the economics profession. Faced with a juggernaut of this sort, surely we can forgive ourselves for failing to recognize, let alone take any hope in, signs of change.
Forgiven, that is, if the stakes weren’t so high. But they are very high—and so we can’t be quite so self-forgiving if in fact our pessimism leads us to discount too readily evidence of aperture that could be exploited to bring about the kind of change in ideas and policies that the developing world so badly needs. This insight should warn us against premature conclusions that nothing has or can change.