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What We’re Writing, What We’re Reading
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What We’re Writing
Yuan Tian and Kevin P. Gallagher, Housing Price Volatility and the Capital Account in China (This is the full paper whose key findings are summarized in the earlier Triple Crisis blog post, Regulation and Volatility in China’s Financial Markets.)
Jayati Ghosh, Emerging Markets in Retreat
Martin Khor, Economy Facing Its Greatest Test
Sunita Narain, Back to Toilet School
What We’re Reading
Deepankar Basu and Debarshi Das, Profitability and Investment: Evidence from India’s Organized Manufacturing Sector
Andrew Cornford, The Financial Reform Agenda: Impact and Inclusiveness for Developing Countries
Anita Dancs and Helen Scharber, Do Locavores Have a Dilemma? (This is the full article from which the earlier Triple Crisis blog post Local Food and the CASTE Paradigm was excerpted.)
Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Shouvik Chakraborty, Global Green Growth: Clean Energy Industrial Investments and Expanding Job Opportunities
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Clinton Proposals Don’t Go Far Enough to Combat “Short-Termism”
In a recent interview on The Real News Network, regular Triple Crisis contributor Gerald Epstein, co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts, addresses recent discussion of corporate “short-termism” in the U.S. presidential campaign. Why do corporate executives act to boost short-term stock prices at the expense of long-term productive investment, and what policies would be effective in combating these practices?
Regulation and Volatility in China’s Financial Markets
Yuan Tian and Kevin P. Gallagher
China is taking significant steps to open up its capital account, while easing controls on its interest rates and currency exchange. The prospects for further capital account liberalization will depend on how China avoids the potential pitfalls of a more open system. Our new paper “Housing Price Volatility and the Capital Account in China” focuses on the effects of the capital account policy changes on China’s housing market.
China experienced significant housing-market volatility from 2005 to 2013. Economists analyzing the determinants of volatility in these markets find that the recent housing bubble was largely driven by factors specific to the Chinese economy and Chinese economic policy. In our paper, we examine the extent to which a) short-term international capital flows may have impacted prices and volatility in the Chinese housing market and b) whether China’s 2006 Capital Account Regulations (CARs) on foreign purchases of Chinese real estate were effective in reducing the level and volatility of prices in China’s housing markets.
We found that short-term capital flows from abroad had a modest impact on price increases in the Chinese housing market, but a more significant impact in increasing market volatility. The 2006 CARs, meanwhile, did not appear to have an impact in reducing housing prices, but did have a strong impact in reducing housing-market volatility. Short-term “hot money” flows magnified the impacts of capital flows on housing prices during upward surges in housing prices.
New Food for the Vultures?
Lack of state insolvency regime undermines Ukraine debt deal
By Bodo Ellmers, Guest Blogger
Bodo Ellmers is Policy and Advocacy Manager at Eurodad, the European Network on Debt and Development.
Ukraine has reached a debt restructuring agreement with a creditor committee representing 50% of outstanding government bonds. Substantial debt reduction is essential to bring Ukraine’s debt down to sustainable levels. But the agreed deal falls short of what is needed. And the participation of the other 50% of bondholders is not secured, and cannot be secured in absence of a multilateral debt restructuring framework that can make binding and enforceable decisions. The Western powers’ reluctance to help build such a framework might have fed their ally to the vulture funds and their aggressive litigation strategies.
The Ukraine debt deal
According to information obtained by the Financial Times, Ukraine has reached a deal with a creditor committee led by the investment fund Franklin Templeton. The deal agrees a 20% haircut to Ukrainian government bonds worth US$18bn. It will also extend the repayment period by four years to ease Ukraine’s liquidity needs. As a sweetener, participating creditors receive a higher interest rate of 7.75% instead of 7.2%. In addition, reports the FT, “a GDP linked warrant will be provided from 2021 to 2040 that will pay out up to 40 per cent of the value of annual economic growth above 4 per cent.”
Too little, too late
The deal comes after Ukraine’s economy fell into a deep recession following the outbreak of the civil war and the annexation of the Crimean peninsula by neighboring Russia. Last year, Western powers used their influence in the IMF to unleash bailout loans of €9.6bn under the Extended Fund Facility. The programme came with brutal austerity and structural adjustment conditionality attached.
What We’re Writing, What We’re Reading
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Updated and expanded version of Harry Konstantinidis’ “What’s Next for Greece,” originally published on Triple Crisis on July 22. A lot has happened since then. See it on the Dollars & Sense webpage, here.
What We’re Writing
C.P. Chandrasekhar, Why the Fight for a GST?
Gerald Epstein, Financialization: There’s Something Happening Here
Martin Khor, Need to Tackle Economic Woes
Matias Vernengo, China and Secular Stagnation
What We’re Reading
Radhika Balakrishnan, James Heintz, and Diane Elson, What Does Inequality Have to Do With Human Rights?
Bilge Erten and Jose Antonio Ocampo, Super-cycles of commodity prices since the mid-nineteenth century. This paper had gotten recent attention in Bloomberg View and Marketplace.
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Governance Matters
It is time we focused on strengthening the capacity of regulatory agencies
It is time we recognised that the current ways of fixing the environment are not working. Rivers are more contaminated; air is more polluted and cities are filling up with garbage we cannot handle. The question is: where are we going wrong? What do we need to do?
For this, we first need to recognise that India and countries like ours have to find new technical solutions and approaches to solve environmental problems. It is a fact that the already industrialised world had the surplus money to find technologies and fund mitigation and governance, and they continue to spend heavily even today. We have huge demands—everything from basic needs to infrastructure—on the same finances and will never be able to catch up in this game. So, we need to build a new practice of environmental management, which is affordable and sustainable.
In this way, environmental management options will have to be explored carefully and leaps made.
Household Labor, Caring Labor, Unpaid Labor
Nancy Folbre, Guest Blogger
Nancy Folbre is a professor emerita of economics at the University of Massachusetts-Amherst. She is the author of numerous books—including Who Pays for the Kids? Gender and the Structures of Constraint (1994), The Invisible Heart: Economics and Family Values (2001), and Valuing Children: Rethinking the Economics of the Family (2008)—related to household and caring labor. She is the director of the new Political Economy Research Institute (PERI) Program on Gender and Care Work and the author of the blog Care Talk. This interview originally appeared in the September/October Annual Labor Issue of Dollars & Sense.
Dollars & Sense: You’ve written about the tendency in economics to view household labor (and especially women’s labor) as “unproductive.” Can you explain how this is reflected in conventional macroeconomic measures.
Nancy Folbre: Non-market household services such as meal preparation and childcare are not considered part of what we call “the economy.”This means they literally don’t count as part of Gross Domestic Product, household income, or household consumption.
This is pretty crazy, since we know that these services contribute to our living standards and also to the development of human capabilities. They are all at least partially fungible: time and money may not be perfect substitutes, but there is clearly a trade-off. You can, in principle, pay someone to prepare your meals (as you do in a restaurant), or to look after your kids.
If you or someone else in your household provides these services for no charge (even if they expect something in return, such as a share of household earnings) that leaves more earnings available to buy other things. In fact, you could think of household income after taxes and after needs for domestic services have been met as a more meaningful definition of “disposable income” than the conventional definition, which is simply market income after taxes.
China’s RenMinBi Strategy
C.P. Chandrasekhar and Jayati Ghosh
When the value of the Chinese currency – the RenMinBi – started falling on 11 August, there was more than just surprise among international observers. The surprise came from the fact that hitherto, ever since the RMB was officially taken off the US dollar peg in 2005, the Chinese government had managed the value of the RMB so that it would change in relatively gentle and barely noticeable movements – as evident even from Chart 1 that covers movements over the past three months only. Yet the 1.8 per cent decline on 11 August was followed by two further days of decline, such that over these three days the currency fell against the US dollar by nearly 4.6 per cent.
Chart 1: RenMinBi per US$
Only on Friday 14 August did the RMB appear to stabilize against the US dollar, after the People’s Bank of China (the central bank) raised the value slightly through its open market operations, to close the day at 6.3975 per dollar, compared to the low of 6.4010 per dollar of the previous day. An official of the bank has announced that “there is no basis for the exchange rate to continue to depreciate,” but this story is not over, and most analysts expect that there will be some further depreciation of the RMB in the medium term.
German Wage Repression: Getting to the Roots of the Eurozone Crisis
Originally published in the September/October Annual Labor Issue of Dollars & Sense.
John Miller, Guest Blogger
| Germany has been insistent that the so-called peripheral countries increase their competitiveness through slower wages rises or even wage cuts. Wage increases in Germany are an equally important, and symmetrical, part of this necessary adjustment process. The wage increases are steps in the right direction, but relatively small steps. More gains for German workers in the future would be both warranted and a win-win proposition for Germany and its trade partners. — Ben Bernanke, “German wage hikes: A small step in the right direction,” Brookings Institution, April 13, 2015. |
Ben Bernanke not only supports recent German wage increases, he also thinks further wage increases for German workers are “warranted and a win-win proposition for Germany and its trade partners”?
Now that’s a jaw-dropper. Has the former head of the Federal Reserve Board—the guardian of “price stability,” which makes policy designed to keep U.S. wages in check—switched sides in the class war, now that he is retired?
Hardly. Rather, it’s that catering to the demands of German high finance and other elites has been so disastrous that even the former chair of the Fed cannot deny the undeniable: unless Germany changes course and boosts workers’ wages, the euro crisis will only worsen.
Let’s look more closely at just how German wage repression and currency manipulation pushed the eurozone into crisis, ignited a conflict between northern and southern eurozone countries (with Germany as the enforcer of austerity), and left Greece teetering on the edge of collapse.