The Inflation Dog Didn't Bark, But What About the Others?

Erinc Yeldan, Guest Blogger

The IMF released the April edition of its World Economic Outlook (WEO).  One of the key analytical chapters (Chapter 3) of the Report is titled “The Dog that Didn’t Bark: Has Inflation Been Muzzled, or Was It Just Sleeping?”  Its main argument (or rather sort of a mystery that needs to be resolved, in the words of its authors) is that over the course of the previous crisis episodes we used to witness severe increases in unemployment along with a simultaneous fall in inflation. Yet, during the current great recession there has been very little movement in inflation, while unemployment rates soared almost everywhere; —hence the metaphor: inflation (the dog…) does not respond (… bark).  And the alleged mystery is but why?

The WEO suggests two candidates for explaining the mystery: the first one is based on the “structural unemployment has shifted” hypothesis, arguing that “the failure of inflation to fall is evidence that output gaps are small and that the large increases in unemployment are mostly structural.”  The logical policy implication of this argument is that “… the monetary stimulus already in the pipeline may reduce unemployment, but only at the cost of overheating and a strong increase in inflation—just as during the 1970s”. Yet, by itself this argument does not provide much of an explanation, as the underlying causes of this structural shift still remains unanswered.

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The Inflation Dog Didn’t Bark, But What About the Others?

Erinc Yeldan, Guest Blogger

The IMF released the April edition of its World Economic Outlook (WEO).  One of the key analytical chapters (Chapter 3) of the Report is titled “The Dog that Didn’t Bark: Has Inflation Been Muzzled, or Was It Just Sleeping?”  Its main argument (or rather sort of a mystery that needs to be resolved, in the words of its authors) is that over the course of the previous crisis episodes we used to witness severe increases in unemployment along with a simultaneous fall in inflation. Yet, during the current great recession there has been very little movement in inflation, while unemployment rates soared almost everywhere; —hence the metaphor: inflation (the dog…) does not respond (… bark).  And the alleged mystery is but why?

The WEO suggests two candidates for explaining the mystery: the first one is based on the “structural unemployment has shifted” hypothesis, arguing that “the failure of inflation to fall is evidence that output gaps are small and that the large increases in unemployment are mostly structural.”  The logical policy implication of this argument is that “… the monetary stimulus already in the pipeline may reduce unemployment, but only at the cost of overheating and a strong increase in inflation—just as during the 1970s”. Yet, by itself this argument does not provide much of an explanation, as the underlying causes of this structural shift still remains unanswered.

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The Hidden Global Poverty Problem

Ed Barbier

The upcoming semi-annual IMF/World Bank meetings will no doubt be calling attention to a slew of recent reports that suggest that we are winning the war on global poverty.    The latest, from the Oxford Poverty and Human Development Initiative, found that a multi-dimensional index of widespread poverty declined significantly in 18 of 22 developing countries, which contain over two billion people.  This is good news for the World Bank President, Jim Yong Kim, who declared just a year ago, that the world could end poverty by 2030, if the right mix of development and aid policies is adopted by the international community.

However, as I pointed out in a policy paper, also written for the World Bank, the renewed optimism over “ending” global poverty will be short-lived, unless the world is prepared to address an important, and seemingly intractable, “hidden” dimension to this problem.

Since 1950, the estimated population in developing economies on “fragile lands” has doubled.  These fragile environments are prone to land degradation, and consist of upland areas, forest systems and drylands that suffer from low agricultural productivity, and areas that present significant constraints for intensive agriculture. Today, nearly 1.3 billion people – almost a fifth of the world’s population – live in such areas in low and middle income economies.  Almost half of the people in these fragile environments (631 million) consist of the rural poor, who throughout the developing world outnumber the poor living on favored lands by 2 to 1.

In addition, around 430 million people in developing countries live in remote rural areas.  These are locations with poor market access, requiring five or more hours to reach a market town of 5,000 or more.  Of the rural populations in such remote regions, nearly half are found in less favored areas, which are semi and semi-arid regions characterized by frequent moisture stress that limits agricultural production.  Again, people in remote rural regions tend to be some of the poorest in the developing world.

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The Elephants in the Room: Citizens United, Trade and Corporate Ownership of Our Natural Resources

Wenonah Hauter, Guest Blogger

There is one thing that my new book is about: corporate control of every aspect of our food system, from how it is labeled to the pesticides we are exposed to. The main thesis of Foodopoly is simple — We, the people, must reclaim our democracy. We must reestablish strong anti-trust laws as part of the progressive agenda if we have any hope of fixing our broken, corporate-controlled food system. And to do that, we need to organize and force our elected officials to create laws that result in a food system that works for consumers and farmers—not big agricultural, food processing, retail and chemical conglomerates.

How has consolidation enabled Monsanto, Tyson, Nestle, Kraft, Cargill, McDonalds and other food/ag/chemical companies to write our food policy, and why is about to get worse? The disastrous decision in the landmark Citizens United case now allows corporations to spend unlimited sums of money to buy the political system. This decision comes at the expense of citizens and democracy itself.

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On the Road to Damascus? Ambiguity and Continuity at the IMF

Cornel Ban

The most recent high profile form of target practice for the expansionary austerity thesis uses a great deal of IMF research as ammunition. A senior IMF level official who managed the Fund’s involvement during the Irish crisis blasted Europe’s policy of austerity and issued dire warnings about a gloomy future if the current course of action is maintained.Has the crisis really changed the International Monetary Fund’s policy advice? The main finding of an international workshop that took place recently at Boston University was that while some remarkable changes did in fact occur in IMF policy advice, they were too modest to suggest that an economic paradigm change is imminent.

The contributors noted that this international organization took a half-step on capital account regulation, became more open to the preferences of developing countries, relaxed its erstwhile strict commitment to austerity and has become a lot more reserved towards cross-border banking and the involvement of private sector consultants in its financial surveillance teams. At the same time, they found that the Fund has narrowed the scope of its programs to a predominantly orthodox economic policy agenda, continued to make counter-cyclical policies conditional on bond market sentiment and contributed to the weakening of recovery via its continued discrimination in favor of foreign creditors.

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Triple Crisis Roundup: The Problem with Reinhart and Rogoff

by Eli Epstein-Deutsch

Carmen Reinhart and Kenneth Rogoff’s famous ratio of 90% debt-to-GDP, above which countries allegedly begin to experience negative growth, has been cited widely as a justification for austerity by politicians from American Senators Paul Ryan and Tom Coburn to European Commisioner Olli Rehn.  Thus the commentariat have lit up at the recent discovery by Robert Pollin, Michael Ash and Thomas Herndon that Reinhart and Rogoff’s 2010 paper Growth in a Time of Debt contained serious errors, including methodological problems and unwarranted omissions of key data. In their new paper, the University of Massachusetts economists challenge the original growth-rate at the 90% debt-level, which may have been over two percentage points too low: a notable difference. Pundits such as as Paul Krugman have seized on this rebuttal as fresh evidence for a long-standing suspicion that the 90% case was overstated (the correlation never proved the direction of causality, he points out). Defenders of Reinhart and Rogoff such as a Douglas Holtz-Eakin claim that nothing in the takedown really rocks their world (the idea seems to be that debt is intrinsically known to be bad anyway, like sin). With the political tensions over austerity ratcheted up of late, the debate is only likely to heat up from here.

Twitterverse goes nuts over economists clash

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Reinhart-Rogoff, Continued

Serious Threat to Asian Economic Model

Martin Khor

Many articles and books have been published on the contrast and competition between the present Western and the Asian-style economic models.

Western countries are said to have the free-market model based on competition among private firms, with the government taking a hands-off approach.

East Asian countries are branded as practising “state capitalism” in which the government plays a major role in helping the local private sector and the state also fully or partially owns many enterprises.

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Country Income Shares in PPP

Jayati Ghosh

The UNDP’s latest Human Development Report 2013 (entitled “The rise of the South”) has one particularly striking chart that it uses to make the point about the recent growing economic significance of some “emerging” nations. In Chapter 1, Chart 3 suggests that just three countries (Brazil, China and India) together account for around 30 per cent of global GDP already, around the same as the total share of large Northern countries (Canada, France, Germany, Italy, the UK and the US).

If this were an accurate representation  of reality it would mark a truly astounding change over the past three decades. but since the output of different countries is measured in terms of 1990 PPP dollars, rather than nominal exchange rates, this greatly exaggerates the extent of change. With nominal exchange rates, the rising trend share of these countries is still evident but not so marked: the GDP of these three countries in 2011 accounted for just above 16 per cent of world GDP according to IMF, (around half of the ratio estimated by the HDR) and their share of total merchandise exports is just above 13 per cent according to the WTO.

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A Green Facade

Sunita Narain

Building green is definitely important. But equally important is to know how green is a green building. Take the glitzy, glass-enveloped buildings popping up across the country. It does not matter if you are in the mild but wet and windy climate of Bengaluru or in the extreme hot and dry climate of Gurgaon, glass is the in-thing. I have always wondered how buildings extensively using glass could work in such varied climatic zones, where one needs ventilation. Then, I started reading that glass was green. Buildings liberally using glass were being certified green. How come?

Here the story becomes interesting. The Energy Conservation Building Code (ECBC) has specified prescriptive parameters for constructing an energy-efficient building envelope—the exterior façade of a building. The façade, based on the insulation abilities of the material used for roof and wall construction, will reduce heat loss. It will also reduce energy use if it allows daylight in. It is, therefore, important for any green building to have the right material for its exterior.

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How Can BRICS Contribute to the Development of Africa?

M. Shaffaedin

The purpose of this piece is to propose a way BRICS can provide support for “unlocking Africa’s potential” for development through regional cooperation. This objective was  agreed upon by BRICS countries in their recent meeting in Durban (South Africa). Let me first explain the background before making my proposal.

In their latest meeting, the BRICS countries agreed, inter alia, on discussing with African leaders the way “Africa’s potential” can be “unlocked”. They also reaffirmed their support for regional integration of Africa, and the  “industrialization process through stimulating foreign direct investment”. Nevertheless, while emphasizing their willingness to help promote regional integration and industrialization of the continent, by supporting infrastructure development, they have not mentioned the mechanism by which Africa’s potential can be unlocked, nor the way BRICS could provide the necessary support. Supposedly, their proposals to establish  “the BRICS Think Tanks Council” and “ a new Development Bank” are relevant in achieving the aforementioned objectives.

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