Miracles for Christmas

Jeff Madrick

It’s the Christmas season, so why not indulge ourselves? Let’s ask for a few miracles. In fact, we in America have had a miracle and everyone has noticed it, Occupy Wall Street. There was another even bigger one in the Mideast. Not only an Arab spring in Egypt and Libya, but peaceful voting in Tunisa. There may even be a Slovak spring.

So here is my wish list for miracles—ASAP. More or less in order of importance.

  • Self-awareness in Germany

I wish that Germans would realize their economic dominance is dependent on their indebted neighbors. An economic model that emphasize net exports as a major source of growth is, internationally, a debt led model. It will require buyers of those exports to borrow. Imbalances in the eurozone are not sustainable.

It gets worse. Germany also believes it has the moral right to demand that others suppress wages and government borrowing, ensuring slow growth among their European partners. So I also wish Germany a modicum of rationality in their public discourse. Even right wing columnists recognize that if Germany were on its own due to a break up of the eurozone, the value of the Deutsche Mark would have been driven up, undermining its export advantage. Now Germany is imposing recession in Europe. The flight to German debt, which is keeping their interest rates low, may soon end.

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The Unemployment Trap and the Arab Spring

Ali Kadri

Prior to the Arab spring, the official rate of unemployment in the Arab World was the highest globally. The labour share was as low as a quarter of national income. Productivity was negative. If a more sensible method of assessing unemployment is carried out, more than half of the labour force could be considered unemployed. The real economy was de-industrialising and shrinking relative to oil rent, and its capacity to reemploy people perished.

A propos, a 2004 technical report on economic performance in the Arab World stated that ‘the predisposition of major macroeconomic and demographic variables towards an inevitable collision implies that there is little space for argument over the unavoidability of change. The built-up of imbalances in a regional economy that does not expand at a rate commensurate with the demands of the demographic transition means that, unless the system experiences a chance occurrence of heavy oil rent fallout, change cannot be gauged as a matter of degree.’ This report took about a year to prepare, so these remarks were written sometime earlier when oil prices were at historically low levels. The chance occurrence of high oil prices did indeed take place soon after, a matter which became pellucidly clear in 2005. But the massive oil rents could not avert an inevitably violent political (only political and not social so far) restructuring, or what has come to be known as the Arab spring.

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Yasuní, an example to the world

Fander Falconí

In spite of the grave economic and financial crisis worldwide, France has refused to allow the extraction of shale gas through fracking (a process involving injection of water and other materials), due to the environmental risks and landscape destruction entailed. At the same time, in the United States, President Barack Obama has decided to postpone, at least until after the 2012 election, the construction of the oil pipeline that was to be brought all the way to Texas from Alberta, Canada (where oil is extracted from bituminous sands, at great energetic cost and with high environmental impact).

On the other hand, in Colombia, there is consideration of a law to prevent coal extraction in marsh lands since this would endanger the ecology and the role of these marshes as a water reservoir, in Ecuador.  Instead, they have decided to keep the oil from the Ishpingo, Tambococha and Tiputini (ITT) oil block in the soil beneath the vast Yasuní National Park (Spanish acronym: PNY), which is nearly a million hectares (over two million acres).

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Why Only Germany Can Fix the Euro

Mark Blyth and Matthias Matthijs

“Never did a ship founder with a captain and a crew more ignorant of the reasons for its misfortune or more impotent to do anything about it.” This was Eric Hobsbawm’s damning judgment of the policy elite’s response to the Great Depression. As these leaders reached for the old truisms of balancing budgets, lowering tariffs, and restoring the gold standard, they merely worsened the crisis. The same judgment may soon be passed on Germany for its role in the ongoing European sovereign debt saga.

After watching the economies of Greece, Ireland, and Portugal founder, the world has now turned its attention to Italy, home to the world’s eighth-largest national economy and third-largest sovereign bond market. The diagnosis is sadly redolent: Europe should deflate its way to growth by sticking with a gold standard of sorts: the hard-money German-dominated euro. Meanwhile, under enormous international pressure, the Greeks replaced socialist Prime Minister George Papandreou with Lucas Papademos, a former official of the European Central Bank, and the Italians placed economist and former European Commissioner Mario Monti, hailed “super Mario,” in the stead of Silvio Berlusconi. Yet despite the EU’s coup d’état, the yield on ten year Italian debt went back above seven percent within twenty-four hours of Monti showing up for work.

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Growth bonds a win-win for troubled eurozone

Stephany Griffith-Jones, Robert Akerlof and Marcus Miller

The eurozone is in serious trouble. Panic has grown as creditors search desperately for a safe haven, and corrosive contagion risks spreading unchecked. Rating agencies act pro-cyclically as usual, helping to deepen the crisis.

The outline of a deal by the 17 eurozone governments to be agreed this week is emerging. It would include fiscal commitments and a European Stability Mechanism; and the new agreement would not imply future debt reduction. This could be a basis for stopping the crisis.

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Multinational retail firms in India

Jayati Ghosh

The Indian government’s sudden decision to allow hitherto prohibited foreign direct investment in multi-brand retail as well as full ownership in single-brand retail generated huge public outcry, to the extent that the government was forced to pause. One important ally of the government, fearing for her own popularity in the state of West Bengal where she is currently Chief Minister, declared that the policy is temporarily “on hold”, to be greeted only awkward silence from the government. Finally the government was forced to announce that the policy is to be kept on hold until “consensus” is achieved, which certainly seems unlikely at present.

What this episode does show clearly is that this is a highly contentious and potentially very unpopular policy, and that politicians are now getting more aware of this. So despite the raucous support from corporatised media and more subtle but possibly more influential lobbying by big multinational business, this policy could not be easily forced down in the face of massive public outcry.

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Know what you’re teaching

Matías Vernengo

Greg Mankiw wrote a response to his students, who protested his teaching, in his last New York Times column.  He basically blames the students for not knowing enough economics. He goes on to say that the complaints of the Occupy Wall Street (OWS) movement, in support of which the students had boycotted his class, are also a “grab bag of anti-establishment platitudes without much hard-headed analysis or clear policy prescriptions.”

He also suggested that students boycotted the wrong class, since his lecture that day was on inequality. Note that his views on inequality are strictly based on conventional mainstream neoclassical theory. Inequality for him is based on education (see here his critique of Krugman’s views on inequality). So basically the top 1% are more educated, more productive and, as a result, receive more. You cannot protest market forces.

Income distribution, according to neoclassical theory, is determined by the relative productivity of the factors of production. If wages are stagnant it must result from the fact that labor productivity is also sluggish. However, the evidence for that is thin at best. As it is well known, labor productivity has increased over the last 30 years in the US, while real wages have not budged.

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Economics 4 People, the Planet, and the Future

James K. Boyce

Our current economic crisis is not only a crisis of the economy. It is also a crisis of economics. The free-market fundamentalism of the closing decades of the 20th century today has been thoroughly discredited – or at least, should have been – by financial collapse, swelling inequality, global imbalances, mass unemployment, and environmental degradation.

The public is hungry for an economics that is tuned into the realities of the 21st century. Yet the talking heads of the media conglomerates continue to preach old-time economic orthodoxy, blaming our economic woes on regulation, taxes, foreigners, or a few rogue bad apples in the Wall Street barrel. To the public, economists seem unhinged from reality and oblivious to the human consequences of economic malfunction.

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Capitalism in the Spotlight in the Occupy Movement

Arjun Jayadev

It’s easy for people involved in progressive political movements to be jaded by political discourse. One of the reasons why the Occupy movement has been interesting is that it has been something genuinely new and experimental. And it is not afraid to use the ‘C’ word in an unadmiring way.

The blogger JW Mason writes: “Most of us very seldom experience ourselves as political agents, in the sense of being active participants in the collective decision-making of our community. For better or worse, most of the time we delegate collective decision-making to specialists who represent us more or less faithfully, as the case may be. The only reason for protest — for any kind of mass politics — is that this system has broken down. The message of any protest is: There is a political subject, a We, that is not being represented.”

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Crisis of Confidence in Capitalism

Mehdi Shafaeddin

In its September Communique, the UN’s Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development referred to a “crisis of confidence in advanced economies”. In other words, there is a crisis of confidence in capitalism as a system. We have been witnessing a series of crises in recent years: the financial crisis, debt crisis, commodity crisis, etc. In the meantime, unemployment and growing inequality, particularly in the USA, has led to the 99% movement, “Occupy Wall Street” and upheavals in other countries unprecedented since the Civil Rights Movement.

What has received less attention is the upheaval by economics students at Harvard University. They walked out of a “Principles of Economics” class objecting to the way economics was taught and protesting the “corporatization of higher education”. Their main point was that “the biased nature of Economics 101 [basic economics course] contributes to and symbolizes the increasing economic inequality in America..” and that  “Harvard graduates play major roles in financial institutions and in shaping policy around the world”. In other words, they implied that the crisis in capitalism and growing inequality in wealth and income is not only due to the way financial institutions (and the Wall Street) operate, but is also to a large extent, rooted in the way economics is taught.

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