Poor Empiricism: The "Middle Income" Trap

C.P. Chandrasekhar

Increasing evidence that the era of high growth in Asia may be nearing its end has triggered speculation on ways to revive growth in the region. It has also challenged the belief that more developing countries would like the first generation new industrialisers in Asia (South Korea, Singapore, Taiwan and Hong Kong) transit to developed country status in a relatively short period of time. This has spawned a new industry involving the use of multi-country, inter-temporal GDP numbers to identify the countries that have escaped being stuck in the so-called “middle income trap” and the lessons that can be learned from them. Academic economists (Barry Eichengreen, Donghyun Park, and Kwanho Shin, 2013) and international institutions like the IMF (Regional Economic Outlook: Asia and Pacific, April 2013) and the ADB (Jesus Felipe, March 2012) have jumped on to the bandwagon.

A typical analysis would first use the data to say something of the following kind: Growth slowdowns are more likely to occur when countries reach income levels (measured in PPP terms) that identify them as being in the “middle income range”. But some countries, such as the first tier new industrialisers in Asia, managed to escape this middle income trap. Examining their experience (even though they are few in number) points to what needs to be done if others such as China, India, Indonesia, Malaysia, and Vietnam are to ensure sustained growth that takes them to developed-country status.

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Big news, maybe very big, in alternative energy sources

Matias Vernengo

I have taken to calling my beliefs on the future of energy sources “weird energy.” Why? Because the sources I am most interested in seem to violate the Second Law of Thermodynamics. Notice: this is so inviolable, we capitalize it. But they don’t.

Why am I so interested in other energy sources? The obvious reason is a quest for zero carbon intensity, so getting rid of the big greenhouse gas. The other one is that the correlation between energy consumption and economic output, no matter how you measure it, and probably no matter when in history you look, is so tight that you could hang wallpaper by it. Some folks think I am weird because of this but, ya’ know, data are data when used wisely. And this is really important.

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Austerity’s Scottish Ghosts Haunt the Modern Economic Mind

Mark Blyth

“Growth in a Time of Debt,” the much-touted paper by economists Carmen Reinhardt and Kenneth Rogoff, that suggested economic growth stalls once a nation’s debt hits 90 percent of its gross domestic product, has been debunked. But the austerity policies that this research helped undergird are still alive and well. Despite the on-going austerity-driven economic meltdown in Europe, and despite the International Monetary Fund’s recanting of the supposedly positive benefits of cuts, austerity continues, as John Maynard Keynes once put it, “to dominate the economic thought, both practical and theoretical, of the governing and academic classes of this generation.” Why is it so hard to shuck this notion that governments should cut spending and/or raise taxes in times of economic slack?

Two answers present themselves to us.

The first is politics. Few of the Republicans who fret so much about today’s allegedly crushing debt burden did so in 2006, at the height of the boom, when the U.S. debt to GDP ratio was steadily climbing above 60 percent and the deficit was at then-all-time high – and when a Republican was in the White House.

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Austerity's Scottish Ghosts Haunt the Modern Economic Mind

Mark Blyth

“Growth in a Time of Debt,” the much-touted paper by economists Carmen Reinhardt and Kenneth Rogoff, that suggested economic growth stalls once a nation’s debt hits 90 percent of its gross domestic product, has been debunked. But the austerity policies that this research helped undergird are still alive and well. Despite the on-going austerity-driven economic meltdown in Europe, and despite the International Monetary Fund’s recanting of the supposedly positive benefits of cuts, austerity continues, as John Maynard Keynes once put it, “to dominate the economic thought, both practical and theoretical, of the governing and academic classes of this generation.” Why is it so hard to shuck this notion that governments should cut spending and/or raise taxes in times of economic slack?

Two answers present themselves to us.

The first is politics. Few of the Republicans who fret so much about today’s allegedly crushing debt burden did so in 2006, at the height of the boom, when the U.S. debt to GDP ratio was steadily climbing above 60 percent and the deficit was at then-all-time high – and when a Republican was in the White House.

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No Solution Yet As Climate Threshold Crossed

Martin Khor

A key threshold measuring the march of global warming was crossed recently, when the concentration of carbon dioxide in the atmosphere topped 400 parts per million.

On 10 May scientists announced that 400.03ppm had been measured at a climate-observing station in Hawaii that is often used as a benchmark. The global average is expected to cross the 400ppm mark in the next year.

This means that there in for every one million molecules in the Earth’s atmosphere, there are 400 molecules of carbon dioxide.

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The Great Jobs Disaster

C.P. Chandrasekhar and Jayati Ghosh

In the desperate search for evidence that the global recession has bottomed out and the recovery has arrived, the story told by the long-term trend in unemployment levels and rates is being missed.

Early this year, the International Labour Organisation (ILO) had noted that the global unemployment rate was close to 6 per cent, implying that 197 million people were unemployed, even ignoring the 39 million who had dropped out of the workforce, discouraged by persistent failure in job search.

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The Two Meanings of Dollarization (Excerpt)

Matias Vernengo

The expression of ‘dollarization’ has at least two different meanings. In the narrow sense, it refers to massive currency substitution, in which a country, most likely a developing one, supplements its domestic unit account of fiduciary reserve assets with a foreign currency, more often than not the United States dollar or, in some cases, the euro. Note that currency substitution could be complete and might even imply the elimination of a domestic token. Full dollarization in that sense has taken place in small countries, mostly in Latin America, the Caribbean and the Pacific which are heavily dependent on the United States. Dollarization, in this sense, is the exemplification of a country foregoing its national ‘monetary sovereignty’ (Mundell 1961, p. 661).

In the broader sense, dollarization refers to US hegemony in the world economy as a result of the US dollar being the numeraire currency in international markets. This christens the United States as the premier international monetary authority that regulates and dictates the flows of international financial commitments for global economic activity. Of particular importance in this context is the fact that the key international commodities, including oil, are priced in US dollars in international markets. The former conception of dollarization can be described as dollarization strictu sensu, while the latter as latu sensu dollarization, i.e. not the specific use of  the dollar by a country, but by the whole world economy—an international system in which the dollar is de facto a global fiat money.

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Brainstorming the World, in a Pacific Setting

Martin Khor

It was almost like Penang – in the early seventies, that is.

The sea was not only green-blue in colour in the distance but crystal clear near the shore, the beach was pure white, and bright stars filled the clear sky at night.

On the road along the Coral Coast to the nearest small town there was hardly any traffic.  Like the small winding road in Penang’s northern coast to Batu Ferringhi, before the coming of the high-rise apartment blocks and the big hotels.

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Thirty years later, a Date With Justice

Aaron Schneider, Guest Blogger

For the first time in history, a perpetrator has been found guilty of genocide in a court in his or her own country. In 1982, General Efraín Rios Montt seized power in a coup and guided a counter-insurgency strategy of genocide against the Ixil Mayans of the Guatemalan highlands until a coup deposed him 17 months later.

In the civil conflict that tore this small Central American country apart, more than 2,50,000 of a population of 6.5 million are estimated to have been killed. The genocide of the Ixil Mayan population eliminated approximately five per cent of that ethnicity in Rios Montt’s short reign. For 30 years, he evaded justice, accused by various human rights and indigenous groups of war crimes but securing election as a member of Congress where he was granted parliamentary immunity from prosecution. Just under two years ago, he lost his seat for the first time, and human rights organisations and indigenous groups pressed for justice.

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Ambiguities of Separation: BRICS and the Washington Consensus

Cornel Ban

In the aftermath of the economic crisis that began in 2008 it has become fashionable to say that the BRICS buried the Washington Consensus with their state-led economic models. This rhetoric has been supported by BRICS countries themselves and has made ripples in the international financial press. But is there solid evidence for such assertions? A closer look at the empirical reality suggests a more mixed picture. As Marion Fourcade put it, in the BRICS the Washington Consensus is in fact “more invisible than irrelevant.”

The life of BRICS has had interesting turns. First, they were known as a group via Goldman Sachs investment product more than a decade ago, responding to the insatiable demands for accountability, and profit, that emanates from the financial nebulae. Then, BRICS became one of the few beacons of the global economy during the Great Recession and they did so unmoored from the institutional enforcers of the Washington Consensus. In a demonstration of the performative effects of financial marketing, the BRICS governments picked on the new acronym and formed an inter-governmental alliance of South-South cooperation with an ambitious agenda in international economic institutions.  A decade after the term BRICS was coined by investment bankers, Robert Wade noted that the economic map of the world had the United States, the European Union and the BRICs as the three poles of the emerging economic multipolarity. In all the BRICs, the liberal economic drive of the Washington Consensus dramatically altered their ideational and institutional landscape but that the commands of this development paradigm were only selectively institutionalized. The most important pattern the role of the state as a critical actor in development has been rediscovered in ways that go beyond the modest institutionalist turn experienced by the Consensus after the East Asian crisis but without crafting a consummate counter-hegemonic “state capitalist” economic model.

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