Re: Economist - Cheerier Growth for 2011

So the Economist puts out a poll of estimates for growth, current account deficits, and inflation next year on a monthly basis.



In case this seems like mumbo-jumbo to yoy, here's the main points.

> all the numbers are positive. Dispite the gloomy scepticism of all the media and commentators is this. At the end of the day, almost every country (a few outliers like Ireland and Spain) has positive numbers under "Real GDP, Percent Change" for 2010 and 2011. That means that their economies have grown both this year and the last year.

> There is concern about Canada's larger-than-expected current account deficit. This (a) shouldn't be surprising considering that the US dollar has been persistently low relative to the Canadian dollar, and (b) shouldn't be too alarming, especially with the relative increase in stability in the US financial market. They got hit hard and are putting in regulations pretty quickly. All that to say, CA deficit, IN THE SHORT RUN, is largely problematic because it represents vulnerability. Our deficit comes from US imports being cheaper and their economy is settling and not too likely to fluctuate rapidly anytime soon. Long run effects may be a problem but I don't think this is the time for CA deficits to be at the forefront of economic policy.

Life Money and Illusion Part 1

I am currently reading Mike Nickerson's book, Life, Money and Illusion. As I've been inconsistent in updating this blog. I've decided to simply write my thoughts at various points in the book.

Nickerson's undelying message in the book is that the essential problem with the global financial system is that money has stopped being a highly liquid holder of real value, and has become, in itself, a perverse form of phantom capital which was condemned as sinful in antiquity. He shows that because currency is created from nothing, speculation becomes commonplace.

I encourage you to read the book and could talk about his conclusions ad-nausium. However, I will settle to say, it is well worth a careful read.

Amongst other things, Nickerson points to the prevalence of the media and advertising industries in western culture. He points to the fact that as a result of their constant influence, they are able to "create" demand by instilling the thought that certain products are necessary. He suggests that naturally, people will work until they have enough money to meet their needs and then stop working. He notes that this point was reached in North America in the 40s and 50s as wages increased enough to merit discussion of a 30 hour work week.

In economic terms, individuals decisions to work is based on how much they value the things they can buy as opposed to how much they value their leisure time. Advertising makes the percieved value of things one can buy go up and therefore the amount of time one spends working.

IF we were to begin to value our leisure time differently, we would see a shift in waste and, I believe, and increase in our ability to enjoy life.

RE: The Fed Can’t Serve Two Masters

http://www.cato-at-liberty.org/fed-cant-serve-two-masters/#utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CatoHomepageHeadlines+%28Cato+Headlines%29

While I was always taught that the Phillips curve is a woeful fantasy that has brought about significantly bad policy. It does beg the question, if stimulus isn't effectively increasing employment, and monetary policy CAN'T increase employment...what is the US to do about its most significant of economic woes?

I will develop this thought a bit more in the future, but consider this. Jobs are created when people engage the demand for products and services. Production expands, business start up and jobs are created...currently, there is insufficient domestic demand to support US production enough to increase jobs. Perhaps, then, one of the most globally linked economies in the world needs to focus on encouraging development elsewhere enough so that global demand bouys up policy.

By this I mean a foreign policy that is concerned about developing other countries...rather than fighting currency wars with them.

Politics, Economics, and Political Economy

Having completed my Master's degree and continuing to be relatively reflexive on my education, abilities, knowledge, and skills. I find it interesting to note how often I will start with questions such as "what economic policies are best for country x" and end with questions like "what institutional regime permits certain policies to work and not others". The former is obviously a very economic-centric question while the latter is a very politically-centric question.

The reason the two often become so easily crossed in my mind is because of the types of sub-fields I'm interested in. In economics, I'm concerned with macroeconomic policy, especially development policy (i.e. fiscal and monetary policy, etc). Invariably, macro-policy is dependant on politics and, therefore, political science enters the scene.

The problem is, it makes it hard to have a debate. One can't simply come down with an opinion of whether stimulus should be halted. The timeless economics response becomes "it depends". It depends on whether we are discussing the US, Spain, or Thailand. It depends on how the stimulus was put into place, the cultural response that people will likely give, the autonomy of the government in power and whether they are will to risk a period of slow down in lieu of longer-term stability.

This is what makes economic questions political and what makes the study of the two together an opportunity for a spectacular synergy.

Don't Worry Mr. Mankiw, Mr. Rogoff, I'll Defend You!

The hot topic on economics blogs lately, has been how the US needs to approach its post-recession economic policy. It is entirely amusing how passionate and polarized the debates are on either side (In particular, I'd advise checking out Paul Krugman's editorials for the New York Times).

Today, this lowly, green economist will take his first stab at discussing economic policy amidst the "big boys". This article is a response to a blog from Ludwig von Mises Institute website by William Anderson. Now, as background, I know little about the Mises Institute except that they come from a background of classical liberalism, libertarian political theory, and the Austrian School of economics.

http://blog.mises.org/9979/economists-and-the-zimbabwe-solution/

The article criticizes recent propositions by Greg Mankiw (Harvard Economics professor and former chief economic advisor to George W. Bush) and Kenneth Rogoff (former chief economist at the International Monetary Fund) regarding US monetary fund. They argue that a temporary lax on inflation (Rogoff suggests around 6 percent for a couple of years) would take the pressure off debt-strapped consumers and governments trying to meet their obligations.

Anderson seems to object to any monetary policy that accepts expansion as a part of regular policy. He says,
"Note that what they [Mankiw and Rogoff] really are advocating is the repudiation of debt via monetary debasement. Now, when you and I receive debased products, such as lower-quality food and other goods, we don’t like it and believe we are being cheated."
His argument hinges on the idea that by allowing more lax inflationary policy, the intrinsic value of US currency will drop. However, the value of a unit of currency is essentially a function of how much money is produced and how much a country produces. So if the inflation rate was absolutely zero, then the value of money should increase relative to other currencies because each dollar represents a larger absolute chunk of productivity.

Granted, I'm really simplifying this concept. But my main, first point is this. To say that money is becoming worth less because of inflation, is not completely accurate given general growth.

counter-argument: but Jonathan, the US economic growth rate was only 3.2 percent in Q1. Wouldn't a 6 percent inflation rate still make each dollar decrease in value.

This is true, and ultimately, the point of Mr. Rogoff's prescription. It means that, after one year, a US dollar could buy 6 percent less than it could before. Generally, a net inflation rate is acceptable for most central banks. Because people know it to be consistent, most employers generally increase wages to compensate every couple of years (or at least they should). This keeps the real wage (real value of your work) relatively constant to what you can buy. This is to say that, ya, this type of policy may decrease the value of your money a bit over the next few years a little bit faster than your employer knows to respond to, but in reality the impact of a temporary policy like this will be very small to the average consumer and, with time, wages should adjust to prices.

Now, the argument for why we should do this. While wages lag behind prices in adjusting to inflation (i.e. prices tend to increase before wages do), the one thing that doesn't change is debt. Because most debt grows at a fixed interest rate, whenever the inflation rate is higher than that interest rate, the value of the debt decreases. To make this more concrete, let's say the interest rate is 6% for the next year. As a result, the price of stuff is 6% higher, you go to your boss and ask for a raise to cover inflation (being the good boss he/she is, he/she concedes), now the portion of your income going to stuff (food, clothes, ipods, etc) is the same as a year before, however, your mortgage payments haven't changed, they stayed the same as last year. As such, your ability to your debts increases, and now you can spend a greater portion of your money buying stuff or saving your money.

Not to mention, a higher inflation relative to other countries, affects your terms of trade (conditions under which you trade). Higher inflation causes your exchange rate with other currencies to drop (depreciate) as long as they don't change their inflation rate. A depreciated currency effectively makes it easier for foreigners to buy stuff made in your country. This can encourage export business.

It just so happens that this could help alleviate the US trade deficit. Which seems to be reaccumulating since April 2009 when the balance of trade started to decrease again.

To come back to the article's point, monetary "debasement" is not at all like buying a "debased" product. Entirely because the point of money is that it isn't a "real" thing. Its a place holder to represent purchasing power. And while inflation decreases the total power your money has, it also has other effects. The problem with a lot of purely classical and liberalist traditions is that they tend to neglect the reality of the system in which any economic policy works. While I won't concede to suggest that Mr. Mankiw and Mr. Rogoff are expressly correct in their prescriptions and I certainly don't see this as a total solution for the uncertainty in the US economy, there seems to be a good reason why higher inflation may pay off in the short run (I certainly think there could be problems with a sustained policy that incorporates this level of inflation, long term but I sincerely doubt that this is what either of these economists are suggesting). From my perspective, a lot of neo-liberal economic theory gets thrown around in both the academic world and the media, without much understanding behind it. There's a conditioned response that many have towards "inflation" and "deficits" that may not be helpful in finding an objective, best policy solution to the current context.

Please note 2 final things:
1. I may have something wrong in my understand above. If this is the case, please mention it in the comments below.
2. Most economists like the word "good" instead of "stuff"..."Stuff" just sounds better to me.

Development as problem-solving systems

This entry is in response to Bill Easterly's recent blog entry,

http://aidwatchers.com/2010/07/the-answer-is-42/

I whole heartedly agree with what Professor Easterly has to say in this article. It is really a part of how we redefine the way developmentalists look at their subjects and the work they are trying to do. By framing development as the emergence of a problem-solving system as opposed to a series of solutions, it sets apart the expectations that so many people have. Processes emerge gradually and, while they can be informed by developmentalists, they cannot be imposed all at once. We've seen this in cases of Afghanistan and Iraq where the imposition of western-style democracies have been resisted. On the other hand, the "solutions" that this discipline comes up with, have to be seen in with a more even handed perspective. That they are solutions to specific problems in specific contexts, not panaceas.

One twitter correspondant replied to Prof. Easterly's article "Isn't this tautology?" (@aneldagrove)

Maybe, for those who are in the field and have been working on the ground. But for outsiders this reality is not so clear...especially when we have misleading institutions that express a sense of "catch-all" like the World Bank and the International Development Bank.

However, these instutitions are, generally, our best hope for real development inasmuch as their studies and projects combine both prescriptions for problems as well as subtle changes that affect systems. And, they carry the legitimacy of being big, knowledgable (not to mention well-funded) sources of "development".

What am I saying? I think I'm saying that the best hope for system change on the level that Prof. Easterly alludes to, is through the subtle systemic changes that have occured within countries that adapt to the advice of development agencies and institutions. Might it be that development is a case of being as shrewd as serpents and as innocent as doves?

Hard Theory

Having spent considerable time in University studying theoretical understandings of the world, a reasonable question becomes apparent. How usefull is all this theory in understanding the real world anyway? To put it in a more specific context, to what extent does learning about theories of development and governance enhance our ability to actually make better decisions, implement more effective policy or transform development resources into real, beneficial outcomes.

Theories provide a framework to address a problem. They tell us what is important in a specific context and for a specific issue. They outline streams of cause and effect and effective provide a filter so that we do not become overloaded with information when trying to analyze a problem.

The obvious failure with theories is when they disconnect from reality. When the framework that they provide becomes too restrictive and the empirical or real outcome turns out to be drastically different than the predicted one. Theories become problematic when they filter out too many important factors to a problem along with the unimportant ones.

However, despite these problems, theories may still be helpful when used with a grain of salt. They do help to organize ideas and facts and can help streamline decision making, a feature that is important when time is of the essence. The important thing for those making decisions, developing policy, etc is to take all theory with a grain of salt. See what each framework would predict in a given situation, even if you don't agree with that theory entirely, it may provide insight that you never considered before.

Transnationalization....is that even a word?

"The times they are a-changing" - Bob Dylan

Sure they are Bob, but how? That's the much more intriguing question. And lest we get too philosophical, I'll cut to the chase and say that what I'm talking about is this little thing we call globalization.

Contemporary debates globalization theories are essentially divided into three categories. 1. The sceptics who say that globalization is not a new phenomenon but just more trade with new technology. 2. the globalists who say that states are becoming less important and governance is being transferred to supranational powers such as the UN. and 3. the transformationalists who believe that transnational spheres of influence are changing state government without usurping it.

Ok, enough with the theory lesson, if you want to learn more (with a clear bias towards the transformationalist perspective) check out Jan Aart Sholte's book "Globalization: A Critical Introduction".

The point of all that is to suggest that theories of "transnationalism" seem to be reaching unprescedented levels of importance in how the political process and governance seems to be occuring. Transnationalism involves a concept of political, civil, social and economic space that is not tied to territory. For more information on this concept (which is not new by any means) check out Keohane and Nye's 1972 paper "Transnational Relations and World Politics: and introduction" (International Organization volume 25, issue 3). Transnationalism occurs because of technology like the internet which allows communication and networking across countries and continents and permits a global identity and functionality to exist. Thus, international organizations are thought to not only be empowered by states but rather have some degree of autonomy and power in and of themselves.

Ok...long introduction, short thought in the end.

Coming out of the global recession, words like "austerity" have become rampant in discourse. Currently, there has been some considerable debate on austerity measures and whether the US is ready to reduce its stimulus spending and cut back or whether to wait until stability is achieved. However, while its easy to see this as a product of American discourse, the role of transnationalism in the debate is becoming clearer and clearer. Austerity policies are becoming increasingly expected of all states around the world. What has traditionally been see as a product of western thinking has now moved into the realm of transnational thinking. Clearly the west is reconsidering the wisdom of such policies while continued pressures from IOs like the IMF force these debates in academic discourse and increasingly globalized forums such as the G20 (which have indicated the desire to reduce deficite spending globally and also, hesitation in doing so too soon).

What does this have to do with globalization theory? Concepts from above such as austerity are imposing guidelines along which political debate is occurring in states. I believe that politicization and ideology haven't died but are now debating issues dictated from transnational space. The problem is, many of these transnational sources of ideas and "knowledge" are not ideologically or politically neutral. Nor are they responsible or elected. As a result, ideas and guidelines handed down from the transnational realm to the national realm represent a type of global autocracy. While the US can afford consider and reconsider policy options, weaker states are much more at their mercy(take Greece or Ireland for example, let alone LDCs which are so completely dependant on funding from these transnational organizations).

There may be reason to believe that this is not all bad. But it certainly raises concerns, especially (as Krugman points out in an article today on the NYtimes website; see below) when this "transnational knowledge" is not clearly as beneficial as it claims to be.

Thoughts?

Krugman criticizes austerity
http://krugman.blogs.nytimes.com/2010/06/13/does-fiscal-austerity-reassure-markets/?src=twt&twt=NytimesKrugman

The Austerity debate worldwide
http://www.cfr.org/publication/22384/fiscal_austerity_debate.html?breadcrumb=%2Fpublication%2Fallreports%3Fco%3DC028102

More on Transnationalism
http://www.institut-gouvernance.org/fr/analyse/fiche-analyse-37.html

Units of measurment in development and economics

I’m new to blogging and had a lot to say today. Is one allowed to post twice in the same day? I don’t know...

The "great recession" (I only recently heard that that's what they're calling it) showed us that economic powers of the "north" are not unapproachable, while the top-dogs are still struggling to re-attain their pre-crisis GDP levels, many of the "poor countries" are thriving with levels well higher than their pre-crisis situation.

You could have gotten that from the Economist article I referenced in my last post, in much better wording. What they don't mention in this article, is the differentiation of which countries weather the crisis amongst the "poor". While many LDCs (less developed countries) did come out okay and are now growing relative to the richer players, many got hit hard and are continuing to struggle.

While overall, some did better than others, the more important change that occurred because of the recession is the changes within countries. Rather than saying poor COUNTRIES did or did not do well relative to rich countries...its more useful to say the POOR did or did not do well relative to the rich. When you take out the "country" dimension, we see that the poor did take a hit, everywhere.

I was recently discussing aid in a class (Chatham house rules here) when it was noted how Bill Easterly has effectively argued against the concept that aid facilitates growth, noting that statistically speaking, the effects of aid have been negligible. This is problematic, especially given the billions of dollars that have been funnelled into developing countries for this very reason.

However, instead of thinking of development as growth, it might be more helpful for us to think of development as things we need to do for people. That is, rather than looking at the whole picture, we need to think of development as providing a well in one village, or providing a tractor to a farmer, or giving nutritional supplements to infants to prevent stunting. Looking at the unit of the person or community for our unit of measurement is perhaps where we need to go.

Okay…recession…right. My point is that this principle doesn’t just apply to aid and development but needs to apply to our understanding of economics in general. The recession caused some countries to grow (China grew nearly 11 percent in 2008 according to the CIA world factbook) but this says nothing to the poorest people, especially in rural communities who faced astronomical food prices through 2008. The point is, we need to start judging our economic successes in different ways. Not just for the LDCs but even for ourselves, stability in the US financial sector is useless if the millions who lost their jobs, lost their retirement funds or lost their homes aren’t provided for. It requires us to reconsider our assumptions of what is beneficial and why.

The "Third World"

A recent article from the Economist, "Rethinking the 'third world'", addressed some important backdrops for out understanding of global political economy with important implications for how we view aid, development, and the future.

The article starts with a reminder of World Bank President Bob Zoellick`s comment “2009 saw the end of what was known as the third world”. While the article provides a pretty even handed review of what this statement means and, ultimately, reasons why its probably not true, a couple of issues arose in my mind that weren`t explicitely addressed.

I remember the first time I was informed that the term ``third world`` was no longer p.c. I believe it was in my first or second year of university. The negative connotation and cold-war baggage made it an oppresive term, denoting condescencion towards less developed countries. And while the fall of the Berlin wall indicates that its original meaning is now lost, I don`t believe that its usefullness has gone out of style; many academics I still talk to use this term.

but the term has changed, third world still implies an ordering, the concept that the Asian Tigers were just a freak-show of growth is disappearing and a new level of global-political order is emerging. The BRICs (Brazil, India, Russia and China) represent a new `in-between` of the world`s super powers and suggest that positioning in them is no longer permanent. Some move up (China and India) and some are moving decisively down (Russia). This, of course, is primarily an economic analysis but in this environment, economics is important to note, if not the most defining feature in this new global political order.

Ultimately, the concept of "third world" is now addressing power structures of the have and the have nots. And its not all negative, the have-nots are showing force in numbers through international organizations, which are becoming increasingly important. The "third world" has effectively stalled out the Doha round, the "third world has the potential (sceptical as it may be) of creating regional pacts such as African Union, and the "third world" weather this recent economic crisis with much more finesse than the "first world".

While it may not be politically correct, I would argue that the term continues to be a useful descriptor of the reality of global political economy.

My Blog

As an initial posting, I think it would be beneficial for me to iterate what my goals are for this blog. In order to get there, however, its necessary that I outline some important facts about myself.

I am in the process of completing my Master's degree in International Public Policy at Wilfrid Laurier University in Waterloo, Ontario, Canada. I've now spent over 5 years studying policy, economics, politics, institutions, development, human rights and security. When one gets really wedded to academic discourse and interested in what one is studying, it becomes apparent that the environment which is created in the university/ college environment has severe limitations in its ability to develop professional individuals. As such, I am now attempting to branch out and utilize the skills and knowledge I've acquired and adapt it to real, normative application. No longer content with writing papers to achieve grades, I now want to write ideas to achieve change.

Change is ultimately my goal. Change in anything. I want to change the world. change your mind. change policy. change discourse. I want to change how budgets are put together and how people vote. I want to change how aid funds are distributed and how we help those in severe poverty. By taking this mentality, I hope to focus my personal resources for something other than an artificially-orchestrated academic achievement. Don't get me wrong, I understand the rationale for academic fora, but I think that they lose their ability to inform and influence regular individuals and therefore are limited in their capacity to affect change.

Thus, this blog will look at a wide range of interests from current political events to economic theories that I find interesting. However, most often I intend to comment on current trends in development, policy in developing countries and the activities of global governance. I only hope that I'm able influence real world changes through this avenue of writing.

Best,
Jonathan