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One of the articles that we spent time discussing was the one about wedges. While all of the solutions were interesting, the article didn’t present an adequate way to bring the various changes about. The problem stems from the idea that each of these changes should be brought about individually through legislation or R&D spending. This is inefficient because a target for each would have to be developed and this might create a suboptimal outcome. For example, we might overspend on increasing the efficiency of factories but under spend on windmills because we don’t have sufficient information to pick accurate targets for the time being. Instead, the solution we talked about in class seems to be superior; put a price on carbon. This accomplishes our goal while allowing markets to optimize the scale of improvements in each category. The most important thing is that we know exactly how much we want to scale back carbon emissions and we can probably get an idea of how much a price increase will impact emissions. Once we have figured out the correct price (this could be adjusted easily if the target is missed) then markets will work out the best way to get there. This might mean that some wedges are completely ignored. For instance, if it turns out that some alternative energy measures are not going to reach the goal in the most efficient way possible then they will be ignored, this prevents the need to waste resources. All in all, it was surprising that this idea wasn’t more directly forwarded in the article since it seemed like a fairly obvious way of dealing with all of the different wedges that were proposed. Something that is equally interesting was brought up by one of the earlier groups. This is the question of how consumers would change their behavior in the face of a price for carbon. One possibility is that the change will be limited since many people have fixed amounts that they need to travel each day and there are limits to public transportation options in many places. This leaves only carpooling as an option and this may be inconvenient or some people may simply be averse to it. However, just like the gas tax for corporations, the price increase might alter behavior in another way, it would increase the potential returns on alternative forms of transportation. In other words, incentives would be created for new forms of transportation to be created, this might be more active/new public transport systems or R&D for more fuel efficient vehicles, since it will be easier to recoup the costs of these kinds of vehicles through the decreased consumption of gasoline. Again, using market incentive through an increase in the price of gas can guide the direction of individual behavior to decrease overall carbon emissions. A final thought was on the article about natural gas. While the idea of alternative energy lobbyists was nice in theory, it’s unlikely that this kind of collective action could be forced. Instead, people should focus on why highly toxic forms of energy like coal burning are so politically popular and work to peel away these misconceptions. This is no simple task but it might prove to be more viable than wasting money battling against the long-standing and incredibly wealthy coal companies, this is not the best way that resources could be used. It’s even possible that these kinds of energy companies should go to states where coal isn’t used at all so that they can begin to find a foothold and accrue profits. If they can prove to be successful and clean at the same time it will be easier for them to accrue political capital later on. Then we might see non-coal companies being supported by politicians even in regions where talking about taxing carbon are political suicide.
Toggle Commented Mar 20, 2014 on Blog Post for Tuesday at Jolly Green General
This article is very interesting but its comparison between China and Africa is problematic. As others have mentioned, Africa is basically referred to as a country when that could not be farther from the truth. There are a large number of countries many of which suffer from negative forms of corrupt governments or revolutions. This lack of a unified leadership, which has been part of China’s success, would make it nearly impossible to complete the kind of structured change that has been so key to China’s growth. At the very least, African nations need to achieve stable leadership at an individual level if they hope to eventually mimic the Chinese story of success. It could be argued that one problem with over-reliance on the Chinese model of growth is actually an over-reliance on strong state institutions. In other words, the institutions had to have such tight control over everything that the system only worked in the context of a government in complete control. The take away is that similar governments should be encouraged in Africa, which in the short run robs people of many of their freedoms. The consequences can be seen in China for farmers who are simply removed from their lands when they get take and are placed into government housing for the rest of their lives. The point is that China’s regimented path to success was reliant on a central institution that was not only verging on all powerful but also strategically focused on growth, and replicating that kind of regime would be difficult to do without constant oversight of a foreign power like the U.S., which the African countries would likely not appreciate.
Toggle Commented Dec 5, 2013 on China and Africa (Econ 280) at Jolly Green General
The article presents an interesting problem, which is that we may not be able to stem climate change quickly enough to protect individuals in the countries that will be most adversely affected. Although it would be nice to think that the developed world could forward policies to help these poorer nations, especially considering that they are shouldering undue burdens, it is not entirely likely. The question then becomes, can we more effectively/rapidly help them to develop to a point where they could at least deal with some climate change or should we focus on decreasing our carbon emissions to a point where the effects will not be as severe. The obvious answer is that we should do both but the last few decades have demonstrated an inability to do either. This has become even more of a problem recently in the wake of China and India’s development. The problem with asking them to slow down or adopt green initiatives is that they are being asked these things by countries who were allowed to fully develop without these costly policies. This makes the carbon emission slowdown seem a tad challenging. Perhaps then, CO2 emissions need to be worked on but we should put an equal amount of thought into helping countries develop in a way that will make adjusting to climate change easier. One obvious way would be to increase the efficiency of their farming. One of the points that the article made was that water scarcity would begin to be a problem. One way to help alleviate that would be making water more efficient by decreasing the amount of farmland necessary to feed people in various less wealthy countries. Although we may be able to help countries simply “deal with it,” we should not excuse ourselves from a responsibility to slow CO2 emissions and hopefully prevent climate change before it becomes catastrophic.
The concept of lowering uncertainty to increase productivity and improve long-run decision-making is not new, but applying it to poor farmers is certainly a nice twist. It seems like an obvious group to target considering the tremendous uncertainty that they face everyday. They are confronted with completely uncontrollable volatility like the weather. Unstable governments and the lack of property rights also prevent progress. They key though is that sometimes these poor farmers are given a chance to make better choices in the long term, whether it be investment in their farms or education for their children. Unfortunately, under the weight of the tremendous uncertainty, they are forced to continue ignoring these opportunities for fear of dying. If we can reduce uncertainty in any way, it would be a worthwhile endeavor. After all, we’ve learned that many people who are impoverished are not only intelligent, but also highly motivated and entrepreneurial. If the stakes for taking risks were lowered at all, it is possible we could see significant improvements in things like education and output. We also need to consider the need to frontload some education so that farmers can properly utilize opportunities. Using insurance to efficiently hedge risk, or using new farming techniques and how they improve output could have a huge effect. The value in all of this comes from the effect that we have seen time and time again where “the big push” actually works. Once the technology ball starts to roll it tends to sustain itself after a country or region gets past the most basic things like inability to feed its people. If we can more effectively get regions out of their subsistence phase then we may be able to speed up development around the world.
Toggle Commented Nov 14, 2013 on ECON 280 Paper for Thursday at Jolly Green General
I agree with Lizzie. Education and human capital development go hand in hand. To increase human capital accumulation is to increase the productivity of the labor force or an individual. When productivity increases, the economy grows, resulting in a more efficient output generating society. While I was reading this article I kept thinking about another piece that explored education and incentives in relation to farming techniques. The researchers provided a very poor village in Africa with education on the uses of fertilizer and farming in general. After using the fertilizer, resulting in higher crop yield, the villagers reverted to their previous ways after the researchers were gone. I would say that most people are risk averse when they are unknowledgeable of a certain action. The lack of confidence in change divert utility maximizing decision making. I was surprised about the results on the relationship between income and adoption of agroforestry. People who are generally more educated (independent variable) have higher incomes (dependent variable). It may be possible that there is not a causal link between income (independent variable) and education (dependent variable). It is certainly possible that a person may be uneducated yet have a high income.
Toggle Commented Nov 14, 2013 on ECON 280 Paper for Thursday at Jolly Green General
The thing that I found most interesting about the article was the idea of the vicious cycle of poverty. Although this is not a new or novel idea, this articles description put it in more of a rational light. In other words, parents make the decision consciously because the cost of not having their children work is too high. In extremely impoverished areas, the cost could be death if the family is getting by on a subsistence amount of food or just a bit more. The big question then becomes, how far do families have to be away from the subsistence line to stop using their children for child labor. If they have enough money to eat but then not enough remaining to send their children to school, then they may end up working anyway since they would otherwise be wasting time. On the same token, the parents might consider that there is educational value for the future in having the child do work on the farm because it might prepare them for eventually running the farm themselves. It is difficult to even comprehend the circumstances that would lead to these kinds of judgment calls but they are obviously very dire. If it is truly an incentive problem that is inducing child labor then effective policy might entail rewarding parents who send their kids to school. This will allow them to benefit in the short run from financial rewards and then eventually reap the benefits of their children being educated. In the poor countries where this would be necessary it would be difficult to implement this kind of policy but if it were possible it would be a big step in the right direction.
Toggle Commented Nov 7, 2013 on Corel Office Document at Jolly Green General
After reading this article, I cannot even grasp how the costs of malaria could be properly quantified. The list of tangible and intangible consequences is so long and severe that an exact calculation seems impossible. What is clear though, is that malaria represents a barrier that must be broken before many of the high malaria countries and regions can move forward with economic development. In class we discussed the importance of health for realizing returns on education investments. The article clearly shows that the health linkage is strong and poses problems for many people. These include the ability to go to school or even leave their country for a while to gain education elsewhere. The weakened immune response from being away from the disease can increase the likelihood of death after being away for as short as a year. Then there is of course the inability to receive proper education while afflicted by the disease. This kind of a situation puts people in infested areas in a difficult situation where their only real opportunity is to leave for good but of course the likelihood of that is very low considering the poverty that usually characterizes these regions. When considering some of the solutions that have been forwarded about development it is sad to think that something like malaria could render so many of them completely invalid. Things like savings or capital investment are irrelevant if the population is constantly stricken ill, there are uncontrollable, high child mortality rates, or people are afraid to even visit the area. On the surface, it seems that health problems that are as pervasive as malaria have to be the first priority or else other development projects will end up with muted results at best.
One of the things that I found most interesting about the article was the description of how different people make use of microloans. The reason that this was particularly interesting for me was that it called into question the goals of microfinance. The authors mentioned that people who did not already have businesses, especially in rural settings, were the ones more predisposed to smooth consumption, rather than saving or trying to invest in a new business. The fact that they had not already tried or had failed might have been an indication of lack of entrepreneurial skill or spirit. The question then becomes if this is a good goal for microfinance. On the surface, it seems like it interferes with the original goal of stamping out poverty. Without creating new businesses the borrowers are not inducing significant growth or improvement for their local economies like someone that actually does manage to start a successful business. They are also going to have a harder time paying back their loans or even taking out future ones. The important consideration though is that smoothing consumption in a place where families are so vulnerable to shocks might be a noble enough goal to continue. Not only that, but making the process too selective or too stringent might actually block entrepreneurs from getting loans. All in all, accepting that microfinance is not a miracle cure, but rather a piece of the puzzle is probably the best path to take at the moment, especially with the uncertain results still associated with microfinance.
Toggle Commented Oct 24, 2013 on Microfinance (econ 280) at Jolly Green General
One of the things that I found most striking in the article was the idea that people take life expectancy into consideration when it comes to educating their children. On the surface this seems like a cold, calculating way to treat a loved one but it is important to consider the circumstances that people are in in these developing countries. If a heavy investment is made in a child that is likely to die early then it could have a severe impact on the rest of the family, who may not be able to recover from the lost resources. This is another blunt reminder of the condition that people find themselves in when they are living in poverty. They need to treat family members like assets and try to allocate things efficiently even at the cost of things like their children’s education. This article also shows us that there are no simple solutions to gender inequality. Economic changes may only be the beginning and then there are cultural barriers to confront. This idea is well explained in the paragraph related to people’s perceptions of leadership. Given the same information, people in some of the countries surveyed generally responded less favorably when they learned that the person or leader being described was female. This may be due to a lack of experience with female leaders or due to cultural bias. Either way, no amount of economic development will be able to solve those kinds of issues alone. However, putting women in a position to become educated could at the very least begin leading society down the path to understanding that women are equally fit for leadership roles. There are also probably ways that women could be assisted in the early stages of transition that would help to expose the population to female leadership which might help to overcome some previous bias.
Rodrik’s article is a great explanation of why cookie-cutter policy should be avoided. Despite the theory behind the Washington consensus goals being sound, there is no one solution or prescription for economic growth. In order to properly grow an economy you need to be intimately familiar with all factors that influence it. This is especially important since the Washington consensus requires opening the country to international trade. This makes the situation infinitely more complicated and ignoring the many possible outcomes is likely to lead to failure. We discussed an example of this oversight in class with regards to savings flowing out of countries. A lack of understanding about where money flows to when it’s saved and why this might occur is a strong possibility for why so many countries have struggled following the Washington prescription. Although the standard approach may be faulty, we should also be wary of anomalies. Things that worked for China may not work for other countries especially considering how unique its situation is in terms of resources, location, population, etc. The twitch response is to simply implement these ideas everywhere but the variation among the many successful growth stories is more than enough reason to believe that there is no one right answer.
Toggle Commented Sep 26, 2013 on Growth Strategies - Econ 280 at Jolly Green General
This article really showed me how young the economics discipline is. People are still trying to figure out the best way to approach problems and what the requirements are to make a claim legitimate. I appreciated Krugman’s sentiment that just because something does not fit today’s definition of valid does not mean it should be cast aside. In about a page, Krugman was able to explain with acceptable theory the high development ideas that had been cast aside. The need for looking at these sorts of theories is especially important as economics continues to grow so that important ideas are not left behind. I think a lot of the discussion in this thread has had to do with economic theory being invalid because it is based on models. However, this misses the greater point that models are simply a way to think about a problem, rather than an exact science. If a model could perfectly explain every detail of a situation then it would no longer be a model. This relates to our class discussion on policy being created solely based on models. The original theory that capital was needed to compliment labor was simply a way to view developing nations. It was not a policy prescription; rather it was something that policy makers should have considered.
One of the things that I found most interesting about the article was the bit about specialization. In these poor countries, people do not attempt to become specialized and instead prefer to do several jobs to maximize their income in the short term. This unfortunately stifles earnings potential and helps to perpetuate poverty. It is unclear whether the poor are aware of this effect or they just don’t have the wiggle room to work on single skills in the short term. Later in the article there seems to be some indication that even in extreme poverty people have some flexibility in their spending even to the point where they can save, so perhaps there is insufficient knowledge about how specialization is beneficial. Informing people about specialization in these communities or about efficiency might prompt them to make better decisions about how they spend their work hours. One recommendation involved the women making the dosas working in pairs so that there would be less waiting around. This would be easy to implement but may not be obvious to the people in these countries. As many people have already mentioned, the amount that the poor spend on food was striking. Combining their lack of spending on food with poor dietary choices they are probably making their malnutrition worse than it needs to be. This may be another consequence of incomplete knowledge. Eating properly is essential to remaining healthy, which in turn leads to being more productive and receiving better pay. The link between proper nutrition and wage benefits may not be clear and again, just a little education could go a long way towards improving the quality of life for people in impoverished countries.
Toggle Commented Sep 12, 2013 on Economic Lives of the Poor at Jolly Green General
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Sep 12, 2013