This is Richard Nelson's Typepad Profile.
Join Typepad and start following Richard Nelson's activity
Join Now!
Already a member? Sign In
Richard Nelson
Recent Activity
I have to agree that the interest rates paper was a bit difficult to understand. It kept switching back and forth between Latin America, Japan, industrial nations, America, etc, so often that it was hard to follow what was actually being studied. I did find it interesting, though, because I did a lot of work with Latin America this summer, as well as the broader trends in emerging markets. I would have to say that I agree more with the side that “emphasize the influence of interest rates in the creditor countries over international capital flows,” especially for US investors. Everybody wants to get the best return for every dollar they invest – period. Because we have been in such a low rate fixed income environment, everyone is looking for alternative places to put money and earn returns. Over this summer, emerging market companies literally threw debt at the market and investor after investor was willing to pick it up. Brazil and Mexico, in particular, had a huge amount of new debt issuances. Every time, they would list it as 200-300 million (USD denominated) with an estimated 7-8% coupon (for example), and almost every single one issued at the lowest end of the coupon estimate. Same thing went for pretty much everything that offered a good coupon, despite Argentina’s second sovereign “default” and a slowing growth in many other Latam countries, particularly Brazil. Why did this happen? They offered better returns than anyone else, and investors were willing to take on the extra risk rather than starve from yieldlessness. There was also an incentive for these Latam countries, because they could issue a huge amount of debt at very competitive coupon rates, given their inherent riskiness, and it ultimately led to the massive inflows of external credit that this paper talks about. So, I would say that I am of the second side. However, the other notable events that were happening were serious reforms in Latam, especially Mexico and Chile. Both had reforms in energy, healthcare, pensions, government officials…so a lot…and both of these countries had the same story. But, there was so little attention given to these reforms by most people that I offered to put together a packet for them on the reforms – point being, I don’t think people care as much about the reforms that COULD come about. Sure, they are kept on the radar, but it seemed to me like the bigger story was what was current right now, and that was a need for yield in a low interest rate market.
I couldn't help but think of the saying "if it aint broke, don't fix it," while reading these results. This is exactly the rationalization that the farmers are making when thinking about radically changing their farming techniques to agroforesty… The logic goes, “Okay, my crops are producing enough to live, and I can feed my family (barely), so I’m going to stick to this rather than risk it all for something better.” This is just like our conversation in class about the poor household being put in the position to take $1000 or have a 50-50 shot a $2000. Because they have so little, they will take the guarantee of $1000 rather than risk it all. However, in this case, the “risk” component is represented through a lack of information. This is encouraging, because we have the ability to improve education, show farmers that the results are very promising and worthwhile, and increase the adoption rate of agroforestry. I found the data in this paper to be extremely encouraging, which I’m assuming was the purpose. This is a struggle of spreading information, which is a costly resource, in order to increase the net present value of agroforestry adoption. While I’m sure Internet access is limited for many farmers, the general trend of information sharing has only been increasing. How to share this information goes back to one of the fundamental factors of life quality – education. It benefits the movement two-fold. It increases the perceived “weight” of the benefits and provides the necessary skills to confidently make the transition. Even if the farmer knows that making the switch is beneficial, he has to have confidence in himself and the probability of making the transition in order to add to the adoption rate. One of the other key factors to the adoption rate is trust. I can’t speak for the Yucatan farmers in this survey, but I would guess that many famers might completely understand what is being told to them about the benefits of agroforestry. However, the information is only as valuable as who it came from. If you have people affiliated with politicians, “modern sector” figures, or anyone outside of the farmer community pushing for this cause, I would bet that it is a lot less effective. I liked the part in the paper that suggested the benefits of farmers that have adopted this to help the cause. Not only does it show the success stories, it also creates momentum that farmers may feel that they are missing out on. The adoption rate should increase more rapidly as the initial farmers make the move and become word-of-mouth marketers for the transition to agroforestry.
Toggle Commented Nov 6, 2014 on Econ 280 for Thursday at Jolly Green General
Schultz’s format is very easy to follow, as he starts with pointing out modern economist’s mistakes and leads into the importance of different human investments. He points out that our understanding of low income economies is flawed because we aren’t using valuable resources at our disposal. We treat standard income and low income countries as totally different entities, when really the fundamental inputs and cost-benefit analyses going into decision making is exactly the same. Then he goes on to talk about education, agency, health, and growing skilled workers. Everything seemed to reinforce what we have already learned, except for one argument in between titled “land is overrated.” My first thoughts were that land is everything. From it we derive property, ownership, agriculture, and something tangible. With the proper laws and enforcement, it is one of the most valuable assets, especially if it is arable. The social-economic view, which Schultz prefers, states that human intelligence and innovation is what really matters. I find the rest of this argument in this section to be a bit over-shot. First, land is very important, and land that is already suitable for crops is even better. Sure, our future will be determined by what we innovate and how our skills improve the production of our land, but this is assuming that everyone has access to these resources. Schultz implies that the modernization of agriculture is just a switch waiting to be flipped in our modernization process once we realize it’s value, when really it has just been us weighing our cost-benefit analysis. We have realized it needs to be done, but other things are more important. Why do we take our children out of school, or not bring them to the doctor? The reason is because we don’t have enough scarce resources, and that it foregoes precedence to many other more essential things in many areas. Second, arable land is just like giving a man a fish instead of teaching him how to fish. It is not causal, and just because poor people live in great growing areas does not undermine the value of land itself. You can’t deny any benefit of having better land. At the same time, it doesn’t mean that the population will be less poor, and it doesn’t mean that better land is not important.
Toggle Commented Oct 30, 2014 on Econ 280 for Thursday at Jolly Green General
I find it very disheartening that we still face such global child labor issues, particularly because our ignorance seems largely at fault. Udry brings up examples of scenarios where the developed world could issue trade sanctions or other penalties to discourage child labor. Up until recently, I would have been on board with this as well. This paper very clearly shows how our good intentions don’t necessarily yield the best results. Trade sanctions or banning child labor in factories, or more importantly farms, would only deepen the poverty cycle and send a detrimental shock wave through the families without access to savings or capital. Raising wages (or indirectly by raising working standards) would only further incentivize child labor as better short term benefits relative to time-value discounted future benefits. So…Udry claims that the answer is increasing the quality of schools, providing subsidies to families that send their children to school, and increasing capital access for the poor. We’ve spoken about this working, but what about healthcare in all of this? This is the part where I think his argument fell a bit short. One of the biggest “costs” affiliated with sending a child to school rather than work for the very poor is that there is no guarantee that the children will live a long, healthy life to benefit from education. I understand that Udry draws more attention to raising education quality and providing subsidies because it is relatively cheap, but basic healthcare would be as well. A similar subsidy program or sponsored health clinic would add another strong force to counter the vicious poverty cycle in many areas.
Toggle Commented Oct 23, 2014 on 280 Paper for Thursday at Jolly Green General
I appreciated this article a lot. For one, he spelled out exactly what is was going to cover and clearly labeled his transitions. Second, he took the style of truly telling a strory, much like the folklore and other examples he offered. His analogy of the development of high development theory, which encountered an unnecessary time period of ignorance and neglect, is convincing. However, he seems to have a very negative tone in making this statement, almost as if we should be ashamed as a society that we have allowed ourselves to make this mistake again and again. This is where I began to disagree with a few points that Krugman makes about models. “We all think in simplified models, all the time. The sophisticated thing to do is not to pretend to stop, but to be self-conscious -- to be aware that your models are maps rather than reality.” I think this an excellent idea, but studies have shown us that even when we are made aware of our biases, we are still susceptible to them. It is our mode of rationalization – we want to believe what we are pre-positioned to agree with (confirmation bias). Krugman claims that the social sciences are uniquely inclined to face this issue, but I would argue that this is just human nature. He then says, “When it comes to physical science, few people have problems with this idea.” He limits his physical science scope to physics and hands-on, model friendly studies. I took a course called the “History of Geology” and that situation was even worse. They argued for decades and centuries about rock formations, glacial deposits, geocentricity, etc…all things that they had to interpret from the evidence observable or left behind. Why did this happen? For a time, they were launching new studies and finding new evidence, but a majority of the back-and-forth debates were simply a popularity contest; which “lead” scientist had more people behind them and made a more convincing argument in his paper or conference decided the acceptable way of thought. If you couldn’t explain it through empirical evidence or a model, good luck. Krugman successfully told the progression of the high development theory, without question. He analyzed it through similar situations, as in the mapping of Africa or the clues that the shape of a cloud can offer to weather patterns. But, I think he wrongly accuses the social science realm as having a chip on its shoulder towards new ways of thought. We often believe what we are told, and that is why we have to take a step back for every few steps forward.
It seems like this is pretty much a consensus, but I thought this study did a very good job of showing how the same catalyst or policies can have vastly different effects on different people and countries. One of the best examples was Latin America, where Rodrik wrote, “The regional average for the index (“liberalization index”) rises steadily from 0.34 in 1985 to 0.58 in 1999. Yet the striking fact from Figure 1 is that Latin America’s growth rate has remained significantly below its pre-1980 level.” While policies are often very important in altering economic functions, they are only one piece of the big picture. It’s like comparing apples to oranges – we can’t take policies that have worked in developed countries or even very similar countries and expect them to function the same. The Washington Consensus brings us to logical and successful policy reforms, but it is not the only option (as seen in China). The other section I found particularly interesting was about Argentina’s currency board. The controlled Peso exchange had its benefits, but was it ever a long-term fix? This goes back to Rodrik’s argument that spurring an economy is one thing, but sustaining it is an entirely different beast. The problem is that we (as societies) are often so short-sighted that as long as today is good, we think that tomorrow will be as well. This is very similar to what happened with the US in the ’08 crisis, where we ignored the very blatant evidence in front of us that things couldn’t keep on going as they were. We like to measure the success of a plan by its immediate effectiveness, often at the expense of a few years down the road. So, taken in the context of developing economies, what is the answer to both spurring and sustaining an economy? This study clearly shows that there is no answer, other than constant re-evaluation of each completely custom plan for every different country. While history teaches a lot, in some ways it narrows our views. I can, in some ways, maybe see that this is why the world bank had employees go into countries completely blind, so that they had a clean slate with no biases (maybe?). Regardless, this paper left me thinking even more about the endless variables that can leave a great policy and regime in ruins due to sometimes uncontrollable variables and timing.
Toggle Commented Oct 2, 2014 on ECON 280 Paper at Jolly Green General
I thought that the RPS study was interesting, specifically the levels of effectiveness for different degrees of implementation. The evidence that increasing power for women only increases student enrollment to a certain extent, at which point it actually has the opposite effect, was a bit surprising at first. However, taken in the context of human nature, this is somewhat logical. This observation follows the saying that power corrupts all, even though the subjects in this study were certainly not given a large amount of power. While the “power” here is simply the level of education, it goes back to our conversation that everything is relative. It shows that a feeling of personal superiority undoubtedly changes our actions and perceptions. While that was a bit of a stretch, it was the initial thought I had after considering “why would the additional power reverse the success of the program?” So, do we educate more, give more to the mother, or do they only work when employed together? It appears that there is a fine balance that is likely family specific, but the underlying message is to enable the mother through education and direct funding. Really, I think the issue is cultural, because while this study proves itself through a controlled environment, it would be very interesting to see how deeply engrained the “old traditions” are and if they can be changed to reverse the state of subsistence.
Toggle Commented Sep 25, 2014 on ECON 280 paper #1 at Jolly Green General
I thought that some of the numbers regarding literacy, percentage of physically impaired or underfed family members, the lack of specialization due to few jobs, etc., were all very shocking, but somewhat what I expected. The situations are terrible, but it is amazing how everything is on a scale of relativity. The 'small pleasures,' such as playing soccer or buying an ice cream, are completely rational when viewed through the perspective of someone like 'Rambo.' You have to have something that gets you through the day, a light at the end of the tunnel, or any form of reward for what you do. Also, when you consider how young most of these kids are that face these decisions, it's truly amazing that they are able to handle so much responsibility and make the amount rational decisions that they do. I also have to disagree with Austin’s statement, “Moreover, the significant purchase of intoxicants as a percent-of-budget measure is mind-boggling as well.” This makes complete sense – we go out and party for no reason at all, in fact, we even make up reasons to go out and drink (thirsty Thursday?). I don’t mean to stereotype, but generally after we accomplish something, ie finish a project or exam, win (or lose) a game, or even get through the week, we have a few drinks. I don’t know how much a six-pack of natty is in Udaipur, but 5% of even a $2 a day budget spent on alcohol and tobacco seems pretty reasonable to me. Our lives are certainly challenging, and we worked for the many things that we have today…but, in the context of dodging mudslides and malaria, our lives are pretty easy. This simply goes back to what Juan pointed out – it’s the things that get you through the day, and everything is relative.
Toggle Commented Sep 18, 2014 on 280 reading for Thursday at Jolly Green General
Richard Nelson is now following The Typepad Team
Sep 17, 2014