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I find it absolutely absurd that a ‘debate’ over global climate change is still going on in America, and with the recent election of Donald Trump I worry about our planet’s future. Media partisanship pushes news outlets to literally deny scientific evidence or, in the case of the recent Breitbart news, cherry-pick and take things out of context to form intentionally misleading claims about ‘falling’ temperatures. When the House Committee on Science, Space, and Technology tweets out bogus Breitbart articles, it is clear that our politicians care more about their own self-interests than anything else, especially when the chairman of the committee, Texas representative Lamar Smith, receives large amounts of funding from fossil fuel interests. This is nothing out of the ordinary in DC. Donald Trump’s recent appointee Scott Pruitt, selected to run the EPA, has dedicated a large portion of his career towards dismantling it. Pruitt also happens to coincidentally be one of the greatest allies of the fossil fuel industry. The examples go on and on.
Like we discussed in class, it is difficult for individuals to look past themselves and acknowledge both the marginal social costs of environmentally damaging actions as well as the marginal social benefits of conservation and clean energy. It will take politicians to look past their own self-interest and the stakes they have in the fossil fuel industry and acknowledge the scientific reality (and consequences) of global climate change. Unfortunately, it seems like most are unable to look beyond their own lifespan.
ECON 280: Last One for the Year
http://documents.worldbank.org/curated/en/362721468153549916/pdf/632190WP0Turn000Box374367B00PUBLIC0.pdf
Goff and Sigh’s findings clearly back up the claim that free trade is not as universally beneficial as classical economic theory paints it. There is little debate over whether or not trade is advantageous in the aggregate. However, whether or not free trade is beneficial for developing countries is an answer we must agree on, especially if we are urging these countries to embrace it. Theoretically, the poor and unskilled in developing countries have the most to gain from trade. One key point from the article is that “for comparative advantages to increase the incomes of the unskilled, they need to be able to move out of contracting sectors and into expanding ones” (6). This is once again an example of a model not perfectly aligning with the circumstances of reality. In the real world, labor is not so fluid and mobile. Furthermore, we have to ask whether or not those most in need are the ones benefitting from the trade-related gains. Oftentimes it is skilled-labor that has an increase in demand, not the unskilled labor of the poor which can possibly worsen poverty.
One common theme I’ve picked up through this year is that, despite what we may want to believe, there is no ultimate one-size-fits all solution to reducing poverty and increasing economic growth. Each of these growth strategies are simply pieces to a larger puzzle. Free trade is not the end all be all to development. It is in conjunction with human capital investments, strong institutions, and government policy that we can begin to tackle the disparity between the wealthiest and poorest countries.
Reading for Thursday
http://ac.els-cdn.com/S2214851514000024/1-s2.0-S2214851514000024-main.pdf?_tid=77e559e0-b197-11e6-8804-00000aacb360&acdnat=1479917659_8715d65a90465ced1976e29a4ded9797 Hope you had a wonderful Thanksgiving!
Eichengreen and Mody’s discussion on the viability of microfinancing emphasizes the fallibility of economic models. The authors state that the relationship between capital flow between developing and industrialized markets and interest rates is not one of simple supply and demand. I believe it is important to examine microfinancing from multiple perspectives. Common wisdom dictates microfinancing as the primary means to jumpstarting or igniting emerging markets (and for smaller scale economic growth). However, the authors address the importance of looking at the drawbacks that can and have occurred. I am not saying that microfinancing is not the appropriate way to approach these issues, rather that we need to look at it in a more realistic light. This article reemphasizes the possible shortcomings of economic models, and the difficult transition from theory to reality and policy.
Readings for this week
Please comment on one of these papers Tuesday https://www.povertyactionlab.org/sites/default/files/publications/FORUM2.pdf Thursday http://eml.berkeley.edu/~eichengr/research/posen.pdf
In the Economics of being poor, one of the central ideas put forth by Schultz is that the poor do not have a separate economic framework for decision making that deviates from the standard. This is congruent with our class discussions on the rationality of the choices of the impoverished. We make the assumption that the poor should spend any excess income towards food and other staples, ignoring the fact that the money “wasted” on festivals or sweets or even tobacco/alcohol indulgences actually maximize utility. After all, there is more to life than working and eating. Once again, a Sensian definition of development is far more important than the narrow scope of economic growth- the emphasis is on freedoms and the ability to live a satisfactory and meaningful life.
Schultz also discusses the importance of investments in health and education, and the impacts that they have not just on economic prosperity but on the well-being of the poor as a whole. Sachs and Malaney also draw attention to the relationship between health (in this case the effect of Malaria) and the accumulation of human capital. Malaria obviously has a negative impact on the cognitive abilities and nutritional state of the sick. These geographically-influenced diseases have lasting impacts that penetrate all aspects of life and well-being. We see yet another instance where improvements to people’s freedoms can be made outside the scope of economic growth.
Readings for Thursday
http://www.nature.com/nature/journal/v415/n6872/pdf/415680a.pdf http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1979/schultz-lecture.html
A constant theme throughout development economics has been the idea of freedoms as both a means and an end. I find this tenant crucial to the discussion of the empowerment of women in developing countries. Dufflo stresses the idea that economic development alone is incapable of ensuring progress when it comes to women’s empowerment, specifically autonomous decision making. However, I also find Dufflo’s caution of the so called “magic bullet” to be an important step in approaching policy making and real world action. Dufflo notes that while “women’s empowerment leads to improvements in some aspects of children’s welfare” like health and nutrition, it also comes “at the expense of others”, namely education. She suggests that policies need to be examined from both a perspective of bringing about gender equality as well as the actual desirability (and costs) that come along with it. Dufflo believes that policy favoring women at the expense of men is a necessity in order to bring about gender equity. While this sounds like a hard pill to swallow for many, I agree with Dufflo’s assessment in that the trade-off made in the short term is worth the benefits to everyone in the long run. My only concern lies in the feasibility of asking half of the world’s population to make that sacrifice.
Reading for Thursday
http://economics.mit.edu/files/7417
I really enjoyed reading Rodrik’s Growth Strategies. I found his arguments to be both compelling and provoking. The point that stuck out the most to me was Rodrik’s claim that the mechanisms behind kindling economic growth and actually sustaining that growth are different. Much of the focus of development economics has been placed on kickstarting the cycle of economic growth. The general assumption is that once this cycle of economic growth has begun, it will, by default, self-sustain. Rodrik suggests differently, pointing at the countless examples of developing countries running out of steam. Unfortunately, a one-size-fits-all solution is virtually nonexistent in development economics. Going back to some of the ideas we’ve discussed in class over the past few weeks, an overwhelming number of variables can impact the success of economic policy. Rodrik reinforces this idea, emphasizing the limits of reusing previous ‘model institutions’ that may have been successful elsewhere. It is important to tailor policy solutions to specific cases. Equally important is acknowledging the limitations of economic models and how successfully they translate into real world policy. I also believe we need to take caution in the ‘flexibility of institutions’. Rodrik defines good institutions as those that provide first order economic principles of property rights, contract enforcement, competitive markets, etc. However, I think it is important to extend that definition to include the provision of basic human freedoms. Yes, economic provisions are important. Nevertheless, these human freedoms are just as important, if not more so.
Reading for Thursday
http://drodrik.scholar.harvard.edu/files/dani-rodrik/files/growth-strategies.pdf?m=1435073927
One of my favorite lines from Krugman's Fall and Rise of Development Economics is his defense of simplistic models in complex systems- they give insight into why the "vastly more complex real system behaves the way it does". I find Krugman’s embrace of the unsophisticated to be both refreshing and essential to studying economics. His insight that these basic models challenge us to go out and measure instead of us giving us a false sense of understanding is especially pertinent to development economics. Yes, it is important to intellectually understand the economic struggles of developing countries. However, it is the resulting action that makes the impact.
Reading through this article, I find it easy to see why this is one of Professor Casey’s favorite pieces. An emphasis on models with an ‘it depends’ disclaimer- what more could you ask for?
Development Reading for Thursday
http://web.mit.edu/krugman/www/dishpan.html This is one of my all time favorites!
In Development as Freedom, Sen redefines the goals of economic development. Rather than approaching development from a purely economic perspective, Sen argues that we need to reframe the conversation around the freedom to live a fulfilling life. Sen mentions 'unfreedoms' that many people today continue to suffer from. What stuck out to me was the importance Sen placed on political rights as a freedom.
I took a seminar last year on The Ethics of Citizenship. One of the most important points of discussion was the intertwining of political rights and personal autonomy in society, particularly the marketplace. In most societies, individuals without power in the political sphere were unable to be economically independent. Even beyond the economic sphere, Sen argues that political rights transcend all other freedoms. The ability to participate in public affairs is of the utmost importance- it is the freedom that is most closely tied to the ability to live a fulfilling life through exercising our own volitions. Being denied this political liberty is an insurmountable unfreedom, even with a favorable economic circumstance.
Reading reminder for next Thursday
Your assignment is to read chapters 1 and 2 in Sen.
In Development as Freedom, Sen redefines the goals of economic development. Rather than approaching development from a purely economic perspective, Sen argues that we need to reframe the conversation around the freedom to live a fulfilling life. Sen mentions 'unfreedoms' that many people today continue to suffer from. What stuck out to me was the importance Sen placed on political rights as a freedom.
Reading reminder for next Thursday
Your assignment is to read chapters 1 and 2 in Sen.
Reading Banerjee and Duflo's account of the dofa sellers reminded me of the merchants that litter the streets of poor rural communities in China. My extended family lives in the Sichuan Province of China, and whenever we visit I am always bewildered by the amount of jobs the impoverished juggle in order to make ends meet.
I remember meeting one of my Grandma's close friends in particular. In the mornings, she made noodles and dim sum, selling breakfast foods at her street stand. In the afternoons, she would pick up trash on the streets. At night, she would sell fruits at her stand. The most amazing part was that she was 73 years old and still had the energy to work all day.
This juggling of jobs is incredibly common in rural areas of China. Banerjee and Duflo hit the nail on the head when they define these workers as "penniless entrepreneurs". Many of these street merchants have lived their whole lives this way, working small jobs and trying to make as much money as possible in the limited free time that they have. Unfortunately, these 'entrepreneurs' accomplish little in terms of making a profit.
Once again, education (or rather a lack of it) furnishes these cycles of poverty. To give a more personal example, my mom and dad were both from the same hometown and both received scholarships to attend universities in America. Many of their old middle school and high school classmates are working the same jobs they worked right out of high school. China has significantly improved its education programs in recent years, which has undoubtedly contributed to the unprecedented development and growth.
ECON 280 Reading for Thursday
http://economics.mit.edu/files/530
Reading Banerjee and Duflo's account of the dofa sellers reminded me of the merchants that litter the streets of poor rural communities in China. My extended family lives in the Sichuan Province of China, and whenever we visit I am always bewildered by the amount of jobs the impoverished juggle in order to make ends meet.
I remember meeting one of my Grandma's close friends in particular. In the mornings, she made noodles and dim sum, selling breakfast foods at her street stand. In the afternoons, she would pick up trash on the streets. At night, she would sell fruits at her stand. The most amazing part was that she was 73 years old and still had the energy to work all day.
This juggling of jobs is incredibly common in rural areas of China. Banerjee and Duflo hit the nail on the head when they define these workers as "penniless entrepreneurs". Many of these street merchants have lived their whole lives this way, working small jobs and trying to make as much money as possible in the limited free time that they have. Unfortunately, these 'entrepreneurs' accomplish little in terms of making a profit.
Once again, education (or rather a lack of it) furnishes these cycles of poverty. To give a more personal example, my mom and dad were both from the same hometown and both received scholarships to attend universities in America. Many of their old middle school and high school classmates are working the same jobs they worked right out of high school. China has significantly improved its education programs in recent years, which has undoubtedly contributed to the unprecedented development and growth.
ECON 280 Reading for Thursday
http://economics.mit.edu/files/530
In their article, Halpern, Koren, and Szeidl explore the effects of importing on productivity in Hungary. They developed a model to test the influence of imports. What they found was that importing inputs created a noticeable increase in productivity. Furthermore, they found that imports played a large role in economic growth in Hungary and that tariff cuts increased domestic productivity. The authors argue that free trade promotes economic growth, and are proponents of trade policy that promotes imports.
We discussed GDP as a measure of the sum of consumption, investment, government spending and exports minus imports. According to a strict definition of our model, an increase in imports would lead to a decrease in GDP. However, the authors argue that the costs saved from imports and the subsequent increase in productivity would outweigh the initial direct decrease. Limiting imports would not increase GDP; it would actually hurt the economy.
ECON 102 - one last chance to comment
Does limiting imports help the domestic economy? http://microeconomicinsights.org/the-productivity-effects-of-importing-inputs-evidence-from-hungary/
It comes as no surprise that so many leading economists warn against implementing the Balanced Budget Amendment. Such an amendment is myopic- a constitutional amendment to balance the budget is neither necessary nor a good idea. The letter from the Economic Policy Institute and the Center on Budget and Policy Priorities notes how Congress was able to not only balance the budget but record a surplus through budget plans in the 90s. Perhaps more importantly, mandating a balanced budget amendment contradicts general macroeconomic principles. An economic recession is the worst time to cut government spending, as deficit spending stabilizes and pushes the economy towards recovery; limiting government spending does little but worsen the situation.
ECON 102 - Balanced Budget Amendment = Bad Idea
http://www.cbpp.org/blog/balanced-budget-amendment-very-unsound-policy-leading-economists-warn
In the article, Brad DeLong looks back at his previous comments on the economic recovery from the Great Recession. DeLong believed that the recession would be overcome by the natural business cycle, with a 40 percent recovery each year. However, he notes that he was wrong, and Joe Stiglitz was right- without extreme intervention, the economy would never recover to pre-recession standards.Even though it appears as though the economy is doing well, employment of prime-age adults has recovered less than halfway to before the recession.
In class we discussed the relationship between unemployment and price level in the short run. When unemployment rises, there is greater competition among workers, driving wages and the price level down. When unemployment is low, wages increase and the price level rises, leading to inflation. After the recession, the Federal Reserve decided to tighten up on monetary spending for fear of stagflation. However, DeLong and other eceonomists like Summers and Stiglitz believe the market is in no such threat of inflation and that increased spending is the correct approach. DeLong argues that debt relief and financial regulation are the most important things that need to be addressed. The government must be willing to spend and invest until unemployment falls.
ECON 102 - "The Longest Depression?"
http://www.huffingtonpost.com/brad-delong/global-economic-depression_b_8924596.html?1452263364
In her article, Susan Kelley discusses research that shows the impact of raising minimum wage in the restaurant industry. According to a study done by Boone and Lynn, modest increases of the minimum wage improves productivity, worker happiness, and obviously workforce income. They do, however, recommend a modest increase in the minimum wage, not a rapid jump like some others are proponents of.I find it rather shocking that the minimum wage for tipped workers has remained stagnant for so long. With cost of living and inflation, it makes no sense that tipped workers cannot benefit from increases in minimum wage. Perhaps more nonsensical is that restaurants continue to refuse to pay workers legitimate wages. Removing tips as a whole makes sense for restaurant workers as well as consumers.
ECON 102 - new evidence on minimum wage impacts
http://www.news.cornell.edu/stories/2016/01/restaurant-industry-unharmed-modest-minimum-wage-hikes
In his article, Krugman discusses the source of unemployment. Krugman brings up two different ideas that we discussed in class: structural and cyclical unemployment. Structural unemployment is caused by workers' failure to provide the necessary skills demanded by employers, the skills gap. Cyclical unemployment, on the other hand,is tried to the cyclical nature of the growth and production within the business cycle.
According to Krugman, the argument that a rise in unemployment was structural in nature is nonsense. Instead, Krugman argues that history continues to show that unemployment is largely cyclical, and that increased spending (like World War II after the Great Depression) is the most effective manner to combat it.
I believe the reason why the idea of structural unemployment is so popular among 'the elite' is because it is easy to blame the workers. Like Krugman says, if there was truly such a lack of skill in the workforce, where are the increasingly well-paid jobs? The unemployed workforce have the skills but there is a lack of demand.
ECON 102: Cyclical or Structural
http://krugman.blogs.nytimes.com/2016/02/08/structural-humbug-revisited/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=C4814C19D684B50A9B7CFD60F49D2DC1&gwt=pay&assetType=opinion
For some reason the first part of my blog post was not submitted.
In his article, Powell discusses the repercussions of the rising income and wage gap. Powell mentions how wages for the majority of U.S. workers have not changed since the 1970s. On the other hand, the rich have only been getting richer, with the top percent experiencing a wage increase of 150-360 percent. However, wage isn't the only statistic measuring the growing inequality. The gap in wealth is also increasing at an alarming rate. Differences in both human and physical capital have created this dichotomous distribution. The wealthy are better educated and hold more resources and assets like real estate, stocks, and obviously money. According to Powell, one of the biggest problems stemming from this inequality is that opportunity has become so tied to money. In the so called land of opportunity, this unequal access to resources and education is both undemocratic and unethical.
I thought the most interesting point that Powell brought up was that an inequality in wealth leads to an inequality in power, especially political power. This is especially true after Citizens United vs. FEC, where the Supreme Court ruled that monetary contributions to political campaigns are protected by the first amendment. I personally find the ruling absurd; Super PACs and the wealthy control politics. Representatives have no choice but to accept the influence of money.
Econ 102: The costs of inequality: When a fair shake isn’t | Harvard Gazette
http://news.harvard.edu/gazette/story/2016/02/the-costs-of-inequality-when-a-fair-shake-isnt/ Sent from my iPad
I thought the most interesting point that Powell brought up was that an inequality in wealth leads to an inequality in power, especially political power. This is especially true after Citizens United vs. FEC, where the Supreme Court ruled that monetary contributions to political campaigns are protected by the first amendment. I personally find the ruling absurd; Super PACs and the wealthy control politics. Representatives have no choice but to accept the influence of money.
Econ 102: The costs of inequality: When a fair shake isn’t | Harvard Gazette
http://news.harvard.edu/gazette/story/2016/02/the-costs-of-inequality-when-a-fair-shake-isnt/ Sent from my iPad
In the blog post, Wren-Lewis discusses the dangers of accepting anti-Keynesian policies. He criticizes advocates of "economic quackery" that spout misinformation to conform to right wing agenda. In critiquing James Bartholomew, Wren-Lewis notes how frail the evidence he provides is. First, the policy proposed by the papers by ALesina et al led to a second Eurozone recession. Wren-Lewis also explains why historical examples of fiscal action are not adequate enough to deny fiscal action. Macroeconomics as a whole is influenced by many different things, so specific examples supporting any claim can be found. Nevertheless, econometric studies are overwhelmingly in favor of fiscal action.
According to Wren-Lewis, denial of Keynesian economics is a threat to the economy. Interestingly enough, Wren-Lewis addresses the political right of Europe and the UK, a group far less extreme than the political right of the United States. I would be interested in hearing his thoughts on the political right "across the Atlantic", especially with the amount of anti-science misinformation being thrown around.
I am curious as to how 'conservative' economics has survived so long. If denying Keynesian economics is anti-science, how has it maintained its prevalence in modern politics?
Another one for 102 students
Simon is one of the best - just ask Prof. Davies. http://mainlymacro.blogspot.com/2016/01/the-political-rights-dangerous-support.html
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