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David Cohen
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In a blog that’s full of negativity, I figured I’d try to offer a a more positive outlook on the issue. Yes, the current trajectory is not preferable. However, figure one shows that our best estimates predict that, considering existent pledges to reduce emissions, the rise in global temperature is not certain to break three degrees Celsius above pre-industrial levels 100 years from now – let alone four. Of course, this would still have disastrous effects on our descendants, and the current pledges don’t seem to be enough. Though it is worth mentioning that we are a long time away from 100 years from now. The speed at which technology progresses in today’s world is really unfathomable if one thinks about it. We have cars that drive themselves and rovers exploring planets lightyears away. Scientists predict that we’ll have cures for every ailment (including cancer) known to man in the next 15 years. We didn’t have cell phones let alone smart phones 15 years ago. Think about life 100 years ago? This year is 2016. The Battle of the Somme was in 1916, during which the British Expeditionary Force lost 57,470 casualties in one day. Men literally ran through miles of mud armed with rifles, being barraged by artillery, poison gas and machine gun fire. That was the most sophisticated plan that technology had allowed. Ok, that was depressing, but the point is to show the potential for progress that we have at our disposal. Now, we have drones, artificial intelligence, and the ability to send the world into thermonuclear winter with the push of a button (and we had that ability 60 years ago). Ok still depressing, but you get it right? Who knows what kinds of good things we’ll be able to do with the press of a button in 40 years? We’ve made all this progress in 100 years, when the pace of progress was so much slower than it is today. Technology is obsolete in 3 years’ time within the modern paradigm. I know there is a lot money invested around the world to address the issue of climate change, and that major breakthroughs will occur. If we refer to the Environmental Kuznets curve explained in class, as countries develop and A increases, we will find more efficient and less damaging ways to operate, and probably even reverse the trajectory shown in figure one! And yes, good intentions and technological advances mean nothing if we don’t have people in power willing to act, but I suspect that will change as well. I believe that people are generally good, and generally sensible. I’ve been applying to many jobs (trust me), and company after company are proud of the efforts they make to work towards sustainability. I according to some research I did a couple of years ago, according to Merrill Lynch around 55% of high-net-worth investors will forgo significant gains to invest in a less profitable company, but one that displays greater social/environmental responsibility. The overwhelming majority of educated people understand the potential consequences at stake, and I believe that we, as a planet, will find a way.
This paper confirms the literature generated by proponents of big-push theory, as well as those scholars who recognize the centrality of institutions in tempering growth and development. Le Goff and Singh underscore the importance of education, strong financial markets, and efficient bureaucratic institutions conducive, towards creating an environment conducive to economic growth and development. We’ve been talking about these key components over the course of the entire semester. By showing the inefficacy of trade liberalization towards poverty reduction (while education, financial markets, and institutions are inadequate), this displays the necessity to rectify these issues first. A big push of some sort to focus, for example, on an effort to better the national education system, seems essential towards the prospect of ever reaping benefits from free trade. Therefore, an effort to raise the standard of living among a developing country’s lower classes seems paramount when prioritizing growth policies, and a clear first step in establishing a virtuous circle. I’ve referenced China before, but I will do so again at risk of sounding unoriginal. Maybe I’ve just been exposed to Chinese history/policy more this semester. However, it is more likely that China simply has been the greatest growth success-story of our time. A country with hundreds of millions of impoverished peasants a couple decades ago has seen unbelievable development by operating under a closed economy, focusing on building Chinese industry, devaluing their currency, and promoting exports. They enacted policies that focused on building domestic institutions, rather than opening up their economy to liberalized world trade. It is currently a crisis in the PRC that growth has slowed to 6-7%. In the US, we would be happy with 2% growth.
Toggle Commented Nov 29, 2016 on Reading for Thursday at Jolly Green General
After reading Eichengreen and Mody’s paper, I can definitely comment on their findings that interest rates in the US, the largest economy in the world, has a significant impact on developing countries. I can relate this article to Professor Davies’ International Finance class. Based on an international dependence variation of the Mundell-Flemming Model, I can support the idea that US interest rates will have an effect (at least theoretically) to output in another economy. When US interest rates fall, this usually creates an excess demand for foreign currency, depreciates the exchange rate, and makes US exports more attractive. One way the US can make this happen is by enacting expansionary monetary policy. This leads to a shift outward of the LM curve (shifting our output out and interest rates down). Our increased income will then lead to a small increase in exports for the foreign country because we are able to import more of their goods. The resulting excess demand for foreign currency leads to a shift out in our IS curve due to a depreciated exchange rate and increased exports. However, the foreign country’s exports will decrease sharply, causing a shift back in the IS curve further than it originally shifted out (leaving this country with a lower interest rate and output). This is why expansionary policy is seen as a “beggar-thy-neighbor” policy, because you essentially steal demand from foreign countries. This is also why all countries drove interest rates into the ground during the financial crisis (and they are mostly still there). If one had graphs to accompany my explanation, he/she could clearly see that lower interest rates usually spell poorer economic performance for the rest of the world. However, if the US enacts expansionary fiscal policy, this results in a rise in output for both the US, as well as the rest of the world. The finding in the article seems to be opposed to the general view that free market and free trade economic policies akin to ours, and championed in the Washington Consensus, are the way for poorer countries to achieve growth. This finding also seems to validate views that impoverished countries are trapped in an inescapable cycle, whose fate is dependent on the developed world. The Mundell-Flemming model seems to support the second idea here (and prove that those who adopt a floating exchange rate) often end up worse when the United States Federal Reserve enacts expansionary monetary policy.
Toggle Commented Nov 16, 2016 on Readings for this week at Jolly Green General
After reading both articles, I am going to have to disagree with Schultz’s argument that every instance of slow economic growth can be answered by the universal application of “standard economic policy”, and that the European case was the same as the current African case. Obviously, I am lacking a great deal of information. It is very possible that conditions conducive to economic growth in Medieval Northwestern Europe were better than modern sub-Saharan Africa, and equally possible that they were worse. I do not have the facts, and would argue that few, if any, have a complete understanding of this issue. However, standard economic theory cannot account for everything, and these are clearly not completely identical situations. Besides Rodrik’s (rather convincing) scholarship on the critical importance of institutions when considering economic policy, it is clear that there are other factors differentiating cases from one another. Theoretical concepts applied in one part of the world (in a different era), just may not work elsewhere. Standard economic theory addressing “scarcity issues” have little answer for the existence of Malaria. This is an issue that has never been a problem for many countries, and is a great example displaying the fact that not every case is equal. In just sub-Saharan Africa alone, there are hundreds of millions of cases a year. 25% of all deaths from children aged 0-4% are caused by malaria, and a sizable percentage of deaths are attributed to malaria indirectly. This leads to a disproportionately high fertility rate and lower investments per child. It also wreaks havoc on absentee rates in school, leading to high drop out. It can also cause low birth rate, learning disabilities, anemia, immunity deficiencies, and additional long term cognitive problems. It also prevents families from accumulating savings, a key to economic growth. Moreover, malaria promotes the movement of human and physical capital away from afflicted areas, to more productive environments. Foreign direct investment and tourism industries suffer greatly due to malaria. Clearly, a significant amount of policy needs to be devoted to solving this problem, and more research is definitely necessary to help in this process. It seems to me that many of these countries will not be prosperous until this problem is solved, as malaria will stunt the effectiveness of standard economic theory. As we have learned, Sachs would definitely support aid as a large part in this process. Sachs (as we have learned) would definitely be a proponent of foreign aid as a large part of the solution to this issue.
Toggle Commented Nov 2, 2016 on Readings for Thursday at Jolly Green General
After reading the article, the idea that stood out most to me was the concept that economic development, and the availability of modern technology, can decrease the cost of discriminating against girls. The idea that economic development will disproportionately improve conditions and freedoms for girls is intuitive, as greater income would allow families to treat previously discriminated girls more equally. Additionally, the arguments that men will surrender some rights to women to ensure his kids get better education (as the importance of human capital increases), as well as that fathers might begin to want to protect daughters from son-in-law’s also makes sense. However, I never really thought about the possibility that new technology like ultra-sound would make it very easy to selectively abort girls rather than to raise and marry them. This explanation both in class and in the article was kind of shocking to me (especially Professor Casey’s anecdote regarding the billboard advertisement in India). In Taiwan, five years after the legalization of abortion, the birth-ratio of men to women rose 2.5 percentage points. This displays a new level of bias that is tough for me to understand. I sort of understand (though do not agree with) valuing a son’s education more (etc.), as the article shows many in India seem to believe in. I could not ever understand selectively aborting girls just because they are female. As a general opponent to abortion, this is horrific. Especially since this solution derives mostly from social pressures from within specific ethnic communities (even in the US). Chinese, Korean, Asian American, and Indian-American families all see abnormal birth-ratios in between sexes. Are these institutional forces that strong, even in the United States? This suggests the enormous importance of traditional institutions on behavior, especially as an impediment to development and freedoms. It also suggests that the spread of modern technology doesn’t do much to dissipate any of these traditions, therefore rendering technology as an enabling component to discriminating behavior. The two given examples of the benign effects of such institutions for girls (in the Mumbai caste system, as well as the in rural areas) seem like exceptions, but do illustrate the degree to which such belief-oriented institutions are fortified into society. It seems like the conclusion to be drawn here is a reoccurring one in this class: that the most effective way to increase freedoms is to concentrate on changing damaging institutions.
Toggle Commented Oct 18, 2016 on Reading for Thursday at Jolly Green General
To build from previous responses, I definitely agree that Rodrik was very convincing in his endorsement for policy strategies unique to a country’s specific circumstances and existing institutions. Often times, people tend to misapply insights they might have gained through their own experiences to the radically different situation of another, by mistakenly viewing it from within one’s own context. For example, Americans might view a Maori tribesman as backwards because of his lack of clothes. For us westerners, clothes represent civilization and culture, but only according to our western understanding of those concepts. Of course this is a generalization of the idea, but it seems clear that this way of thinking does exists, to a certain degree, within the field of economics as well. This is only natural, but it is something one must overcome when proposing policy across the planet. The economic success in China, Korea, and Taiwan are great examples. Rodrik explains that these countries really did not abide to the tenants of the Washington Consensus (but only partially adopting such ideas as appropriate for their own systems), and saw fantastic growth regardless. It seems clear from this article that such a US-centric attitude is evident. The term “Washington Consensus”, in and of itself, displays this inherent truth. After all, aren’t we the best? Every American should think so, but that doesn’t mean that the economic policies that have worked for us will work for every nation. I’m sure Danish people think they are the best as well (I happen to know a couple), but Allie astutely notes that despite their successes, their policies could never work in the United States. Here’s another example of how this rationale is natural, but incorrect: As I have learned in another class this term, Chinese academics would view western scholarship on ethnic minorities in China’s border regions as an imperialist, government-sponsored plot attempting to stir a nationalist resurgence within the PRC. This is an incorrect, though understandably emotional response on the part of the Chinese, due to the history they have experienced with imperialism in the 19th century. Furthermore, it is understandable that they would assume such scholarship is the product of a government agenda because this is exactly the type of system that exists in China. In fact, scholarship in China is totally fueled by the agenda of the Chinese Communist party, and it is reasonable for them to assume the same about us, because that is how they operate. Overhauling all of a country’s political and economic institutions hardly seems like a viable option across most of the world, and it is foolish of us to advocate for that. It seems like what is necessary is a team of highly trained economists, familiar with the way China partially adopted first-order economic principles within the context of long existing domestic institutions, to advise individual countries on unique policy options that would work in their system. Of course, this is all easier said than done.
Toggle Commented Oct 5, 2016 on Reading for Thursday at Jolly Green General
Upon reading “The Fall and Rise of Development Economics” and thinking about Kruger’s model, I found one particular scenario especially interesting -- that which occurs under the condition of very low wage premiums. If wage premium is low, this means workers are receiving a meager compensation for what seems to be much more strenuous modern sector jobs. Of course, the low cost of labor allows for business to grow quickly and, consequently, for the economy to balloon. What I am envisioning as a modern sector job in a developing country might be described as hundreds of underfed and sleep deprived workers, routinely assembling their product, packed into a massive yet grimy factory. Additionally, working this type of job in a developing country would probably entail extremely bleak living conditions in a hurriedly industrialized area (most likely lacking sufficient sanitation or quality air). Whether or not this portrayal is accurate, I am not totally sure. However, it seems likely that standard of living will suffer for workers as the wage premium declines. Is this story similar to the unprecedented modernization of China? As an additional aside, it seems likely that this trade-off would decrease the incentive one might have to leave a traditional sector job to take a modern sector job. Was this considered in the model and could it serve as an impediment to development? What are some ways by which this wage premium is variable? Is Krugman suggesting that the government of a country effectively kick start the modern sector so that less would be needed for common profitability?
Reading the first two chapters of “Development as Freedom” by Amartya Sen, I could not help but relate the reading back to another one of my classes, “Introduction to American Indian Religions”. A few days ago, we watched a documentary on a native tribe in California called the Winnemum Wintu, who still live on Mount Shasta today. This tribe is very small, does not live on a reservation, and has been erased from the list of federally recognized tribes. I began to think about freedom and development with specific regards to the circumstances of the Winnemum Wintu, whom have successfully prevented the construction of a ski resort on their native land, but fight an ongoing battle against modernization and development on a daily basis. The Winnemum Wintu have many sacred sites around which their religion is based, namely a specific fresh water spring that continuously experiences damage due to hikers, (etc.). Essentially, all they want is the small area in which they reside, including the spring, to be left alone. The US Park Service has a difficult job in this respect, as they can either allow everyone access to the land in question, or allow nobody access. It is unconstitutional, however, to allow only one religion (the Winnemum Wintu’s) into the spring. I was curious as to how this might relate to Sen’s ideas discussed in the first two chapters. He does discuss the idea that development might be harmful to a nation, as it may lead to the loss of tradition and cultural heritage. Though he notes that many respond with the idea that it is “better to be happy and rich”, the Winnemum Wintu certainly do not see it this way. Their culture and religion is everything to them, as they do not concern themselves with contemporary technology or the modern marketplace. They live in tents, do not have plumbing, a public education, or western medicine, and have very limited capabilities to join the modern economy – yet they are completely content with this lifestyle (with the exception of their sacred spring being soiled). Sen discusses at length that the people involved must collectively decide which traditions they must abandon and which development they want to embrace. For these people, they do not wish to embrace any development. He additionally describes “freedom as development” as the “ability to do things one values is significant for person’s freedom” and to have the opportunity to experience valuable outcomes. So despite living conditions which we most likely would describe as constituting absolute poverty, the Winnemum Wintu people have almost everything they want (except the sole right to publicly owned land). The question I am trying to ask is, considering that what they want is illegal under United States law, do the Winnemum Wintu people have this freedom, or unfreedom?
One anecdote which interested me in “The Economic Lives of the Poor,” was the story of the dosa women in the Udaipur. These women sell the rice-bean pancakes in the morning, while earning income through multiple other means throughout the rest of the day. Though these women, when interviewed, explained that they could not cook dosas for the whole day, a part of me wondered, why not? Banerjee and Duflo go on to explain that a full-time entrepreneurial endeavor would require more startup capital than is readily available to the extremely poor. It would seem that multiple smaller jobs with little to no barriers to entry are more feasible. What was especially interesting, however, was why even rural communities of the extremely poor also largely experienced multiple occupations. Is it less advantageous to grow and sell food, even locally, if you are a small farmer? Banerjee and Duflo cited many of these extremely poor as owning up to multiple hectares of land (which could grow a decent amount of food). The article highlighted several areas of rural India (with largely generous farming conditions), where families do not get the majority of their income from agriculture. South Africa remains the outlier regarding multiple jobs, as the extremely poor in both urban and rural areas almost entirely report having one job. Is there a cultural or economic condition that allows for this? Conventional wisdom would suggest that additional economic opportunities would be much more numerous and profitable in urban areas than rural ones. The article supports this idea, citing the Udaipur survey which revealed that 60 percent of the poorest households in this region sent a migrant into the city part of the year for work. If all this is true, why isn’t there a more permanent, largescale migration of the extremely poor into nearby cities? Additionally, why hasn’t this trend been identified in more of the surveyed countries? The idea of remaining connected with social groups isn’t really convincing for me. After all, if communities move together, this eliminates the heartbreak of many months away from loved ones. Early in the article, it was explained that large numbers of people lived together to decrease expenses on the fixed costs of living, like housing. If this is true, why can’t larger groups of people migrate to the city together, where economic opportunity seems to be more promising for all? That being said, I do understand that this transition might be harder for families in Mexico or South Africa that live further in distance from urban areas. Regardless, the idea that people, like the Kenyan farmers who wouldn’t buy fertilizer (even though they were capable) at risk of “committ[ing] themselves psychologically to a project of making more money”, would not make an adjustment to benefit their family’s well-being still confuses me.
Toggle Commented Sep 14, 2016 on ECON 280 Reading for Thursday at Jolly Green General
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Sep 8, 2016