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Olivia Luzzio
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My biggest takeaway from this course has been the lens of the 3 i’s (ignorance, interests, and ideology) which we have applied to issues throughout our study of environment and natural resource economics. The 3 i’s provide a succinct and widely relevant explanation of economic behavior and the persistence of inefficient policies in our society. While we discussed ignorance, interests, and ideology mainly in terms of environmental inefficiencies, this framework pertains to nearly every area of economics including health, labor, education, and development. In Environmental and Natural Resource Economics, for example, we talked about how the ignorance of people in coal-mining communities, the interests of coal companies, and the ideologies of policymakers representing the communities leads to the proliferation of coal mining despite its detrimental impact on the economy. Similarly, in the realm of labor economics, we could discuss how income inequality in the U.S. is growing in part because the national minimum wage is kept low due to the ignorance of the people it affects, the interests of large corporations, and the ideologies of the policymakers who rely on these large corporations for funds. Ultimately, the lens of the 3 i’s is one I will carry with me throughout the remainder of my coursework in Economics and Global Politics and into the real world.
Toggle Commented Apr 21, 2020 on ECON 255 Final Exam at Jolly Green General
The prospect that attitudes towards climate change are a strong predictor of social distancing behavior is sensible and disconcerting. An observation I have made over the past several weeks is that the COVID-19 pandemic is akin to taking the past century of climate change and the next century of climate change and condensing the crisis into a two-month period. The parallels are as follows. First, people had to be convinced to believe in the threat of COVID-19 and that it is not “fake news” or “just another flu”, just as we are still trying to convince too many that climate change is a real threat. Second, action on COVID-19 was not taken until it was already upon us, and similarly the U.S. has failed to take significant steps toward eradicating climate change because its impact on our lives at this point seems minimal. Third, collective action is required to kill COVID-19, and those in society who are socially responsible are held back by those who refuse to commit to social distancing. Combatting climate change also requires collective action, but the efforts of those who conserve energy and watch their carbon footprints are countered by those who continue to consume energy and pollute. The list of similarities could go on. The disconcerting aspect of the relationship between social distancing behavior and attitude toward climate change is that climate change is closely tied to politics in the United States. This begs the question of whether social distancing has a political aspect to it as well. I would contend that there are traits characteristic of those who do not support the fight against climate change and are also not doing their part by social distancing: Concern for one’s self over society as a whole. On the flip side, supporters of environmental protection and commitment to social distancing prioritize the good of society over themselves. Largely, these are the same types of people who agree with redistributive policies, which social distancing and environmental preservation technically are. On a positive note, the close resemblance of the COVID-19 pandemic to the climate crisis (aside from time-span and the accompanied sense of urgency) gives us the chance to learn something as a society about acting as a collective. If protective measures were being taken to address climate change to the same extent that they are to address COVID-19, perhaps Americans could be spared a significant portion of the climate-induced costs we are expected to incur over the next century. However, this realization about the importance of collective action is one society must come to as a whole, which means that it requires collective action in itself. :/
The “Progressive Case for a Carbon Dividend” ties together climate change and income inequality in a way that I had not previously considered. The paper explains that the poor and middle class tend to have a smaller carbon footprint than the average, meaning they will pay less for polluting, while the wealthy will pay more due to their larger carbon footprints. Thus, the poor and middle classes will incur a net gain with the carbon dividend in place while the wealthy will incur a net loss. This means that a carbon dividend is a mechanism for reducing income inequality, which I think is an advantage that is often overlooked. Although it may have yet to be admitted, this ideology is easily reconcilable with the conservative case’s point that you earn the tax you pay fairly based on the amount you pollute. While progressives and conservatives may have vastly different motives and priorities, a carbon tax and dividend addresses each group’s goals to a certain extent.
Toggle Commented Apr 13, 2020 on The Case(es) for a Carbon Tax at Jolly Green General
Brookings’ “Ten Facts about the Economics of Climate Change and Climate Policy” article emphasizes the disproportionate impact climate change is expected to have on low-income communities. Within the U.S., those with the lowest-ranked economic vitality are predicted to incur the highest damage costs. Worldwide, low-income countries will experience the largest proportionate impacts on GDP and the highest climate-related mortality rates. Germanwatch has developed an index called the Global Climate Risk Index (CRI) which quantifies the impacts of extreme weather events in terms of fatalities and economics losses. The ten countries they predict will suffer the most from climate change are all in South America, Southeast Asia, the Middle East, or Africa. This aligns with the Brookings article’s map predicting the effect of climate change on per capita GDP in 2100 throughout the world. It appears that the global South will be the hardest hit due largely to the excessive emissions and lack of regulation in North America, Europe, and China. This brings to mind the dependency theory we discussed in development economics, wherein resources flow from underdeveloped countries (largely the global South) to developed countries (largely the global North). This leads to the enrichment of wealthier countries at the expense of poor nations. In the case of climate change, the global North extracts vast amounts of resources from the environment, weather that be natural resources or clean air, and the global South bears the cost of this extraction. Whether or not this phenomenon persists depends on the extent to which developed countries instigate policies that reduce their contribution to global emissions. Whether these policies are developed is likely related to how much each country has to lose. Since low-income communities in the U.S. stand to suffer the most from climate change, the priority placed on these communities is a primary indicator of the importance of policy development. Unfortunately, in a nation where the income gap continues to widen, the prioritization of low-income Americans is questionable, as is the potential for development of effective environmental policies.
In the marginal cost/marginal benefit framework, the EPA reducing enforcement of pollution standards causes the marginal private cost (MPC) curve to shift to the right because it is cheaper to pollute. In normal times, this would also cause the marginal social cost (MSC) curve to shift left because increased pollution results in greater costs to society as a whole. However, in the midst of COVID-19, the left-ward shift of the MSC curve would be profoundly augmented. As stated in the article, increased pollution leads to more severe cases of respiratory illness, which is the last thing our healthcare system needs right now. Rather, the U.S. should be taking advantage of every possible measure to limit the propensity of Americans to suffer from COVID-19 in order to limit private and social costs. Limiting air pollution is a nonpharmaceutical intervention just like quarantines, social-distancing, and sanitization which would contribute to minimizing the impacts of the virus. Some may argue that COVID-19 has slammed the U.S. economy and relieving businesses of pollution requirements gives firms the opportunity to catch their breath. But the information in the article and above suggests that pollution propagates the virus, prolonging the suffering of the U.S. economy. The costs of extending business closures and the elongated drop in household consumption will not be covered by relieving firms of the costs of environmental standards. The quickest way for businesses to recover is through resolution of the public health crisis that is COVID-19, which requires clean air to breathe. Not to mention, the costs of pollution unrelated to the propagation of the virus still exist and will continue to plague the U.S. economy in years to come. In other words, firms will not be able to catch their breath until Americans can safely catch theirs, and it is clear from a marginal social cost standpoint that the EPA’s action was a poor economic decision.
The extent to which air pollution impacts cognitive performance in China calls into the question its role in other developing countries that suffer profoundly from polluted air. For example, according to the World Health Organization, India, Pakistan, Cameroon, and Uganda are home to at least one or more cities that are ranked in the top 20 of for worst air pollution in the world. These countries also suffer from significant economic, health, and educational challenges. It would be intriguing to explore the relationship between air pollution and economic growth in developing countries through the channel of cognitive performance. Since cognitive functioning is critical for making-decisions, logical reasoning, and memory creation and storage, any activity that diminishes cognition poses a potentially vast cost to society. Of course, this cost is difficult to quantify. Similar to our discussion of the impacts of living near a coal mine in Appalachia, the impact of air-pollution induced detriments to cognitive functioning would be extensive and intertwined. As the paper mentions, most research thus far has dealt with the impacts of air pollution on the cognitive performance of school-age children. There are clearer costs for this age group, such as linkages to poor performance in school, lower educational attainment, and subsequent decreases in income as adults. However, when it comes to the elderly, whose cognitive abilities appear to be most at risk in the China study, the effects may be harder to grasp. Decisions the elderly make about how to spend their money has ripple effects on society as a whole, but they are less simply to pinpoint. The onset of diseases like Alzheimer’s, which has been linked to air pollution, may limit the productive portion of the population and at minimum imposes the costs of medical and occupational care. Such costs are also difficult to track because they could be correlated with other health problems or predetermined factors like previous generations’ investments in health and education. Thus, studying the interaction between air pollution and economic growth through the channel of cognitive performance on a global scale would reveal costs of climate change that are not immediately visible to society, but would require complex analysis to achieve accurate measurements.
Toggle Commented Mar 11, 2020 on 3 short papers for Friday at Jolly Green General
As someone from Kentucky, two statistics in this article were particularly alarming to me. The first was that for every 1-ton reduction of SO2 emissions, the state would save $5,800 in healthcare costs. For a state that consistently ranks in the bottom 20% of U.S. states when it comes to health and well-being, this kind of information should be a primary consideration for state policymakers. Similarly, the authors’ estimate that coal brings in $528 million but costs Kentucky $643 million annually suggests that the industry is clearly more trouble than it is worth. Growing up, I knew that the coal industry in Kentucky was a problem because my cousin was a coal miner and my parents told me he would probably die earlier due to respiratory issues he developed in the mines. I am confident that most other Kentuckians’ knowledge of the issue is about as extensive as mine was – the mindset of “it’s not great, but there’s not a lot we can do about it.” However, when the problem is quantified to the extent it is in this paper, the absurdity of allowing even part of the state economy to continue to rest on coal is much harder to deny. Policymakers in Kentucky are constantly looking for ways to improve health and education and to bring jobs into the state, especially in the Appalachian region that constitutes eastern Kentucky. Subsidies aiming to reduce poverty, like scholarships and extra funding opportunities for Appalachian-area clinics and hospitals, are countered by continued heavy subsidization of coal. Meanwhile, subsidies for renewable energy are minimal, and those that do exist are challenged by state legislators who believe they are unimportant. To put it simply, a large portion of the state is trapped by the tradition of dependency on coal and an unwillingness to transition to renewable energy production. Until the future is subsidized over the past, Kentucky will continue to lag behind economically and fail to protect its citizens from the economic, health, and social costs of coal.
Toggle Commented Mar 5, 2020 on Discussion Paper for Friday at Jolly Green General
Casey and Schuhmann raise several compelling questions in their investigation of tourist’s willingness to pay (WTP) fees to support conservation in Belize. Measuring tourist’s WTP appears to be an effective way to gauge tourist’s value of a natural resource like the beach and subsequently create a market for its preservation by setting fees accordingly. I found it interesting but reasonable that the group who was aware of the current $3.75 tourism fee was likely to have a lower WTP overall than the group that did not know the current fee. The current $3.75 fee influences the value tourist’s place on the environment in Belize. I am curious to see how this response group’s WTP is affected if they are told the fee is $20. It makes sense that WTP would increase under these circumstances. Furthermore, if a future response group was informed that previous tourists were willing to pay $34.60 on average, perhaps the WTP of those tourists would be even higher. This prospect then begs the question of at what point the rise in tourists’ WTP based on previous fees or other’s WTP flattens out. This mechanism of creating a market for conservation appears to work in areas where tourists appreciate the environment often and in-person. However, preservation of areas near the poles and places less frequented by tourists proves much more challenging to market. While measuring option, bequest, and existence value of these places is a start, these measurements may not adequately account for the value of such ecosystems since people do not know the true extent of what they contain and provide. Throughout high school, I travelled to the Dominican Republic on service trips and was required to pay a $10 tourist fee upon entry into the country. Visitors to the DR are not told what particularly the fee contributes to, which leads many to believe the fee is simply the corrupt government taking tourists money for no beneficial use. I believe countries would benefit from providing information about what tourist fees are going towards, as is the case with the PACT in Belize. Tourists would likely be less bothered by such costs if they knew their money was going towards impactful programs like conservation. This may also deter governments who are not putting the fees to good use to do so in order to continue competing with tourism in surrounding countries.
Krutilla, as well as a plethora of other environmental economists, asserts that we have a responsibility to ensure environmental preservation to the extent that future generations can continue to reap its benefits. In the Economics of Development last semester, we discussed the proposition that it is our duty to “leave the earth as we found it” to ensure that future populations are as well-off as we are. However, realizing that this is both impossible and inefficient, we revised the statement to affirm that it is our duty to leave the earth in a manner such that future generations have the capability to be as well-off as we are. Judging from his paper, I believe that Krutilla would agree largely with this statement. For example, he addresses the argument that improvements in technology can compensate for the depletion of natural resources. By investing in research and development, our generation is attempting to leave the next generation the capability to be as well-off, if not more well-off than we are. Renewable energy technology represents a simple example. By developing ways to harvest and store wind, solar, and hydro power, we make up for the fact that forthcoming populations will not have access to as vast a quantity of fossil fuels. Though they will rely on a different form of energy, they will have the ability to maintain the same standard of living that we have today. On the other hand, Krutilla acknowledges that new technology cannot account for some aspects of environmental detriment caused by humans. In order to leave the next generation with the same natural science and recreational capabilities as we have now, a portion of the environment must be preserved in whole. I find it interesting and slightly horrifying that he quantifies the precise minimum acreage of untouched land necessary to sustain scientific research, because I do not like to think that we would ever reach that limit. However, one could argue the benefits of quantifying as much as possible when it comes to environmental economics, because it is so difficult to measure the costs and benefits in the field.
Coase’s argument that decisions concerning environmental externalities and social costs should be made by evaluating the total effect of different social arrangements on society makes sense from an economics standpoint. However, as we have discussed in class, total cost can be difficult to measure because it is hard to account for social costs, especially when it comes to the environment. For example, it is difficult to quantify impacts on human health, loss of ecotourism, and alterations of ecosystems, all of which are likely to suffer at the hands of negative externalities such as pollution. While interning at the Business Council for Sustainable Energy in DC, I witnessed standoffs between “dirty energy” interests and scientists from NASA and the World bank in congressional hearings. Environmental engineers and climate scientists were frequently shut down just because they could not produce the data to capture the environmental costs they were claiming. Additionally, this article was written in the 1960’s. Arguably, the landscape and perceived impact of social costs has changed profoundly since. Perhaps the effects of carbon emissions were not as well known when Coase developed his position as they are now. In 2020, it seems ethically questionable to allow the Earth to continue to warm based on a cost/benefit analysis. It makes more sense to develop policies that address negative externalities by reducing them in order to prevent further environmental harm, rather than to allow these externalities to persist if they are deemed economically efficient.
The statistics and insights provided by the World Bank report presented a thorough and disturbing vision of the planet as it continues to warm. The sections of the report that struck me the most were those discussing the potential depletion of renewable energy sources if the temperature on Earth continues to rise. For example, extreme droughts in the Mediterranean region are expected to decrease accessibility of hydropower, and extreme seasons in Central Asia are expected to destabilize hydropower in the region. This is particularly disturbing because it means that not only are conditions worsening with the warming of the planet, but we stand to lose the renewable energy solutions that are necessary to stop the planet from warming further. This underlines the importance of implementing renewable energy solutions before it is too late. I had the opportunity to spend Washington Term last spring interning at the Business Council for Sustainable Energy in DC. The BCSE is a trade association of businesses in the energy sector committed to reducing carbon emissions and transitioning to clean energy. One of my main responsibilities was to attend congressional hearings relating to energy and the environment and write follow-up reports for the BCSE’s federal policy committee. It was alarming how policymakers were able to twist the narratives constructed by the World Bank (as well as other organizations like NASA and the UN) according to their own agendas. As demonstrated in the World Bank report, global warming presents an imminent threat to development worldwide. This threat is only proliferated by the disconnect between science and public policy. In one Ways and Means hearing, a scientist at NASA testified and showed both the sea level rise that has already occurred over the past century and the additional sea level rise expected by 2100 in the Myrtle Beach area. Even with the images and statistics right in front of him, the Congressman from Myrtle Beach’s district refused to believe or even consider anything she said. Ultimately, it is this refusal to acknowledge the validity of the threat and commit to combatting it that will allow climate change to destroy our society.
Toggle Commented Dec 5, 2019 on Last Blog Post for the Year at Jolly Green General
In her paper, “Does Aid Reduce Poverty?”, Milovich reports her finding that a 1% increase in U.S. aid among the countries sampled is associated with a .61% decrease in the Multidimensional Poverty Index (MPI). However, there does not appear to be a relationship between U.S. aid and income poverty for the sampled countries. In other words, while health, education, and living standards improve with U.S. aid, the same impact was not observed on income. I am particularly interested in the impact of international aid on underdeveloped societies due to my extensive service work in high school in the Dominican Republic. The program I worked with was careful to be attentive to the needs of the Santiago, DR community despite being an organization headquartered in the United States. Still, I am aware that aid can be detrimental rather than helpful to societies if not applied properly. I would be interested to see literature regarding the potential negative effects of international aid on communities and believe Milovich could have acknowledged these more extensively in her paper. It would also be compelling to differentiate forms of aid geared towards health and aid geared towards education (such as building schools, training teachers, or providing school supplies) and examine which are more beneficial than others. Personally, I believe much of the discrepancy surrounding the question of the impact of international aid results from failure to provide aid in a way that targets the developmental needs of individual communities. Often, Americans seem to be wrapped up in the altruistic component of international aid and pay less attention to what occurs once the assistance reaches underdeveloped countries. On a government level, as cited by Milovich, the U.S. has historically been much more concerned with the political and strategic implications of international aid than the well-being of other societies. In order for aid to be successful, it must be targeted, thorough, and aimed at enhancing human capital in order to truly sustain development in underdeveloped nations.
Toggle Commented Nov 20, 2019 on Next Week at Jolly Green General
Without a strong background in finance, I found Eichengreen and Mody’s article difficult to follow at some points. However, it was clear that lower interest rates in the U.S. tend to lead to more foreign lending. But since demand side factors also matter, it cannot be said distinctively that this is always the case. I found it discouraging that countries such as those in Latin American are forced to pay higher spreads because of economic volatility and troubled credit history. We have discussed at length the extent to which institutions matter in economic development, and specifically how poor financial institutions have prohibited Latin American from achieving sustained economic growth. Thus, high foreign interest rates make Latin American countries less likely to accept loans and prevents them from benefitting from credit. I am interested to know how tariffs and trade agreements impact the potential of underdeveloped countries to benefit from the financial structure of developed countries. This article was published in 1998, and I am curious as to the position the authors would take on international finance in 2019. Furthermore, I believe this article underlines the dependency theory of development economics that we discussed several weeks ago. By framing the issue as the impact of interest rates in the North on capital flows to the South, the authors imply that developed countries above the equator such as the U.S. and those in Western Europe have a large role in the economic situations of developing countries below the equator such as those in Latin America and southeast Asia. As long as southern countries continue to rely on the financial and economic institutions of countries in the North, they will be unable to experience sustainable economic development.
Toggle Commented Nov 13, 2019 on For Thursday's Discussion at Jolly Green General
Both Sachs and Malaney’s article, “The Economic and Social Burden of Malaria” and Baranov and Kohler’s article, “The Impact of AIDS Treatment on Savings and Human Capital Investment in Malawi” unpack problems that are preventing economic development in Sub-Saharan Africa. Personally, the most intriguing aspect of Baranov and Kohler’s article was their subjective measure of life expectancy, based on participants’ own predictions about their lifespan. Rationally, the sooner someone believes they will die, the less it makes sense for them to save or invest in their own human capital. Without investment in human capital, markets in these regions cannot expand. Therefore, citizens’ personal perceptions of their chances are a crucial determinant in economic development in their communities. It would be interesting to observe if communities with easy access to anti-malaria interventions experience the same trend as communities with easy access to antiretroviral therapy for AIDS. It would be useful to have more panel data in order to obtain a more accurate prediction of the impact of subjective perceptions of life expectancy on human capital investment and savings. This would eliminate the possibility of a chicken-egg phenomenon influencing the results. After all, if the communities with highest subjective lifespan estimates are those near ART facilities, it is likely those are more urbanized areas that already have relatively significant human capital investment. Another compelling test would be to disaggregate the AIDS/ART data by gender to see if there is a significant difference between females and male’s investments in their children’s human capital for both long and short expected lifespans. It is clear from both articles that human capital investment in the area of health and particularly disease prevention and treatment is vital for economic development. Public health must be prioritized by governments and the international community in order to kickstart human capital investment at the individual level in underdeveloped communities.
Toggle Commented Nov 6, 2019 on 3 readings for next week at Jolly Green General
In his Nobel Prize lecture “The Economics of Being Poor,” Theodore Schultz asserts that land is over-rated and human capital investment is underrated in the field of economics. Arguably, it is this line of thought that leads to increasing discrimination against the agricultural sector and enlargement of the modern sector due to opportunities for economic development through human capital advancement. As the majority of productivity shifts from the traditional to the modern sector, cities are the targets of government investment. This urban bias is visible across both developing and developed societies throughout the world. I believe it causes not only an economic but a sociopolitical divide between members of a society in the rural sector and those in the urban sector. The ripple effects of urban bias in the United States were reflected in the outcome of the 2016 presidential election. 62% of Americans in rural areas of the U.S. voted for Donald Trump and 59% of voters in urban areas voted for Hilary Clinton. This demonstrates the opposing interests of the two sectors regarding public policy, some of the most relevant in 2016 being economic policies. Perhaps the main explanation for Trump’s victory was the large showing of rural voters who did not feel protected or advocated for in Washington, and believed Trump would change this for them. This begs the questions of why rural voters felt left behind the in the first place, and I would contend that it is partially due to human capital investments directed at the urban sector and lack of priority placed on small-scale agriculture and rural communities. In order to de-align voters across sectors, policymakers must offer economic solutions that promote the advancement of both sectors and reduce urban bias in the U.S.
Toggle Commented Oct 30, 2019 on Blog Post for Next Thursday at Jolly Green General
In her paper "Women Empowerment and Economic Development", Esther Duflo contends both that economic development leads to the empowerment of women and that the empowerment of women leads to economic development. Her claim suggests that if one of these phenomena can be set in motion, the other will follow and a development-empowerment circle will ensue. However, she adds that economic development is not enough to sustain female empowerment and overcome discrimination without the implementation of policies directed at achieving gender equality. I would argue that even with economic development and policies promoting the well-being and agency of women, gender equality cannot be truly achieved without significant socio-cultural transformation in society. Even in the United States, where economic strength and gender equality policies exist, women fall short of achieving equal pay for equal work, breaking into male-dominated fields such as business, law, and STEM, and winning elected offices at the highest levels. Arguably, much of this enduring inequality is due to discrimination linked to social stigmas in the workplace. Anne-Marie Slaughter, the Director of Policy Planning at the State Department during the Obama Administration, wrote an article in The Atlantic titled, “Why Women Still Can’t Have It All.” She explains that the way society is currently structured, women are expected to abandon parenting and household responsibilities if they enter the workforce. This is largely due to the fact that men have never had to worry about their families while at work (as they had wives at home) and since this is the historical expectation in the workforce, women are expected to behave the same way. This stigma is also arguably attributable to the lack of work-life balance in the U.S. workforce. In order to achieve gender equality, the value of family must be emphasized above careers, and both women and men must be allowed to leave early for school pickup once in a while without worrying about losing respect in the workplace or their jobs. I agree with Slaughter that the empowerment of women requires the restructuring of societal values and the overcoming of social norms which trap both men and women in defined gender roles, ultimately stunting economic development in the U.S. and worldwide.
In his paper, "Growth Strategies", Dani Rodrik presents a compelling case for the abandonment of standard “Western” recommendations for economic development and the application of context-specific proposals aimed at igniting and sustaining economic growth through strategic country-based institutional reforms. He discusses China, Japan, and Taiwan, all of which deviated from the “Washington Consensus” method of economic development, to demonstrate that free markets and reduced role of government are not the only pathways to economic growth. Furthermore, he suggests that Latin American countries, who attempted to implement the strategies of the Washington Consensus, actually experienced economic stagnation or detriment without stable institutions in place alongside their reforms. Rodrik suggests that democracy is an important institution for market legitimization. However, some of his southeast Asian success stories, such as China, clearly experienced profound economic growth in the absence of democracy. I am curious as to how exactly the institution of democracy fits into Rodrik’s economic growth framework. He asserts that democracy is vital to helping societies select and establish appropriate economic institutions, but he also argues that completely different institutional structures can result in comparable levels of economic growth. Furthermore, if narrow and directed reforms are poor countries’ best bet for achieving economic growth, it seems that a widespread socio-political overhaul may not be the best solution to promote development. In what contexts is democracy a significant catalyst for economic development and in what contexts is it better for countries to work within already-existing political frameworks? Considering development from a freedom standpoint, it is reasonable to predict that democracy is necessary for citizens to reach their full capacity to make their own decisions and live lives they value, and thus democracy is necessary for societies to achieve economic development. But this prospect would suggest that some of the largest economies in the world, such as China, fall short of development. I would be eager to hear Rodrik’s views regarding the role of democracy in his country-specific framework of economic development.
Toggle Commented Oct 2, 2019 on Rodrik article for Thursday at Jolly Green General
In his article The Fall and Rise of Development Economics, Krugman makes a compelling case for the importance of simplicity in developing theories about multi-faceted and widespread economic phenomena. Specifically, he discusses the importance of relying on assumptions to break down “high development theory” to a more basic level. I agree with this proposition because in order to test a theory in a variety of situations (such as across different countries and societies) it should first be tested in isolation from other variables, which is the role of economic models. However, I disagree with his reasoning that a half-century lag in economic development theory because of researchers’ unwillingness to use models was a setback. I believe the “fall” of economic development theory gave researcher’s the opportunity to expand and fine-tune their modeling techniques, which allowed development economists like Krugman to take advantage of them long-term. A drawback to the modernization theories and models advocated by Krugman and other development economists like Solow is that they depend heavily on stable institutions. For modernization theory to succeed, industrialization and investments in human capital (such as healthcare and education) must also occur. This introduces exogenous factors which, while not included in the models above for simplicity’s sake, may be beneficial to model alongside mainstream development theories to increase their real-world applications. The “Big Push” story may be true, but we cannot be sure until we apply it to individual scenarios. As the role of institutions in economic development throughout the world becomes more apparent, I am interested to see if economists further build upon current models to demonstrate their effects, or if economic development heads into another fifty-year lag.
Toggle Commented Sep 25, 2019 on Reading for next Thursday at Jolly Green General
Wang, Wong, and Yip provide an insightful analysis of the impact of institutional barriers on world income disparities. Perhaps the most unique aspect of their manuscript is their country-by-country examination of the socioeconomic factors behind each nation’s economic growth or lack thereof. By presenting the data on 10 selected fast-growing economies and 10 selected “laggard” economies and then briefly covering every country’s recent socioeconomic history, the authors prevent generalizations and recognize that institutional conditions are country-specific. I found it particularly interesting that the 10 selected fast-growing economies are concentrated in East Asia, while the 10 selected laggard countries were concentrated in Africa and Latin America. This suggests that economic growth and institutional barriers (both the independent and the dependent variable in this paper) are influenced by region. Furthermore, the relevance of region as a factor in the analysis of institutional barriers’ effect on economic growth likely implies environmental, historical, and other exogeneous factors causing economic growth to be concentrated in some regions and not others. For example, it is possible that the poor institutions of the colonial era in Latin America continue to influence the region, causing it to experience corruption, protectionism, and instability of currency more than the European countries. Similarly, it is possible that the technology boom that boosted the economic growth of East Asian countries was a regional “domino effect” that started with Japan/Taiwan and then spread into surrounding countries. I think the economic conditions of a country have a lot to do with the economic conditions of surrounding countries, and I would definitely be interested to explore this concept at a deeper level. In any case, the authors open the door to a more complex explanation for income disparity among countries throughout the globe. They also address the question posed in Todaro and Smith’s book of whether ending poverty and economic growth are goals that are at odds with one another. The answer appears to be, according to Wang, Wong, and Yip, that improving the functions of institutions and eliminating those that adversely affect economies is the key to achieving simultaneous reduction of poverty and economic growth. For example, the authors mention that the banking crisis is at fault for Kenya’s negative economic growth. If Kenya’s banking system was stabilized, not only would this stimulate growth, but it would also encourage people to save, which would ultimately reduce poverty. Additionally, improved infrastructure and industrial capabilities in Ghana would not only stimulate economic growth, but they would likely increase development of healthcare and education opportunities, leading to a reduction in poverty. Thus, Wang, Wong, and Yip’s research provides a foundation for reconciling the goals of economic growth and poverty reduction through an institutional improvement approach and through removal of existing institutional barriers.
While Banerjee and Duflo certainly provide context and an explanation behind the financial decisions and situations of those living on $1 per day throughout the world, I believe Economic Lives of the Poor goes beyond an economic explanation of poverty in low-income countries. My main two takeaways from the paper concern the roles of personal choice and institutions (or lack thereof) in the economic lives of the poor. In my Economics of Social Issues course, we are currently discussing the structural vs. individualist approaches to explaining poverty. The structural approach dictates that people are born into economic circumstances established by already-existing social hierarchies and institutions. Banjeree and Duflo point out the impact of poor or nonexistent institutions on the poor, such as the lack of trustworthy banks preventing people from saving and low-quality education preventing children from learning to read and write. The severe effects of inadequate institutions on economic well-being reflected in this article beg the question of exactly how much choice and potential the poor have to improve their situation. If you are born into a community with poor schools, lack of infrastructure, and less than sufficient healthcare, advancing economically requires far more than hard work. On Tuesday, we talked about freedom as one of the main values of economic development. Everyone strives for the ability to make choices about their own lives. Thus, when Banjeree and Duflo discuss how the poor throughout the world spend less than they could on food in order to afford luxuries like TVs, radios, and festivals, to me this is a demonstration of impoverished people attempting to maintain at least a small ounce of control over their lives. Sure, they have to eat a little bit less, but at least THEY are the ones making the choice to eat less in order to enjoy "unnecessary" entertainment. Perhaps this same notion drives small-scale entrepreneurship and unwillingness to specialize to a certain degree. Selling their own goods and essentially running a business of their choice allows the poor to maintain a sense of freedom in a world where it appears they are economically trapped.
Toggle Commented Sep 11, 2019 on Readings for next week at Jolly Green General
Olivia Luzzio is now following The Typepad Team
Sep 11, 2019