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Kristina Lozinskaya
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The World Bank’s 2014 “Turn Down the Heat” report provides an extremely depressing depiction of the future that makes me wonder if we are going back to the times when people fought for water and other basic necessities. Nothing, it seems, will stay the same once the world is 2-4 degrees Celsius hotter, nor would the horrendous consequences of the climate change omit anyone, with the poorest, as always, bearing the highest cost. It is enormously difficult (and psychologically damaging, in a way) to try to summarize all the adversities humanity is certain to face over the next few decades if the issue progresses at the same rate, taking us to the point of no return. Instead of describing a general picture, I want to share some specific statistics that shocked me most: 1. CO2 emissions in 2014 were estimated to be growing at about 2.5 percent per year. After looking it up on the Internet, I found that it is hard to say if we are doing better now because even though the 2018 emissions grew by 1.7%, it was the highest rate of growth since 2013 and 70% higher than the average increase since 2010 (IEA). Especially considering the acute problem of wildfires in the Amazon, California, and Siberia this year, I do not dare to expect the problem to improve anytime soon, unfortunately. 2. Observed rates of ocean acidification are already the highest in 300 million years, and rates of sea-level rise are the highest for 6,000 years. I am really curious about how and why ocean acidification occurs and terrified at the sea levels rise. It is also particularly devastating to realize that in the future, the Caribbean might not exist anymore as mentioned in the paper. 3. A projected 80-percent increase in the frequency of the strongest north Atlantic tropical cyclones for a 4°C world, compared to present. Should we wave Florida goodbye too? 4. In a 2°C world, highly unusual heat extremes would occur on average in one of the summer months in each year from the 2040s onward. This leads to the spike in heat stress levels, which will undermine regional labor productivity, putting a burden on health infrastructure. Incredible! In addition to all other problems, humanity might be in no condition to cope with them… physically. And lastly, 5. Under current policies, there is about a 40 percent chance of exceeding 4°C by 2100. This is why this report is a desperate cry for humanity to act *now*. I found the regional studies really interesting too and was especially astonished at the problems facing the Middle East and North Africa, whose population is projected to double by 2050. Considering how reliant the region is on imports for food already, its future looks very grim. Add to it how climate change threatens global security by sparking large-scale migration, and we could have a “dystopian” kind of world with disadvantaged groups trapped in adversely affected areas that they cannot move out from because of the lack of funds or connections. The only thing that is different from “dystopia” here is that it could actually happen soon – sometime before 2100 (pt 5). The last thing I wanted to share is that this November, at the Amnesty International Conference in Richmond, I had an opportunity to attend the incredibly eye-opening panel on climate change. We focused mostly on who is behind climate change, and among many things that surprised me, I learned that just 100 fossil fuel-producing companies are responsible for 71% of global greenhouse gas emissions since 1988 (https://www.theguardian.com/sustainable-business/2017/jul/10/100-fossil-fuel-companies-investors-responsible-71-global-emissions-cdp-study-climate-change). I think that it is essential for economists and public policy advocates to persevere lobbying governments to make those companies stop their harmful practices because their “money-making” is steadily destroying the world. I am also looking forward to discussing what we, as students and citizens, can do to prevent the problem of climate change from deteriorating further.
Toggle Commented Dec 4, 2019 on Last Blog Post for the Year at Jolly Green General
Sorry, I have just realized that I forgot to attach the link to the CSIS report that I've mentioned above! Here it is: https://csis-prod.s3.amazonaws.com/s3fs-public/publication/190416_MetzgerSavoyYayboke_DRM_WEB_v4.pdf
Toggle Commented Nov 21, 2019 on Next Week at Jolly Green General
“Does Aid Reduce Poverty?” by Juliana Yael Milovich is a decent contribution to the over half-a-century old debate on whether aid helps reduce poverty. She stresses the rather disappointing fact that all the previous studies on that subject have produced inconclusive results. I thought it hardly surprising after this paper has demonstrated to me how difficult it is to assess the impact of foreign aid, especially when you consider such important complicated factors as the lack of data, inefficient and far from all-encompassing poverty measurement tools, and the intricacies inherent to aid itself: different periods, sources of aid (multilateral/bilateral), types of aid (economic, social, food, etc.), timing of impact of aid (contemporaneous and with decades-long lags), etc. The most serious complexity is, perhaps, the fact that economic growth in and by itself does not necessarily reduce poverty, and so, as the author says, analyzing the effect of aid on poverty reduction through economic growth excludes many other social factors that affect the well-being of people (e.g., education, health, and quality of life). Interestingly, Milovich then suggests to investigate the link not between aid and income, but between aid and poverty, for which she shrewdly uses the Multidimensional Poverty Index to grasp the different forms of deprivation experienced by the poor in examining how the differences in the number of years that countries have been temporary members of the United Nations Security Council (UNSC) correlated with the amount of aid they received by the U.S. between 1946 and 1999 and their poverty levels between 2000 and 2014. I am not going to list the results here since Milovich does a pretty great job summarizing them multiple times throughout the text, but I will mention that the “instrument” or these years on the Council that she uses to assess the impact of aid seemed quite interesting to me since the poverty levels of the country itself or its endowment with resources might directly influence what countries will be on the Council, although by some econometric manipulations, she seems to control for that. The main takeaways from this paper for me were the fact that the controversial effect of aid on economic growth should not be taken to mean that aid is ineffective for poverty reduction and that aid is associated with lower multidimensional poverty but not with lower income poverty. I was also shook by the striking statistics mentioned in the footnote that a “$10 billion increase in aid would lift 25 million people a year out of poverty (but only if it favors countries with ‘sound economic management’)”. I remembered how in class, the Professor mentioned Jeff Bezos spending ~$1 bln per year on building a rocket to take him into space. Who could have thought that 10 years’ worth of money spent on building a rocket(-s) “for fun” could have lifted 25 million people out of poverty? Another question that I had from Milovich’s findings is since, out of all other factors, aid seems to have the greatest effect on the improvements in education of a recipient country, what do we derive from that? Is it that most aid is intended for education, or is it a significant positive spillover from something else that aid improves? I also apologize for an extremely long blog comment this time, but I can’t help recommending to everyone interested this very compelling Center for Strategic and International Studies’ report “Rethinking Taxes and Development” (written, among others, by our wonderful W&L 2016 alum Christopher Metzger whom we had the privilege to meet in D.C. on our career trip this fall!). It deals with the question of DRM – domestic resource mobilization – that developing countries should focus on if they aim for the quality long-term development as opposed to foreign aid, which such countries, obviously, do not want to depend on forever. Chris even traveled to Uganda himself to conduct those studies – something which I think is incredibly interesting (+ really adds to the overall credibility of the suggestions presented in the paper)!
Toggle Commented Nov 21, 2019 on Next Week at Jolly Green General
I will be honest with you: this paper is one of the most complex papers I have ever read. I’m not big on finance, and all the talk about yields, rates, bonds, “putting upward/downward pressure on spreads,” “capital account liberalization,” “retention of controls on capital inflows,” etc., leaves me with a lot of questions, mainly because of the terminology with which I am not yet as familiar as I would like to be. However, I did my best to understand the paper, and it was interesting to get exposed to something with which I have never dealt before (especially if you consider the fact that I come from a country where people prefer to put their money in a jar and hide it in a wardrobe instead of opening savings accounts in banks where they mainly go to get their cash transferred onto a debit card when they need to make a purchase online or something). So while I’m hoping that in class, we will be putting the flowery text in the paper in simpler, more relatable terms, as I have understood for now, the authors of the paper conduct regression analysis on certain countries and obtain what they sometimes call “intuitive” results that support the argument made by the members of the external-factors camp thus undermining most of the recent literature that hardly gives external determinants their dues. The reason why the previous studies are misleading is that they do not distinguish the supply- and demand-side effect related to the interest-rate response. What I thought was interesting is that they investigated the capital flows to emerging markets in Latin America and East Asia going back in time, so from the nineties to the post-WWI period. Much of the literature on those 20th-century episodes emphasizes the role of the interest rates in the United States and other money centers in the sudden shifts in the volume of international lending without trying to analyze how important this is relative to the economic conditions in the developing countries. This paper, however, maintains that “global credit conditions have had an important impact on the market for developing-country debt,” concluding that higher U.S. rates negatively impact the demand by international investors both for fixed-rate issues by Latin American borrowers and for floating-rate issues for East Asian ones. One of their related findings that is of interest to me is that because “historically, the economies of East Asia have been less heavily indebted, less dependent on external finance, and more able to respond flexibly to changes in global credit conditions,” in the fixed-rate case, they have the ability to time their issues to restrict supply to coincide with favorable market conditions. One is really gotta give it to those skillful Asians! But once again, at this point, the big obvious conclusions are all that I can draw from this paper, not even mentioning the fact that the regression analysis discussed has left me absolutely horrified about my Econometrics class next semester! Anyways, I am looking forward to discussing this paper in more detail!
Toggle Commented Nov 13, 2019 on For Thursday's Discussion at Jolly Green General
Jeffrey Sachs and Pia Malaney’s work in “The economic and social burden of malaria” has left me quite shocked after I realized how much one curable disease can affect in international economics and world community. Some of the dimensions described by Sachs and Malaney as adversely impacted by malaria include fertility, savings and investment rates, crop choices, schooling, and migration decisions. In general, their work reminded me a lot of Kremer’s deworming research in terms of the similarity of the outcomes. Specifically, I am talking about one of the questions that we have also raised in class when discussing in what area we should focus our investments when considering how we can help the poor households most. I remember that in one of our very first classes, we have argued that directly investing in children’s healthcare rather than merely aiming at the increase of a household’s income potentially has more long-term benefits because of the strong causality between health and income. Just like the children in Kremer’s study who cannot focus on their studies because of malnourishment triggered by the intestinal worms, the children in Sachs and Malaney’s study suffer the same effects equally resulting in school absenteeism with one study attributing up to 50% of medically related school absences to malaria. Considering the fact that the quality of human capital is determined by the quality of schooling and that malaria’s effects on schooling go far beyond just absenteeism but also include increased failure and drop-out rates, malaria, through “depressing the rate of human capital accumulation,” impairs economic growth much more considerably than one can imagine if one only sees its direct effects on health and lower productivity triggered by the physical fatigue. Another surprising, sort of “concealed” negative spillover of malaria is the fact that its “tentacles” reach even fetal development. Because of the diminished immunity, pregnant women are especially likely to be infected, which presupposes the higher risk of miscarriages, neonatal and infant mortality, and underweight babies who, as it turns out, are two to four times more likely to experience failure in school later on. There is also a lot that I would like to discuss here in terms of how the “child-survivor hypothesis” leads to high fertility rates that are in turn likely to lead to reduced investments in education (another striking linkage between how malaria affects social behavior and decision-making that is once again intertwined with children’s education that leads to impaired economic growth) but I am sure we will probably talk about it later in class, so for the sake of keeping it short, I will mention another thing that has impressed me most, namely, the failure of investment in malaria-endemic countries. The case with the 7,000 infected associates of the London-based Billiton company made it very clear why there are so not many incentives for the richer countries to expand their markets and invest in such regions. It is indeed a tragic linkage: because of the disease, other countries are afraid to get involved, so there are hardly any investments which hinders economic development and doesn’t help any of the aforementioned problems at all. However, although Sachs and Malaney state that “the world is now facing a rapidly increasing disease burden,” the situation with malaria looks more promising now than in February 2002 when this article was published. According to the latest World Health Organization’s report released in November 2018 (https://www.who.int/news-room/fact-sheets/detail/malaria), there were 219 million cases and 435,000 deaths from malaria as compared with the figures provided by Sachs and Malaney from 2002 or 300-500 million cases and more than one million deaths per year. It also seems like the $3.1 billion in funding for malaria control and prevention in 2017 is better than how much was allocated for that purpose in 2002, although it is, of course, far from enough, and we, as the world community, still have a very long way to go towards eliminating malaria and all its truly dire effects.
Toggle Commented Nov 6, 2019 on 3 readings for next week at Jolly Green General
Theodore W. Schultz, a prominent American economist who won the Nobel Prize for his contributions in the field of economics of agriculture while also promulgating the importance of educational capital, in his lecture focused on the idea that to understand the economics of being poor, we need to understand the economics of agriculture since it is how the world’s poor earn their living along with recognizing that it is the improvement in population quality that drives the improvement of the welfare of (poor) people. Overall, I found the lecture very compelling. Schultz throughout his talk emphasizes that economists overrate land and underrate the quality of human agents which leads him to call on economists to acknowledge the fact that because humans have the ability to lessen their dependence on agriculture granted by intelligence, low-income countries (which Schultz says are actually tremendously resourceful) should focus on investing in research as well as health and education rather than directing all their efforts towards conventional farming. He makes an interesting assertion that to enhance development, economists need to pay attention to the economic history which demonstrates that certain resources can be substantially augmented by advances in knowledge which have already allowed us to make land a “vastly more productive resource” and successfully find substitutes for cropland (I doubt one can ever appreciate America’s capacity to produce corn). Despite those achievements, government, it seems, remains the one to blame for the fact that agriculture is still a “highly decentralized sector of the economy” due to the political bias favoring urban population at the expense of rural people as well as industrialization at the expense of agriculture. Shultz accuses the government of preventing the farmers from utilizing their “entrepreneurial talent,” which hinders their important allocative roles. Besides, governments simply cannot “perform efficiently the function of farm entrepreneurs,” not to mention how they contribute to market price distortions and lack of profitable incentives preventing farmers from making the necessary investments to increase their productivity which is the primary cause of the unrealized economic potential of agriculture in low-income countries. The second part of Schultz’s lecture devoted to the question of human capital was even more interesting for me (I have to admit that it is first and foremost the social-scientific part of economics that sparks my interest since I consider myself to be a very social person). Shultz’s approach to treating population quality as a scarce resource that has an economic value and entails a cost of acquisition was particularly fascinating to me since it allowed him to formulate a peculiar supply-demand relationship in investment behavior – something I’ve never thought about in this way, and I am referring specifically to Schultz’s conclusion that “quality and quantity are substitutes and the reduction in demand for quantity favors having and rearing fewer children, …. [so] the movement toward quality contributes to the solution of the population ‘problem’”. The statistics on the improvements in health (life expectancy at birth 40% increase in low-income countries since the 50s) and all the positive spillovers from the increased life expectancy (incentive for education acquisition, more investment in children, better productivity, and less “sick time” especially among others) are very inspiring as well. If possible, I would like to talk more about and learn how Usher came up with the theory to measure the utility that people derive from increases in life expectancy. Schultz mentions that Usher’s empirical analysis indicates that the additional utility increases the value of personal income substantially, and I thought that it is very interesting considering how it seems to be related to how Sen defines the difference between income-earning and income-using ability and the inherent problems of the disadvantaged people associated with the conversion of the earned income into capabilities and into “living well”.
Toggle Commented Oct 30, 2019 on Blog Post for Next Thursday at Jolly Green General
Nowadays, one is not necessarily a feminist when he or she argues that women play a fundamental role in development. Indeed, it is now quite obvious for everybody (or, at the very least, should be obvious) that empowering women leads to faster economic growth and the “wider distribution of the fruits of growth” (1064) since in the long run, everybody is better off from the continuous improvement of women’s position in a society. We have pretty successfully covered it in class discussing Amartya Sen’s theory of interconnectedness between women’s agency and well-being, and Esther Duflo’s paper expands on that by doing a fantastic job in terms of providing numerous examples and significant statistical evidence from research on the questions of whether economic development can cause women’s empowerment (yes) and whether economic development is enough to overcome discrimination (no). Since, as we have established, women’s prosperity generally increases the overall well-being within a society (and here, there are, of course, internal complications, especially when we think about the potential trade-offs inherent in and stemming from certain decision-making practices aiming at development (consider, for example, girls scholarships that have a clear potential to benefit them at the expense of boys)), in this blog, rather than focusing on the main points of the paper (as I can see, my fellow classmates are doing a great job effectively summarizing them already!), I would like to emphasize some of the more subtle statistics and concepts that I found to be most interesting or even striking. One of the most surprising connections for me was the one between the intricacies of tea production in China and the number of missing women decreasing in tea-producing regions (1057). Who could have guessed that one of the reasons for that would be the increased opportunities for women to enter the labor market presupposed by their comparative advantage over men at producing tea because of women’s naturally smaller stature and smaller hands? So it turns out that we have this quite peculiar kind of linkage between women’s physiology – specialized (tea?!) production – increase in the girls’ survival rate. Isn’t it mesmerizing that as Qian (2008) found, “For the same increase in total household income, an increase in female income of 7 U.S. dollars per month (10 percent) translates into a 1 percentage point increase in the survival rate for girls”?! The fact that it happened in China where “it is generally believed that cultural factors and the “one-child” policy are very strong determinants of the preference for boys” thus makes it even more astonishing. Another surprising linkage for me was between the availability of new technologies and the decrease in the cost of discriminating against girls (1060-1). Since new technologies have made the price of sex identification and sex-selective abortion so low, practicing it has apparently become a “no big deal,” and certain Asian countries like Taiwan have already seen an increase in the ratio of boys at birth, not to mention Myanmar with their bizarre advertisements encouraging parents to now pay less for abortion so that later they would not have to pay 100 times more for their daughter’s dowry. Duflo then shrewdly observes that the United States is not immune to this problem either and that there is evidence of sex-selective abortion happening in some ethnic groups within the country. However, the United States, it seems, has a much bigger issue connected with both infant mortality and ethnic tensions, or, to call things by their proper name, with the legacy of racism. I wanted to share some extremely disturbing statistics that I have picked up from the New York podcast The Daily: “A Life-or-Death Crisis for Black Mothers” from May 11, 2018. I was shocked to get to know that the United States was 32nd out of the 35 most developed world countries with the highest mother and infant mortality rates – all driven by the women of color, namely, black women. Crazy as it is, but it is a result of the tragic past. When women first came to America from Africa, their babies weighed more than the babies of white women, but as years passed, black babies started to weigh less, whereas white babies started to weigh more. As you can guess, it was something about black women’s lives or the ways of life driving it. This “something” has no other name but racism that made what the podcast contributors call “toxic stress” an everyday part of life for black women. The impaired physical evolution of black Americans triggered by this frankly inconceivable deterioration in health is best demonstrated by the gruesome statistics that now, a black woman with a college degree is more likely to lose a child than a white woman with 8-grade education despite the fact that black women are actually getting as much prenatal care as white women. I believe, at this point, that it is needless to conclude that the international community still has a long way to go till we can talk about achieving equality and well-being, especially, as it seems, for women.
The “Growth Strategies” by Dani Rodrik intrigued me from the very beginning when he began the paper with two conflicting quotes of an American economist Arnold C. Harberger. What is striking about the quotes is not that they are contradicting each other since one states that countries have to follow the policy tenets of the “professionals” to succeed and another asserts that there in general aren’t that many great policies that are said to improve growth, but that they are made by the same person – only 18 years apart. “What could have changed his mind so drastically and so fast?” – was the first question that my initial confusion prompted, but then I drew a parallel with how in class we tried to wrap our heads around the tremendous diversity of theories of growth and development the evolution of which stimulated the emergence of more of the new theories with every decade, and I realized that in 18 years, a lot could have happened, so it shouldn’t be surprising that Harberger basically refuted his own statement from the past. People change their minds all the time, they give up stuff that makes no sense anymore and at the same time start believing something that they think is reasonable, and all of that depends on what’s happening around them, in other words, context. Keeping that in mind from the very beginning, Rodrik’s argument that even the simplest economic policy recommendations are “contingent on a large number of judgment calls about the economic and political context in which [they are] to be implemented” resonated with me because in life, our judgments are invariably based on the context (and if they are not, well, then they should be or else we are very limited in how just we can be). This paper thus opened my eyes to the fundamental challenge of development economics which is the incredible complexity of the existing economic, political, historical, and cultural context of every country that makes it so difficult to make generalizations and issue specific recommendations for the good of all. There is not really a much sought-for recipe for success: examples of the East Asian tigers’ policies, China and its TVEs, India’s gradualism, and even Mauritius’s export strategies that Rodrik explores in his work (which, by the way, in comparison seems to be much more comprehensive than the “Institutional Barriers…” paper that so superficially looked into most of those countries as well) and their deliberate departure from what used to be considered the rule-of-thumb practices of good economics as outlined in Washington Consensus prove that pursuing “non-standard practices in the service of sound economic principles” really works and works well if you tailor it to the specifics of a country. Just like that, Latin America’s “lost decade” and Sub-Saharan Africa’s collapse emphasize that playing by the good rules will not always let you yield the benefits. Rodrik also makes a good point that emulating other states’ successful policies often fails (consider Soviet’s attempt at imitating China’s Household Responsibility System – the case that I would also like to learn more about). Why? Because so much depends on the context. And so the immediate implication, as Rodrik puts it, is that growth strategies require considerable local knowledge (very encouraging for economists to do their “homework”!) and a certain amount of policy experimentation. I would like to tie it with one of the comments that I made on the previous blog: after the Chilean “Chicago boys” story mentioned in “Institutional Barriers…”, I wondered if sending a bunch of talented economists into a country will help boost its economy, and if yes, then why don’t we just do it, especially since this paper also mentions that Chile was relatively more successful than other Latin American countries in that it also slightly departed from the orthodoxy of Washington Consensus. Adding to that, Rodrik’s mocking of an undoubtedly virtuous and well-intended economist’s reasoning in China and even the thought experiment with the Martian demonstrated to me that, once again, in order to make sound judgments, we need to study hard and pay as much attention to details as possible, and after we gain the knowledge, we should do our best to decide if conforming with the general “rules of good behavior” is worth it or not. Of course, “Chicago boys” in Chile managed to improve its economy. After all, there’s a lot of homework assigned in UChicago. *I am extremely sorry that it is a very unnecessarily long comment, but I also wanted to share this really interesting and short article by The Atlantic that discusses how China soon might start having some serious economic problems because of the issues with demographics and the aging population. I was shook because the statistics look really gloomy! Considering how much we’ve talked about the progress that China is making, I thought it might be interesting for some to look at the flip side of it and what the future holds: https://www.theatlantic.com/magazine/archive/2016/06/chinas-twilight-years/480768/
Toggle Commented Oct 2, 2019 on Rodrik article for Thursday at Jolly Green General
I feel like “The Fall and Rise of Development Economics” by the Nobel laureate Paul Krugman serves as a nice continuation of the discussion of the history of development economics that we started in class this Tuesday which allowed me to see a bigger picture of the evolution of ideas and concepts in economics back then. In the paper, Krugman in a provocative and sometimes funny manner explores what he believes to be a “methodological” crisis of the high development theory of the 1950s. He illustrates this methodological crisis as the conflict between mainstream economic theory and the new kinds of ideas that were present in high development theory. By these ideas, Krugman specifically means the fact that economists had to make a certain set of simplifying assumptions (like, for example, the 4 Big Assumptions of the Lewis’s two-sector model that are not always empirically strong) to build their models – the assumptions to which mainstream economists were becoming gradually more hostile since mainstream economics was moving in the direction of more formal and careful modeling. Krugman argues that this hostility resulted in the fact that the high development theory was simply bypassed because nobody back in the day, due to the limited knowledge, could really create a model that would not rely too heavily on the oversimplifying assumptions which led to an even worse outcome: long slump in the development theory that entailed with it the loss of knowledge. The paper thus really makes you appreciate those life-saving assumptions without which economic analysis becomes incredibly complex. Indeed, economics is an extremely multi-faceted type of science that relies on assuming that human decisions that guide economics are rational. And, funny story, one of my friends once gave me a weird look when I told him that I was going to study Economics. “Why would you want to major in such an unrealistic field that assumes that humans always act rationally when in fact they don’t?” (oh yeah, I guess it is now obvious that he is an Anthropology major). At the moment, I thought, well, it is precisely how we learn to make sense of the complex stuff – by starting with things being simple. And this paper resonated with this idea in that it is essentially a call to dare to be silly (my friend did have some truth in his argument, of course) like Murphy was when formalizing the Rosenstein-Rodan Big Push model. Murphy and colleagues “opted out of the mainstream,” “exploited the bag of tricks,” and for that Krugman praises their work. It’s actually astonishing how we just take the rationality of the models that we see for granted, not recognizing how much work and brain-wrecking went into their development (like the Solow growth model the applicability of which just blew my mind in class). When, in fact, the clue, it seems, is to simplify, to make a world in a dish-pan.
Toggle Commented Sep 25, 2019 on Reading for next Thursday at Jolly Green General
“If you were president, faced with a slowing economy, what would you do?” — This is just one of the multitude of questions that people want the Democratic candidates running for president in 2020 to answer in hopes to see the U.S. economy improve. And while Andrew Yang is pushing to give $1,000 per month to every American citizen, Elizabeth Warren is proposing a sweeping increase in Social Security benefits through new taxes on the wealthy, and pretty much everyone is laying themselves out to draft their own very best and at the same time very different from others economic plan for the country, experts state that the dominant economic question sparking debate within the Democratic Party is about the place of the private sector vis-a-vis government. So you can probably blame it on the overviews of the Democratic debates that I’ve been recently reading on NBC News, but the questions that occupied my mind after I finished reading “Institutional Barriers and World Income Disparities“ all had to do with the role of government in the economy. The question of how much the government should intervene in the economy is as old as time, as they say. However, when prominent economists take 10 fast-growing and 10 lagging-behind kind of countries and find out that in their development over the past five decades, “institutional barriers have played the most important role, accounting for more than half the economic growth in fast-growing and trapped economies and for more than 100 percent of the economic growth in the lag-behind countries,” regardless of political affiliation, one kind of starts sympathizing with the Democrats and wondering if in the end development mostly depends on the quality of decision-making on the governmental level. As Wang, Wong, and Yip summarized, all of the 10 fast-growing countries have adopted an open policy with an export-led development strategy. How did they do it? Seems like most of them created and followed a clear economic development plan such as the 1967-71 Five-Year Economic Development Plan of South Korea that made it shift from import-substitution to export-oriented industrialization or The Ten Major Construction Projects of Taiwan which was analogous to South Korea’s in its achievements. How do governments come up with those plans? Do they mostly copy other successful countries like South Korea did with Japan? In any case, it is clear that developing international relations, opening up markets and willing to learn and benefit from other countries are all integral parts of making an economy grow as is best demonstrated by the histories of Singapore and China. Then there is strong administration, smart policies, the ability to adapt to crises, and even the power of a single person that all seem to play a very significant role in a country’s development. In this respect, India was the state that has struck me the most. Its growth came much later compared with other fast-growing countries, and no wonder, as their government followed what Wang, Wong, and Yip call “restrictive trade, financial, and industrial policies.” Despite all that, the government was clever to invest in research and development along with human capital as it started programs for developing engineers and scientists. Then in the 1980s, something in the government shifted in favor of private businesses, and the country was able to see rapid growth in the economy by liberalizing both international trade and the capital market. This “something” that caused the shift to the government’s favor of businesses was the return to power of Indira Gandhi which made me wonder – how often is it that a single person creates such a positive change in the government that it subsequently impacts the whole economy? Also, India’s handling of the “well-known 1991 balance-of-payment crisis” (that I, to be honest, don’t really know much about and also would be really glad to learn and discuss the Asian crisis and the two oil crises mentioned in the paper as well) deserves praise as it provoked the reform that finally started the liberalization of the economy toward a free-market system. To return to my main question of the extent of the role of government in the economy, in contrast, the “laggards” were overcome with such flaws in government strategy as unnecessary protectionism, government misallocation, as well as such pity misfortunes as corruption and financial instability – all of which suggests to me that even if the government wanted best for its people, it intervened too much, so mistakes were made and harmful practices took place. Now, does it have to be like that? The story of Chile’s Chicago boys suggests that if a country’s government is willing to listen to and even bring in talented economists from abroad like Chile did with Chicago economists, it can significantly boost its economy, and so it seems like human capital on the very governmental level matters tremendously. Could it be so that passionate, action-driven rulers are the only thing that other lag-behind countries need to improve their situation? Colonial past, population pressures, and corruption from which those countries suffer so much all can, it seems, at least in theory be overturned by the changes in the governing body. After all, Singapore once used to be an extremely poor country basically built on a “swamp,” but it was its first President Lee Kwan Yew and his aides who made Singapore a flourishing state that is now considered to be one of the richest countries in the world. By the way, if you haven’t read Lee Kwan Yew’s From Third World to First: The Singapore Story: 1965-2000, I strongly recommend, as he tells all about how they did it.
When I was reading “The Economic Lives of the Poor,” one thought that so obtrusively popped up in my head throughout the process was how ambiguous or relative poverty actually is. Undoubtedly, there are incredibly many complicated issues surrounding even the very term of poverty that the paper touches on including how to define it and how to adequately determine poverty lines, to name a few. But as somebody who is interested in Social Sciences and International Relations, the challenge posed by poverty to the global community that I find to be one of the most magnificent, at least for me, is how strikingly different people perceive poverty in different countries. When in class on Tuesday we were talking about poverty lines, I was astonished that somewhere in the world, living on a dollar per day makes you fall below the poverty line while in the U.S. earning less than $12,000 per year means you are poor. The numbers seem incomparable, to say the least. At the same time, somebody who lives on that dollar per day in Udaipur, as mentioned in the paper, can actually spend up to 30 percent more on food than he or she actually does while having a $12,000 income per year somewhere in Los Angeles can find you on the street asking passers-by for money to carry you through the day. I guess this kind of a striking impression that the paper made on me can be explained by my background and where I come from. As a post-Soviet country, Belarus is usually regarded to be a part of the “second world,” so somewhere in the middle. It is the country where the government has not so long ago announced that one of its primary goals is to make it possible for every citizen to earn $500 per month. This would amount to $6000 per year, and currently, people don’t earn that much. The minimum wage is a little over $150 per month, so that would give some of the more low-skilled workers $5 per day, and our government thinks that they can survive when an average meal at a relatively inexpensive café costs roughly $7, and then those workers also have to pay for housing, transportation, healthcare, and the list for most of them goes on. The prices of goods differ between countries, of course. Living on $7 per day in America, Belarus, and Papua New Guinea, urban or rural areas, is all different. And people perceive poverty differently: when I am in America, I think that buying a cup of coffee for $4.50 is crazy expensive while more than 60% of the population of Papua New Guinea have no basic access to clean water. And sometimes when I am debating whether or not to buy yet another cup of coffee replying jokingly to my friends that “I am too broke,” I fail to acknowledge that I am too lucky to have this choice and this opportunity. Based on the income of my family, we fall way below the American poverty line and amount to a very average in Belarus, yet we have housing, clothing, food, and access to quality education and healthcare. When we laugh with my friends back home at the fact that all of us are “too poor” to buy the fourth pair of shoes for the summer looking at how on Instagram, Kylie Jenner complains that her special made-for-shoes closet of a size of a double room can no longer fit any new pairs, we don’t see that somewhere in this world, people have to walk wearing no shoes, moreover, having no opportunity to buy any shoes. This is how strikingly relative poverty is.
Toggle Commented Sep 12, 2019 on Readings for next week at Jolly Green General
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