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In “We Can End World Poverty Without Destroying the Planet,” John Quiggin argued that what stops the world from alleviating poverty in a sustainable manner is not technological obstacles, but ideological ones. Quiggin advocated for everyone to stop chasing after profit and consumer goods and shift to enjoying more leisure. Quiggin’s article got me thinking to what extent is government intervention ethical. Quiggin interestingly focused on how ideology undermines our ability to be sustainable and help the poor. Although it is technologically possible to cut energy consumption, people’s associating car with liberation makes giving up travelling by car hard. While Quiggin suggested in his article that young people already have less obsession with travelling by cars, I am reminded of a way to accelerate the shift in ideology--government promotion. The Chinese government has started advocating for travelling by mass transportation, bikes or feet with public-service ads and government-sponsored marathon races. To further encourage people to choose mass transportation and bicycles over driving, the government also set up cheap rental bike stations outside of metro stations. Our bike tracks connect the whole city. To reduce greenhouse gas emission for “must-have” cars, my city’s government changed all public buses and taxis to electric ones. My government offered tax cut for electric car, and, unlike for diesel cars, it does not initiate license plate issuance lotteries for electric cars. Needless to say, such policies largely motivated people in my city to choose public transportation and bicycles over cars. My city has much less traffic than other major cities in China, and the air quality is better. Similarly, China has the potential of shifting citizens’ diet to chicken and pork in response to the high gas-emission rate of cattle and sheep production. Recently, Chinese people see an increase in publication of chicken’s nutritional and health values. People suspect such is the government’s response to a drastic increase in pork price, that the government tries to reduce the price of pork by shifting the demand for pork to the left. Such a method can be used by China to shift Chinese people’s diet away from beef and lamb, which I believe would yield satisfactory results. Finally, Quiggin suggested that redistributing a small amount of the rich’s wealth to the poorest can help lift the poorest from hunger. Whether such method would actually do more good than harm or not, authoritarian countries like China certainly can, and have accomplished wealth distribution. As you can see, authoritarian regimes can be more effective in reaching social optimal, obtaining the positive externalities, than democratic ones. The question, however, is whether it is ethical for them to do so. Should the government act paternalistically and execute what it thinks will be good for its citizens? Does the government have the obligation to gain its citizens’ consent before it does something that most rational people worldwide would agree is beneficial? Is dictatorship justifiable if all the dictator ever do is for the good of society? For me personally, the maintenance of a democratic system is not trading off for some short-term benefits a dictator can bring. While this dictator may be committed to bettering humankind, their heir may not; the dictator themselves can change as well. Dictatorships are too uncertain to entrust the future with. At the same time, democracies should learn the trick of government intervention from authoritarian regimes since it is indeed far more effective than waiting for profit-seeking individuals to consent to giving up some of their income for the seemingly distant need to help the poor or protect the environment.
Toggle Commented Dec 2, 2019 on Last Blog Post for the Year at Jolly Green General
In “Does Aid Reduce Poverty?”, Juliana Yael Milovich discussed whether US aid actually helps alleviate poverty. While previous literature shows inconsistent results as to whether foreign aid can reduce poverty, Milovich points out that the reason for such inconclusiveness is the use of an inaccurate measure. Previous literature generally focused on economic poverty, which turned out not to be a sufficient measure because economic growth is not the sole solution to poverty. Using multidimensional poverty index (MPI) instead, Milovich finds statistically significant correlation between US aid and lower MPI, which indicates the alleviation of poverty. This article thus reflects the importance of using the correct and comprehensive variable in econometric analyses. If economists continue to see income poverty as the only burden on the poor that needs relief, they would ignore the importance of human capital, health, and living conditions and their ability to impede people from exercising their full potentials even with access to enough money. If economists continue to use income poverty in their analysis, the effectiveness of foreign aid would be largely undermined. Their analyses may be used as a reference for countries to reduce financial aid to developing countries thinking that aiding them would be a waste of money. However, Milovich’s data tells us that aid from the US does indeed reduce MPI. The misconception that aids are ineffective would cause countries to miss the chance to help alleviate poverty, which would be a great loss for humanity. I find the fact that 1% increase in aid resulted in different improvements in health, education and living standards, with education having the highest return, encouraging. Since education appears a long-term investment that seems to reflect differently for different students, many countries choose to cut back on education investment before anything else. However, data has shown yet again that, after a relatively long period of time, returns to education investment would be higher than infrastructure investment, and much higher than health investment. Relating to the fact that better education would reduce fertility rate, crime rate and improve productivity, this paper gives government more reason not to reduce education investment. The politics of assistance is also interesting. Milovich’s paper reminds us to not ignore the role of politics in economics. When countries send out foreign aid, their goal is not only to be benign. Countries have political motivations like maintaining ideological dominance and so on. Politically motivated, the US hesitates to aid Cuba because the US wants to attract more countries into having liberal democratic regimes, and Cuba has a communist regime. Thus, adopting a dependence theory mindset, one cannot solely blame Cuba for its slow development. Instead, biased foreign aid may have contributed to the idea that communist regimes fail to alleviate poverty. [Disclaimer: unrelated to personal political viewpoint.] I’ll end my reflection with a question: in table 6, why does religiousness contribute to reducing MPI? Would pious people not “irrationally” donate too much to the church, creating a big disparity between the clergymen and commoners?
Toggle Commented Nov 17, 2019 on Next Week at Jolly Green General
In “Interest Rates in the North and Capital Flows to the South- Is There a Missing Link?” by Eichengreen and Mody, the authors noticed and reconciled the mismatch between the qualitatively proven correlation between lender countries’ interest rate and borrower countries’ bond price, and the quantitative accounts showing little support for such correlation. Although globalization of trade indicates that the world is increasingly related, I never expected that the internal fiscal decision of a country plays a big part in influencing how much loan another country can collect, which then determines how well this country can develop. Physical capital, though not the sole element of development as many economists have argued, is nonetheless crucial to the economic growth of a country. This is because people with however high human capital need enough tools and machines to work with so as to be productive. To have enough physical capital for development, a country needs money. Since a developing country is less likely to have enough money to purchase a sufficient amount of physical capital to reach the optimal equilibrium of production, foreign capital inflow is crucial for developing countries’ growth. When a developing country’s capital inflow falls significantly, and the country depends heavily on foreign loans, financial crisis can and has happened. Therefore, this article helps alarm developed lender countries that their decision to increase interest rate would discourage developing borrower countries from issuing new bonds and collecting more capital for development. The awareness of developed countries that their internal decision to increase domestic interest rate may cause financial crisis in developing countries can lead to positive and negative consequences. Looking on the bright side, developed countries may be increasingly careful in forming fiscal policies since their decision not only affects people within their border, but also many outside. From a more pessimistic and politically realist perspective, however, developed countries may use the awareness to further exert influence and manipulation on developing countries, making them more reliant on their lenders and fostering more exploitations. Countries with emerging markets should try to rely less on foreign debt so that they can avoid the possibility of economic crisis and general instability when lender countries’ interest rate changes. With less dependence on foreign debt, borrower countries can respond more quickly to interest rate changes and time their bond issues better to collect foreign loans more efficiently. Just as shown by the performance of East Asian fixed-rate bonds in the article, by borrowing less from abroad in general, borrower countries can maintain a relatively high bond price when the number of issuances inevitably drops. Such helps keep the capital inflow at a relatively stable rate, and thus interest rate fluctuation in the US and other lender countries would not cause major instability in East Asian economies. To avoid economic fluctuations a country have no control over, it should become less dependent on foreign debts.
Toggle Commented Nov 11, 2019 on For Thursday's Discussion at Jolly Green General
“The economic and social burden of malaria” by Jeffery Sachs and Pia Malaney discusses the astonishing many ripple effects across economic and social realms of malaria. Malaria's ability to infect wealthy and poor people alike may unite all in the country to fight against malaria. Malaria, unlike many other deadly diseases, spreads effectively through the air. As a result, wealthy people cannot shield the disease off through paying for more refined physical facilities like screened doors because when they leave home, they can still get infected. They must attempt to cure the disease so as to be safe. By curing malaria, poor people in the country can also benefit. Thus, when people understand the many burdens malaria brings better, the whole nation would likely collaborate to combat it. With money and motivation, it is possible to at least suppress malaria to a degree where it does not impede the majority’s productivity. In fact, suppressing malaria may not be too hard. Since, according to the authors, adding insecticide-treated bednets reduce child/infant mortality by up to 60%, reducing the severity of malaria may require only a relatively low amount of investment. When the rich realizes how malaria affects their lives not only by undermining their health, it is likely that they would willingly pay for bednets and other basic goods to suppress malaria and help save many children’s lives. It is interesting how the failure to protect the environment affects economic development by providing the proper environment for malaria to prosper. By failing to maintain the balance in our ecosystem, temperature and sea level rise, making more portion of the Earth hot and damp. Such environment suits mosquitos, encouraging them to grow in vast numbers and spread malaria if they happen to carry it. To prevent more regions from turning into tropical or subtropical regions where it is hard to eliminate malaria, it is important and urgent to protect the environment. The fact that malaria can affect cognitive abilities of children before and after birth should alarm politicians of developing countries. The 21st century appears to me the century of innovations and technological advancements. Countries that fall behind in the process of innovation may end up with a bigger gap with the developed countries since developed countries, holding innovative technology, can increase their productivity at an increasing rate. Malaria, however, makes it harder for developing countries to catch up by harming its children’s ability to understand and behave. With impeded cognitive abilities, children would have a harder time learning new knowledge, let alone creating more efficient means of productions. Thus, governments of lower-income countries should emphasize public health more so that the population is healthy enough to acquire knowledge and innovate.
Toggle Commented Nov 4, 2019 on 3 readings for next week at Jolly Green General
In Schultz’s “The Economics of Being Poor,” he discussed the misconception that land and energy are of prime importance to the development of agriculture and stressed the importance of investments in human capital. Technology and innovation are important in fields besides the manufacturing sector. Before reading this article, although I know that technology is important, I associated it with a factory-based setting. Schultz’s article helped me understand that technology is important in the agricultural sector just as well. With enhanced investment in education and health of farmers, the agricultural sector can produce more products with the limited land and energy they have. Such understanding may help eliminate the urban bias problem. Policy makers rationalize their urban bias by arguing that the returns to investments in the agricultural sector would be lower than those of the modern sector. They pay little attention to farmers and invest little in their human capital. Since human capital investment is vital to the development of the agricultural sector, of course the government would not see strong development in the agricultural sector with a low-quality population. Reading Schultz’s article, I understand that society should not attempt to improve poor people’s human capital solely to prepare them to leave their farmland. What human capital investment attempts to do is to enhance people’s capabilities so that they can choose whether they want to enter the modern sector or develop the agricultural sector through research and innovation. I find Schultz’s critique on assumptions of capital homogeneity interesting. Connecting it to “The Fall and Rise of Development Economics,” it is apparent that although simplified models can help people understand the world better, economists should be cautious what they are simplifying. For crucial elements that directly relate to the result, like how capital homogeneity matters to understanding whether to invest in the urban or rural sector, economists should not oversimplify. Schultz’s idea that an increase in life expectancy would increase their utility interest me. According to Schultz, when people expect to live longer, they would acquire better education, invest more in their children’s education, and produce less children. Better education improves people’s productivity, which leads to economic development; reduced fertility enables the concentration of limited capital on less people, which would help improve population quality and the economy. Better life expectancy thus is a freedom that leads to the cultivation of other freedoms.
Toggle Commented Oct 27, 2019 on Blog Post for Next Thursday at Jolly Green General
“Women Empowerment and Economic Development” reviews different scholarships on the interrelationship between economic development and women’s empowerment, concluding that they are unlikely to be mutually reinforcing and that female empowerment needs to happen though at the expense of men’s benefits. While there are many theories supporting the argument that economic development helps empowering women, this paper does it in a more responsible way. Instead of arguing that economic development can help women because culture would change, which is wrong because girls are not really discriminated against in everyday life, this paper examines where women are treated differently than men and targets those situations in making policy recommendations about general economic development. For countries with sever gender inequality that aspire to achieve more comprehensive development, working according to the guidance of Duflo may be particularly helpful. This is because policies like better and more approachable health care has universal benefits for everyone; implementing these policies would not hurt any powerful men’s interest. Therefore, in a patriarchal society where the most powerful people are men who would not enjoy witnessing their authority quickly deteriorate, policies that help everyone but disproportionately benefit women may be a good point to start. I’m surprised to see the level of active choices poor people have in deciding whether and to what extent they wish to educate their children. Beyond arbitrary preference for boys, the poor rationally calculate the education investment input for each child based on whether children have high employment opportunities. Such phenomenon ties back to “The Economic Lives of the Poor” -- although limited, poor people do have choices. This insight makes the prospect for eradicating gender inequality more possible since rational people respond to incentives. Unlike social norms that are hard to remove, policymakers need only to increase the returns to girls’ education to reach more equitable education level between boys and girls. Another rather optimistic takeaway is the fact that the quota system does not increase gender binary and rivalry. People would suppose that the quota system, creating an unfair advantage for women in elections, would agitate men whose chance of being elected becomes lower as a result. Fortunately, according to Duflo’s account, reserved seats for women actually change people’s perspective of women’s potentials. As a result, people may decide to vote more for women, and parents would invest more in girls’ education. Since female representatives are also more likely to address obstacles women encounter, reserving seats in the legislature for women is definitely a strategy to try out for policymakers. The reason why gender equality is so hard to achieve can be explained by the fact that women face multidimensional oppression. With this framework in mind, it is not hard to understand why economic development alone may not help women: even with the additional education and health benefits brought about by development, women may still be barred from agency if they continue to lack property right protections and political representation. Even when policies are implemented to remove these barriers, “stereotype threat” may continue to disempower women since low self-esteem can influence people’s actual performance. Gender inequality thus starts to resemble the situation of poverty where barriers are also multidimensional. For both hardships, the government should implement direct policies to enable equality, keeping in mind that although helping women and the poor may sacrifice parts of the benefits of others, they are necessary steps to development.
Dani Rodrik’s “Growth Strategies” discussed principles and institutional practices to kick-start and sustain economic development in developing countries. Rodrik concluded that there are “higher-order principles” every country that successfully developed used but converging principles do not imply institutional convergence as well. In fact, most developing countries achieving growth spurts went with unorthodox institutions. Rodrik also emphasized the need to establish high-quality institutions to resist economic shocks and sustain development. In the article, two ideas particularly interest me. Although the imaginary advices an economist would give to 1978 China make sense, it seems she fell for the common mistake of economists of developed countries trying to replicate development successes in developing countries. The imaginary economist left out concerns for human capital. As the article points out, China in the year 1978 had a population mainly of poor farmers. The Cultural Revolution where most educated people were prosecuted or sent to rural areas just ceased. Human capital, especially those brought about by education, was extremely lacking. In such a situation, the urban sector would not develop naturally, leaving most people stuck on farmlands. While it would be nice that when lands are privatized, the farmers would be incentivized to produce as much as possible to get rich, in reality, there were few demands for agricultural goods since most people live self-sustaining farm lives. Additionally, neglecting the importance of human capital may lead the Chinese economy to stagnation. As the O-ring model suggests, when the few high-skilled labors pair up or leave China for developed countries, the majority of Chinese companies and China could be stuck with low-skilled labor, which would impede the growth of the companies and the country. While I always associate neoclassical economic theories with a free market with minimal government interventions, Rodrik’s demonstration that characteristics like “appropriate incentives, property rights, sound money, and fiscal solvency” of neoclassical economics do not necessarily limit to institutions promoting free markets is enlightening. It reminds policy makers to stay away from formalism and focus on what’s happening in specific countries. If the World Bank focused on the reality, it would not have loaned out money to countries that could not save enough. While saving more money worked for South Korea and Europe, there were other elements contributing to their successes. By oversimplifying development and overly emphasizing the effectiveness of free markets, numerous developing countries borrowed big and opened up without any protectionism, leading to economic failures. Developing countries are not searching in complete darkness, however, since they can still conform to higher-order principles that apply to all regimes for advice. To achieve success, countries should try to apply higher-order principles to local opportunities and constraints.
Toggle Commented Sep 29, 2019 on Rodrik article for Thursday at Jolly Green General
In “The Fall and Rise of Development Economics,” Krugman described the history of the discouragement and re-establishment of the high development theory. While the theory contained much value, it was rejected as a valid theory of economics because the economists supporting it could not, due to a lack of modeling technique, produce a model to prove it. Through this essay, Krugman encourages economists to bravely use simplified models that omitted much complexity of reality since such models can deliver the results needed. While I value the encouragement Krugman delivers in this article, I hesitate to agree with the Big Push model because it controlled so many variables that I do not imagine a real society to resemble the one presented in the model. Without resemblance, the model would lose its value in explaining how society works. The model assumes the modern sector to produce the same product as the traditional sector. With better technology in the modern sector, I think the modern sector would necessarily produce products of better quality. In this case, the companies have a fair reason to raise their price, which would help them earn profit even while giving workers premium wages. Even if we abide completely by the assumptions and assume modern sector companies only deliver products identical to those of the traditional sector, increasing marginal returns should enable the company to reduce in production cost, which allow companies to profit while paying works premium wages. Therefore, I believe people from the traditional sector would be incentivized to move to the modern sector. What’s more, the Big Push model fails to account for many externalities that can happen in reality. The desire to explore a big city, for example, can drive people to enter the modern sector even without the guarantee that they would survive there. In that situation, premium wages are no longer necessary since the there would be a surplus in the supply of labor.
Toggle Commented Sep 25, 2019 on Reading for next Thursday at Jolly Green General
"Institutional Barriers and World Income Disparities" explained the widening income disparity between countries as a result mainly of institutional barriers. The article selected 10 fast-growing countries, 5 economically trapped countries, and 5 countries that have experienced prosperous development but are not performing well recently. By analyzing these representative countries individually, the authors summarized elements that promote and impede economic development. As the authors pointed out, fast-growing countries actually have similar levels of institutional barriers with trapped countries. It thus confuses me a bit how the paper can conclude from such data that institutional barriers trapped certain countries when they face comparable institutional barriers to rapidly developing countries? The article presented several points that interest me. Firstly, it appears that many of the fast-developing countries started with labor or resource-intensive productions. It is reasonable since developing countries generally have little access to advanced technology that enables efficient production. To start developing technology, countries need to accumulate physical capital. Thus, a country’s resources, either labor or physical resources, become important. For countries with abundant resources like Botswana (diamond) and China (big population), initiating the accumulation of physical capital appear comparatively easy--as long as government policies adequately encourage such accumulations. However, landlocked countries with a small population and barren lands might be less fortunate. Now that countries with few resources available can no longer use colonization to acquire physical capital, it seems rather unlikely that such countries would gain enough physical capital to accelerate their economic development themselves. Secondly, from the analyses of the lag-behind countries, I learn that a country should never depend on one economic source, especially when the price of that one source fluctuates irregularly. Many of the countries classified as “trapped” in this research article maintain an agriculture-based economy. Their technology remains undeveloped, so they interact and trade with the globe with cash crops. One dominant cash crop these laggards rely on is coffee whose price varied much in past decades. When the price of coffee drops, which it did, the economy of those countries crashes as well. Not only is choosing to export coffee an unwise decision, but also choosing to rely on agriculture in general. Agricultural products seldom stand out from other similar products. Countries exporting cash crops thus tend to be price takers, which increases the possibility that their economy would fluctuate with the market. Again, it may sound hypocritical to recommend trapped countries to diversify their economy--they are barely self-sustained. To diversify the economy, countries need money and technology to support the creation of new products. To accumulate money and technology for that purpose, countries need to rely on something that can earn them money. Before they acquire the capital to develop other exportable products, they have to rely on cash crops. However, cash crops prove an unreliable source of money, so poor countries frequently remain trapped in poverty. Finally, almost all lag-behind countries exhibit rapid population growth. While it may negatively impact the economy in the short run, as there are more people to feed, in the long run, having many adults who can participate in the workforce can be advantageous. A capable government can allocate its population to industrialize more areas more rapidly. China, a country with the biggest population in the world right now, can serve as a good example. China started rapidly growing in the 1970s; policies that helped include setting economic zones to encourage direct foreign investment, making primary education mandatory to increase human capital, and supporting the development of technology. Similar policies aided other rapid-growing countries in the article, but China has another resource other countries may not own--a big population. With a big population, employers can set wages at a low level because the demand to work would remain high. Lower wages then help companies maintain low product prices that ensure their products’ competitiveness in the global market. A big workforce enables Chinese companies to accumulate more money from selling more products with higher profits, with which they can build more factories to employ more people and industrialize more areas. A big population actually helped China enter into a beneficial cycle of development. It may help trapped countries with big populations out of the vicious cycle of poverty.
"The Economic Lives of the Poor" researched on 13 countries with relatively large populations of poor people, namely people living under $2 per day, and came up with characteristics of their lives. The fact that most families in poverty include extended family members intrigues me. While the book explains this phenomenon with the fact that living together helps each share fixed costs of living and poor men usually have multiple wives who produce children, I wonder if the family size of poor households relates to their culture. Uncoincidentally, many less developed countries are Asian and African countries that have a long history of extended families. In China, for example, it is normal for many nuclear families of the same ancestor to live in one household and treat each other as siblings. On the other hand, European and North American countries value individuality. It is common for children to leave their families to establish their own home. Could it be the case that the adventurous spirit of European and North American citizens, developed as they leave their families for the world, led them on quests on the sea to discover, colonize, and accumulate wealth? Maybe extended families, and the norm to stay home than explore new possibilities limited the 18th-century people of modern developing countries from industrializing, which led them to remain undeveloped for many years. The life of poor people seems like a Möbius loop. While poor people always attempt various methods to increase their income or spread risks, they are brought back to poverty whatever their attempt may be. For instance, poor people who want to better their lives need to earn more. However, at home, they could not borrow money at reasonable prices to expand their lands and upgrade their tools; away from home, they only temporarily migrate to work, making promotions or the accumulation of skills impossible. Besides, poor people, with the free choice to spend parts of their money the way they want to, shockingly spend them, not to invest in capital or human capital, but to entertainments like intoxicants and festivals. While it is understandable that they, like all human beings, need mental support to face the hardships of life, as a bystander, I hope to see them spend to feed themselves nutrition, to educate themselves, and to purchase radios. Radio is a good source of information that is relatively cheap and does not require literacy. It can enable a family to increase their knowledge of the world, understand policies in their country, and eventually develop the desire to explore beyond their villages. In a paper about Nepal, statistics show that access to radio reduced the gap between men and women's literacy rate in the area. Since half of the population there became more literate, the region has more effective laborers to help lift it out of poverty. Reading the article, I realize how important insurance can be to a disadvantaged family. Without insurances, the poor need to deal with instabilities in their income on their own. Since they do not have many resources to occupy, they usually cut short in food or education supply, both of which are vital for the family to alleviate poverty. Eating less, the family work less productively and become more susceptible to sickness; learning less knowledge limits the children from skills that may earn the family a higher living. Since the article suggests that families understand the importance of education--they send children to school--it may be more important for governments to prioritize providing a stable economy and income insurances so that its people can feel more comfortable to invest in their children or programs like fertilizers that, in the long term, would generate more money for them.
Toggle Commented Sep 11, 2019 on Readings for next week at Jolly Green General
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Sep 11, 2019