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The Executive Summary spares no detail in highlighting the dangers of global climate change; from decreases in agricultural yields, temperature extremes, reductions in water availability, environmental and ecosystem changes for plants and animals… The list goes on. It’s hard to understate the dangers of an increase in global temperature, but this summary does a more than adequate job of listing the many, many consequences of the current projected changes. With so many downfalls of the current environmental trends outlined here, it’s hard to imagine why anyone would ignore such an issue or oppose changes to rectify the situation. Part of the problem in trying to enact global climate change through policy reform and precautionary measures is often met with strong opposition for one reason in particular: measures that would reduce emissions or energy use that affect the climate are expensive and reduce output. As we discussed in class, China is reluctant to agree to a treaty that restricts emissions because of their significant reliance on coal for their current levels of productivity. It’s a simple trade-off story: individuals, firms, and countries all sacrifice long-term global welfare and future health and productivity to maintain higher current levels of energy use or output. After all, why worry about potential consequences thirty (or especially one-hundred) years from now when I’ll be dead then and my quality of life will be better now? I’d like to think that the reason many global leaders are reluctant to make an active effort in environmental and climate reform is because they are unaware of the many disastrous long-term negative outcomes. But in the end, I think a lot of the time the choice to ignore this problem is made out of greed and a desire to keep doing what works in the present regardless of future circumstances. I think it’s as much of a disregard or future generations and their well-being is it is about doing what’s right for the present. To change this mindset, I believe that starting with economic development is the key to increasing awareness about global interconnectivity and welfare and also reducing the factors responsible for current environmental changes. Helping other countries (especially those who will feel the significant effects of climate change in the short-run) improve their economic status will increase their bargaining power in global affairs. If Latin America had same clout as China in current negotiations, I would wager that there would be a much, much stronger push for stricter regulations on emission and much higher environmental consciousness. In addition, by improving the economic health of countries, they will become more able to make their energy use and production methods more efficient and operate in a more environmentally-safe way. In the end, taking immediate action to improve environmental conditions is essential, but in the long-term I think economic measures can be just as important.
While it’s been mentioned by a few other people, it might as well be said again. With this paper, we once again see the practicality of simplified economic models, and see that the application of simple economic principles can yield more agreeable results than conjecture and assumptions based on complicated environments with countless undetermined variables and uncontrollable effects, such as the “qualitative accounts” of other papers with which these results are at odds. Overall, the intuition seems to hold according to Eichengreen and Mody’s results: when U.S. interest rates rise, the demand for bonds by investors in Latin America (and East Asia to an extent) falls. The fact that previous studies seem to have not distinguished supply- and demand-side effects in understanding their results, as noted on page 21, is rather surprising. One of the other interesting take-aways (if I’m interpreting correctly) is the effect of credit rating on the spreads of bonds. If credit ratings rise along with the U.S. interest rate and those with poor credit ratings drop out of the market and cause bond yields to decrease due to downward pressure, then it would seem important to me that developing nations and investors in them be provided with opportunities for better credit. The volatility of countries in Latin America or places with similar economic instability, as noted in the paper, is responsible for lower credit ratings, but perhaps an initiative to provide such places with the resources necessary for better stability and the opportunity to develop better credit ratings with more resistance to economic shocks would be a beneficial practice for a number of reasons. The primary, obvious reason is simply better economic and credit conditions for these countries. But in addition, higher credit ratings means investors in these countries would not drop out of the bond market when U.S. interest rates rise, which would also reduce the downward pressure on spread from bonds, and enable the investors to better help develop the economic climate in the Latin American or East Asian countries as well.
I think everyone else has pretty well covered issues relating to human capital addressed in the paper, so I’ll try to focus a bit more on the Keynesian concept of “weight.” One of the most interesting parts of this concept actually relates to the Schulz Nobel Prize lecture we read for last week. In addition to emphasizing information and good policy, weight takes human agency into account. Aside from the human capital factors like education and information provided to farmers, a great deal of the decision to adopt the practice of agroforestry relies in a farmer’s own level of confidence in him or herself and the ability to achieve the potential gains by adopting a new farming practice or technique. If a farmer does not understand the information provided or does not trust in his or her ability to properly execute agroforestry, the farmer will decide to keep using the same methods which are less effective but also perceived as being more reliable and capable of being maintained. I think that in the end one of the most fascinating aspects of this paper is that while higher levels of human capital certainly increase the likelihood that agroforestry is adopted by a farmer, a farmer’s own agency and self-determined level of ability or confidence in interpreting and implementing new ideas has a significant effect on the potential “weight” of new ideas.
Toggle Commented Nov 6, 2014 on Econ 280 for Thursday at Jolly Green General
One of the things that most struck me in the Shultz and Lewis lecture is the line “interventions by governments are currently the major cause of the lack of optimum economic incentives.” Obviously, this is counter-intuitive to the state in which things should be, as government interventions and policy implementations should be providing people with incentives for making economically sounds decisions and maximizing overall social benefit. As we are all well aware, people respond to incentives, and the best way to implement optimum, positive change is to provide effective incentives to entice people into changing their behavior or choices. Of course, this lecture is about 25 years old by now, and the global climate for many countries and governments has changed, but overall I believe that there are many circumstances in which governments are still acting as barriers for proper incentives rather than instituting them. Another interesting aspect of the lecture is its emphasis on agriculture, or the rural sector. Schultz and Lewis indicate the significant returns to agricultural research in India, as well as the potential benefit agricultural endeavors can have in terms of opportunities for providing food and income in poor countries and regions. I think the focus on agriculture in this lecture is especially interesting when considered in comparison to the Lewis two-sector model. The assumptions that the marginal product of labor for the rural sector is zero while the urban sector has a greater marginal product of labor yields the conclusion that investment in the urban sector can lead to economic growth and increased income, so incentives should be tailored to producing this result. However, as mentioned in the lecture, I think that proper incentives and extensive research for agricultural laborers can be just as effective in inducing growth. Improving agricultural conditions and the effectiveness of yielding crops can not only improve the marginal product of labor, but also increase human capital. Better farming technology means that fewer workers are needed, so children can attend school rather than being kept home to work on the farm. In addition, the development of new farming techniques can produce more and better crops, providing for better overall health and nutrition. This allows the farmers themselves to be more productive and better feed their families, giving them better long-term outcomes. As Schultz and Lewis highlight, population quality is important. In certain situations, I think that trying to change population quality through methods such as improving agriculture can initially be just as effective, if not more effective, in certain countries than trying to incentivize agents to make decisions that try to drive urbanization or simply try to completely overhaul certain established ways of life in farming communities that have lived the same way for centuries.
Toggle Commented Oct 30, 2014 on Econ 280 for Thursday at Jolly Green General
As many other students have noted, the cold, calculating tone of the paper by regarding the merits of child labor in largely economical terms can seem very off-putting. However, I believe that Udry’s decision to focus his paper from this perspective isn’t as harsh as some may regard it. I think that almost everyone in more economically advanced countries and most people in general would agree child labor is unethical and inhumane. However, economics is not a science of morality, and my interpretation of Udry’s decision to approach the topic from this perspective is his concession that yes, child labor is bad, and while almost everyone agrees on this opinion, here are the reasons why child labor occurs and why it cannot simply be banned by nation’s governments to end the practice. Many of the issues addressed within the paper brought me back to the Banerjee and Duflo paper. For example, one of the assumptions in the unitary household model for assessing the value of child labor is that incomes are pooled and financial decisions are made by a single person within that household. With the information from the Banerjee and Duflo paper, the theoretical present value of the additional income provided by child labor should be even less than its initial calculated value. Households in regions of extreme poverty, especially those run by men, are prone to spending on goods that do not directly improve health or human capital, and are essential luxury goods. Many patriarchal households spend a portion of their income on alcohol and tobacco. If some of the money that is being provided by child labor wages is being spent in such a manner, then the present gains from the child working in practical terms is even less. Another point that a few other students have made is that while Udry’s suggestion of subsidies for families that keep their children in school is theoretically an effective approach, the idea that additional funding for these subsidies can simply be acquired and used for this purpose is a bit of a stretch. However, I think that Udry does not go far enough in addressing another potential solution for the cause of child labor that he raises in the paper. He mentions that one of the problems evaluating the present value of child labor compared to the losses in future vale of human capital is that it is assumed that families can borrow money to cover the losses to their present income when sending children to school. I think that an alternative solution to subsidies to reduce child labor is to simply improve credit access to the households in places with high rates of child labor. By being able to borrow money, families can increase their present consumption and also improve their health and human capital by allowing children to stop working and go to school. The redirection of funding from other sources would not be as detrimental as applying subsidies, because the loans can be repaid in the future when the children have completed their education and have higher wages as a result.
Toggle Commented Oct 23, 2014 on 280 Paper for Thursday at Jolly Green General
I thought this was a great companion piece to Rodrik’s article, as Krugman effectively promotes models as an imperfect but essential tool for understanding economic theory. The key is to avoid using economic models as the foundation for economic theory and development, and to instead use them as a tool for further personal exploration and experimenting rather than a rigid structure that limits the scope of one’s discovery. One of the inherent assumptions in any model is that is over-simplicity inevitably leads to it being wrong in some ways or inapplicable in certain situations. I think that Krugman’s map metaphor accurately illustrates this point. A map is not intended to be a perfect representation of reality, because its simplicity and design leave out almost all of the details that are important attributes of the real place being depicted. It’s impossible to say that someone “knows” a location simply by having observed a map of it, but the map can act as a guide for first-hand exploration. Furthermore, like with the example of the African maps losing their interior, the only way to build an accurate map of these locations is to first wander off the beaten path and explore. The same goes for economics: while others who cannot explore an area will need an accurate an effective map to understand the layout of an area, someone must first set-out on his or her own and do the dirty work of exploring the uncertain landscape first, and judgment will have to be used when deciding what to leave out and what will be assumed when capturing the principle idea in the form of a model. As several of the other bloggers have stated, the key is to not be “pro” or “anti” model, but to know when to what the limits of current models are as economic tools, but also that these tools are important for helping others understand a simplified version of a theory and verifying that the hypothetical argument behind a certain theory has some grounding in reality.
While I was reading this paper, I kept thinking back to Professor Casey’s comment in class on Tuesday that he once had a conversation with a World Bank official in which he said that they preferred to assign economic advisors to countries which they had little to no prior knowledge about. After reading Rodrik’s assessment, this policy seems even more ridiculous. This seems especially true when considering the implications of what Rodrik is saying, such as the fact that unconventional policies are often necessary for rapid economic expansion. It would be difficult to tailor a unique policy to a fit a country’s economic needs without an intimate knowledge of its people, inner workings, customs, etc. Rodrik himself directly states that, “an immediate implication is that growth strategies require considerable local knowledge (pg.18).” Essentially, I am pleased that Rodrik addresses one of my primary concerns with many of the articles about economic theory and studies that I read: I feel that too often models or certain policy approaches are assumed to be almost universal and consistent in their effect and are applied too broadly, when in reality every situation should be evaluated on a case-by-case basis. One of the other interesting aspects of this paper is the relationship between learning by example and economic policy innovation. For example, observing the successful actions taken by countries in growing their economy is beneficial for understanding which of the aspects of the Washington Consensus should hold true and what basic principles should be adhered to when designing policy. However, as Rodrik notes, emulating another country’s successful policy will often fail. The prevailing message is that creating successful economic growth policy requires a pioneering attitude. There is a need for trial-and-error, gradual introduction of interventions to observe what works and what doesn’t. Furthermore, many of the examples of successful growth display a degree of innovation and creative decision-making. I think that the paper’s concluding remarks effectively capture the most important sentiment of the paper: abandoning economic principles in assessing these situations is foolish, but strictly adhering to them while trying to find the one “big solution” for economic development is an exercise in futility. The key is to use them as a foundation, but also knowing which rules to break when constructing a successful plan of action.
Toggle Commented Oct 2, 2014 on ECON 280 Paper at Jolly Green General
From one perspective, there is a way to understand and justify the inequality in education and expectations for girls in under-developed countries or different cultures aside from long-held customs and traditional beliefs. In fact, the concept reflects some of the points raised in the last article we read. For many poor families, especially in countries without well-developed or established health resources, girls simply present a much higher risk for families. As mentioned in Esther Duflo’s article, the mortality rate for young women giving birth in certain countries or part of the world is unfortunately high. Spending a large portion of income to raise and educate a young girl only for her to die in early adolescence, whether due to childhood or vulnerability to disease, represents an economic loss for the family. This elevated risk presents a choice for poor families, in which they must decide if it is worth spending a significant portion of family resources on a child who may not live past her early youth when there are several other mouths to feed. Regardless, such a factor is likely a small contributing factor towards overall gender inequality when considering the overall circumstances of women in certain countries, and is by no means a valid reason to not educate or provide for younger girls, but nonetheless may be worth some consideration. I think that one of the primary reasons for a correlation between economic growth and empowering women could also be found in both this article and an issue that was addressed in class in regards to the last article. While they are not entirely altruistic, women have very different spending habits when given control of family finances compared to men, often spending less on items such as alcohol and tobacco and more on educating, feeding, and providing health care for children. This spending raises human capital, which leads to economic growth down the road, as a country’s population becomes healthier and better workers. Thus, even aside from the moral justification for gender equality in numerous countries across the world, there is both statistical and anecdotal evidence to support the hypothesis that empowering women across the world is good for economic growth within a country and social progress within the world and human population as a whole.
Toggle Commented Sep 25, 2014 on ECON 280 paper #2 at Jolly Green General
To add onto the point that Juan addresses with his post, I think that one of the most easily overlooked points raised in this article is the fact that levels of self-reported health and happiness of the poor are not especially low. Despite the fact that levels of stress are (understandably) much higher, their overall level of happiness is not a great concern. Placed in context, most of the seemingly “irrational” spending is completely reasonable. Substances like alcohol and tobacco are methods of coping with the elevated stress levels of everyday life in these areas, and festivals or entertainment are an enjoyable escape from the sub-standard living conditions these people face everyday. Given the importance of the family unit and social networks in these communities, social events like festivals or weddings are especially justifiable. Even a W&L student or person with access to considerable resources and wealth can agree that in times of duress, excessive or unnecessary consumption is bound to occur as a method of coping. I’m sure almost any student will admit to having splurged a little more on desserts, candy, lattes, etc. to cope with the stress of exam week at some point. The tendency to avoid long-term investment or take on risk for long-term gain also makes sense given the general living conditions and life circumstances of the poor in these countries. Even in the United States, people who grew up in a household that experienced poverty or with a lack of money adopt one of two spending habits: they either are reluctant to ever spend money (knowing how difficult money to come by money might be in the future) or spend any money received immediately (knowing that they might as well capitalize on the opportunity to acquire goods or seek instant gratification that they might miss out on later). With the need to spend so much money on food or other necessities already, it makes sense that many individuals adopt the tendency to seek instance gratification. The risks associated with entrepreneurial endeavors and even something like saving money in the house which can be lost or stolen make it more difficult for long-term plans to increase wealth to come to fruition. Additionally, the risk of illness or injury means that life itself could end or be impaired significantly at any time. As Thomas Hobbes said, life is “ solitary, poor, nasty, brutish, and short.” For people living in poverty or extreme poverty, this statement is especially true and seen firsthand almost every day. When life is that short and difficult, it is most certainly rational to occasionally (or even often) give in to temptation, let go, and live in the moment.
Toggle Commented Sep 18, 2014 on 280 reading for Thursday at Jolly Green General
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Sep 17, 2014