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Jack_curtis25
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The most import thing I have learned this semester is to take a step back when dealing with massive problems and learn how to take the issues step by step. By looking at a monumental problem, like climate change, and seeing not how hard, unlikely, or even impossible the challenge may be, but that we as human beings have the tools and intellect to be able to begin hammering away at the problem. I think through the readings, lectures, and discussions throughout the semester I have begun to realize how possible the seemingly impossible is. While we are assuredly behind, possibly quite substantially so, the curve for mitigating the risk climate change poses, that does not mean we are out for the count. With an issue as monstrous as climate change and the scale to which the world must work together in unity to solve it, the key is to look at the little things that can be done, to get the momentum rolling in the right direction, in order to guide public sentiment in the right direction. We have talked about models like the MDF/MAC, how policies shift and affect it, various valuation techniques, etc. and the most salient thing about each of them to me isn’t the policy or model itself, although they are important, but the proof that this isn’t impossible, we have control over our own destiny, and that no matter what you hear on the news, from different pundits, or organizations from across the ideological isle, currently, right now, we have the capability to boldly strike down climate change while making the world more peaceful, equitable, and amiable. Technology that is currently available, like wind, solar, geothermal, hydroelectric, tidal, fuel cells, even nuclear, are at our disposable. Many policy proposals exist on how we can make strategic investments in the world with these technologies and into the development of new ones to solve the climate crisis while indirectly solving or at the very least making better many of the other social and economic problems that exist globally. Pollution and the quality of the environment are connected in so many ways to health, wealth, and general well-being of people everywhere it is hard to even comprehend what such effects, incremental at first but overwhelming in time, would have even given current levels of research into the subject. This class has taught me when faced with a challenge look for it’s vulnerabilities and focus your attack there. I don’t share many people’s fear of climate change because this class has taught me not that it isn’t a great threat to humanity, but that we have the power (literally) to defeat this demon. Because of this class I can see that clearly, and I hope all of my classmates can as well. I don’t fear climate change itself; I fear people lose hope in humanity and don’t realize not only that we have the capability to solve the crisis, but the capacity to do so and leave the world a better place because of it.
Toggle Commented Apr 22, 2020 on ECON 255 Final Exam at Jolly Green General
Fraker’s article hints at something that is innately primal and subconscious about us all. I’ve read a fair bit into the psychology of climate denial and fear and much of it Fraker gets right. I’d also like to add that people, especially with climate change, react so strongly in opposition to facts that often are abstract and difficult for people to directly empathize with. Take a look at different ways to measure climate change like different pollution metrics in PPM, average air and ocean temperatures in future years, or many others and people simply have a hard time knowing what you’re actually talking about. Secondly, climate change is rightfully deemed a grave threat to mankind’s continued way of life that emotions, mostly fear, take over the mind and drive it to repress whatever climate change nonsense (even though it’s obviously not nonsense) it just heard. I also think climate denial or skepticism in America stems from our nation’s long history of independence and skepticism for government and the so-called elite. When scientific fact comes in conflict with personal beliefs, a person’s beliefs usually win out. Another issue with how climate change has been framed, it is less so now, is that people need to make drastic sacrifices in their daily lives in order to stem the effects of global warming. I think people’s reaction to climate change was, and is less so now, so polarizing because of again the fear it invokes within people. If you tell someone they can’t fly across the country to see their family, drive a SUV, crank the AC in the summer, live in a big house, etc. they not only fear losing those things they love, or at the very least perceive value in, but fear that the “climate change people” want to take away my right to do/have X. I think it is comparable to the polarizing debate we have in this country about gun control/safety. Despite having certain restrictions of firearm ownership being commonsense people deny it outright because it’s taking away my right, my option value at the least, for guns. As we realize that technology has the potential to solve the climate crisis the message has rightfully so shifted away from the self-sacrifice message. The way Fraker claims that having people experientially connect climate change with our current world helps immensely change the dynamic of how people empathize with facts and the path forward with climate change. Instead of CO2 PPM will reach 400 by 2050, it means they won’t be able to go skiing, camping due to drought, their favorite flora and fauna will fade out of existence, etc. Attaching personal connections to the stakes of climate change can be very helpful. Since the writing of his article belief in climate change has continued to increase but not at the rate necessary to bring about the sweeping and drastic changes needed. A great article branching off of Fraker’s argument can be found from the March 2015 issue of National Geographic (https://www.nationalgeographic.com/magazine/2015/03/science-doubters-climate-change-vaccinations-gmos/). An interesting survey of climate change beliefs in the country can be found from Yale (https://climatecommunication.yale.edu/visualizations-data/ycom-us/)
Also this is a great viewpoint from what is likely the consensus (even if many are scared to admit it) belief of most conservatives and republicans. https://www.clcouncil.org/media/2017/03/The-Conservative-Case-for-Carbon-Dividends.pdf
Toggle Commented Apr 15, 2020 on ECON 255: The Green New Deal at Jolly Green General
I think the green new deal, as the legislation is written in the house, is a great piece of legislation, albeit quite wishful and unpractical given our current political environment. I think the biggest issue with it is how extensively it vaults the government into the forefront of investment. Given the current state of the economy this could be viewed as a good thing, but the recovery trajectory will determine that. Personally, I think the government should implement market based policies in order to bring about the sort of rapid transition that is set about. Realistically, as much as we all want, GHG emissions aren’t going to disappear rapidly, but rather in a compounding way. For development economics I wrote my final paper on a carbon tax proposal with a dividend distribution system. I think using market based reforms will provide a fast, efficient, and cost beneficial path to substantially reduce carbon emissions moving forward. Should the government be able to enact legislation like a carbon tax which can somewhat accurately price carbon according to it’s true social cost then the transition to non-carbon based fuels will accelerate accordingly. My proposed carbon tax would distribute the proceeds from the carbon tax back to households on a means tested basis. What’s interesting is that over 2/3 of households would receive a net benefit from this dividend, meaning their incomes are higher despite higher fuel and other costs due to the carbon tax. Revenue from the tax could be used in conjunction with subsidies to renewable energy development and installation, which themselves can be funded from current money allotted to fossil fuel subsidies, to again compound use of renewable energy. The tax would incentivize private industry to innovate within renewable tech as to decrease the MAC and become more efficient and cost effective given the new tax. In turn new jobs related to the renewable sector would be created replacing and then outpacing jobs and job growth in the fossil fuel industry. The biggest thing with the green new deal with regards to climate policy is to get prices right for fossil fuels and renewables. As we have talked extensively in our class government certainly has a large role to play here.
Toggle Commented Apr 15, 2020 on ECON 255: The Green New Deal at Jolly Green General
After reading the Nel paper outlining the negative effects if air pollution and air particles on health and cellular processes, I was quite astonished by the dangers posed by such emissions. It seems like the most dangerous aspect of particulate matter seems to be the direct inhalation of ultra-fine particles which little is extensively known. Perhaps more concerning is the lack of any kind of regulation for these, the most harmful by products of fossil fuel combustion. I was interested to see how air quality has faired historically in some US cities. I decided to choose NYC as a test case as I live in southwest CT and visit NYC often. I used the air quality index (AQI) to compare the number of days that were unhealth and very unhealthy in 1980, the first year data is available to now. In 1980 NYC has 45 days unhealthy and 45 days very unhealthy. Interestingly, they has now good days. In 200 NYC had 56 good days and only 14 day unhealthy and 4 days very unhealthy. In 2018 NYC had 156 good days, 2 unhealthy, and only one very unhealthy. LA, notorious for horrible air quality, in 1980 had only 6 good days, 47 unhealthy days, and 159 very unhealthy days. Almost half the year in 1980 the air was considered very unhealthy to breathe which is quite unfathomable. In 2000, LA had 27 good days and 56 unhealthy and 10 very unhealthy days. In 2018 LA had 35 good days, 19 unhealthy and 1 very unhealthy days. In both of these examples we can see that by the AQI classification, which measures levels of 03, PM2.5, PM10, CO, SO2, and NO2 to determine a score out of 500 which is then classified into 6 different levels from good to hazardous. While on the surface it seems that air quality in America’s two biggest cities have improved tremendously, which they undoubtably have thanks to more efficient and clean vehicles, less use of coal fired utilities, and other air quality regulations, it can be misleading because the AQI does not quantity the presence of PMs smaller than 2.5 in its score. I would be very interested to see historic measurements of fine and ultra fine PM in US cities. I did see in my research that the EU implemented a first ever a cap on particle numbers to limit the ultra fine particles that are in the air. The regulation hopes to ensure diesel particulate filters are used on all diesel vehicles, which emit most of the UFPM. In a 2018 report on air pollution and child health (https://www.who.int/ceh/publications/air-pollution-child-health/en/) the WHO found that in 2013 ambient air pollution alone costs the global economy $5 trillion a year in total welfare loss. More troubling was that 93% of children worldwide live in environments with air pollution levels above the WHO guidelines. It is truly astonishing how poor global air quality standards are and how detrimental the effect of these unseen killers and inhibiters are. I was also interested in how asthma rates have changed in a country like China which has seen modernization and urbanization at an unprecedented rate in the past 20-30 years. According to a study conducted in Shanghai published in 2015 (https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0121577), childhood asthma rates have increased from 1.79% in 1990 to 10.2% in 2011 marking a 470% increase in 21 years. These numbers speak to the dire condition many of children around the world in developing nations. Looking back to the US in 2018 childhood asthma rates were 7.5% while rates for white children where 7.6% while black was 10.6%. I’m not entirely sure why black children have 3% higher rate of asthma but I would predict it is related to what we have spoken about before in relation to living in lower-income urban neighborhoods located near industry with high exposure to polluted air.
Toggle Commented Mar 12, 2020 on 3 short papers for Friday at Jolly Green General
The paper, Full cost account for the life cycle of coal, is a natural extension to many of the discussions we have been partaking in class the past few weeks. It links especially well with the MTR yale article we read before break. The costs of using coal, even compared to other fossil fuels like oil and natural gas, are exorbitantly high. The amount of negative externalities associated with not just the burning of coal, which is often thought of as the only cost of using fossil fuels to generate energy, but also with the exploration, extraction, preparation, and transport are quite staggering. The paper goes into an exhaustive list of the many, many external costs associated with using coal in depth and with quantifying numbers and values assigned to estimated costs. The paradoxical thing about doing such cost accounting is that in reality the true social costs are likely still high above what even the generous estimates describe in the paper. To touch briefly on the strange duality of coal, that is the cost and benefits they bring to communities, I will speak about past research on Centralia, PA which is mentioned by name in the paper. Centralia was a town in PA that was home to a middle American town typical of the 1960s. It was also home to a massive underground coal seam that had been strip mined in the 1930s. The town had placed landfills in the strip mines and in 1962 decided to clean up the strip mine dump by burning it. After the fire was set ablaze it slowly grew out of control and spread into the vast underground coal seams. The fire could not be controlled and over a few years continued to rage beneath the town. Slowly, residents left and it is now a ghost town where underground temperatures remain in excess of 180 degress F and still emits significant amount of greenhouse gases among other emissions. The figures presented that speak about the efficiency of coal in terms of end-use electricity generation are staggering. The estimate that only 3% of the total energy is then used by lights is a staggering statistic. It is important to recognize the capabilities, innovation, and modernization that coal has granted with world through its relative abundance and cheap cost for generating kinetic and then electrical energy. No doubt, the industrial revolution was solely dependent on the availability and low cost of coal. But that was then, and today we know of the many deleterious effects of suing coal. Coal’s contribution to climate change is perhaps the biggest threat it poses. In 2005 it was responsible for 82% of GHG emission from power generation despite only being responsible for about half of power generation. This points to the obvious inefficiency of coal in terms of electrical generation potential per tonne of GHG emissions. Because coal is so inherently inefficient and dirty I believe, as does the paper, that investment into CCS technology for coal is burdensome, costly, counterintuitive, and simply the wrong way to go about trying to solve a problem. Price/KWh for solar and wind have dropped significantly since this paper was published nearly a decade ago. Because of this the cost of implementing even incremental CCS is fraught with only exacerbating the efficiency of coal. Simply, the OC of CCS for coal is much too high, especially considering the full social cost of preparing coal for use at a power plant. Some surprising statistics included that coal makes up 70% of rail traffic in the US. It is hard to fathom that in the 21st century coal is still so dominate in terms of this nations railways. The EIA estimate and Environmental Law Institute estimates for coal are both staggering amounts at $3.17 and $5.37 billion respectively. According to a study by the International Institute for Sustainable Development, if just 10-30% of fossile fuels subsidies were redirected it would pay for a global transition to clean energy. It is a shame that CCS is still being thought of as a way to “clean coal”. Coal is not something that can be cleaned. It is something that must be exterminated.
Toggle Commented Mar 6, 2020 on Discussion Paper for Friday at Jolly Green General
The PACT or no PACT paper was a very interesting and natural extension of what we have been discussing in class regarding how to put economic value on non-market goods. In this case it was the marine ecosystem and specifically the Belize Barrier Reef. It is very telling that nearly 30% of Belize’s GDP is generated from the existence of the reef. I feel like this is a very significant piece of information that to citizens of Belize, not to mention tourists, need to know in order to come to inclusive assessments of fair value of marine resources. It is a good example of what is likely asymmetric information for most tourists who visit Belize and indeed who participated in this survey. The discussion of cost bearing is poignant and something which needs to be established. Since the use of the reef is a public good, many tourists see their use in no other way but providing personal satisfaction while not considering the external costs generated. The design of the survey also seemed to be logical albeit perhaps flawed in a few areas. The decision to choose Caye Caulker and Ambergris Caye are never explained except later in the paper to acknowledge that these two locations are primarily used for marine activities. I think this leads to a bias in the results of the study as these people are already predisposed to desire to use and value the marine ecosystem as that is their intent by staying in the two locations. As discussed in the paper other tourist activities exist such as visiting Mayan ruin and surely a number of land based opportunities for unique recreation activities. Perhaps a more balanced study would take a more holistic approach to surveying tourists in Belize by focusing on more diverse locations in terms of the activities they offer and proximity to the sea. The current survey may in fact overestimate the WTP of tourist as it mostly asked people in a location associated with marine recreation. I also found it interesting how people who visited the ruins were willing to pay significantly more than those who didn’t. Perhaps this is due to the interrelated nature of conservation and tourism. Those that are willing/able to go to ruins are also more likely to have more income and more care for the quality of tourist attractions and the environment and ecosystem. I also found the negligible impact of the higher exit fee to be unsurprising. Intuitively it makes sense. People who want to visit Belize are not going to consider a $20 entrance fee to be a significant determining factor into whether they go there or somewhere else. On the margin if a tourist wants to visit Belize it is a minuscule and almost insignificant amount. However, for Belize the fee provides the opportunity to properly maintain the parks and marine areas which in turn will foster more tourism bringing in more fees. It creates a positive feedback loop. I also wonder where the choke price would be for the fee. At what price would it be so high that a statistically significant amount of people choose not to go to Belize because of the exit fee? I also wonder how well known the exit fee is by tourists visiting. Do most know about it when they are booking their trips or do they find out when they arrive?
Krutilla’s “Conservation Reconsidered” was a fascinating and provocative discussion about how we value natural resources in both an abstract and formal sense. I especially found interest in the exploration of an options market where natural resources would be assigned values based on market forces. I also thought Krutilla saying that the conservation of certain resources is now null because technological advancements allow us to essentially substitute is very similar to the viewpoint of Robert Solow offered in his paper "Sustainability: An Economist's Prospective. Therefore the purpose of sustainability has shifted to ensuring the utility derived from the natural world, what it intrinsically provides through it beauty, majesty, etc, is maintained while still garnering an environment conducive to innovation and societal progress which is not achievable under current pricing constructs. The determination of where the optimal equilibrium of these two conflicting notions is very difficult to determine because of the lack of formal and established markets for natural resource valuations based on recreation not industry or agriculture. Personally my family has dealt with this issue. My great grandmother purchased a 200 acre property in Vermont in 1965. My family has owned it ever since and is now owned jointly by my father and two uncles. The question of whether to put it in a conservation easement was posited, which would prevent any future commercial or residential development. However, it was decided not to do as the tax benefits didn’t justify the drop in valuation the property would take. Using this example, obviously on a microscopic scale, we can see the decision making people make when in these situation. On a more macro scale because the social benefit of say the grand canyon cannot be fully extracted through traditional commercial means while maintaining compatibility with sustainable use practices it becomes clear the objective of a private profit maximizing individual in this case would break the use of sustainable practices in order to maximize profit and NAV through discounting future income streams. Furthermore, the discussion of people gaining satisfaction from just knowing say polar bears live in the artic was fascinating. I think the notion of people assigning value to notions, sentiments, and ideas that something, in the context of this paper and class environmental and ecological preservation, should not be something new. People have always assigned values to things they have direct interaction with. A great deal of people would say they value, in one from or another, the knowledge that something exists. The difficulty is aggregating said sentiments into creating some sort of valuation.
Coase’s paper “The Problem of Social Cost” discusses and expands upon many principles which are familiar to me through my exposure to them in other economics classes. I find that the discussions of the legal repercussions of social cost issues such as the example of cattle-raiser and the farmer and doctor and confectioner are fascinating and grant an interesting insight into how differently economists and the law view certain issues. Of course, whatever economists think will not be instantly made into law, nor should it, but considering the pressing matter of global warming I’m wondering if economics should be added into legal codes regarding these types of laws. I also wonder if there has been any development in the previous 60 years since this article has been written in any countries and whether so called “climate justice” is the correct way to deal with and penalize those responsible for the situation we find ourselves in today. There have been numerous lawsuits against fossil fuel corporations (https://www.vox.com/energy-and-environment/2019/2/22/17140166/climate-change-lawsuit-exxon-juliana-liability-kids) and the movement is beginning too pick up steam in many countries around the world regarding the legal responsibility of what these companies knew and when and how their action and inaction led to the current crisis. I also think it is important to think about the tradeoffs that occur when people, like the cattle-raiser, pays to destroy or hinder the production of another good, like a crop. This same logic obviously applies to a situation like pollution where say co2 is emitted in exchange for energy output. The issue with the assumption is that some things are valued at more than say their market price. With co2 emissions we are introducing chemicals in the atmosphere that will have lasting, significant, and widespread impacts. Therefore, even with a level of carbon tax it can be argued that overall welfare is still decreasing despite the punitive measure. Herein lies the issue with the problem of co2 pollution. While there are regulations in place to prevent or limit some forms of harmful emissions, nothing for co2 exists. Therefore, the cost of say a utility company who provides power by burning coal is not made to internalize the total cost to society as a result of their actions. This applies to many of our activities and purchases. I wonder how much more things like iPhone, laptops, TVs, appliances, and clothing would cost if all direct and indirect costs were reflected in the retail price Transaction costs are a classic aspect of economic externalities. It is something that needs to be carefully considered and logged. However, assuming null or very low transaction costs can be helpful in that we can begin to understand other aspects that play into economic decision making and outcomes. At the end of the day environmental economics largely boils down to cost and who is bearing it.
The World Bank report titled “Turn Down the Heat” was very informative and quite shocking. Even under what is considered to be a best-case scenario, where temperatures only increase by 2 degrees Celsius, the effects will still be catastrophic for most of the world. I think this report does a really good job linking how the increase in global temperature will have far reaching and cascading effects into many different aspects of life and the economy. It is easy to understand that carbon emissions will lead to the warming of the earth, but it is often difficult to fully grasp the entirety of the effects of the warming. It seems there is almost no aspect of worldwide ecological systems that won’t be impacted from even 2 degrees C of warming. Perhaps what is most striking from the report are the dramatic effects on crop yields due to increased heat, decreased rainfall, more extreme variation in precipitation, and soil degradation. In some cases yields for staple crops like wheat, rice, and maize can decrease by 70%. The effects on the agriculture sectors of countries from these three regions, many of which are still quite underdeveloped, would be staggering. Such impacts make poverty reduction and nutrition a significantly more difficult challenge to meet. These countries are much more dependent on agricultures contribution to their economies. In Egypt agriculture contributes 15% to GDP, 13% in Morocco, 13% in Honduras, and Argentina at 11%. Reducing yields by even 20% would be devastating to these economies. I also found it disturbing how much migration is likely to happen as a result of climate change. There will certainly be parts of the world by 2050 that are simply not habitable to live either because of extreme heat, lack of water, or lack of economic opportunity resulting from climate change. We are already seeing this now. The migrant crisis from central American to the USA is in large part being driven because of climate change. Many of the rural communities in central America are finding it increasingly difficult to make a living and grow enough food from their various farms. PBS has a great article about this (https://www.pbs.org/newshour/world/how-climate-change-is-driving-emigration-from-central-america). The Syrian and North African refugee crisis are also being understood more deeply to be influenced by climate related stresses (https://www.theguardian.com/environment/climate-consensus-97-per-cent/2018/jan/15/study-finds-that-global-warming-exacerbates-refugee-crises). It is reasonable to assume many areas in the middle east and north Africa will become not be able to support substantial human life due to lack of water, lack of infrastructure to make up for that, and rising sea levels. I was surprised to read that North Africa is particularly vulnerable to sea level changes. This makes logical sense as the Sahara lies just south making the coasts the most accessible and logical places to live. As sea levels rise however, these urban centers will become under increasing pressure. It will be important for the global community to formulate a unified solution to deal with the impending climate refugee crisis. If not, massive outbreaks of violence will be likely, especially in the already conflict prone middle east and north Africa. I find it disheartening how unequal the effects of climate change will be distributed relative to the people who caused most of them. The developed countries are largely responsible for a majority of green house gas emissions which are causing global warming. Low income countries are the ones which will be most significantly affected because of their location, geography, and inability to fund adaption and mitigation programs. The global community must commit to urgently take significant measures to cut global carbon emissions and assist developing nations through the impending crisis.
Toggle Commented Dec 5, 2019 on Last Blog Post for the Year at Jolly Green General
In “Does Aid Reduce Poverty” Milovich explores the relationship between a foreign aid a country receives and its effects on different poverty levels. I thought the paper was robust in it’s explication of methodology, data, and results. I found it interesting how dependent aid flows are on a nation’s membership on the UNSC, to the tune of an increase of 59% when occupying a seat. Such a large increase seems to suggest that aid is not necessarily dependent on the level of need of a nation but rather its exposure to the international community and diplomacy. In the context of the Cold War where discretion for security enhancement in target countries was the main goal rather than development. I think it is important to consider the purpose of aid as a tool for the US to extend it influence across the globe and buildup its soft power. The selectivity and focus of aid align closely with my Global Politics class where the US dominates the international organizations created after WWII and uses them along with aid to shape developing nations in a manner agreeable to American interests. The results generated from this paper are informative and important. First, establishing that poverty and economic growth is important. As we have seen in our own country even if the economy is growing at a healthy rate, the distribution of that growth can change dramatically. In fact, during my study of Thailand leading up to their financial crisis of 1997, they were the fastest growing economy from 1985-1995 at 10% per annum. Despite this actual income inequality worsened significantly. The findings are quite striking. A 1% increase in US aid is associated with a 0.61% reduction in MPI. I think these results are somewhat in-line with what I had expected. Observationally, aid tends to be most concentrated in improving the living standards of people and providing access to basic human necessities. Therefore, the results matchup well with my personal expectations. In terms of the effectiveness of aid to fight income poverty the results of no statistical relationship between aid and income poverty are somewhat surprising. If the results are so impactful on reducing MPI, specifically in education, why is there no relationship with income poverty? Perhaps as discussed in the paper there is a lag effect occurring where the results are not yet showing up. Or perhaps the high increases in education are being held back by more modest increases in health. While the answers is somewhat ambiguous perhaps the answer can be found in the failure for aid, investment, and government policy to correctly implement the frameworks, institutions, and resources to create industries and opportunities to allow for the benefits aid provides to be fully taken advantage of. One piece of information can be found in the variability of aid flows and the relationship with investment spending. While not specified in the paper it does briefly comment “aid shortfalls lead to cuts in investment spending”. Perhaps the uncertainty associated with aid inhibits investment therefore inhibiting income growth as a function of aid.
Toggle Commented Nov 20, 2019 on Next Week at Jolly Green General
I found this paper about the relationship between interest rates in developed nations and capital flows in emerging markets very interesting and directly related to my International Finance class and specifically my research paper topic for that class. My research paper focuses on the Asian Financial Crisis and specifically what caused Thailand to begin the contagion the spread throughout the rest of the region. As we read about briefly in an earlier paper about institutional barriers Thailand was the fifth Asian Tiger and had the highest growth rate in the world from 1985-1995 at 10% per annum. This was largely supported by high domestic savings rates and similarly high net capital inflows into the country. In fact, in the three years preceding the crisis capital flows with adjusted debt averaged nearly 7% of GDP and averages $14 between 1990 and 1996. The investment to GDP ratio had reached an astounding 41% by 1996. Capital inflows of such magnitude were attributed to many factors but mainly the spread of interest rates with the Eurodollar market (reaching 6% on one-month maturity notes by 1996), the higher expected returns in Thailand, the outflow of capital from Japan, Taiwan, and Hong Kong due to decreasing price competitiveness, and confidence in fiscal and monetary authorities. The level of capital inflows, which can be attributed to the desire of foreign investors seeking return, led to an unsustainable amount of investment in the country. The nation’s economy was simply not mature or regulated well enough to handle such large capital inflows. As a result much of the money was short-term debt and portfolio investments rather than FDI (investment in real and tradeable goods). Such speculation largely took place in the real estate sector where a massive asset bubble was created, fueled by blind optimism of foreign investors. As a result of such sudden and large capital inflows investment was largely consumptive and focused on non-tradeable domestic sectors. Coupled with a consistent CA deficit the sustainability of such activities was not possible as the repayment of foreign currency denominated debt became increasingly difficult as exports slowed, due in part to the non-productive investment. As interest rates in the developed world rose and the confidence in the maintenance of the pegged exchange rate eroded, investors pulled their money out resulting in a massive loss of confidence and the financial and currency crisis. In the hunt for return investors poured money into East Asian countries thinking the good times would keep rolling. Risk premiums are an important factor. As developed markets interest rates rise the risk premium for developing nations may not be high enough leading to capital flight, like what happened in Thailand.
Toggle Commented Nov 13, 2019 on For Thursday's Discussion at Jolly Green General
The effects of malaria on economic growth are astounding but overall not surprising. The presence of such as deadly disease in the tropical regions, where it is most prevalent, deadly, and hard to eliminate is a significant impedance to growth. One can imagine the effects on returns to human capital investment if the likelihood of dying, or being very sick for a prolonged period of time must have. Under these circumstances, the rational decision is not to make large investments in human capital but rather in physical or natural resource capital. You wouldn’t invest heavily in a child’s education if there is a high probability that child may die before reaching working age, as morbid as that may sound. Poverty and malaria form a self-reinforcing endogenous process, a vicious cycle, which is extremely hard to break out of. I also think that the issue of malaria connects strongly with Michael Kremer’s O-Ring theory where no matter how much a developing nation say in Africa where Malaria infection rates are very high invests in say education and employment opportunities and training the returns will be significantly lower than expected. This could be due in part to the spillover effects malaria has on overall productivity of a person. As it mentions in the article missing school as a child because of malaria increases your likelihood and failure, repeat of grades, and eventual dropout of school. Perhaps what is most important to be done about the malaria crisis in developing nations should raising awareness about the issue so the global community can more readily asses the overall returns investment in decreasing cases of malaria would have. It is clear that the effected countries lack the funding and resources necessary to achieve the level of investment needed to combat this issue. This is a great opportunity for the global community to come together and make a strategic investment that is proven to have large returns to economies at large. Perhaps gaining control over malaria in sub-Saharan Africa along with AIDS is what is needed to provide the building blocks in order for the potential returns to human capital investment to exist therefore allowing the procurement of human capital to begin in a meaningful way. Questions: What is the best way to value/asses investments in health like in the cases of AIDs and malaria? AIDs paper: The paper stated that life expectancy affects decision making in terms of savings, investment, and lifetime labor supply. What other factors could this affect? In what ways does it impact economic growth? Do increases in life expectancy also account for the increase in resource consumption? Do increases in life expectancy by increasing savings further increase growth via more investment hence a multiplier effect? If more investment is happening why aren’t we seeing higher earnings? Malaria paper: Has there been any progress in increasing funding for malaria prevention since the publishing of this article?
Toggle Commented Nov 7, 2019 on 3 readings for next week at Jolly Green General
The Schultz article was a reinforcement for much of what we have learned in class up until now. He speaks highly about investment in human capital and also ties in well with Sen’s capabilities theory. Shultz goes on in the section about human agents to state that investing in the population quality can significantly raise economic prospects for the poor. This speaks to Sen’s believe in enabling people to pursue their freedoms. If there is one thing that I have learned about economics it’s that people respond to incentives and generally take advantage of opportunities thrown their way. It is sad to see how he describes the urban bias against poor, rural farmers as they are seen as backwards towards economic development. Such an observation points to the weaknesses in the assumptions of the Lewis-two sector model. The inefficiencies the government creates through agricultural market intervention may very well be what’s holding down the economic prospects and well-being of many rural farmers. We have learned that empowering the agricultural sector with strong investment can be a key driver of growth in LICs. The prioritization by many developing economies, encouraged by some donor agencies, for the modern sector is misguided as we have learned. Rather, I think as does Shultz, farmers should be understood not to be backwards but as economic actors capable of making rational and efficient decisions. It appears the development economics community began to shift in the decade following Shultz’s lecture away from the rigid mathematically intense models back towards a more ideational approach marked by the return of HDT we learned earlier. I also found it interesting how he spoke about how land is overrated in development economics. I agree with him as obviously geography, climate, soil, etc. matter when it comes to the initial and most basic prospects for a country. However, they should not be long-term limiting factors. Consider the example of Japan. Now it is one of the wealthiest and modern countries in the world. It certainly didn’t get any help from the land it currently has. In fact, only a small portion of the main islands are flat plains. The rest is mountainous and volcanically active. This makes farming significantly more difficult than in many of the other developed nations in the world. Despite this they are able to shine on the economic stage exactly because they have been able to invest so much into their human capital.
Toggle Commented Oct 31, 2019 on Blog Post for Next Thursday at Jolly Green General
Esther Duflo gives a powerful and informative account on the effects of empowering women economically on overall economic development. While women have been historically underrepresented in the economic landscape there has been some improvement but truly not enough. It is interesting to note that while women have made large gains in primary and secondary school enrollment their ability to access tertiary education has not improved relative to men. It would follow that given the stock of females eligible to attend higher education has increased, we would expect an increase at least greater than that in boys as girls have seen higher proportional gains in lower level education. This most likely continues to stem from the cultural bias against women that is prevalent in LIC around the world. Women are supposed to be, in many ways, socially lower in both power and standing than men. Fundamentally there has been improvements for women in terms of their rights, access to education, and labor force participation. The main barrier continues to be the great cultural firewall derived from the belief that men are the active and important gender in society and women are not. A massive effort must be led to help lower and eventually eliminate this belief. Another important aspect of empowering women has to do with fertility rates. It is clear the more input and education a women has on family matters will lead to a substantial decrease in fertility rates which are very important in helping deal with climate crisis we currently find ourselves in. I also was surprised to see Duflo find that empowering women comes with certain tradeoffs. She compares that women’s empowerment improves some areas like children’s welfare but at the expense of say infrastructure or education. Whether such a tradeoff can be explained by a lack of investment in areas favored by women is unclear but the overall effects on societal welfare are difficult to know.
Rodrik’s paper offers interesting insights into how we should think not only about development economics but also about the discipline in general as well. Too often economists from far away lands prescribe plans that may have worked in one area of the world at a certain period of time but many not work in the current country being studied. Local conditions and institutions matter. While economics seemingly prioritizes the big and bold ideas incentives and other market driven forces, it is important to understand how they might apple to a specific locale. China, India, and Peru will all have differing political and social constructs that will affect overarching economic tenets applied to them. Overall, there cannot be a cure all solution that can be indefinitely applied to all nations at all time period which will guarantee the desired outcome of robust growth. An interesting case study can be identified in Argentina which from a tradition lens was set up for a 20th century boom. At the turn of the century Argentina was one of the richest countries in the world thanks to successful development of nature resource extraction as well as agricultural and industrial sectors. However, problems began to immerge as a result of severe fiscal and monetary mismanagement. As a result they have run constant deficits and have persistent issues with managing to pay back their debt. The lack of a politically independent monetary authority has also given them trouble, especially when it come to their currency and inflation. As noted in the article the formation of a currency board was a growth strategy which only failed because of external factors. Of course, such a belief is fundamentally flawed as it fails to consider the economic picture at large. Another example can be drawn from the policy of import substitution industrialization which worked in some countries but failed in Argentina.
Toggle Commented Oct 2, 2019 on Rodrik article for Thursday at Jolly Green General
I found it very interesting the depths to which Krugman describes his issues with the broader economic community and how the field has itself developed over time. Since our ability to analyze, process, and interpret data has increased exponentially over the past century and even the past few decades, increasing the rigor for certain ideas and theories has had its drawbacks. Fultz's dis-pan model is very simple yet so effective at describing the world at large. Sometimes the simplest things yield the money relevant and succulent results. It almost seems as there is a cyclical nature to the pattern of theory development where a narrow and rigorous methodology less to some ad advancement but at the cost of overall breadth of ideas generated.
Toggle Commented Sep 25, 2019 on Reading for next Thursday at Jolly Green General
Jack Curtis This article was very provocative and connected to many of the theories and principles I’ve learn in macro theory and international finance. What the article makes clear is how important productive investment is and how crucial stable monetary and fiscal policy are. All of the countries that have lagged behind have not implemented their transition to export oriented economies correctly, and have focused on import substitution while also failing to use proceeds for productive investments or creating the necessary institutions to handle the income inflows. As a result these countries run large CA deficits which also means that net foreign investment in the country is negative. With these developing economies they have a goods and services surplus but a large net negative income flows in the form of payment of debt, dividends, and other payments to foreigners. This often results in money not being saved or invested domestically which only compounds the country’s debt issues. The resulting deficit means that it may become difficult for the nation to repay their loans in the future as they are a net debtor. As a result animal spirits decrease and investment decrease, further compounding the problem. The fast growing economies have shown that using debt to make large productive investments while also opening up their economy to financial and trade liberalization reaps huge benefits for the country a decade or more down the line. Another interesting aspect came from the case of Côte d’Ivoire where in a 50 year period from the 1960s to early 2000s their real GDP per capital didn’t increase at all. Part of the real why this happened lies in their population growth numbers. If the population is growing at more than 3% a year then in order to obtain a GDP per capital gain growth has to be above the population growth number. One of the risks that export oriented nation runs, which almost all developing nations are as their domestic consumer demand has not grown enough yet, is that they are very susceptible to changes in global macroeconomic shocks, as well as commodity and currency fluctuations. In the case of the nations which export cocoa, the depreciation in its price since the late 1970s have continued to have lasting effects. Some questions I had were: why does import substitution not work? Does decreasing fertility rates link with higher GDP per capita growth? Does a nation having high fertility contribute to being stuck in a poverty trap?
Jack Curtis The Banerjee and Duflo paper about how the poor live is incredibely thorough and eye opening. It shows how the poor often face large psychological barriers to making decision to improving their lives. It seems as though many of the hurdles the extremely poor face come from the vicious cycle they are constantly trapped in. The paper talked about how if the poor increased their food spending it may not make a significant impact of their health and productivity because they would inevitably get sick, due to the poor sanitation conditions and lack to tap or clean water, and lose whatever weight and energy they may have gained. Also I was puzzles as to why the poor didn’t save more, despite having the pure monetary capability to do so. It often arises that because the savings they would be able to accrue in a relatively short time period would be quite small, and because they see the temptation using the funds for non-productive means, they mentally cannot or will not save. Since this piece came out in 2006 I think a few parts of it are quite dated as well. In many areas, urban and rural, mobile phone penetration and access to more formalized institutional financial services through micro-finance and access to the internet is allowing even extremely poor people to setup savings and bank accounts which make misusing savings harder and provide a tangible mental incentive to continue to act in this productive manner. Another aspect of the paper I found to be quite reinforcing to basic human needs to feel like you fit in, belong, and to interact in the community in a social manner was how many of the extremely poor spend relatively significant amounts of their income on festivals and other entertainment products. It allows these people how are under constant and tremendous pressure to feel like they belong and a part of something bigger. Indeed it connects to the self-esteem aspect the Sen preaches as being one of the three pillars of well-being. I think this is also generally a shortcoming of traditional economics. These people live day by day under incredible pressure just to survive and the discipline of economics treats them as perfectly rational beings which they aren’t, nobody is. While in terms of maximizing the utility of every cent they have, yes they should save, not spend any money on entertainment or sweat, but they are human too and want to experience the many joys of life like the rest of us. When dealing with the extreme poor I think a more holistically human approach is needed in order to cater policy to best fit what these people will actually do, not what they should do.
Toggle Commented Sep 12, 2019 on Readings for next week at Jolly Green General
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Sep 11, 2019