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Capital and inequality

Joseph Joyce, professor of economics at Wellesley College wrote and interesting piece to day on capital liberalization and inequality.

I’m glad to see that so much attention is being fawned on Piketty’s most excellent book, “Capital in the 21sr Century.” It’s sure to go down as a classic in the economics literature, but the debate and discussion surrounding the book couldn’t come at a better time.

I don’t think it’s an accident that Piketty’s book, would top the NYT best seller list just a week after appearing, that a sitting President of the US would mention that inequality is one of the most important issues of our time, or that Christine LaGarde, head of the IMF would make a case that we need to address inequality at a global level.

They (Florence Jaumotte, Subir Lall and Chris Papageorgiou) analyzed the effect of financial globalization and trade as well as technology on income inequality in 51 countries over the period of 1981 to 2003. They reported that technology played a larger role in increasing inequality than globalization. But while trade actually reduced inequality through increased exports of agricultural goods from developing countries, foreign direct investment played a different role. Inward FDI (like technology) favored workers with relatively higher skills and education, while outward FDI reduced employment in lower skill sectors. Consequently, the authors concluded, while financial deepening has been associated with higher growth, a disproportionate share of the gains may go to those who already have higher incomes.

This is a scenario we’re all mostly familiar with, though the broad effects are still debatable. Increasing investment by giants like the US in overseas manufacturing push down wages on domestic unskilled labor, but it’s hard to say whether this had a major effect on overall employment. Unemployment remained steady even after Clinton signed NAFTA, and continues to remain well under European levels today, though the lowest level of workers feel the worst pain. I’m not sure if I can really advocate for protectionist measures to keep capital at home or dissuade foreign investment on principle alone, but it is true that the worst effect of foreign competition has been the erosion of labor’s political power.

Jayati Ghosh of Jawaharlal Nehru University of New Delhi has examined the role of capital inflows in developing countries. She maintains that the inflows appreciate the real exchange rate and encourage investment in non-tradable sectors and domestic asset markets. The resulting rise in asset prices pulls funds away from the financing of agriculture and small firms, hurting farmers and workers in traditional sectors. Eventually, the asset bubbles break, and the poor are usually those most vulnerable to the ensuing crisis.

Well, this is somewhat more interesting. Foreign investment in developing countries appreciates the exchange rate, leading domestic investors to put their money into, say, real estate assets. This is certainly the case all over Africa. Land and building developments are occurring at a breakneck pace, with the hopes that expensive properties will be bought up by foreign companies and individuals. It’s certainly the case that no common African could ever afford some of these places (or would even want to buy them if they could). Nairobi, Dar es Salaam and Luanda, Angola are all in the middle of a real estate bubble. The problem, of course, is that domestic investors are hoping to make a quick buck, rather than attempting to create long term, profitable industries. No wonder Africa imports the lion’s share of it’s manufactured goods. No local will invest in the infrastructure to create it locally since urban real estate is so absurdly profitable right now. This, of course, means that money flows directly into the pockets of the urban elite and then sent back out to bank accounts and retailers in France and England, further entrenching the poorest of the poor.

Without the development of local industries, domestic economies can’t function and opportunities for revenue collections are missed. and countries like Tanzania and Kenya, for example, will continue to be beggar economies which depend on the good graces of the international community to support domestic social programs.

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Articles I liked 4/12/2014

Here’s a few articles I’ve been reading this morning that I liked.

Intellectual Property Rights, the Pool of Knowledge, and Innovation by Joe Stiglitz (National Bureau of Economic Research)

We began by noting that some observers of innovation have claimed that a more important determinant of the levels of investment in R & D and the pace of
innovation than the intellectual property regime is the “opportunity set,” the knowledge pool from which applied researchers can draw. Knowledge, it is has long been recognized, is a public good—a
common resource from which all can draw (see, e.g., Stiglitz 1987).32 Intellectual property provides a way of appropriating the returns to investments in knowledge, but in doing so, effectively privatizes a public good. But every innovation draws upon prior knowledge, and the boundaries of “new” knowledge are inherently imprecise. Patents inevitably enclose what would otherwise have been in the
public domain. In doing so, not only do they impede the efficient use of knowledge, but because knowledge itself is the most important input into the production of further knowledge (innovations),
they may even impede the flow of innovations.

Democracy does cause growth (National Bureau of Economic Research)

Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.

Abe’s Law: Domestic Dimensions of Japan’s Collective Self-Defense Debate (HERE)

The Edutainment Industrial Complex (Africa is a country)

So this is their strategy? Ask a bunch of relatively wealthy, globally-mobile pop superstars to tell rural youth to not participate in the flashy urban lifestyle they (the artists) usually promote–to stay in the countryside and participate in the resource extraction side of global capitalism? As Sean pointed out to me over email, the video isn’t unlike the type campaign some dictatorship (South Africa’s racist regime was fond of it) might use as a tool of “national development” or to fight crime or build national morale.

Is this a surprise? Western liberals have long romanticized rural poverty and encouraged Africans to simply do nothing about their developmental problems. Sorry, I had to put on my curmudgeon hat for a while.

A few articles I’m reading 1/10/2014

That’s the first time I’ve typed “2014” all year. Wow.

Here are some articles I’m reading this morning:

1. The news seems to be all over debates on the general shift toward the right in Europe (a feature in a recent issue of the Economist). Specifically, discussion of the tightening of immigration/migration rules are starting to heat up. One analyst has developed models to determine exactly what the long term impact of reduced migration in the UK would be on the overall economy. The results aren’t good.

Our results show that a significant reduction in net migration has strong negative effects on the economy. First, by 2060 in the low migration scenario, aggregate GDP decreases by 11% and GDP per person by 2.7% compared to the baseline scenario (Figure 1). Second, this policy has a significant negative impact on public finances, owing to the shift in the demographic structure after the shock. The total level of government spending expressed as a share of GDP increases by 1.4 percentage points by 2060. This effect requires an increase in the effective labour income tax rate for the government to balance its budget. By 2060 the required increase is 2.2 percentage points. Third, the effect of the higher labour income tax rate is felt at the household level, with average households’ net income declining because of the higher income tax despite the initial increase in gross wages due to lower labour supply. By 2060, the net wage is 3.3% lower in the low migration scenario.

Humans are more mobile in the 21st century than they’ve ever been in human history. Say what one will about globalization, but the reality is that it’s already happened. Cutting the cord on migration would see declines in income in both the developed (through loss of productivity) and developing worlds (through loss of remittances).

2. Niger and France have yet to come to an agreement to the terms of a contract to mine uranium by state owned multi-national giant Areva. Niger would like to increase their share from the current 5% to 12%. Areva is worried about profitability. Not knowing Areva’s operating costs and Niger’s track record of transforming mining revenues into public services, I’m not sure what to think.

France derives 75% of its energy from nuclear power and Areva gets 37% of its uranium from Niger. On top of this, Niger has few other options with which to generate money. The two parties have a lot at stake.

3. Krugman rails on the 50th anniversary of Lyndon Johnson’s War on Poverty. On the surface, it looks to be a bitter failure. Inequality is at an all time high and wages have been slipping for the bottom 25% for decades. Still, Krugman ends on a positive note. The pain we feel now could help spur a new progressive movement. I think he’s probably right. Amid the political circus, We’ve been quietly expanding social programs like Medicaid and it’s going to work out well for us. It’s really easy to be pessimisitic about American politics, but there’s potential light at the end of the tunnel, assuming that progressive can finally get their story straight and the right continues to shoot itself in the face.

4. Groups in Zimbabwe are gearing up to fight over who will succeed the old bastard. I think he’s already dead and we’re actually seeing a robot. I’m not confident that whoever succeeds him will be much better. It’s possible that his poison has been spread so thick, that Zimbabwe, once a rising economic star, will continue to be the inexcusable poster child for African political failure.

At the core of the long running struggle for supremacy in ZANU-PF are two factional groups led by Mujuru and Mnangagwa. Mujuru’s side, sometimes referred to as ‘the moderates’, is a purportedly pro-business and centrist bloc that is seen as attempting to push ZANU-PF politics to the centre and improve relations with the international community.

Mnangagwa’s camp, the so-called ‘hard-liners’ or ‘old guard’, is mostly made up of an elite group believed to have dominated Zimbabwe’s political scene since the 1980s; many assume that this faction would seek to continue Mugabe-style politics, anti-western rhetoric and policies as well as continued authoritarianism.

My 10 Favorite Blogs of 2013

I’m slowly waking up from the Christmas break and aching from shoveling all this snow.

I read a lot of news media but, in terms of total number of sources, I read more blogs than anything else. Here are my favorites for 2013, in no particular order.

1. The Big Picture Barry Ritholz works in finance. Unlike some of his colleagues he is human, rather than reptilian. He gives great and reasonable financial advice, much of which centers around completely ignoring media reporting on finance and investing trends. He’ll tell you to do boring things, like pick something you’re into and stick with it for the long haul. Though he works in finance, he’s immensely interested in all of its problems. Plus, he posts great reading lists on a daily basis.

2. Noahpinion Noah Smith is an assistant professor of finance at Stony Brook University. He writes for the Atlantic and others but also writes a great blog on finance and economics that isn’t so difficult for people like me to understand, but technical enough to maintain my interest.

3. Calculated Risk Great blog on domestic economic issues which includes timely updates and a host of graphics to help you figure out what’s going right or wrong with the American economy.

4. Shisaku Interesting blog on Japanese politics from Michel Cucek, a research associate at the MIT Center for International Studies. Japanese news isn’t always the best source for information on Japanese politics and my reading ability is far to slow to digest more interesting writing on the subject. This blog is a great resource.

5. Chris Blattman Chris Blattman is an Assistant Professor of Political Science & International and Public Affairs at Columbia University. He studies poverty, political participation, the causes and consequences of violence, and policy in developing countries and writes a great blog on global issues.

6. Mark Maynard I would feel bad if I didn’t list Mark here. Mark is a good friend. He wants to make his town a better place. To do this, he writes regularly on issues relevant to Ypsilanti, MI in addition to current happenings in liberal politics.

7. PLOS Global Health Blog As it says. The posts are infrequent, but always worth it.

8. Africa is a Country – This has turned out to be one of my favorite sites of the year. Great articles on African popular culture, politics and history. Africa is a Country is a great sounding board for those enthusiastic about the Africa that has nothing to do with Bono’s starving kids and poor women.

9. Conscience of a LiberalI have to say, I love Paul Krugman’s blog. He’s somewhat of a broken record (liquidity traps, the infallibility of Keynesian economics, “I told you so”) but it’s great to have a solider out there exposing the failings of Republican economic policy (assuming there is one).

10. Baobob (Economist) – I was hesitant to put this on the list as it’s from a magazine rather than an individual, but I do read it frequently and can recommend it as a great source for news and commentary on current events in Africa.

That was somewhat of a challenge. 4 blogs on finance/economics, 2 on Africa, 2 on global health/development, 1 on Japan and 1 on local issues. That kinds of sums me up.

Post 500!

judas-priest-freewheel-burning-1983I had planned some grand statistical analysis of this blog (such as that of post 100), but quickly found that 1) the text file version was too big to use and 2) stripping all of the complicated code from it is beyond my computer skillset.

So, I’ll celebrate simply by saying thanks to the four or five people who read this blog for, well, reading. Not much of what I say makes much sense, my politics are often vague and the themes are often haphazard and chaotic, but this remains an important tool for me. It’s not easy working through one’s thoughts and this give me a space to be incoherent, if not batshit nonsensical.

So thanks to all. It means a lot.

As, I’ve nothing else to say, here’s a run down of the top five posts:

1. African Conflict and the Murdock Map of Ethnic Boundaries At more than 15,000 views, this wins the top spot. It’s got pretty pictures and some suspect methodologies.

2. US Bombings in Laos 1965-1973 I thought this was a cool post. I went on a bender for spatial data on conflict for a while. It’s too bad I didn’t pursue it further. This one even came with a movie!

3. Andrew WK: How He Almost Became the US Cultural Ambassador to the Middle East No surprise here. It’s pretty easy to rack up hits on articles about rock stars. Global health… not so much.

4. Japan Earthquake/Tsunami Reporting April 7, 2011 I was downloading police reports of the number of dead and missing during the Tohoku earthquake/tsunami for a while. Then I went to Japan, didn’t have internet and couldn’t keep up with it. It was a valiant effort.

5. Lynching Data Are we starting to see a pattern here? I’m hoping that I haven’t put any misinformation out there with these odd data exercises. Unfortunately, my time is limited these days but it would be fun to get back into it. I was pretty wide-eyed and dreamy about data back then.

Blog of the Week: Africa is a Country

AfricaisaCountryI just ran across this great must follow blog, “Africa is a Country.”

It’s a collective of many people who write and think about Africa who seek to shatter common notions of what Africa “is” (or “isn’t”). The writing is great and the subject matter fantastic. Posts cover present and past film, books, music, photography and politics form all over the continent.

It’s the blog that “isn’t about famine, Bono, or Barack Obama.”

“Africa is a Country” sports some great articles on such subjects as:

People who go to Africa to snatch up vinyl
Cape Town hip hop
New developments in Nigerian cinema
The beginning of Africa’s first Libertarian political party
One man’s irrepressible hatred for Bono
New music in Mozambique
Mozambiquan photographer Felipe Branquinho
A crazy article on surreal Germans who get wild in Africa

and a great and truly frightening article on how a batshit church in Kansas exports hate and homophobia to Uganda.

In their words:

Of course we don’t literally believe Africa is a Country (unlike say rapper Rick Ross). The title of the blog is ironic and is a reaction to old and tired images of “Africa”. We deliberately challenge and destabilize received wisdom about the African continent and its people in Western media — that definition includes “old (nationally oriented) media,” new social media as well as “global news media”.

Media here means more than journalism; it is also art, music, film, books, graphic design, etcetera. We don’t spend all our time criticizing though. We also celebrate and feature work that we think complicate the old, ahistoric and objectional images. We want to introduce our readers to work by Africans and non-Africans about the continent and its diaspora that have worked against the old and tired images of Africa.

The blog is that, and more. As one of the core members of the collective, Neelika Jayawardane, explains in the “About” section on our Facebook page, Africa is a Country is also about constructing a state of mind. One where the “nation” operates outside the borders of modern nation states in Africa and its continental and conceptual boundaries. So, yes, the blog announces that Africa is indeed a “country,” an imagined community whose “citizens” must reinvent the narrative and visual economy of Africa.

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