Tag Archives: economic growth

economic “derailment”

David Lipton, a deputy director at the IMF, gave a speech on March 8 in which he stated, “Global economic recovery continues, but we are clearly at a delicate juncture, where risk of economic derailment has grown.”

Why?

In many parts of Europe, for instance, sovereign and private sector balance sheets remain highly leveraged and banks’ non-performing loans high. In the US, aging-related spending pressures and unfulfilled infrastructure needs diminish economic prospects. And in Japan, deflation is putting the recovery at risk.
At the same time, we are witnessing an emergence of new risks. The global economic slowdown is hurting bank balance sheets and financing conditions have tightened considerably. In emerging markets, excess capacity is being unwound through sharp declines in capital spending, while rising private debt, often denominated in foreign currency, is increasing risks to banks and sovereign balance sheets.

Concerns about the global outlook have weighed heavily on world financial markets. The decline in equity price indices in 2016 so far this year has averaged over 6 percent, implying a loss of global market capitalization of over US$ 6 trillion (or 8.5 percent of global GDP). This is roughly half the US$ 12.3 trillion loss incurred in the most acute phase of the global financial crisis. Some Asian markets, such as in China and Japan, have been particularly hard hit, with losses of over 20 percent since the beginning of the year. Meanwhile, emerging market currencies have weakened, while their sovereign credit spreads have continued to widen—in Latin America and Africa by over 300 basis points over the past year.

What may be most disconcerting is that the rise in global risk aversion is leading to a sharp retrenchment in global capital and trade flows. Last year, for example, emerging markets saw about $200 billion in net capital outflows, compared with $125 billion in net capital inflows in 2014. Trade flows meanwhile are being dragged down by weak export and import growth in large emerging markets such as China, as well as Russia and Brazil, which have been under considerable stress.
Furthermore, inflation has fallen to historical lows. Headline inflation in advanced economies in 2015, at 0.3 percent, was the lowest since the financial crisis, and in emerging markets core inflation remains well below central bank targets.

The solutions proposed are mostly things you might expect from the IMF – free trade, free capital flows, floating exchange rates, and reduced regulation of big business. But buried in the fuzzy language, they are nowhere near as hawkish on debt as they once were and are talking about richer countries reducing taxes on labor, and taking on debt to invest in infrastructure, education, and research.

Remaking Economic Development

This is a new Brookings study on a vision for economic development at the metro scale. Here’s an excerpt, but the rest is worth reading.

As Michael Porter, the Harvard authority on competitiveness, describes it, the anchor firms, supply chains, supporting entities and organizations, research centers and specialized knowledge assets that make up industry clusters arise from a “highly localized process” that creates differentiated competitive advantages tailored for particular industry clusters.

Those assets are sometimes called “market drivers,” “factors of production,” or the “industrial commons”— because they benefit a wide array of firms. They include applied research and technical expertise, supports for entrepreneurial activity, robust pipelines of skilled labor, deep benches of suppliers and related firms, globally connected infrastructure, and responsive, predictable governance to maintain them all. It is the productive mix and synergy among these distinctive drivers—innovation, traded sectors, human capital, infrastructure, and governance—that create the conditions in which industries thrive, create value, and generate growth and income.

Globalization and technology have not dispersed these market assets but instead have further concentrated them in cities and metropolitan regions, with leading centers of knowledge and production capturing an increasingly greater share of specific market opportunities.

That is in part because innovation today reinforces the power of place. The rapid pace of competition requires solutions often developed through collaborations among firms, research institutions, national labs, competitors, customers, venture capitalists, and entrepreneurs—collaborations that are most readily forged through the networks formed within metropolitan regions.

This sounds right to me. Policies like minimum wage and affordable housing have their place, but ultimately I feel like they are treating the symptom and not the disease. The pie has to be growing.

how freight moves

Here are some statistics on how freight moves in the U.S. Compared to my preconceived notions, trucking is even more dominant compared to rail than I thought. Even pipelines move more than twice the weight of rail. Air is vanishingly small in terms of weight, but used to move higher-value items. It’s not too surprising that the monetary value of everything shipped is projected to grow along with the economy, but it is a little surprising to me that the weight of everything shipped is projected to grow by 40% over the next 30 years. It argues against the idea that we are “dematerializing”, or achieving economic growth without physical growth. Sure, people like Alan Greenspan can make an argument that the weight per dollar is not increasing, but what does that mean exactly when a dollar is a fairly arbitrary human measure of value? Ultimately the tonnage of everything we move, from raw materials and fossil fuels to manufactured goods to waste, is one proxy for ecological footprint, and it doesn’t look like we are going to turn the corner soon. The only way that would change is if we had a closed loop, “circular economy” where the waste becomes raw materials again. Then we could theoretically keep shipping it around the loop faster and faster without increasing our footprint. That is, given enough clean, cheap energy.

Romney vs. Trump

Here we have the last Republican nominee sagavely attacking the current front runner. It suggests to me that Republican leaders are worried the general election may be a lost cause. Maybe it is time for a rational pro-growth, pro-business party to emerge and leave the intolerant fringe behind. A rational pro-growth, pro-business party could embrace policies like clean elections, a universal health care system that takes the burden off employers, investment in education rather than prisons, a rational guest worker program, and a revenue-neutral carbon tax.

February 2016 in Review

I’m going to try picking the three most frightening posts, three most hopeful posts, and three most interesting posts (that are not particularly frightening or hopeful) from February.

3 most frightening posts

Collapsing oil prices played a big role in bringing down the Soviet Union, and now are likely to cause chaos in societies across Africa and the Middle East. On the other hand, oil prices just might come roaring back.
77% of jobs in China may be threatened by automation.
Drought has become severe in some very populous areas of Southeast Asia.

3 most hopeful posts

There are some practical ideas for how to develop potentially dangerous technologies more safely.
There is some solid math behind Bernie Sanders’s economic plan. And a Sanders-Warren ticket just might save us from the next crippling financial crisis.
A variable carbon tax could be phased in a way that takes advantage of upswings in the economy without exacerbating the downswings.

3 most interesting posts

The U.S. election season certainly is getting interesting, although not really in a good way. ontheissues.org has a useful summary of where U.S. political candidates stand…what are the words I’m looking for…on the the issues. Nate Silver has an interesting online tool that lets you play around with how various demographic groups tend to vote.
Fire trucks don’t really have to be so big.
Titanium dioxide is the reason Oreo filling is so white.

Sander-nomics

This analysis of Bernie Sanders’s economic plan by Gerald Friedman at University of Massachussetts-Amherst has made quite a splash, suggesting it could lead to massive improvements in economic growth, unemployment, inequality, and productivity, all while investing heavily for the future in infrastructure, education, and climate change readiness. Bill Moyers.com has a long roundup of the criticism and support from all sides, finally concluding that it is actually plausible using standard, even conservative principles of economics. To me, even if it is only partially true, it just shows how unbelievably badly our economy has been managed over the past few decades, and how unready for the future we actually are.

Meanwhile, the Trump economic plan just doesn’t remotely add up using any known principles of arithmetic.

variable carbon tax

This post explains how a variable carbon tax could work. In summary, it automatically adjusts when oil prices rise or fall, damping out the effects of price fluctuations and raising more revenue when prices are low. It can be designed so that the overall, average tax increases over time, with those increases happening when the economy can best handle them.

The tax would decrease gradually as oil prices rise, and then increase again when prices eventually come back down.

If the adjustments are asymmetric – larger increases when prices fall, and smaller decreases when prices rise – this system would gradually raise the overall carbon tax, even as it follows a counter-cyclical pattern. Such an incremental increase is what most models for controlling climate change call for…

The key to this strategy’s political feasibility is to launch it while prices are very low. Once it is in place, it will become a little-noticed, politically uncontroversial part of pricing for gasoline (and other products) – one that produces far-reaching benefits. Some of the revenue could be returned to the public in the form of tax cuts or research support.

Other forms of environmental harm could be taxed in this way too – for example, building materials (pavement) that cause pollution and habitat destruction, emissions of air pollutants other than carbon, consumer packaging not designed to be reused or recycled. You could make the whole thing revenue-neutral by reducing taxes on hard work and productive investment.

oil prices and social unrest

This article reminds us that collapsing oil prices played a big role in bringing down the Soviet Union, and now are likely to cause chaos in societies across Africa and the Middle East. The list of countries predicted to “explode”: Nigeria, Angola, Kenya, Uganda, Egypt, and Libya.

January 2016 in Review

I’m going to try picking the three most frightening posts, three most hopeful posts, and three most interesting posts (that are not particularly frightening or hopeful) from January.