Dani Rodrik: The Left's Choice

The Left's Choice

Jan 8, 2019 DANI RODRIK

In the face of resurgent right-wing populism, the left's relative weakness partly reflects the decline of unions and organized labor groups, which have historically formed the backbone of leftist and socialist movements. But four decades of ideological abdication has also played an important role.

CAMBRIDGE – The main political beneficiaries of the social and economic fractures wrought by globalization and technological change, it is fair to say, have so far been right-wing populists. Politicians like Donald Trump in the United States, Viktor Orbán in Hungary, and Jair Bolsonaro in Brazil have ridden to power by capitalizing on the growing animus against established political elites and exploiting latent nativist sentiment.1



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The left and progressive groups have been largely missing in action. The left's relative weakness partly reflects the decline of unions and organized labor groups, which have historically formed the backbone of leftist and socialist movements. But ideological abdication has also played an important role. As parties of the left became more dependent on educated elites instead of the working class, their policy ideas aligned more closely with financial and corporate interests.

The remedies on offer from mainstream leftist parties remained correspondingly limited: more spending on education, improved social-welfare policies, a bit more progressivity in taxation, and little else. The left's program was more about sugarcoating the prevailing system than addressing the fundamental sources of economic, social, and political inequities.

There is now growing recognition that tax-and-transfer policies can go only so far. While there is much room for improving social insurance and tax regimes, especially in the US, deeper reforms are needed to help level playing fields in favor of ordinary workers and families across a broad range of domains. That means focusing on product, labor, and financial markets, on technology policies, and on the rules of the political game.

Inclusive prosperity cannot be achieved by simply redistributing income from the rich to the poor, or from the most productive parts of the economy to less productive sectors. It requires less-skilled workers, smaller firms, and lagging regions to be more fully integrated with the most advanced parts of the economy.

In other words, we must start with productive re-integration of the domestic economy. Large and productive firms have a critical role to play here. They must recognize that their success depends on the public goods that their national and sub-national governments supply – everything from law and order and intellectual property rules to infrastructure and public investment in skills and research and development. In exchange, they must invest in their local communities, suppliers, and workforce – not as corporate social responsibility, but as a mainline activity.


In an earlier age, governments engaged in agricultural extension activities to spread new techniques to small farmers. There is a similar role today for what Timothy Bartik of the W.E. Upjohn Institute for Employment Research calls "manufacturing extension services," though the ideas apply to productive services as well. Governments that collaborate with businesses to encourage the dissemination of frontier technologies and management techniques to the rest of the economy can avail themselves of a well-established repertoire of such initiatives.

A second area of public action concerns the direction of technological change. New technologies such as automation and artificial intelligence (AI) have typically been labor-replacing, adversely affecting low-skill workers in particular. But this need not be the case in the future. Instead of policies (such as capital subsidies) that inadvertently promote labor-replacing technologies, governments could promote technologies that augment labor-market opportunities for less-skilled workers.

The late economist Tony Atkinson, in his magisterial book Inequality, questioned the wisdom of governments supporting the development of autonomous vehicles, without due consideration for the effects on taxi and truck drivers. More recently, the economists Daron Acemoğlu, Anton Korinek, and Pascual Restrepo have written about how AI can be deployed in new ways to increase labor demand, for example by allowing ordinary workers to engage in activities that were previously out of reach for them. But moving in this direction will require a conscious effort by governments to review their innovation policies and to put the appropriate private-sector incentives in place.

Labor markets, too, need rebalancing. The weakening of unions and protections for workers has eroded traditional sources of countervailing power. Recent research has shown that firms retain significant bargaining leverage over employees, depressing wages and working conditions. Reversing these trends will require a range of pro-labor policies, including the promotion of unionization, higher minimum wages, and adequate regulatory standards for workers in the "gig economy."

Finance is yet another area requiring significant surgery. Most advanced economies' financial sectors remain bloated. They pose continuing risks to economic stability without providing compensating benefits in terms of increased investment in productive activities. As Stanford's Anat Admati and others have long argued, banks require, at a minimum, higher capital requirements and tighter regulatory scrutiny. The fact that financial institutions have escaped relatively unscathed from the crisis of 2008-2009 speaks volumes about their political power.

As the failures of financial regulation suggest, important as such economic reforms are, they need to be complemented with measures that remedy the asymmetry of political access. In the US, holding elections on workdays, rather than weekends or holidays – together with restrictive registration rules, gerrymandering, and myriad other electoral rules – places ordinary workers at a significant disadvantage. This is on top of campaign finance rules that have enabled corporations and society's wealthiest members to exert inordinate influence on legislation.

The Democratic Party will face a critical test in the next US presidential election, less than two years away. In the meantime, it has a choice to make. Will it remain the party of merely adding sweeteners to an unjust economic system? Or does it have the courage to address unfair inequality by attacking it at its roots?


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Jan 7, 2019 DANIEL GROS

Why Is Immigration Different from Trade?

Jan 11, 2019 AMAR BHIDÉ

DANI RODRIK

Writing for PS since 1998
152 Commentaries

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Dani Rodrik is Professor of International Political Economy at Harvard University's John F. Kennedy School of Government. He is the author of The Globalization Paradox: Democracy and the Future of the World Economy, Economics Rules: The Rights and Wrongs of the Dismal Science, and, most recently, Straight Talk on Trade: Ideas for a Sane World Economy.

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John Case
Harpers Ferry, WV

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Global Inequality: What is Just Pay

What is the just pay? Capitalists, John Roemer and the Cultural Revolution

In the 1990s and in his 1999 book "Equality of opportunity", John Roemer set the stage for what has since been a flourishing area of inequality studies—inequality of opportunity. Roemer's key insight was to divide the factors that influence one's income into three parts: circumstances or factors that are exogenous to the individual, that is over which he has no control (gender, race, parental income and education etc.), those that are the product of his effort, and finally those that are the result of what Roemer called "episodic luck" (I got a good  job because I just happened to be available at the time when the job was advertised).

Roemer's approach has led him also to propose a very radical way to reward (pay) people. Consider two groups of individuals, defined by an exogeneous marker like gender. One group (men) tends to be physically stronger and produces on average 10 widgets per day. Another group, women, is physically weaker and produces only 5. Should everybody be paid according to the number of widgets he/she produces (which a simple-minded "meritocratic" approach would suggest)? No, Roemer says, the reward should be proportional to our contribution compared to the average of our group. So, if I produce 12 widgets, why is 20% above men's average, I should be paid the same as the woman who produces 6 widgets, which is also 20% above the average of her group. The reason is that we are both paid according to our (differential) effort—and the attempt is made to control (abstract from) our innate characteristics which may privilege or punish some of us.

Consider the radicalness of this proposal as applied in another context. Students' grades should also follow the same rule. If say rich parents' kids do better than poor parents' kids on average, then a rich kid who has scored 12 points on a test should get the same grade as the poorer kid who has scored only 6 points. And so on.

But recently as I was rereading Phelps  Brown's book "The Inequality of Pay", published in 1977, I ran across a different scheme of rewards applied in Beijing in the 1960s, around the time of the Cultural Revolution. All men were paid according to the average number of widgets produced by men, and all women were paid according to the average  number of widgets produced by women. Here is the quote from Phelps Brown:

This story brings out what to Western observers may seem a contradiction in Chinese pay structure: if it is right and proper to pay a man more than a woman because the man being stronger produces more, why should not a man who exerts himself and produces more than another man likewise be paid more? To the Chinese the answer is simply that the latter differential appeals to self-interest whereas the former cannot. Strangely but intelligibly, the Chinese treat payment in proportion to the amount of work done as a self-evident principle of natural justice while differences  in that amount arenot within the worker's own control, but as mischievous when they are. (p. 53; emphasis mine)

The reader, probably having thought how radical and left-wing is Roemer's proposal, is now suddenly thrown into this most radical left-wing experiment ever where—the very opposite principles rule! It seems that there is no continuity: a more left-wing approach is not just slightly more to the left than the less leftist approach—it is the very opposite of it!

To see that, recall that in Roemer's case we do not want to pay somebody for his or her circumstances, but only for his or her effort. In the Chinese case, it is the reverse: we pay somebody only for his or her circumstances, but not for his or her effort. Why is that? The philosophy is entirely different. Circumstances are viewed  as "natural" and one should be paid according to them. But payment according to effort is viewed as corrosive of moral norms since it means that people respond to economic incentives. People should work either because they want to contribute to the community (without expecting anything in return) or because they like to work. "Incentivizing" --appealing to self-interest--in such a setting is considered as bad, as in a different setting paying somebody for an exogenous advantage that he or she does not deserve.

The ultimate outcome of the Chinese system is an equal pay for everybody, both men and women, and regardless of individual productivity. It would be at the polar extreme of the "meritocratic" pay where everybody is paid simply according to the number of widgets he or she produces.

What is the best way? Meritocratic pay responds to out feeling of justice that everybody should be paid according to their contribution. Presumably it would lead to the highest output. Roemer redefines justice so as to extract only differential effort according to which people should be paid. They will be paid the same amount  for different number of widgets produced. Empirically, it will be always very difficult to determine what are the factors that should fall under the heading of circumstances and hence should not affect the reward. The Chinese system has a moralistic element in it: it is bad to be incentivized by pay. The downside is that it is likely to lead to very low effort of most participants.

When we design systems of rewards, we are obviously always led by some principles of justice or ethics. The problem is that these principles do not all come up with the same solution. In many cases, as we have seen here, depending on what our guiding principle is, the reward structure will be very different. On top of that we need, in principle, to take into account the effects on the overall output—unless of course our philosophical principle Is such that the quantity of that output is immaterial.

This post is a bit abstract, but it highlights an important distinction between labor for pay, and labor for a public good.  Microsoft vs Open Source software, for example. (Although the former is being partly eaten by the latter!)

It also asks measurement questions about effort and productivity, but skirts the elemental (to me) matter of how services and intangibles -- most of the future 'economy' and 'jobs' -- which are not very amenable to 'productivity' me

What is the just pay? Capitalists, John Roemer and the Cultural Revolution

Note:

John Roemer who kindly commented on the text asked me to make clear that he never advocated  direct application of the principles explained here (nor thought that this would be possible to do in a market economy), but argued that policies like affirmative action should be designed with the objective of reducing or eliminating the impact of circumstances on one's income.

--

John Case
Harpers Ferry, WV

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The research university [feedly] - Whence cometh innovation

The research university
http://understandingsociety.blogspot.com/2019/01/the-research-university.html

Where do new ideas, new technologies, and new ways of thinking about the world come from in a modern society? Since World War II the answer to this question has largely been found in research universities. Research universities are doctoral institutions that employ professors who are advanced academic experts in a variety of fields and that expend significant amounts of external funds in support of ongoing research. Given the importance of innovation and new ideas in the knowledge economy of the twenty-first century, it is very important to understand the dynamics of research universities, and to understand factors that make them more or less productive in achieving new knowledge. And, crucially, we need to understand how public policy can enhance the effectiveness of the university research enterprise for the benefit of the whole of society.

Jason Owen-Smith's recent Research Universities and the Public Good: Discovery for an Uncertain Future is a very welcome and insightful contribution to better understanding this topic. Owen-Smith is a sociology professor at the University of Michigan (itself a major research university with over 1.5 billion dollars in annual research funding), and he brings to his task some of the most insightful ideas currently transforming the field of organizational studies.

Owen-Smith analyzes research universities (RU) in terms of three fundamental ideas. RUs serves as source, anchor, and hub for the generation of innovations and new ideas in a vast range of fields, from the humanities to basic science to engineering and medicine. And he believes that this triple function makes research universities virtually unique among American (or global) knowledge-producing organizations, including corporate and government laboratories (33).

The idea of the university as a source is fairly obvious: it is the idea that universities create and disseminate new knowledge in a very wide range of fields. Sometimes that knowledge is of interest to a hundred people worldwide; and sometimes it results in the creation of genuinely transformative technologies and methods. The idea of the university as "anchor" refers largely to the stability that research universities offer the knowledge enterprise. Another aspect of the idea of the university as an anchor is the fact that it helps to create a public infrastructure that encourages other kinds of innovation in the region that it serves -- much as an anchor tenant helps to bring potential customers to smaller stores in a shopping mall. Unlike other knowledge-centered organizations like private research labs or federal laboratories, universities have a diverse portfolio of activity that confers a very high level of stability over time. This is a large asset for the country as a whole. It is also frequently an asset for the city or region in which it is located.

The idea of the university as a hub is perhaps the most innovative perspective offered here. The idea of a hub is a network concept. A hub is a node that links individuals and centers to each other in ways that transcend local organizational charts. And the power of a hub, and the networks that it joins, is that it facilitates the exchange of information and ideas and creates the possibility of new forms of cooperation and collaboration. Here the idea is that a research university is a place where researchers form working relationships, both on campus and in national networks of affiliation. And the density and configuration of these relationships serve to facilitate communication and diffusion of new ideas and approaches to a given problem, with the result that progress is more rapid. O-S makes use of Peter Galison's treatment of the simultaneous discovery of the relativity of time measurement by Einstein and Poincaré in Einstein's Clocks and Poincaré's Maps: Empires of Time.  Galison shows that Einstein and Poincaré were both involved in extensive intellectual networks that were quite relevant to their discoveries; but that their innovations had substantially different effects because of differences in those networks. Owen-Smith believes that these differences are very relevant in the workings of modern RUs in the United States as well. (See also Galison's Image and Logic: A Material Culture of Microphysics.)

Radical discoveries like the theory of special relativity are exceptionally rare, but the conditions that gave rise to them should also enable less radical insights. Imagining universities as organizational scaffolds for a complex collaboration networks and focal point where flows of ideas, people, and problems come together offers a systematic way to assess the potential for innovation and novelty as well as for multiple discoveries. (p. 15)

Treating a complex and interdependent social process that occurs across relatively long time scales as if it had certain needs, short time frames, and clear returns is not just incorrect, it's destructive. The kinds of simple rules I suggested earlier represent what organizational theorist James March called "superstitious learning." They were akin to arguing that because many successful Silicon Valley firms were founded in garages, economic growth is a simple matter of building more garages. (25)

Rather, O-S demonstrates in the case of the development of the key discoveries that led to the establishment of Google, the pathway was long, complex, and heavily dependent on social networks of scientists, funders, entrepreneurs, graduate students, and federal agencies.

A key observation in O-S's narrative at numerous points is the futility -- perhaps even harmfulness -- of attempting to harness university research to specific, quantifiable economic or political goals. The idea of selecting university research and teaching programs on the basis of their ROI relative to economic goals is, according to O-S, deeply futile. The extended example he offers of the research that led to the establishment of Google as a company and a search engine illustrates this point very compellingly: much of the foundational research that made the search algorithms possible had the look of entirely non-pragmatic or utilitarian knowledge production at the time it was funded (chapter 1). (The development of the smart phone has a similar history; 63.) Philosophy, art history, and social theory can be as important to the overall success of the research enterprise as more intentionally directed areas of research (electrical engineering, genetic research, autonomous vehicle design). His discussion of Wisconsin Governor Scott Walker's effort to revise the mission statement of the University of Wisconsin is exemplary (45 ff.).

Contra Governor Walker, the value of the university is found not in its ability to respond to immediate needs but in an expectation that joining systematic inquiry and education will result in people and ideas that reach beyond local, sometimes parochial, concerns. (46-47)

Also interesting is O-S's discussion of the functionality of the extreme decentralization that is typical of most large research universities. In general O-S regards this decentralization as a positive thing, leading to greater independence for researchers and research teams and permitting higher levels of innovation and productive collaboration. In fact, O-S appears to believe that decentralization is a critical factor in the success of the research university as source, anchor, and hub in the creation of new knowledge.

The competition and collaboration enabled by decentralized organization, the pluralism and tension created when missions and fields collide, and the complex networks that emerge from knowledge work make universities sources by enabling them to produce new things on an ongoing basis. Their institutional and physical stability prevents them from succumbing to either internal strife or the kinds of 'creative destruction' that economist Joseph Schumpeter took to be a fundamental result of innovation under capitalism. (61)

O-S's discussion of the micro-processes of discovery is particularly interesting (chapter 3). He makes a sustained attempt to dissect the interactive, networked ways in which multiple problems, methods, and perspectives occasionally come together to solve an important problem or develop a novel idea or technology. In O'S's telling of the story, the existence of intellectual and scientific networks is crucial to the fecundity of these processes in and around research universities.

This is an important book and one that merits close reading. Nothing could be more critical to our future than the steady discovery of new ideas and solutions. Research universities have shown themselves to be uniquely powerful engines for discovery and dissemination of new knowledge. But the rapid decline of public appreciation of universities presents a serious risk to the continued vitality of the university-based knowledge sector. The most important contribution O-S has made here, in my reading, is the detailed work he has done to give exposition to the "micro-processes" of the research university -- the collaborations, the networks, the unexpected contiguities of problems, and the high level of decentralization that American research universities embody. As O-S documents, these processes are difficult to present to the public in a compelling way, and the vitality of the research university itself is vulnerable to destructive interference in the current political environment. Providing a clear, well-documented account of how research universities work is a major and valuable contribution.  

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Trump’s Big Libertarian Experiment [feedly]

PKs prescience on the real agenda behind the shutdown (and Trump's so-called policies) is the stuff of fascist nightmares....but this is not sleep.

Trump's Big Libertarian Experiment
https://www.nytimes.com/2019/01/10/opinion/trump-shutdown.html

"Government," declared Ronald Reagan in his first Inaugural Address, "is not the solution to our problem, government is the problem." Republicans have echoed his rhetoric ever since. Somehow, though, they've never followed through on the radical downsizing of government their ideology calls for.

But now Donald Trump is, in effect, implementing at least part of the drastic reduction in government's role his party has long claimed to favor. If the shutdown drags on for months — which seems quite possible — we'll get a chance to see what America looks like without a number of public programs the right has long insisted we don't need. Never mind the wall; think of what's going on as a big, beautiful libertarian experiment.

Seriously, it's striking how many of the payments the federal government is or soon will be failing to make are for things libertarians insist we shouldn't have been spending taxpayer dollars on anyway.

For example, federal checks to farmers aren't going out ­— but libertarian organizations like the Cato Institute have long denounced farm subsidies as just another form of crony capitalism.

Businesspeople are furious that the Small Business Administration isn't making loans — but libertarians want to see the whole agency abolished.

If the shutdown extends into March — which, again, seems entirely possible — money for food stamps will dry up. But Republicans have long been deeply hostile to the food stamp program. Mitch McConnell, the Senate majority leader, has denounced the program for "making it excessively easy to be nonproductive."

The shutdown has drastically curtailed work at the Food and Drug Administration, which among other things tries to prevent food contamination: Routine inspections of seafood, vegetables, fruits and other foods have stopped. But there's a long conservative tradition, going back to Milton Friedman, that condemns the F.D.A.'s existence as an unwarranted interference in the free market.

Strange to say, however, neither the Trump administration nor its congressional allies are celebrating the actual or prospective termination of government services their ideology says shouldn't exist. Instead, they're engaged in frantic administrative and legal maneuvering in an attempt to mitigate those program cuts. Why?

O.K., we shouldn't be completely cynical (cynical, yes, but not completely so). Even where there's a government-free solution to a problem, you might worry that it would take time to set up. Maybe you believe that private companies could take over the F.D.A.'s role in keeping food safe, but such companies don't exist now and can't be conjured up in a matter of weeks. So even true libertarians wouldn't necessarily celebrate a sudden government shutdown.


That said, the truth is that libertarian ideology isn't a real force within the G.O.P.; it's more of a cover story for the party's actual agenda.

In the case of the party establishment, that agenda is about redistributing income up the scale, and in particular helping important donor interests. Republican politicians may invoke the rhetoric of free markets to justify cutting taxes for the rich and benefits for the poor, or removing environmental regulations that hurt polluters' profits, but they don't really care about free markets per se. After all, the party had little problem lining up behind Trump's embrace of tariffs.

Meanwhile, the philosophy of the party's base is, in essence, big government for me but not for thee. Stick it to the bums on welfare, but don't touch those farm subsidies. Tellingly, the centerpiece of the long G.O.P. jihad against Obamacare was the false claim that it would hurt Medicare.

And as it happens, many of the spending cuts being forced by the shutdown fall heavily and obviously on base voters. Small business owners are much more conservative than the nation as a whole, but they really miss those government loans. Rural voterswent Republican during a Democratic midterm blowout, but they want those checks. McConnell may have trash-talked food stamps in the past, but a sudden cutoff would have a catastrophic effect on the most Republican parts of his home state.

The one piece of the shutdown that Republicans seem fairly calm about is the nonpayment of federal workers. Maybe the party believes, like Trump, that these workers are mainly Democrats. But when the effects of nonpayment start to bite, even that indifference may disappear.

In any case, while the gap between Republicans' supposed ideology and their actual reaction to the shutdown is understandable, that doesn't make it innocent. If a party is going to claim, year after year, to believe that government is the problem, not the solution, then complain bitterly when the government stops handing out checks, attention should be paid.

And if you have libertarian leanings yourself, you should ask whether you're happy with what's happening with government partially out of the picture. Knowing that the food you're eating is now more likely than before to be contaminated, does that potential contamination smell to you like freedom?



Paul Krugman has been an Opinion columnist since 2000 and is also a Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman

A version of this article appears in print on Jan. 11, 2019, on Page A22 of the New York edition with the headline: Trump's Big Libertarian Experiment. Order Reprints | Today's Paper | Subscribe
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Who Are the World’s Poor? New overview from CGD [feedly]

Who Are the World's Poor? New overview from CGD
https://www.globalpolicyjournal.com/blog/11/01/2019/who-are-worlds-poor-new-overview-cgd

Gisela Robles and Andy Sumner's guest post on From Poverty to Power explores what is means to be poor and where the poor live.

It sounds like a simple question: Who are the world's poor? Farmers, right? Well, yes, but not only.  In a new CGD working paper, Gisela Robles and I take a closer look at the data on global poverty to answer this question in finer detail. We find that when poverty is measured over multiple dimensions—including education, health, and standards of living—identifying the global poor reveals some important findings.

Measuring poverty

The World Bank's new global poverty line is $1.90 per day. Using this measure, there were an estimated 766 million people living in "extreme poverty" in 2013. Castañeda et al. (journal version and ungated) find those living under $1.90 a day are primarily rural, young, and working in agriculture.

But if what if we consider dimensions of poverty beyond monetary measurements by looking at things like poor schooling, ill health, and malnutrition? Does the global poverty profile change? Put another way – with the UN global goals to end poverty in mind – what needs ending and for whom by 2030?

In our paper, we present a new global poverty profile using the multidimensional poverty measure developed by Sabina Alkire and James Foster at the Oxford Poverty and Human Development Initiative. We estimate a new global poverty profile for multidimensional poverty in 2015 based on 106 countries that account for 92 percent of the developing world's population.

Here are our three main findings:

1. The world's poor are young, often children but not necessarily farmers

First, at an aggregate level, the overall characteristics of global multidimensional poverty are more or less similar to those of global monetary poverty at $1.90 per day. In both cases, poor households tend to be rural households formed predominantly by young people.

Half of the world's multidimensional poor are under 18 years of age. Yes, you read that right. And three-quarters are under 40 years old.

We find, in countries which have the data, that two-thirds of poor households have a member employed in agriculture, but surprisingly—given incomes are likely to be higher outside agriculture—one-third of poor households have no member employed in agriculture.

In other words, it turns out at least in the countries that we have data for that a significant proportion of the world's poor aren't farmers.

And a thought for those who say global poverty effects only 1 in 10 of the world's population: among the most frequent poverty deprivations, we find that undernutrition affects 1.5 billion people—double the $1.90 global poverty headcount.

2. Rural poverty is more about infrastructure. Urban poverty is more about child mortality and food

Second, at a disaggregated level, we find that poverty in rural areas tends to be characterized by overlapping deprivations in education and

access to decent infrastructure, meaning water, sanitation, electricity, and decent housing.

In contrast—and counterintuitively given the proximity, in principle, to better healthcare and economic opportunities—it is child mortality and malnutrition that is more frequently observed within urban poverty.

3. Just how multidimensional poverty is depends on where you live

Finally, the extent of the multidimensionality of poverty differs substantially by region; moreover, some deprivations frequently overlap while others do not.

The infrastructure-related dimensions of poverty—water, sanitation, electricity, and housing—often overlap with each other. No surprise there—it is easy to imagine that people who live without access to clean water, for example, might also lack access to sanitation.

What is surprising is that deprivations in health indicators overlap least frequently with other dimensions of poverty. This points towards the importance of giving health poverty direct attention in policy.

Why does it all matter?

So where do the numbers take us?  If many of the world's poor are outside of agriculture, and the urban poor experience malnutrition and child mortality despite better economic opportunities in principle, then what is going on?

First, the good news: most of the world's multidimensional poor live in countries with good growth history. In fact, three-quarters of global multidimensional poverty is in fast-growing countries (see table below).

So, no need to worry as growth will take care of poverty in due course? You'd think growth was always good for the poor, right?

Well, in a very general way, yes—but with some big caveats. In terms of monetary poverty, in up to one-third of growth episodes monetary poverty rates may not fall, as highlighted in a new book edited by Ravi Kanbur, Paul Shaffer, and Richard Sandbrook. And it seems the link between economic growth and multidimensional poverty is weaker still, as Santos et al. find (journal version and ungated).

Part of the story may be the different kinds of growth episodes. One interesting new theory is that of UNU-WIDER's Kunal Sen (journal version and ungated), who separates types of growth episodes into "growth acceleration" and "growth maintenance" and finds that the former is much less likely to benefit the poor than the latter. He argues that this is because the institutional factors that lead to growth accelerations are different from those that lead to growth maintenance.

What that study, the new book, and our own findings point towards is that it's a good time given the global goals on ending poverty to take a much closer look at when growth goes right and wrong for the poor, and why.

 

Where do the multidimensionally-poor live? The global distribution of multidimensional poverty by growth history of country, 2015.

GDP per capita, PPP   (constant 2011 international $), average annual growth, 1990–2016	Number of countries	% of global   multidimensional poverty
<1% per capita/year	25	13.4%
1% – 2% per capita/year	22	11.1%
>2% per capita/year	59	74.8%
No data	5	0.7%
Total	111	100.0%

Source: World Bank, World Development Indicators 2018 for GDP per capita growth rates and population figures; Robles and Sumner (2018) for MPI data. Note: Includes 111 low- and middle-income countries with populations above 1 million people.

 

 

 

Andy Sumner is Global Policy's Deputy Executive Editor and a Reader in International Development in the Department of International Development at King's College London. He has fifteen years' international research experience using both qualitative and quantitative methods and has published extensively, including ten books. His most recent books are Global Poverty (2016, OUP) and Development and Distribution (2018, OUP).

Gisela joined the Oxford GBD Group as a Global Burden of Disease Researcher in 2018, where she supports efforts to estimate the burden of antimicrobial resistance worldwide and inform public health decision-making at the local and international levels. In the last three years, Gisela has collaborated with the Lancet Noncommunicable Diseases and Injuries (NCDIs) Poverty Commission by profiling risk factors to NCDIs across the poorest populations in the World, applying methodologies utilised by the Institute of Health Metrics (IHME) in its ongoing Global Burden of Disease (GBD) study. Gisela has also served as a Data Analyst at Oxford's Clinical Trials Service Unit and Research Officer at the Oxford Poverty and Human Development Initiative (OPHI)

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Re: Bernstein: more on Blanchard on public debt and interest rates; also: thanks, MMTers! [feedly]

forgot last sentence.....but clearly, economic growth is mandatory, otherwise simple population growth will lead to depression

On Fri, Jan 11, 2019 at 8:29 AM John Case <jcase4218@gmail.com> wrote:

This argument from Blanchard's research: As long as the growth rate --- presumably a rate larger than simple population growth -- exceeds debt interest rate, borrowing (for a large country with its own currency) is a low cost proposition.

My interest is primarily in how socialists might manage the capitalist sectors of a mixed economy to maintain both sustainable growth, productivity and higher standards of living. I know some would prefer to dismiss 'capitalism' by decree. But commodities -- and capitalism -- will not be denied as long as there are scarce values produced for exchange.

The difficulties in measuring labor productivity in services and intangibles may make the 'GDP' numbers too error-ridden to rely upon. But, clearly, GR

Blanchard on public debt and interest rates; also: thanks, MMTers!
http://jaredbernsteinblog.com/blanchard-on-r/

There's a deservedly nice bit of buzz about a new paper by tony economist Olivier Blanchard. My WaPo piece today takes you through the argument, along with a heavy dose of my own interpretation, one familiar to OTE readers.

"The key points are disarmingly simple, and they're ones I have written about before in this column. Part one is this: When a country's growth rate is higher than the interest rate on its debt, the fiscal costs of sustaining its debt levels are somewhere between zero and low. The reason is that even if the government does not raise taxes to offset its higher debt, the ratio of debt to gross domestic product will decrease rather than explode over time. Part two: For most of the period covered by Blanchard's research (1950-now in the United States), g>r, i.e., the GDP growth rate has exceeded the interest rate (same with the U.K., the euro area and Japan)."

I then discuss a nuanced aspect of the work. Because private capital accumulation is diminished in higher public debt scenarios, the return on capital investment must also be part of this cost/benefit analysis. In my interpretation, this leads to a conclusion that regardless of how low the interest rate on debt is, we still need to distinguish between the utility of borrowing what I call "good debt" and "bad debt."

Here, I'd like to briefly discuss two thoughts I left out of the Post piece.

The first is in regard to the political economy implications of Blanchard's findings. In a better world, these findings would lead fiscal policy makers to think more realistically about public debt. But in the real world, where every idea becomes a weapon in the arsenal of partisan politics, deficits are largely a political, not an economic tool.

R's shout about them when they rise on the D's watch and ignore them on their own watch. Because D's have long been too sensitive to accusations of fiscal profligacy and R's just don't care about any of that, this has led to austerity in years when we needed the fiscal stimulus and visa versa now, or what I call "upside-down Keynesianism." I go through the numbers/evidence here.

I don't expect Blanchard's evidence to change these dynamics because they're not about fiscal costs, they're about political posturing. But that doesn't mean nothing will change!

A lot of the fear-mongering and deficit attention disorder is driven by deficit scolds outside of government. The pressure from MMT'ers (my next point), Blanchard's analysis, similar historical work I cite from Kogan et al, and, most importantly, the lack of crowd-out or other predicted economic distortions from deficits, all make it harder for the austerians to be taken seriously by neutral observers. See, for example, David Leonhardt, a evidence-based columnist known for pitching it down the middle, in today's NYT.

As I (and Blanchard) argue, this doesn't mean deficits don't matter. Again, see my GD/BD discussion. But this feels a bit like the minimum wage debate in the early 1990s when Card and Krueger came out with Myth and Measurement, their path-breaking work disproving the widely assumed connection between minimum wages and pervasive job losses. About 10 years later, the reality of their findings became broadly accept knowledge and the result has been much better policy in this space.

Thus, if progressive/empirical economists keep pushing on this more nuanced, realistic view of public debt, perhaps policy will be smarter in 10 years. Sorry if that's a wait, but given the stickiness of lame ideas, you either play the long game or no game.

Next, I didn't say anything about MMT but much of the discussion around the Blanchard buzz makes the correct point that the MMT'ers played an important, admirable role in elevating these issues. I've raised some questions about their model and Josh Barro's new piece provides an excellent take on their perspective at this interesting moment in fiscal thought.

Much of the analysis shows that MMTers are advocating Keynesianism with a few wrinkles, like their argument that if fiscal stimulus does generate overheating, the Congress should reduce price pressures with a tax increase, which leads most of us to ask, "what's plan B?"

But their relentless hammering against mindless deficit reduction has been a key force in the ongoing, salutary rethink of these relations, for which we should all thank them!

 -- via my feedly newsfeed

--

John Case
Harpers Ferry, WV

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Bernstein: more on Blanchard on public debt and interest rates; also: thanks, MMTers! [feedly]

This argument from Blanchard's research: As long as the growth rate --- presumably a rate larger than simple population growth -- exceeds debt interest rate, borrowing (for a large country with its own currency) is a low cost proposition.

My interest is primarily in how socialists might manage the capitalist sectors of a mixed economy to maintain both sustainable growth, productivity and higher standards of living. I know some would prefer to dismiss 'capitalism' by decree. But commodities -- and capitalism -- will not be denied as long as there are scarce values produced for exchange.

The difficulties in measuring labor productivity in services and intangibles may make the 'GDP' numbers too error-ridden to rely upon. But, clearly, GR

Blanchard on public debt and interest rates; also: thanks, MMTers!
http://jaredbernsteinblog.com/blanchard-on-r/

There's a deservedly nice bit of buzz about a new paper by tony economist Olivier Blanchard. My WaPo piece today takes you through the argument, along with a heavy dose of my own interpretation, one familiar to OTE readers.

"The key points are disarmingly simple, and they're ones I have written about before in this column. Part one is this: When a country's growth rate is higher than the interest rate on its debt, the fiscal costs of sustaining its debt levels are somewhere between zero and low. The reason is that even if the government does not raise taxes to offset its higher debt, the ratio of debt to gross domestic product will decrease rather than explode over time. Part two: For most of the period covered by Blanchard's research (1950-now in the United States), g>r, i.e., the GDP growth rate has exceeded the interest rate (same with the U.K., the euro area and Japan)."

I then discuss a nuanced aspect of the work. Because private capital accumulation is diminished in higher public debt scenarios, the return on capital investment must also be part of this cost/benefit analysis. In my interpretation, this leads to a conclusion that regardless of how low the interest rate on debt is, we still need to distinguish between the utility of borrowing what I call "good debt" and "bad debt."

Here, I'd like to briefly discuss two thoughts I left out of the Post piece.

The first is in regard to the political economy implications of Blanchard's findings. In a better world, these findings would lead fiscal policy makers to think more realistically about public debt. But in the real world, where every idea becomes a weapon in the arsenal of partisan politics, deficits are largely a political, not an economic tool.

R's shout about them when they rise on the D's watch and ignore them on their own watch. Because D's have long been too sensitive to accusations of fiscal profligacy and R's just don't care about any of that, this has led to austerity in years when we needed the fiscal stimulus and visa versa now, or what I call "upside-down Keynesianism." I go through the numbers/evidence here.

I don't expect Blanchard's evidence to change these dynamics because they're not about fiscal costs, they're about political posturing. But that doesn't mean nothing will change!

A lot of the fear-mongering and deficit attention disorder is driven by deficit scolds outside of government. The pressure from MMT'ers (my next point), Blanchard's analysis, similar historical work I cite from Kogan et al, and, most importantly, the lack of crowd-out or other predicted economic distortions from deficits, all make it harder for the austerians to be taken seriously by neutral observers. See, for example, David Leonhardt, a evidence-based columnist known for pitching it down the middle, in today's NYT.

As I (and Blanchard) argue, this doesn't mean deficits don't matter. Again, see my GD/BD discussion. But this feels a bit like the minimum wage debate in the early 1990s when Card and Krueger came out with Myth and Measurement, their path-breaking work disproving the widely assumed connection between minimum wages and pervasive job losses. About 10 years later, the reality of their findings became broadly accept knowledge and the result has been much better policy in this space.

Thus, if progressive/empirical economists keep pushing on this more nuanced, realistic view of public debt, perhaps policy will be smarter in 10 years. Sorry if that's a wait, but given the stickiness of lame ideas, you either play the long game or no game.

Next, I didn't say anything about MMT but much of the discussion around the Blanchard buzz makes the correct point that the MMT'ers played an important, admirable role in elevating these issues. I've raised some questions about their model and Josh Barro's new piece provides an excellent take on their perspective at this interesting moment in fiscal thought.

Much of the analysis shows that MMTers are advocating Keynesianism with a few wrinkles, like their argument that if fiscal stimulus does generate overheating, the Congress should reduce price pressures with a tax increase, which leads most of us to ask, "what's plan B?"

But their relentless hammering against mindless deficit reduction has been a key force in the ongoing, salutary rethink of these relations, for which we should all thank them!

 -- via my feedly newsfeed