May 28, 2013


Malaise in the WTO

April 27, 2013 by

Anti-WTO protest in Hong Kong. fuzheado/Flickr

Born in the twentieth century, the World Trade Organization (WTO) is still largely built on the rules and dispute settlement mechanisms it adopted at its inception in the last century. However, world trade is a rather different beast in the 21st century and will continue to evolve. The WTO must adapt to this new world or it will be quickly marginalized.

The WTO is not keeping pace with the changes taking place in the world. The cross-border flows of goods, services, know-how, investment and people participating in international production networks – supply-chain trade in economic jargon – have transformed the global economy. The WTO is caught between fulfilling its original mission and addressing new and emerging realities.

It seems mired in malaise. The 20th century conflicts over tariffs and agricultural barriers prevents the WTO from concluding the Doha Development Round commenced in November 2001. It seems equally incapable of moving forward in other areas. Consequently, the most stalwart WTO members are developing trade arrangements independent of existing WTO structures in order to regulate 21st century trade.


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Reshaping the Global Banking Industry

April 25, 2013 by

Home in foreclosure

The subprime crisis – and the following global crisis – set in when a bank considered “too big to fail” was actually allowed to fail and go bankrupt. Despite five years of reform efforts, the too-big-to-fail syndrome is far from a memory, and it is imperative that economic decision-makers do not divert their attention from this issue so easily. On the contrary, more research into analyzing the costs and benefits of various structural reform schemes would help monetary authorities put the world’s financial system back on the right track.

Prior to the subprime crisis, 29 large global banks saw their ratings raised to just over one point by credit rating agencies because markets expected that they would be able to get state support. Today, those same behemoths benefit from hidden support of nearly three notches, and expectations of public funds support have tripled since the beginning of the crisis.


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History of Economic Growth in India

April 24, 2013 by

Manmohan Singh, the prime minister of India during the World Economic Forum’s India Economic Summit 2009 held in New Delhi. Photo by Eric Miller

Last month, Morgan Stanly and HSBC lowered India’s economic growth forecast for fiscal years 2013 and 2014 from 5.2 to 5 percent and from 6.2 to 6 percent respectively. These numbers do not sound encouraging, but compared to a GDP growth of 4.5 percent for October-December quarter of FY2013, this news provides some encouragement for India’s economy. According to Finance Minister Chidambaram Palaniappan, India’s economy would grow 6.2-6.7 percent during FY 2014. If accurate, it would be a good economic recovery.

Although it is nowhere near the double digit GDP growth India was enjoying a few years ago, the recent news of an economic turnaround is a cause for celebration, especially when U.S. and European economies are still struggling to get back to pre-recession levels.

India’s economic journey from an impoverished country to an emerging global economy is an inspiring example for many developing nations. In order to understand India’s economic voyage, it is essential to shed some light on India’s political and economic history. After 200 years of British rule, India became an independent sovereign nation in 1947. This newly born nation faced a number of issues including a shattered economy, a minimal rate of literacy and horrific poverty. It was a mission impossible for Indian leaders, but Sardar Patel, Nehru and others transformed India into a secular and democratic nation.


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The Economics of Policy Schools and Fundraising

March 28, 2013 by

Columbia University’s campus

A few months ago a letter was sent to my permanent address in Dallas. I’ve been thinking – intermittently – about its contents for a couple of months. The letter came from Columbia University’s School of International and Public Affairs (SIPA). Among other things, it reminded me that attending a top policy school is not necessarily compatible with pursuing a career in the public or non-profit sectors – something that many SIPA alums do.

The letter, dated on December 6, was from a MPA (class of 2014) candidate. Having spent his “childhood in and out of over 30 foster homes in Washington State,” this is a man with a story to tell. After graduation he will return to DC (where he worked for several years) and “work on child advocacy and make significant, lasting improvements to the foster care system.”


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Understanding China’s Internal Migration

March 3, 2013 by

China’s President Hu Jintao talks to Vice President Xi Jinping after the closing ceremony of the National People’s Congress at the Great Hall of the People in Beijing on March 13, 2009. Alfred Cheng Jin/Reuters via Council on Foreign Relations

In November 2012, China began a once-in-a-decade leadership transition that will continue through this month when Xi Jinping succeeds Hu Jintao as President of the People’s Republic. Xi has been primed to carry his nation into the second decade of the twenty-first century, as the country prepares itself for an unprecedented international role. With its new economic, political, and military clout, Xi’s China stands ready to be both a regional and global leader.

Amidst this historic shift, however, lies a set of deep challenges that Xi will be forced to confront on the international front. These include a ‘pivoting’ United States, growing nationalism in Japan, and a more caustic North Korea, among many others.

However, an often overlooked and more dangerous domestic problem is a result of the restrictions placed on the migrant workers that have been fueling China’s monumental growth. Understanding the causal factors that explain rural migrants’ flock to urban areas will be crucial for the fifth generation of leadership, which is dealing with one of the largest human movements in the world.


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Horsemeat & Horsepucky

February 24, 2013 by

Arabian horses on a farm in Saskatchewan, Canada. Photo by Evan Leeson

As the Great Horsemeat Crisis continues to spread—“gallops” is the verb favored by the European press—across the continent, and countries pile on to blame Romania (France, Holland, Cyprus, etc.), what is becoming increasingly clear is that old-fashioned corporate greed, aided and abetted by politicians eager to gut “costly” regulations and industrial inspection regimes is behind the scandal.

In a sense it is fitting that the whole imbroglio began in Ireland, where inspectors in Ulster first indentified that hamburgers should have more properly been labeled “horsewiches.” The Emerald Isle has more horses than any country in Europe, and, according to the Financial Times, in 2007 Ireland produced 12,633 thoroughbred foals and has some 110,000 “sport” horses.

The year 2007 was just before the Irish real estate bubble imploded, bankrupting the nation and impoverishing millions. And the year the “Celtic Tiger” died was very bad news for horses. Thousands of the creatures were simply turned loose by their financially strapped owners, and the number of horses sent to slaughterhouses jumped from 2,000 in 2008 to 25,000 in 2012.


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Food, Disposable Income, and Rising Political Violence

February 13, 2013 by

Over 1,600 IDP’s who had fled attacks receive emergency food and non-food items in Juba, Sudan. Tim McKulka/UN

Much of the focus of rising political violence in the world today has been linked to the process of political change, particularly in the Middle East and North Africa.

There is ample reason to establish such a link, and it remains highly relevant, however the preoccupation with political change in MENA over the past two years has shifted focus from other equally important precursors of political violence throughout the world. Of all the other factors contributing to political violence, and there are many – including natural resource acquisition, refugee flows, and boundary disputes – perhaps the most pressing and growing challenge is posed by simply getting enough food to eat on a daily basis.


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The Errors of Austerity: The Blanchard Prescription

January 9, 2013 by

IMF chief economist Olivier Blanchard. Stephen Jaffe/IMF

Economists were created and feted to make witchdoctors respectable. The harm that economists can produce, while still not quite in the vicinity of those of doctors, can be extensive. Errors are tolerated, fictions propagated. Dangerous doctrines become impenetrable and the mainstay of governments.

It was therefore interesting that the IMF’s chief economist Olivier Blanchard, along with his colleague Daniel Leigh, made a confession in a recent paper that, “Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation”. Last October, they were already busy at work seeking to pull the carpet from under the very organisation they are employed by, taking issue with the orthodox school of austerity. The calculations upon which the austerity measures were then inflicted upon such countries as Greece were deemed inaccurate.


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Could the Global Bond Market cause another Global Financial Crisis in 2013?

January 5, 2013 by

With Christmas and New Year cheer and optimism still bubbling away for most of us we now need to turn our attention to the major risk factors that are likely to impact upon the world economy and financial markets during 2013.  While the world economy is estimated to have grown by over 3 percent in 2012 overall and has enjoyed such a remarkable escape from the paralysis affecting some of its constituents like Europe, a major issue is whether this stable growth trajectory will continue for the foreseeable future.

At the end of the day the global stock market has been a secular bear market for over a decade and we are now at the juncture of ascertaining whether the bear will have its final growl in 2013 or we will enter a new market phase.


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Mark Carney to head the Bank of England

November 27, 2012 by

Mark Carney in Davos, Switzerland. Jolanda Flubacher/swiss-image.ch

As a Canadian, perhaps I should feel a surge of patriotic pride now that Mark Carney has been designated the new head of the Bank of England – quite a step up for the current governor of the Bank of Canada. There is no question that Mr. Carney is a market-savvy guy (he did, after all, work for the vampire squid), and his experiences as Chairman on the Financial Stability Board (FSB) suggests that he is sensitive to the ongoing systemic risks present in our increasingly complex global banking system.

That said, his recent attack on the Bank of England’s Andy Haldane in a Euromoney interview last month, does give one some cause for concern, particularly as it evinces the usual complacency that most Canadians seem to feel about the basic soundness of their own banking system, which essentially upholds the universal banking model as a viable one. By contrast, in his famous “dog and frisbee speech” delivered last August at Jackson Hole, Wyoming, Haldane suggested that: “Regulation of modern finance is almost certainly too complex. That configuration spells trouble…Because complexity generates uncertainty, it requires a regulatory response grounded in simplicity, not complexity.”


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The Fiscal Cliff and the American Economy

November 24, 2012 by

Looking at the latest US data, business sentiment and capital spending have been eroding, and given the lagged impact of capex, that trend looks set to continue for the next few months. Against that, a number of consumer sentiment indicators remain upbeat and housing looks like it is in a firmly established uptrend, after a 5 year bear market. In fact, the existing home inventory to sales ratio is as low as it ever gets, and that is with still very depressed sales. If sales pick up further, given low inventories and with new housing starts still below the replacement rate, home prices could lurch forward.

That said, the markets have been fairly upbeat given the rising perception of a deal to avert the US falling off the ‘fiscal cliff’. But even a deal that drains, say, 1-1.5% of GDP will have negative consequences for the US economy. Bear in mind that the U.S. still has a very high ratio of private debt to GDP. Therefore any such fiscal restriction as contemplated by the two parties may result in a significantly lower economic growth rate than the average 3% rate of the last five quarters (which is what the revised economic data of the past few quarters will eventually show).


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Weariness Foretold: The EU Budget Summit

November 22, 2012 by

Photo by Olivier Hansen/Flickr

There were always going to be disagreements about next year’s EU budget, which started in the evening instead of a sensible morning hour, and occupied officials into the early morning. Various MEPs pitched for an increase in spending for this year (some 7.3 billion pounds) and the next. The European Parliament has been considering restoring some 6.5 billion pounds worth of funding slashed by governments from next years’ budget. The austerity battles continue to remain running affairs. Eight hours of negotiations only ended out in walkouts, suggesting that the summit to agree to the EU’s funding plans for 2014-2020 might be stalled.

The EU Commission’s claim is that an increased amount is necessary to pay the bills. New Dutch finance minister Jeroen Dijsselbloem found that claim barely believable. “I’d question that very much. The Commission has to re-prioritise, that’s just the way it is. Budgetary discipline is not just for the member states.”


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In the Midst of Plenty: In Defense of American Workers

October 2, 2012 by

Union workers protesting in Wisconsin. Photo by Ryan O’Hara

This is part 4 of a 4 part series. Part 1 can be found here, part 2 can be found here and part 3 can be found here.

It has been over a half century since Jack Kerouac posited ‘whither goest thou, America?’ to a nation facing an uncertain future. Listening to the party platforms being created at both national political conventions it is apparent that the country is still trying to find its compass, and many issues have remained unresolved over the past fifty years. Progress made need not be diminished; however, the country must work harder to not only preserve what it has already achieved, but also engage more encompassing issues in a deliberate manner.


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Has Mario Draghi Saved the Euro?

September 13, 2012 by

European Central Bank President Mario Draghi. Monika Flueckiger/swiss-image.ch

Germany’s Constitutional Court gave a green light on Wednesday for the country to ratify Europe’s new bailout fund, boosting hopes that the single currency bloc is finally putting in place the tools to resolve its three-year old debt crisis.

In an eagerly anticipated ruling that has had investors on tenterhooks for months, the court in the southern city of Karlsruhe insisted the German parliament be given veto rights over any increase in Berlin’s contribution to the 700 billion euro European Stability Mechanism (ESM). There were strings attached to its endorsement of the ESM and a separate European pact on budget rules, and a relief rally has occurred as another apparent impediment to a euro “solution” appears to have been eliminated.


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Public Sector Jobs Are Real Jobs

September 4, 2012 by

In 1976 at a time when economists thought more about unemployment, the US economist Charles C. Killingsworth wrote a paper entitled “Should full employment be a major national goal”. He was a long-time advocate of public employment programs and understood how deficient the economics profession was when it came to caring about people.

I thought about this paper recently upon reading an article in the Daily Beast by the always insightful Michael Tomasky, “The Real Obama Needs to Fight Five GOP Myths About the Imaginary Obama” . Tomasky discusses the myths that Obama needs to dispel during his party’s upcoming convention. One in particular caught my attention: the idea that the President needed to confront the myth that he allegedly believes that jobs come from government.


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