Why Nations Fail Exorbitant Privilege Elusive Quest for Growth Talvi: New International Monetary...
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Transcript of Why Nations Fail Exorbitant Privilege Elusive Quest for Growth Talvi: New International Monetary...
Why Nations Fail
Exorbitant Privilege
Elusive Quest for Growth
Talvi:New International
Monetary Architecture
Reinhart:Debt and Crisis
McMafia:Global Crime
Antholis:China/IndiaFederalism
Gaddy:Virtual Economy
Bear Trap
Kimenyi:Educational Reform
Can It Scale?Crisis:Is This TimeDifferent?
Soviet Extraction:Ukrainian Famine
Lombardi:Regional Monetary
Arrangements
IT Revolution: A “New Economy”?IT Revolution: A Critical Juncture?
Superstar economyHeightened income inequality: Global elite…the 1 % …the 0.01 %
Heightened spatial inequality
Conquest of geography?
Financial innovations
Fragility and crisis New international monetary architecture?
Floating and Its DiscontentsManaged float: intervention $ reserves $ privilege
Currency misalignments Currency crisesLatin America’s “Lost Decade”
Tequila/East Asia
Global demand for $s Capital inflows to USUS International Debt Threat of “Bank Run”
The US Housing Bubble (Developed) World in a Slump
Dysfunctional US Finance/Dysfunctional US Politics
The Euro: An Alternative to the $?Why a €?• Euro economics: Transactions costs/CAP/German Discipline
• Euro politics: Integration Peace/Tie Germany to West Europe
Eurozone Imbalance• Early 2000s: German wage discipline
German competitiveness Current account surpluses• Capital inflows to peripheral countries
Financial bubbles/Housing bubbles/Fiscal bubblesIceland/Cyprus/Ireland/Spain/UK/Greece/Italy/Portugal
• Iceland: When fishermen become investment bankersCrash Brit and Dutch Screwed
• Cyprus: Oligarch/Mafiya LaundryCrash Russians Screwed
Talvi: New Economic Geography• Latin American and other emerging
economies not dragged down by the crisis
• Chinese expansion commodity boom
• Latin American countries with relatively high net commodity exports advantaged by rising commodity prices
• Advanced country deleveraging capital inflows to emerging economies growth of emerging economies
Carmen Reinhart’s Remarks: Carmen bemoans debt• Emerging economies had reduced debt– Deleveraging followed 1997-98 crises
• Advanced countries (and Emerging Europe) entered crisis with high Public + Private Debt– Deleveraging has been and will continue to be prolonged ~ Decade
Downward pressure on demand, output, and employment– Massive monetary easing lightens debt burden
• Stemmed debt deflation spiral• But private saving eaten up by public borrowing
• Vulnerabilities for emerging economies– Build up of domestic debt
• Brazil: private debt and non-federal government debt
Reinhart: For a banking crisis, don’t need external debt, just debt
– China slowdown commodity price collapse
This Time Ain’t Different Reinhart and Rogoff
• “Excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom.”
• “Such large-scale debt buildups pose risks because they make an economy vulnerable to crises of confidence, particularly when debt is short term and needs to be constantly refinanced.”
• Highly leveraged economies “can seem to be merrily rolling along for an extended period, when bang! - confidence collapses, lenders disappear, and a crisis hits.“
• Eight centuries of experience suggests this time is not different.
U.S. Debt History
This Time Ain’t DifferentConsequences of banking crises• Real GDP down – Unemployment up• Government revenue down• Government bailout of banks
• Government debt/GDP UP– But 90% is not at ratio to be feared– Austerity sucks...and doesn’t spur recovery
“A recession is no time to cut spending”
• Prolonged slump– Deleveraging– Zero lower bound Monetary policy weakened
Aggressive Policy Response No Depression
Mc Mafia: A World TourIsrael• Homegrown crime: Gambling/Ecstasy: From Antwerp to US
• Russian mob: Prostitution/Human trafficking
The Balkans• Smuggling duty not paid (DNP) cigarettes• Cocaine processing and distribution: Colombian connection
Kazakhstan: Caspian caviar
Russia – Gazprom – Ukraine – Hungary: Pipeline scam
Dubai: A perfect laundry• 9/11 Arab money flees US to Dubai Building boom– Labor camp squalor/Prostitution/Domestic worker “imprisonment”
Nigeria: 419 scam: I go chop your dollar.
Antholis: China and India – The Political Realities• China and India are not monolithic states
– Regions and provinces matter• India: 35 states/China: 22 provinces + Taiwan
– Local issues Beijing and New Delhi can’t easily lead• Migration• Land acquisition for industry and urbanization• Infrastructure provision• Fiscal federalism: Center bail-out of sub-national entities
• China: GDP Monotheism/Fragmented Authoritarianism– Central Ministry – Provincial Government Matrix– Global Coast vs. Protectionist Interior– Special Enterprise Zones/Environmental sustainability issue
• India: Secessionist Threat/Ethnic Conflicts/Caste Conflicts– Regional parties critical for Congress or BJP coalitions– Advanced States: Benefit from high-tech diaspora– Backward States: Cronyism– Legacy of socialist subsidies: Unreliable power/shoddy infrastructure
Gaddy: Russia, Before and AfterSoviet growth under extractive institutions• The Easy Part: Move resources from low productivity agriculture
to higher productivity manufacturing• The Hard Part: Spur innovation/Creative Destruction
– Perverse quotas and prices
The Post-Soviet Virtual Economy• Loss-making manufacturing ought to shut down
Unemployment/Social discontent
• Siberian industries and cities ought to be downsized– Extreme cold/high transport costs uneconomical settlement
• Primary producers/fictitious prices maintain the status quo– Oligarchs keep export earnings– Putin maintains power: A “protection racket”
• Required subsidy grows with time
Unsustainable Bear Trap
Reversal of Fortune: The Fertile UkraineFrom Breadbasket to Bloodland
Ukraine: central the Stalin and Hitler visions1928: First Five-Year Plan...Accumulate surplus value• Collectivize agriculture: War for Grain• Crops the property of the Soviet State
• Liquidate the kulak class• Decision by a troika
Execution Exile to forced labor: canals, mines, factories
Kazakhstan, Urals, Siberia
Remain to farm...to starve
The Toll: 2 ½ million “missing” in Ukraine census
7 million “missing” in Soviet census
Kimenyi: Can Contract Teacher Results be Scaled Up?• In randomized experiment implemented by NGOs, low-paid “contract
teachers” performed better than higher paid civil service teachers in Western Kenya.
• But can the result be scaled up, i.e., when implemented on large-scale by government agencies?
• Another randomized experiment performed: half the contract teachers working for NGOs, half for government agencies.– Government hired somewhat more “qualified” contract teachers– Government hires more likely related to someone in system
• Other things equal, only NGO contract teachers performed better than civil service teachers– Payroll delays significantly affected performance/Paym’t by gov’t more delayed
• Kimenyi concludes: Don’t leave education reform to government• Alternative conclusion: Clean up the payroll system and public
education will do fine– Equal fractions of NGO and gov’t teachers did well enough to be hired full time