Legitimate Complaint

Professor Deepak Lal’s piece in ‘Business Standard’ on April 16th has the following blurb: ‘A more open financial sector is necessary for global financial recovery’. Unfortunately, history has provided ample evidence to the contrary and the Professor himself does not offer any evidence in support of his blurb. 

My Class, Right or Wrong: The Powell Memorandum’s 40th Anniversary

August 23, 2011 will bring the 40th anniversary of one of the most successful efforts to transform America. Forty years ago the most influential representatives of our largest corporations despaired. They saw themselves on the losing side of history. They did not, however, give in to that despair, but rather sought advice from the man they viewed as their best and brightest about how to reverse their losses. That man advanced a comprehensive, sophisticated strategy, but it was also a strategy that embraced a consistent tactic – attack the critics and valorize corporations! He issued a clarion call for corporations to mobilize their economic power to further their economic interests by ensuring that corporations dominated every influential and powerful American institution. Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.

The Next Phase of Asia’s Economic Growth

As the economic recovery has matured across much of Asia, the region has continued to be a driving force in the strengthening global recovery. Yet, recent tragic events—around the globe, and the earthquake and tsunami in Japan—are an all too poignant reminder of the fragility of our economic circumstances and, indeed, life.

Much of this weighs on my mind as I am here in Hong Kong to launch our April 2011 Regional Economic Outlook: Asia and Pacific. While the outlook is by no means gloomy, it is an opportune time to consider how Asia should manage the next phase of growth.

Deficit Compromise

The Washington Post reported last week on a discouraging poll. Americans supposedly want to reduce the deficit, but not if it means changing Medicare, cutting programs like defense or Medicaid, or raising taxes on anybody but the very richest Americans. Democrats and Republicans seem farther than ever from finding agreement. It’s times like this that I’m glad there are some optimists around who still see some basis for making progress with America’s daunting fiscal challenge.

Diane Lim Rogers sees the issue this way: 

Stories about [the Washington Post-ABC] poll have tended to emphasize the majority who are opposed to each item in a “pick one” menu of tough choices: 78 percent opposed to cutting Medicare, 69 percent opposed to cutting Medicaid, 56 percent opposed to cutting defense spending. The only “pick one” option that a majority (72 percent) supported: “raising taxes on incomes over $250,000.” And even that is not as agreeable as it sounds, considering that households with incomes over $250,000 make up only about 2 percent of the population– i.e., you’d think we could get a little closer to 98 percent support on that one.

But that majority opposition to each of the “tough choices” is because respondents were asked to take or leave each of those tough choices as the single strategy for deficit reduction. No one wants to agree to give up something if they think others in society aren’t going to give up something, too. None of those “pick one” choices conveyed a notion of shared sacrifice or a “balanced” approach.

Latin America 2030

With the number of governments and companies issuing debentures with longer maturities, investors are wondering what Latin America will look like in 20 years? The average GDP growth rate for the past six years was 4% y/y. Assuming that the pace of GDP growth declines to 3.5%, the size of the Latin American aggregate economy will be $8.9 trillion by 2030. At the same time, U.S. GDP growth will remain anaemic, given its need to digest the enormous debt overhang that was accumulated during the past decade. Therefore, the U.S. GDP growth rate will probably average between 1.5% and 2%, meaning that the aggregate Latin American economy will be about half the size of the U.S. in less than 20 years. Currently, it is only a third. Of course, these assumptions are on the pessimistic side for Latin America and on the optimistic side for the U.S. Given the recent warnings issued by S&P, the dynamics for the U.S. economy could be much worse. An ugly budget row could lead to further depreciation of the dollar, which would further depress the relative size of the U.S. economy. At the same time, population growth in Latin America is on the decline. Less than a decade ago, the region had a population growth of 2%. However, the improved prosperity reduced the population growth rate to 1.09%. This suggests that Latin America’s per capita income should reach $14,000 by 2030—almost 50% more than current levels. The change in economic conditions will create regional and political opportunities and challenges.

China: The Triple Trillionaire

This tongue-in-cheek commentary in ‘Economist’ on the size of China’s FX Reserves gets its message across eventually. It is a delightful irony (not-so-delightful, depending on the eye of the beholder) that even as China is trying to internationalize the use of yuan and also make its currency one of the global reserve currencies, its interests lie in preserving the value of its main and status-quo rival: US dollar! 

Promises, Promises. Better Measuring the Effect of Pension Reform

We all hope to retire one day. Our pensions hold the promise of that.

But when that promise is a public pension, it’s also a lot like debt the government has to pay at some point in the future.

Good fiscal policy means thinking about how policy decisions—especially ones that involve long-term promises, such as pensions—affect government finances both today and in the future.

Restructure Ireland’s Debt

What next for Ireland? This column by CEPR President Richard Portes makes the case that the country should restructure its debt. 

Economic policy is difficult enough. Economists must be especially careful in offering opinions on policy issues for other countries. But the Irish debt problem is a European problem in its causes and implications (Hesse and González-Hermosillo 2011), and we would like to think that a European identity is some qualification.

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