Transcript Talvi: New Economic Geography

Why Nations
Fail
Elusive
Quest for
Growth
Exorbitant
Privilege
Talvi:
New International
Monetary Architecture
Reinhart:
Debt and Crisis
Crisis:
Is This Time
Different?
Antholis:
China/India
Federalism
Kimenyi:
Educational Reform
Can It Scale?
Lombardi:
Regional Monetary
Arrangements
McMafia:
Global
Crime
Gaddy:
Virtual Economy
Bear Trap
Soviet Extraction:
Ukrainian Famine
IT Revolution: A “New Economy”?
IT Revolution: A Critical Juncture?
Superstar economy
Heightened 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 Discontents
Managed float: intervention  $ reserves  $ privilege
Currency misalignments  Currency crises
Latin America’s “Lost Decade”
Tequila/East Asia
Global demand for $s  Capital inflows to US
US 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 bubbles
Iceland/Cyprus/Ireland/Spain/UK/Greece/Italy/Portugal
• Iceland: When fishermen become investment bankers
Crash  Brit and Dutch Screwed
• Cyprus: Oligarch/Mafiya Laundry
Crash  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 Different
Consequences of banking crises
• Real GDP down – Unemployment up
• Government revenue down
• Government bailout of banks
P
• Government debt/GDP U
– 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 Tour
Israel
• 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 After
Soviet 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
–
•
Primary producers/fictitious prices maintain the status quo
–
–
•
Extreme cold/high transport costs  uneconomical settlement
Oligarchs keep export earnings
Putin maintains power: A “protection racket”
Required subsidy grows with time
 Unsustainable Bear Trap
Reversal of Fortune: The Fertile Ukraine
From Breadbasket to Bloodland
Ukraine: central the Stalin and Hitler visions
1928: 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