Matias Vernengo

More on the IMF and fiscal policy and Blanchard’s rethinking of macroeconomics

wrote a few days ago on the IMF’s persistent views on fiscal policy, and how these views are rooted in an unchanged perception of how the macroeconomy works.  The new Fiscal Monitor tends to support my previous position. The policy recommendations, in the case of advanced economies, suggest that:

“Fiscal efforts in the last five years have stabilized the average debt-to-GDP ratio. Nevertheless, it is still expected to exceed 100 percent of GDP at the end of the decade. It is important to continue to reduce debt to safer levels and rebuild fiscal buffers.

Further fiscal adjustment is needed in most advanced economies to bring down debt ratios to safer levels… reining in age-related Debt (percent of GDP) spending could reduce longer-term fiscal risks.”

Why debt ratios have to fall is an incognita, given that we now know that there is no evidence for a 100 percent, or any other for that matter, threshold that leads to lower growth. And it’s really annoying that they still want to cut spending on pensions, and perhaps push for privatization (even Chile’s famous case now is not an example anymore). For developing economies:

“the time has come to rebuild the fiscal buffers used during the crisis, and to strengthen the institutional fiscal policy framework.”

In this case, the notion is that inflation is around the corner, and, hence, that ‘emerging’ markets are close to full employment. In sum:

“Fiscal consolidation is called for in many economies, advanced and emerging, to reduce high public debt ratios and rebuild fiscal buffers used during the crisis.”

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Sunita Narain

One item on the agenda of the much-discussed Narendra Modi-Barack Obama meeting that has Indian commentators flummoxed is hydrofluorocarbons (HFCs). The joint statement issued after the meeting of the two heads of states says rather ambiguously that the two sides agreed to cooperate on “next steps to tackle the challenge posed by HFCs to global warming.”

HFC has been a bugbear in the India-US relationship. The US wants to begin negotiations for the phase-out of HFC—a chemical used in a wide range of industrial and household products like refrigerators, air-conditioners and solvents—under the UN’s Montreal Protocol. India argues that the Montreal Protocol is for protecting the world from ozone layer depletion and HFC is harmful because it contributes to climate change, so discussions should take place under the UN’s climate convention (UNFCCC).

In fact, HFC is the chemical that the world introduced to phase out hydrochlorofluorocarbon (HCFC), an interim substitute for chlorofluorocarbon (CFC). Both HCFC and CFC were indicted for damaging the stratospheric ozone layer that blocks harmful ultraviolet rays.

Seemingly, the US is driven by green concerns, as HFCs are greenhouse gases 2,000 times more potent than carbon dioxide. But the outcome depends on the alternative the world chooses. When this chemical was introduced it was understood that it would be bad for the climate. The world decided to solve one problem by creating another.

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James K. Boyce

This interview with regular Triple Crisis contributor James K. Boyce (Political Economy Research Institute, University of Massachusetts-Amherst) appeared originally at The Real News Network. Prof. Boyce describes the findings from his recent study showing that, in the United States, inequality in exposure to air pollution is even more unequal than inequality in income. The study, issued by the Institute for New Economic Thinking, was co-authored by Boyce with Klara Zwickl and Michael Ash.

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Timothy A. Wise and Kristin Sundell

Regular Triple Crisis contributor Timothy A. Wise (Global Development and Environment Institute (GDAE), Tufts University) and Kristin Sundell (ActionAid USA) are the co-authors of the ActionAid report “Rising to the Challenge: Changing Course to Feed the World in 2050.”

The 2008 global food price spikes were a wake-up call to global policymakers, shaking them from the lethargic slumber of the overfed. The rhetorical responses were swift, but policies and practices have changed little. That is in part because they relied on the tried-and-failed solution of increasing commodity food production.

Agribusiness led the charge, with dire warnings about unsustainable population growth and looming resource constraints. How can we produce enough food to feed this growing population?

“Between now and 2050, we need to double the food supply,” said Dr. Robert Fraley, Executive Vice President and Chief Technology Officer of Monsanto, during an interview withNational Public Radio’s Takeaway host John Hockenberry.“That’s probably the greatest challenge facing mankind.”

Indeed, that is the theme of this year’s World Food Prize event, taking place October 15-17 in Des Moines, Iowa. This event promises more of the same solutions.

The panic is not warranted, the claims about the need to double food production are unfounded. According to ActionAid’s report, “Rising to the Challenge: Changing Course to Feed the World in 2050,” the solutions lie not in the rush to increase industrial food production but in supporting sustainable and productive farming practices among small-scale farmers – particularly women – in developing countries while halting the diversion of food to biofuels and reducing the obscene levels of waste and spoilage that keep one-third of the world’s food from nourishing anyone.

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Martin Khor

When the Cold War ended two decades ago, people throughout the world looked forward at last to a period of peace.

A political scientist wrote a book predicting “the end of history”. Conflict between ideologies and big powers was over, as those advocating the free market and democracy had won.

The illusion of the end of conflict is over. Last week, at the annual summit of the United Nations, “global turbulence” was much the theme of the leaders gathered there.

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Arthur MacEwan, Guest Blogger

Arthur MacEwan is professor emeritus of economics at the University of Massachusetts-Boston and a columnist for Dollars & Sense magazine.

The Export-Import Bank, created in 1934, is a U.S. federal government agency that supplies loans or guarantees loans to foreign firms to finance their purchases of U.S. exports. Its supporters argue that it strengthens the U.S. economy and creates jobs in the United States by bolstering demand abroad for goods produced here.

For the Export-Import Bank to stay in existence, Congress must reauthorize it by the end of September. Its existence, however, has come under attack by the anti-big-government forces of the right. They claim that there is no justification for the government to provide this support for U.S. firms. If the buyers abroad of U.S. goods cannot get financing for the purchases from regular banks—i.e., in the “free market”—the U.S. exporters are charging prices that are too high. That is, the U.S. firms are not effectively competing in the “free market,” and it is not the job of government to subsidize their inefficient operations.

These critics of the Export-Import Bank claim it is simply “crony capitalism,” where well-connected firms are able to get handouts from the government. This, they argue, is not the way “real capitalism” should and can function. For example, in the June 25 edition of National Review Online, with an article titled “The Ex-Im Bank: Crony Capitalism in Action,” the editors wrote that the Bank “hands out generous loans and credit guarantees to a select number of corporations [and] is corrupt and poorly managed. …The bank has a long history of dealing with dodgy firms and doling out suspiciously large amounts of loans to certain companies.”

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Petra Kjell, Guest Blogger

Petra Kjell is the Programme Manager for Environment, Human Rights, and Social Impacts at the Bretton Woods Project.

This week, the Green Climate Fund (GCF) gathers in Barbados for the eighth meeting since its inception. Established in 2010 under the UN Framework Convention on Climate Change (UNFCCC) as the primary vehicle to deliver much needed climate finance, the GCF still has a number of issues to resolve until it becomes fully operational. Slow in motion, the fund received a much needed boost with some pledges during the September climate summit organised by UN Secretary-General Ban Ki-Moon.

As the new financial structure for climate action rises, another funding mechanism is due to sunset. The World Bank-hosted Climate Investments Funds (CIFs) were set up in 2008 in the shadow of the ongoing UNFCCC process as an interim measure to provide new and additional climate finance to pilot “transformational” actions in selected developing countries. Led by developed countries and implemented by multilateral development banks (MDBs), four funds were set up: the Clean Technology Fund (CTF), the Pilot Program for Climate Resilience (PPCR), the Forest Investment Program (FIP) and the Scaling up Renewable Energy Program for Low Income Countries (SREP).

The CIFs were quickly criticised by civil society groups as undemocratic and unaccountable, potentially undermining the official UN process. The leading role of the World Bank, tarnished by its reputation on many fronts, including for its funding of fossil fuels, also created a widespread mistrust of the funds. A few years down the line, civil society has complained about lack of consultation, misguided projects, and a heavy private sector focus. In Indonesia, for example, civil society groups have repeatedly raised concerns about the CIFs, such as lack of consultation on the FIP country investment plan and the risk of deforestation linked to CTF geothermal projects, but with little impact. With CIF-funded projects ranging anything from energy efficient fans in India to airport development in the Caribbean, CIF donors have also repeatedly raised questions on the legitimacy of projects for CIF funding , but few projects have gone back to the drawing board, let alone been stopped.

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What We’re Reading

Juan Carlos Moreno-Brid and Stefanie Garry, Forget Me, Forget Me Not: Productivity and the Minimum Wage in Mexico (Originally published in Spanish by El Financiero).

Rania Antonopoulos, Sofia Adam, Kijong Kim, Thomas Masterson, Dimitri B. Papadimitriou, Responding to the Unemployment Challenge: A Job Guarantee Proposal for Greece (Levy Economics Institute of Bard College; Observatory of Economic and Social Developments, Labour Institute, Greek General Confederation of Labor).

Global Development and Environment Institute, 2015 Leontief Prize: Duncan Foley and Lance Taylor.

What We’re Writing

Kevin P. Gallagher and Daniela Magalhães Prates, Financialization and the Resource Curse: The Challenge of Exchange Rate Management in Brazil (GEGI Working Paper #8, Global Economic Governance Initiative, Boston University)

Kevin P. Gallagher, Jose Antonio Ocampo, Min Zhang, and Yu Yongding (Co-Chairs), Capital Account Liberalization in China: The Need for a Balanced Approach (Pardee Center Task Force Report, Boston University).

Jayati Ghosh, Gujarat Model: The Real Story (The Frontline).

Matias Vernengo and Kirsten Ford, Everything Must Change so that the IMF Can Remain the Same.

Robert Pollin, Heidi Garrett-Peltier, James Heintz, and Bracken Hendricks, Guest Bloggers

This is a summary of the report “Green Growth: A U.S. Program for Controlling Climate Change and Expanding Job Opportunities” by researchers at the Political Economy Research Insitute (University of Massachusetts-Amherst) and at the Center for American Progress. A longer article based on the report is available at The Boston Review, here. The full report is available from the Political Economy Research Institute, here.

The question for policymakers, and all other citizens, is no longer whether humans are changing our climate. The question now is, how we can stabilize an already-changing climate in a way that promotes economic prosperity? While recently established domestic policies have made strides toward a lower carbon future, such measures are stepping stones. They prescribe the initial path but will not lead to the final goal of achieving the reductions in greenhouse gas emissions necessary to help stabilize global temperatures. Effectively mitigating climate change requires identifying exactly how the United States will transform its energy economy to attain international goals to help protect our climate.

This report quantifies the level of investment required for the United States to align emissions reductions with international goals in an economically beneficial and technically feasible manner. The specific emissions-reduction goal we explore in this study is what the Intergovernmental Panel on Climate Change, or IPCC, has proposed for the world as a whole: reducing greenhouse gas emissions by 40 percent from 2005 levels by 2035. To do its part to meet this goal, the United States must reduce its carbon dioxide emissions from energy-based sources by 40 percent, to 3,200 million metric tons, or mmt, over roughly the next 20 years. The proposals in this report put the United States on this track to effectively mitigate global climate change.

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