Showing posts with label Brookings Institute. Show all posts
Showing posts with label Brookings Institute. Show all posts

Saturday, March 9, 2019

Raghuram Rajan and the Third Pillar by Skyler Myers, Creative Investment Intern, Clemson University

Economists generally focus on interactions between markets and society, but, University of Chicago economist Raghuram Rajan argues that they leave out an immensely important ‘third pillar’ - the smaller, local communities within a market, as opposed to the large metropolitan areas. 

Rajan provides a detailed analysis of the development of Western economies, and attempts to prop up local communities to the same status and importance of the state and market (the other two pillars), while explaining how community was removed from the economy. We tend to rely on the state and market rather than our local communities to solve problems and get things done, which traditionally has not been the case, at the expense of our solidarity. 

The benefits to strengthening local communities are vast, from limiting crony capitalism to preserving democracy by checking the power of the federal government. It is no wonder authoritarian regimes attempt to replace community with other forces like nationalism. A major problem with society, according to Rajan, is the imbalance between the three pillars.

Sunday, February 3, 2019

Open: The Progressive Case for Free Trade. Scott Knewitz, Policy Intern. Graduate student, American University

On Friday, February 1, 2019, Kimberly Clausing, Thormund Miller and Walter Mintz Professor of Economics at Reed College, sat down with a panel at the Brookings Institute in Washington D.C. to discuss her new book, Open: The Progressive Case for Free Trade and Globalization. 

Clausing and the other panel members (above, from left to right): Lori Wallach, director of Public Citizen’s Global Trade Watch, Soumaya Keynes, U.S. economics editor for The Economist, and Kimberly Elliot, visiting fellow at the Center for Global Development, with David Wessel, discussed the current issues facing Americans of middle and lower incomes.

In the book, to be published on March 4th of this year, Clausing addresses claims from both sides of the political spectrum, which cite globalization as a destructive force, whether for its perceived effect on the most vulnerable and impoverished peoples of the word or that of reducing wages for American workers.  On the contrary, she points to globalization as a force for good – if utilized correctly – and in this respect, calls for a more open global economy.  For example, tariffs, she points out, are an economically ineffective tax on trade, the burden of which is often placed on consumers, as companies are either forced to pay the tariffs or seek higher priced substitutes from elsewhere leading to higher consumer prices. 

Clausing also discusses the dangers of reducing immigration, from both moral and economic perspectives.  She states that it is both un-American and foolish economically to turn away asylum seekers, noting there is no serious evidence to support the claim that immigration is in any way a cause of America’s current economic dilemmas.  In fact, she makes the case that immigration remains one of America’s greatest strengths, essential to economic growth, innovation and entrepreneurship.

So, how does one overcome the  discontent, backlash, nationalist and isolationist sentiment present in the U.S.?  Clausing seeks to use domestic economic policy to address issues of inequality and, in turn, discontent.  She points to more equitable means of distribution through a progressive tax policy, and greater emphasis on infrastructure as solutions. She believes these are required if America is to maintain international competitiveness. 

Clausing's most pronounced critic on the panel was Lori Wallach, of Public Citizen’s Global Trade Watch, who pointed not to America’s economic policy as the most direct cause of our inequality but to trade policy as the cause. Her viewpoint is that our trade agreements distribute an unequal share of profits to major multi-national corporations, who operate without having the public interest in mind.

At closing, Clausing, Wallach, and the other panel members all agreed that to retreat to nationalism would be a grave mistake, and that the solution may be a more open economy that supports the development of all people while providing greater equality.

Wednesday, June 6, 2018

Industry 4.0 in Africa: Helping or hindering? Papa Yaw Owusu, Impact Investing Intern, Creative Investment Research

         On Monday, June 4, the Brookings Institution, in partnership with the United Nations Industrial Development Organization (UNIDO),  held a panel discussion titled “Industry 4.0 in Africa: Helping or hindering?”. Industry 4.0 refers to the digitization of the manufacturing sector, driven by computing power, connectivity, and new forms of human-machine interaction, like artificial intelligence.

The panelists were Julius Akinyemi an Entrepreneur in Residence at MIT Media Lab, Mary Hallward-Driemeier the Senior Economic Adviser for Finance, Competitiveness, and Innovation at the World Bank, Susan Lund, Partner at the McKinsey Global Institute, and Olga Memedovic, the Chief of Business Environment, Cluster & Innovation Division in UNIDO's Department of Trade, Investment & Innovation. The panel addressed relevant issues and questions, such as: What can be done to put the prerequisites for Industry 4.0 adoption in place? What are the overall implications for Africa within the Industry 4.0 paradigm? How can Industry 4.0 be harnessed to improve the livelihoods of the continent’s most vulnerable people?

    The panel began with the following assumption: that Africa needs improved infrastructure to be able to fully maximize the benefits of Industry 4.0. Excessive regulation accounts for about half of the continent’s investment gap. Less restrictive regulations, more competition in the procurement of infrastructure projects and more public-private partnerships would reduce this gap. There is a need for greater and cheaper access to internet technologies. Governments also need to implement appropriate policies to boost manufacturing and attract investment into their countries.

Industry 4.0 might have negative implications for the African continent. Industry 4.0, by reducing labor costs through automation, undermines Africa’s "cheap labor" competitive advantage. This may result in global value chains not moving to Africa as happened previously with the movement of global value chains from more economically developed nations to Asian countries. Furthermore, Industry 4.0 might create an even wider gap between African and other regions by leading to a greater cumulative competitive disadvantage.

Current developments on the continent suggest that Industry 4.0 has the potential to improve the lives of Africans. Greater internet access in most countries has enabled easier and more accurate data collection for governments thereby making government policies more appropriate. Industry 4.0 has enabled the development of various financial technology, like MPESA, which has lowered transactions costs. Finally, the possible development of the Africa Continental Free Trade Area (AfCFTA) would make Industry 4.0 more impactful by enabling greater economies of scale.

Tuesday, June 20, 2017

The Trouble with Economics by Sahil Grover, Impact Investing Intern, University of Virginia

On June 20th, 2017, the Brookings Institute invited Alan Blinder, Representative Jamie Raskin, and Former Representative Vin Weber to discuss the "Lamppost Theory" – the tentative title for Blinder’s new book that seeks to explain why economic policy often comes up short. Held in the Hutchins Center on Fiscal & Monetary Policy, the discussion began with Blinder explaining what the book title means. Blinder’s main argument is as follows: “Politicians use economics the way a drunk uses a lamppost – for support, not illumination”

Blinder believes that the reason economists and politicians have not had success working together to create effective policies is because they hail from two completely different “civilizations”. He believes both parties share blame for past policy failures and must learn from each other. Blinder argues that economists and politicians measure success differently, using a completely different set of criterion to make decisions. Economists tend to use more logical, substantive, and idea-driven approach while politicians focus on using people skills, gaining influence, and creating a message. Furthermore, economists use longer time-frames while politicians are subject to the election cycle and much shorter time-horizons.

Blinder describes policy formulation as a “four-ring circus” that gives economists little influence on public policy. The four “rings”, or phases of the process include: Substance, Politics, Message, and Process. According to Blinder, economists become too focused on the substance and fail to engage in the other phases of policy formulation. Blinder asserts that most economists either do not understand or do not care for these parts of the process, diminishing their potential level of impact on policymaking. Some of the principles that economists need to learn from politicians include:

o   Fairness beats efficiency
o   Unprincipled compromises beat pure solutions
o   Complexity sells poorly (KISS principle)
o   Need to differentiate what is good from what sounds good

Blinder identified the three impediments to generating sound policy as the 3 I’s: Ignorance, Ideology, and Interest Groups. Economic literacy is very low, making slogans such as “protectionism saves jobs” sell better than complex economic explanations. Additionally, Blinder believes that while economists focus on theories that maximize social welfare and macroeconomic conditions, politicians focus on special interests and policies that benefit a narrow set of interests.

The second part of the discussion involved a panel moderated by David  Wessel, formerly of the Wall Street Journal and now Director of The Hutchins Center. Rep. Raskin, recently elected to serve Maryland’s 8th District, believes that economists need to change their approach by using newer fields such as behavioral economics to influence public policy. Mr. Weber, one of the most prominent lobbyists and strategists in the Republican Party, added that part of the reason classical “technocrats” are not highly regarded in politics is due to past failures. Weber points out that the 2008 financial crisis and economists’ lack of ability to foresee it created an overall distrust in economic expertise. (Of course, he is wrong about this. Only nonminority, mainstream economists missed the crisis.  See: , and Trump: - Ed.)

Reverting back to the 3 I’s, Blinder emphasizes that while they may hold different values and theories, economists tend to be much less further apart than politicians. Raskin admits that the current political climate has compromise extremely difficult, making him become more of demonstrator than legislator. Although he agreed that it has become much harder to have an impact, Weber believes there is still hope. In order to fix this problem, Weber believes we must try to figure out what people actually believe in – not the slogans they sprout. Going forward, all three discussants see a tremendous opportunity for economists to positively affect economic policy. Though tax reform is the major issue area in which Blinder sees a need for technical expertise, Raskin points out the war on drugs and campaign finance as policy areas in which economic insight could play a major role.

Takeaway: At the end of the day, economics is not an issue area that many Americans understand. According to a study by FINRA Foundation, nearly two-thirds (63%) of Americans could not pass a basic financial literacy test, knowledge that has continued to decrease since the financial crisis. In order to build coalitions for more effective economic policies, we must start by making it a topic that the American electorate both cares about and can follow. As Blinder points out, this will not be easy and will take at least a generation of fundamental change. Although the long-term solution requires changes to the K-12 curriculum and more emphasis on better economic/financial press coverage, there are a number of online resources to help the transformation. For absolutely no charge, individuals can enhance their economic knowledge by taking online classes on topics such as Stock Investing and Crowdfunding

Additionally, we must figure out an create a superior communication network between politicians and economists to improve fiscal policy formulation. As Rep. Raskin points out, there is no real “neutral” economic group or organization that Congress can rely on. Although Blinder suggested a scenario in which a group of economic experts were selected to rewrite the tax code with a set of goals and oversight provided by Congress, he admitted that it was not a politically feasible solution. While I do not expect Congress to relinquish its ability to create fiscal policy anytime soon, there are incremental changes that can make economic policy more sound. In order to eliminate the time-frame problem, we must consider remove election-cycle pressures from affecting broad fiscal policy decisions. Politicians and economists must be held to the same timeline, having a standardized set of outlook and forecasting components that make analysis and comparison easier.