September 27, 2002 • 3:30 pm
In a recent interview, Nobel Prize winner Robert Solow addressed globalization and the anti-globalization protests.
Federal Reserve Bank of Minneapolis-The Region- Robert Solow Interview (September 2002)
REGION: Much controversy these days revolves around globalization and the contribution of trade liberalization to economic growth. Do you believe that developing countries need to open their economies in order to grow?
SOLOW: I think this is one of those cases in which focusing on growth is the wrong way to look at it. After all, what is the most you would expect international trade and international capital flows to do for a poor country? The most you could expect is that it might achieve the standard of living of a rich country. That would be terrific, that would be great. But it’s a matter of getting from here to there. Now if you’re going to get from here to there, then at least temporarily there must be faster growth, but growth is not the essence, growth is the byproduct.
The essence here is a poor country learning and becoming able to do (it’s more than just learning) what rich countries already do. There, I think the case is clear. The notion that the poor countries of the world can in any reasonable interval achieve rich-country incomes without trade and capital flows is utterly implausible. If the poor countries of the world have to depend upon themselves for the saving to finance the investment that they need, or have to develop by themselves the skills and technology they need to become rich by our standards, it’s going to take forever. So from that point of view I’m entirely with the open-economy people.
Where I think the open-economy partisans run into problems – and it is a respect in which a lot of market-oriented economics and economists fail—is that they tend to look at overall progress and brush off the fact that a lot of people lose in this process. They brush it off as “That’s just distributional. That’s not my business. After all, any country that wants to can make transfers from the gainers to the losers.” I think that’s a bad mistake, not only politically, but in a deep way. It’s a socially bad mistake. A society in which a small number of people get very rich and a large number of people get very poor is not really progressing, even if when you add it up and average it, it appears to show rapid progress.
Economists who see the marvels of trade and markets wonder why these people complain so bitterly. They’re complaining so bitterly because a lot of them aren’t sharing. It’s not enough to say—and everybody knows it’s not enough—that “oh well, if these countries really wanted to redistribute income they could do that.” They can’t do that. They can’t do that because the people who are profiting from the open economy—and who usually have the political power—are not about to give any of it away to the people who aren’t profiting. When a poor country gets attached to the world market and profits from it, the people who gain from this process immediately become politically conservative because they’re the ones who have something to protect.
If you listen to the people in the streets of Seattle or Genoa or wherever, what they say is so dumb that it’s hard to take them seriously. But if you say to yourself, OK, they’re representing some very unhappy people; what could you say that made sense about the situation? You’d find plenty of things to say. In the United States and Europe, we’ve done very well in redistributing income. We’re far from perfect, but we’ve done much better in making sure that nearly everybody profits from progress. But you could not say that about a lot of poor countries.
Filed under: Economics, Policy
September 26, 2002 • 6:17 pm
Washington DC is bracing for another round of IMF/World Bank protests. I can’t say I have much sympathy with most of their methods and policy ideas. “Globalization” is simply too broad an issue to protest in any meaningful way; and when you sub-divide it into component parts, there seems to be a good deal of nonsense mixed in with a few good points.
Anyway, I’ve been reading a very good book, which looks at much of what the World Bank has done with a critical eye, and also summarizes a lot about what we know (and don’t know) about economic growth in developing countries.
Take a look…
Stuff – Books – ArgMax.com
The Elusive Quest for Growth
by William Easterly
Easterly (World Bank) delivers a very thoughtful critique of current and past World Bank policy from the perspective of an insider. His main point is that the failures of the Bank are a result of a “failure to apply economic principles to practical policy work.”
IMF and World Bank protesters should read this book – both to better understand the policies against which they are protesting, as well as to learn that the people at the World Bank are not dummies and have the same ultimate goal: to make the lives of the poorest of the world better.
Filed under: Economics
September 26, 2002 • 5:26 pm
According to the labor department, unemployment benefits are running out for many people.
It looks like the economy is not yet roaring back from the recession – rather, we are crawling out. Would additional fiscal stimulus be helpful?
The Fed seems to be on the edge of rate reductions. Many argue that the fed should not reduce rates so as to “keep the powder dry” – just in case another adverse shock to the economy requires another strong move.
Instead of the rate reduction, maybe an extension of unemployment benefits would be helpful.
First, this kind of policy would provide an immediate benefit since those receiving the benefits would likely spend the money right away (since they’ve been unemployed for a while).
Second, this kind of fiscal policy stimulus would be temporary – as the economy got better, the UI benefits would automatically be scaled back as the number of unemployed drop. The temporary nature would minimize the long-term cost of the policy.
Sounds good to me…
Number of Workers Who Have Exhausted Federal Unemployment Insurance Benefits Passes the One Million Mark, 9/25/02
The number of unemployed workers who have run out of the additional weeks of unemployment benefits that this year’s stimulus legislation provided has now passed the one million mark and continues to climb. New Labor Department data show that by the end of August, more than 1.1 million workers had exhausted their additional weeks of federal benefits without finding work.
CQ.com Midday Update: DASCHLE TO SEEK NEW EXTENSION OF UNEMPLOYMENT BENEFITS
Senate Majority Leader Tom Daschle, S.D., continuing a Democratic effort to highlight the failing economy, is pressing for Senate passage of
another extension of unemployment benefits. Daschle planned to introduce a bill today calling for a 13-week extension of unemployment benefits. States with higher than average jobless rates would be able to extend benefits for up to 20 weeks, said a Daschle aide. The Majority leader will seek a vote next week, but Republicans have already said they will object to any effort to pass an extension of benefits without debate. Citing new statistics showing that the number of unemployed Americans rose by 2.2 million since last year, Daschle said it was essential to help those whose unemployment benefits were running out. Workers who are laid off from their jobs are usually entitled to 26 weeks of unemployment benefits.
Filed under: Economics, Policy, Politics
September 26, 2002 • 4:46 pm
Some interesting reading on the economics of intellectual property…
Dismayed by the effort to stifle technology and innovation under the guise of protecting intellectual property? Read on.
Filed under: Economics, Policy, Technology
September 25, 2002 • 3:33 pm
Today’s my birthday (yea!) and the Stata of Virginia delivered a nice gift…
Keep your eyes open for the license plate in the DC area!
Filed under: Website
September 24, 2002 • 2:19 pm
No change in rates, but Gramlich and McTeer voted for a rate reduction.
FRB: Press Release — FOMC statement — September 24, 2002
For immediate release
The Federal Open Market Committee decided today to keep its target for the federal funds rate unchanged at 1 3/4 percent.
The information that has become available since the last meeting of the Committee suggests that aggregate demand is growing at a moderate pace.
Over time, the current accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, should be sufficient to foster an improving business climate. However, considerable uncertainty persists about the extent and timing of the expected pickup in production and employment owing in part to the emergence of heightened geopolitical risks.
Consequently, the Committee believes that, for the foreseeable future, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Jerry L. Jordan; Donald L. Kohn; Mark W. Olson; Anthony M. Santomero, and Gary H. Stern.
Voting against the action were: Edward M. Gramlich and Robert D. McTeer, Jr.
Governor Gramlich and President McTeer preferred a reduction in the target for the federal funds rate.
Filed under: Economics, Policy
September 24, 2002 • 2:15 pm
The US Census Bureau today released two reports on poverty and incomes…
Income & Poverty Press Kit 2002
Report: Poverty in the United States
* In 2001, the poverty rate was 11.7 percent (at 32.9 million), up from 11.3 percent in 2000.
* The poverty rate for children was unchanged 16.3 percent.
Report: Money Income in the United States
* Median household income declined by 2.2 percent between 2000 and 2001 to $42,228.
* The share of household income for the highest quintile continues to increase and currently stands at 50.2 percent.
Read the rest of this entry »
Filed under: Economics, Policy, Politics
September 22, 2002 • 3:45 pm
State Fiscal Conditions Continue to Deteriorate; Federal Assistance Badly Needed, 9/20/02
States around the country continue to struggle with dismal fiscal conditions. State revenues have declined for four consecutive quarters. According to the Rockefeller Institute, revenues for the period April-June 2002 ? the final quarter of the fiscal year in most states ? were 10.4 percent below revenues for the same period in 2001. This is the sharpest decline at least since the 1980s.
Filed under: Economics, Fiscal Policy, Policy, Recession, State Economy
September 15, 2002 • 9:26 pm
On friday, 9/13 this website was apparently hacked. The front page was replaced by the hackers.
My apologies to everyone who was inconvenienced, the site should be up and running as usual.
Filed under: Website
September 10, 2002 • 1:39 pm
I will be away from the computer for a couple of weeks – so there will only be infrequent updates.
In the meantime, take a look at the newspage for economic news and commentary updated every 4 hours.
Filed under: Website