After arriving in India over the weekend, U.S. President Barack Obama concluded a series of bilateral agreements with Indian Prime Minister Narendra Modi. Obama, who was invited to India as the chief guest for India’s annual Republic Day celebrations, broached the once-uncomfortable topic of climate change with Modi, making surprising progress on the issue. The two leaders followed up on themes addressed during Modi’s September 2014 trip to the United States and addressed some issues that had been on the U.S.-India bilateral back-burner for several years now. What follows below is a quick distillation of nine highlights out of the released joint statement, joint strategic vision document, and the visit overall. I’ll likely follow this up shortly with more detailed analysis on at least a couple of these points. I put together a similar summary of the previous U.S.-India bilateral joint statement after Modi’s U.S. trip, which focused primarily on defense and security issues that may help contextualize some of the below.
Category Archives: Economics
In 2014, the world economy remained stuck in the same rut that it has been in since emerging from the 2008 global financial crisis. Despite seemingly strong government action in Europe and the United States, both economies suffered deep and prolonged downturns. The gap between where they are and where they most likely would have been had the crisis not erupted is huge. In Europe, it increased over the course of the year.
Developing countries fared better, but even there the news was grim. The most successful of these economies, having based their growth on exports, continued to expand in the wake of the financial crisis, even as their export markets struggled. But their performance, too, began to diminish significantly in 2014.
In 1992, Bill Clinton based his successful campaign for the US presidency on a simple slogan: “It’s the economy, stupid.” From today’s perspective, things then do not seem so bad; the typical American household’s income is now lower. But we can take inspiration from Clinton’s effort. The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “Demand, demand, demand.”
A recently released World Bank report has claimed that the chance of escaping poverty is now roughly the same in India as it is in the U.S.
The report, called Addressing Inequality in South Asia, compares the share of consumption among three developing countries – Vietnam, Bangladesh and India – and the United States, divided along transitioning class lines – moving out of poverty, those moving from poverty into the middle class, falling back to poverty, falling out of middle class. The findings of the analysis were that “within the same generation, mobility in earnings – measured by the ability to move out of poverty and into the middle class – is comparable to that of the United States
The report says that India between 2004-05 and 2009-10, 15% of the total population also moved above the poverty line. By these measures, the report claims “upward mobility within a generation in…. India was comparable to that of dynamic societies such as the United States.”
The austerity question: ‘How’ is as important as ‘how much’ | vox – Research-based policy analysis and commentary from leading economists
Europe’s embrace of austerity has sparked a debate among economists. This column argues that the debate has gone astray. Until the critical principle – ‘how’ is as important as ‘how much’ – is embraced, the austerity debate in Europe will continue to be completely out of line with the real economic trade-offs.
The European debate on fiscal austerity has gone astray – focusing exclusively on the size of deficit reductions. What policy makers should really be focusing on is the budget tightening’s composition�(tax versus spending) and on the accompanying policies. Indeed, the title of this Vox debate – “Has austerity gone too far?” – reflects this inappropriate emphasis on size.
In our view, the essential question is not ‘how far’ governments go but of ‘how’ they go far enough.
Evidence on new taxes versus new spending cuts
Economists have engaged in some lively debates about how to measure and evaluate the effects of large fiscal adjustments episodes in OECD countries (Europe in particular). But a careful and fair reading of the evidence makes clear a few relatively uncontroversial points, despite the differences in approaches. The accumulated evidence from over 40 years of fiscal adjustments across the OECD speaks loud and clear:
Economy is akin to the freeway, though on the freeway there is a speed limit and traffic signals to regulate the traffic. And of course police to book the offenders. The economy, too, should have limits, regulators, and the law to book offenders.
If we base our analysis on methodological individualism, subjective rationality and inherent unpredictability of economic system to properly analyze the Government role in society we have to conclude that, beyond the point of maintaining the basic framework of law and order, government’s role in society is very limited. One single intervention is unlikely to produce a solution to deep-rooted economic and social problems and thus policy makers often try to build a variety of policy, policies that work on market demand and market supply.
Economists have referred innumerable times to the “free market,” the social array of voluntary exchanges of goods and services. But despite this abundance of treatment, their analysis has slighted the deeper implications of free exchange. One of the most lucid analyses of the distinction between State and market was set forth by
In his book The General Theory of Employment, Interest and Money (1936), John Maynard Keynes set forth a series of theories that have come to be known as “Keynesian economics,” whose major implication for the public and for governments was that recessions and depressions are not simply natural events that will eventually correct itself, but rather a problem that must be solved by direct government intervention in the economy, by deficit spending and other measures.. He pointed out that there are fundamentally two ways of satisfying a person’s wants: (1) by production and voluntary exchange with others on the market and (2) by violent expropriation of the wealth of others. The first method Oppenheimer termed “the economic means” for the satisfaction of wants; the second method, “the political means.” The State is trenchantly defined as the “organization of the political means.”
Economists usually make a common mistake, that extensive modeling, statistical and empirical coverage of events is enough for proper design of any system. Economics is a social science and the effects of intervention cannot be calibrated / forecast with great accuracy , people’s behaviour is subject to change as one can infer that from the ‘law of unintended consequences’. If we live in such undetermined and unpredictable world, with limited knowledge and limited ability for proper economic analysis, one cannot be sure about the policies that are being proposed.
- Want a Job in the Free Market? (lewrockwell.com)
- Politics and Economics Don’t Co-exist Well (economicnoise.com)
- Economic Growth Hinges on ‘Frontier Economics’ of Entrepreneurial Upstarts and Reduced Government Intervention (kauffman.org)
- Greenspan’s Faith in Markets (economistsview.typepad.com)
“In the last years, we have seen the WTO being stuck, while regional & bilateral trade agreements gained ground, so how would you assess the role of the WTO in the upcoming decade and do you think that the WTO will need to adjust to this new environment, if so, how?”
Global trade liberalization occurs through a variety of channels and not all of them appear to be in harmony with one another. Though every major nation is now a member of the World Trade Organization (WTO) and a participant in its complex process of multilateral trade liberalization; an average WTO member also belongs to six Preferential Trade Agreements (PTAs) (World Bank, 2005). WTO is now facing growing ‘irrelevance’ in bringing multilateral trade agreements palatable to all the members on the table, amidst the growing popularity of Regional Trade Agreements (RTAs) and PTAs.
RTAs on one hand can further the process of globalization through expanding the scope of trade cooperation, whereas, on the other hand, their trade diverting effects may contribute negatively to the process of international economic integration. Their proliferation could create competing blocs, eroding the viability of Multilateral Trading System (MTS). Regional groupings like ASEAN are nothing but a reflection of spaghetti -bowl effect. With the growing number of RTAs and PTAs the WTO needs to change gears and come up as a stronger organization to prevent the harmful effects of regionalism on International Trade and MTS.
The challenge is to ensure greater coherence among PTAs and between PTAs and MTS. The prolonged Doha negotiations suggest that the interest in multilateral agreements have been seriously weakened. Such a situation offers more room for bilateral deals. DDA should be concluded sooner than later, as implementing free trade within RTA is becoming increasingly difficult. From the perspective of normative economics, countries and WTO should work towards removing domestic distortion in Agriculture Sector. An effective competition policy, with an idea to remove market imperfection is needed. There is also a need for conducting joint exercises by the relevant ministries among the partner countries to understand whether the reasons for restricting market access are genuine or not. Predatory pricing is difficult to practise; therefore, anti-dumping measures on presumptions for stopping that have to be verified. RTAs pose a potential risk to the multilateral system, which gives rise to the need for an internationally financed Advisory Centre on Regional Trading Arrangements to provide training, negotiating advice and accreditation to private providers based on an agreed analytical framework.
The world trading system is far from perfect; and many reforms and changes in rules should be under discussion. But to further the cause of trade liberalization, much remains to be done including a defence of what has already been accomplished.
- Global Preferential Trade Agreement Database (GPTAD) (mpoverello.com)
- China’s illegal trade practices – how deep do they really go? [David Ottenstein] (ecademy.com)
- Global Business Environment (thinkingbookworm.typepad.com)
- Baldwin on the Rise of Regionalism (worldtradelaw.typepad.com)
- Fair Trade, not Free Trade. (shaketheshock.wordpress.com)
- Free trade or bioregional security? (energybulletin.net)
- Free Trade or Bioregional Security? (greenconduct.com)