El desarrollo economico en Chile

A la busqueda de modelos de desarrollo exitosos en America Latina, el que mas destaca es el modelo chileno. En los ultimos 20 años ha pasado de una renta per capita de 3.000 dolares a 20.000 dolares y ha reducido la pobreza desde un 40 por ciento al 15 por ciento actual, con un indice de paro muy cercano al pleno empleo. ¿Cuales han sido sus factores de exito? La estabilidad macroeconomica con un modelo de balance estructural y su apertura comercial a los mercados mas importantes del mundo y el aumento de su oferta exportadora, que al cobre ha añadido el vino y el salmon. ¿Cuales son sus retos para consolidarse como un pais desarrollado? Los indices de desigualdad son muy altos, con un gini de 0.50 todavia esta lejos de la media de los paises de la OCDE del 0.32. La productividad del pais no ha mejorado en las ultimas decadas y la oferta exportadora no se ha diversificado suficientemente pese al desarollo de la industria vitivinicola y del salmon. El modelo Chileno debe seguir aplicando las politicas macroeconomicas que tanto exito le han dado en los ultimos años. Tanto en terminos fiscales como en la fortaleza de un sistema financiero ha sabido evitar la crisis del sistema financiero internacional. En cuanto a la mejora de la producitividad y de la oferta exportadora, la sociedad chilena es consciente de la necesidad de mejorar su sistema educativo, todavia a la cola de la OCDE y de potenciar sus politicas de investigacion, desarrollo e innovacion para seguir aumentando su oferta exportadora. El desarrollo de sus universidades y la politica industrial que aplique el pais, seran elementos claves para que el modelo Chileno se consolide y siga avanzando en sus niveles de bienestar social dentro de los paises mas desarrollados. Todo esto requerira sin duda de un sistema tributario mas progresivo y que permita financiar los ejes estrategicos de desarrollo del pais.

global economic equilibrium

Interesting Rodrick´s analisys for a more balanced global economy PRINCETON – Economic policymakers seeking successful models to emulate apparently have an abundance of choices nowadays. Led by China, scores of emerging and developing countries have registered record-high growth rates over recent decades, setting precedents for others to follow. While advanced economies have performed far worse on average, there are notable exceptions, such as Germany and Sweden. “Do as we do,” these countries’ leaders often say, “and you will prosper, too.” Look more closely, however, and you will discover that these countries’ vaunted growth models cannot possibly be replicated everywhere, because they rely on large external surpluses to stimulate the tradable sector and the rest of the economy. Sweden’s current-account surplus has averaged above a whopping 7% of GDP over the last decade; Germany’s has averaged close to 6% during the same period. China’s large external surplus – above 10% of GDP in 2007 – has narrowed significantly in recent years, with the trade imbalance falling to about 2.5% of GDP. As the surplus came down, so did the economy’s growth rate – indeed, almost point for point. To be sure, China’s annual growth remains comparatively high, at above 7%. But growth at this level reflects an unprecedented – and unsustainable – rise in domestic investment to nearly 50% of GDP. When investment returns to normal levels, economic growth will slow further. Obviously, not all countries can run trade surpluses at the same time. In fact, the successful economies’ superlative growth performance has been enabled by other countries’ choice not to emulate them. But one would never know that from listening, for example, to Germany’s finance minister, Wolfgang Schäuble, extolling his country’s virtues. “In the late 1990’s, [Germany] was the undisputed ‘sick man’ of Europe,” Schäuble wrote recently. What turned the country around, he claims, was labor-market liberalization and restrained public spending. In fact, while Germany did undertake some reforms, so did others, and its labor market does not look substantially more flexible than what one finds in other European economies. A big difference, however, was the turnaround in Germany’s external balance, with annual deficits in the 1990’s swinging to a substantial surplus in recent years, thanks to its trade partners in the eurozone and, more recently, the rest of the world. As the Financial Times’ Martin Wolf, among others, has pointed out, the German economy has been free-riding on global demand. Other countries have grown rapidly in recent decades without relying on external surpluses. But most have suffered from the opposite syndrome: excessive reliance on capital inflows, which, by spurring domestic credit and consumption, generate temporary growth. But recipient economies are vulnerable to financial-market sentiment and sudden capital flight – as happened recently when investors anticipated monetary-policy tightening in the United States. Consider India, until recently another much-celebrated success story. India’s growth during the past decade had much to do with loose macroeconomic policies and a deteriorating current account – which recorded a deficit of more than 5% of GDP in 2012, having been in surplus in the early 2000’s. Turkey, another country whose star has faded, also relied on large annual current-account deficits, reaching 10% of GDP in 2011. Elsewhere, small, formerly socialist economies – Armenia, Belarus, Moldova, Georgia, Lithuania, and Kosovo – have grown very rapidly since the early 2000’s. But look at their average current-account deficits from 2000 to 2013 – which range from a low of 5.5% of GDP in Lithuania to a high of 13.4% in Kosovo – and it becomes evident that these are not countries to emulate. The story is similar in Africa. The continent’s fastest-growing economies are those that have been willing and able to allow yawning external gaps from 2000 to 2013: 26% of GDP, on average, in Liberia, 17% in Mozambique, 14% in Chad, 11% in Sierra Leone, and 7% in Ghana. Rwanda’s current account has deteriorated steadily, with the deficit now exceeding 10% of GDP. The world’s current-account balances must ultimately sum up to zero. In an optimal world, the surpluses of countries pursuing export-led growth would be willingly matched by the deficits of those pursuing debt-led growth. In the real world, there is no mechanism to ensure such an equilibrium on a continuous basis; national economic policies can be (and often are) mutually incompatible. When some countries want to run smaller deficits without a corresponding desire by others to reduce surpluses, the result is the exportation of unemployment and a bias toward deflation (as is the case now). When some want to reduce their surpluses without a corresponding desire by others to reduce deficits, the result is a “sudden stop” in capital flows and financial crisis. As external imbalances grow larger, each phase of this cycle becomes more painful. The real heroes of the world economy – the role models that others should emulate – are countries that have done relatively well while running only small external imbalances. Countries like Austria, Canada, the Philippines, Lesotho, and Uruguay cannot match the world’s growth champions, because they do not over-borrow or sustain a mercantilist economic model. Theirs are unremarkable economies that do not garner many headlines. But without them, the global economy would be even less manageable than it already is. Dany Rodrik Read more at http://www.project-syndicate.org/commentary/dani-rodrik-on-the-large-dangerous-external-imbalances-that-underpin-the-fastest-growing-economies--performance#Q167iUbCsiuPx13S.99

the failure of free market finance

Five years after the collapse of the US investment bank Lehman Brothers, the world has still not addressed the fundamental cause of the subsequent financial crisis – an excess of debt. And that is why economic recovery has progressed much more slowly than anyone expected (in some countries, it has not come at all). Most economists, central bankers, and regulators not only failed to foresee the crisis, but also believed that financial stability was assured so long as inflation was low and stable. And, once the immediate crisis had been contained, we failed to foresee how painful its consequences would be. Official forecasts in the spring of 2009 anticipated neither a slow recovery nor that the initial crisis, which was essentially confined to the United States and the United Kingdom, would soon fuel a knock-on crisis in the eurozone. And market forces did not come close to predicting near-zero interest rates for five years (and counting). One reason for this lack of foresight was uncritical admiration of financial innovation; another was the inherently flawed structure of the eurozone. But the fundamental reason was the failure to understand that high debt burdens, relentlessly rising for several decades – in the private sector even more than in the public sector – were a major threat to economic stability. In 1960, UK household debt amounted to less than 15% of GDP; by 2008, the ratio was over 90%. In the US, total private credit grew from around 70% of GDP in 1945 to well over 200% in 2008. As long as the debt was in the private sector, most policymakers assumed that its impact was either neutral or benign. Indeed, as former Bank of England Governor Mervyn King has noted, “money, credit, and banks play no meaningful role” in much of modern macroeconomics. That assumption was dangerous, because debt contracts have important implications for economic stability. They are often created in excess, because in the upswing of economic cycles, risky loans look risk-free. And, once created, they introduce the rigidities of default and bankruptcy processes, with their potential for fire sales and business disruptions. Moreover, debt can drive cycles of over-investment, as described by Friedrich von Hayek. The Irish and Spanish property booms are prime examples of this. And debt can drive booms and busts in the price of existing assets: the UK housing market over the past few decades is a case in point. When times are good, rising leverage can make underlying problems seem to disappear. Indeed, subprime mortgage lending delivered illusory wealth increases to Americans at a time when they were suffering from stagnant or falling real wages. But in the post-crisis downswing, accumulated debts have a powerful depressive effect, because over-leveraged businesses and consumers cut investment and consumption in an attempt to pay down their debts. Japan’s lost decades after 1990 were the direct and inevitable consequence of the excessive leverage built up in the 1980’s. Faced with depressed private investment and consumption, rising fiscal deficits can play a useful role, offsetting the deflationary effects. But that simply shifts leverage to the public sector, with any reduction in the ratio of private debt to GDP more than matched by an increase in the public-debt ratio: witness the Irish and Spanish governments’ high and rising debt burdens. Private leverage levels, as much as the public-debt burden, must therefore be treated as crucial economic variables. Ignoring them before the crisis was a profound failure of economic science and policy, one for which many countries’ citizens have suffered dearly. Two questions follow. The first is how to navigate out of the current overhang of both private and public debt. There are no easy options. Paying down private and public debt simultaneously depresses growth. Rapid fiscal consolidation thus can be self-defeating. But offsetting fiscal austerity with ultra-easy monetary policies risks fueling a resurgence of private leverage in advanced economies and already has produced the dangerous spillover of rising leverage in emerging economies. Both realism and imaginative policy are required. It is obvious that Greece cannot pay back all of its debt. But it should also be obvious that Japan will never be able to generate a primary fiscal surplus large enough to repay its government debt in the normal sense of the word “repay.” Some combination of debt restructuring and permanent debt monetization (quantitative easing that is never reversed) will in some countries be unavoidable and appropriate. The second question is how to constrain leveraged growth in the future. Achieving this goal requires reforms with a different focus from those pursued so far. Fixing the “too big to fail” problem is certainly important, but the direct taxpayer costs of bank rescues were small change compared to the damage wreaked by the financial crisis. And a banking system that never received a taxpayer subsidy could still support excessive private-sector leverage. What is required is a wide-ranging policy response that combines more powerful countercyclical capital tools than currently planned under Basel 3, the restoration of quantitative reserve requirements to advanced-country central banks’ policy toolkits, and direct borrower constraints, such as maximum loan-to-income or loan-to-value limits, in residential and commercial real-estate lending. These policies would amount to a rejection of the pre-crisis orthodoxy that free markets are as valuable in finance as they are in other economic sectors. That orthodoxy failed. If we do not address the fundamental fact that free financial markets can generate harmful levels of private-sector leverage, we will not have learned the most important lesson of the 2008 crisis Adair Turner Read more at http://www.project-syndicate.org/commentary/lehman-brothers-and-the-failure-of-free-market-finance-by-adair-turner#DFpUdFCmOmxT1iLk.99

Evolucion del empleo en Estados Unidos

La Reserva Federal de Estados Unidos va a tener que debatir mucho cualquier cambio en la estrategia monetaria tras ver la evolución del empleo en agosto. Durante el mes pasado se crearon 169.000 puestos de trabajo. A primera vista, el dato es mejor que los 104.000 empleos de julio, pero porque esta cifra fue revisada considerablemente a la baja. La tasa de paro bajó, por su parte, al 7,3%, una décima menos que en el mes precedente pero de nuevo porque se contrajo el mercado laboral, según los datos publicados este viernes por el Departamento de Trabajo. El consenso en Wall Street apuntaba a la creación de 180.000 empleos en agosto y a que la tasa de paro se iba a mantener en el 7,4%. Sin embargo, el dato oficial no solo se quedó por debajo de lo que se anticipaba, sino que además se revisaron a peor los dos meses precedentes. La primera lectura de julio arrojaba la creación de 162.000 empleos, mientras que la de junio se queda ahora en 172.000 puestos de trabajo cuando se habían anunciado 188.000. Con estos datos, la creación de empleo media durante los últimos 12 meses ronda los 182.000 contratos. Es decir, estaría bastante cerca de la tendencia del último año. Pero para que la tasa de paro baje de una forma creíble y sostenida, la economía estadounidense debería estar generando más de 250.000 empleos al mes. Además, los nuevos contratos se firman en sectores con baja remuneración. El Libro Beige de la Reserva Federal publicado esta semana confirmó que la expansión económica avanza a un ritmo entre modesto y moderado. Es un lenguaje similar al utilizado en los informes anteriores. La demanda en el sector inmobiliario es robusta, mejora la actividad en el sector manufacturero y el consumidor gasta más en cosas más caras, como en coches. Sin embargo, la contratación mejora de una manera que califica de “modesta” y los empresarios tienden a seguir reforzando sus plantillas con empleos parciales. Es la manera que tienen de cubrir el alza de la demanda sin que eso le suponga elevar los costes. Esta semana también se publicó la segunda lectura del indicador de productividad, que subió al 2,3% en el segundo trimestre. La dinámica que refleja el último dato de empleo no es buena. Aunque la tasa de paro es la más baja desde diciembre de 2008 y supone una destacada mejora frente al 8,1% de hace un año, el motivo por el que se reduce al 7,3% no es muy alentador. Se debe a que la tasa de participación laboral bajó al 63,2%, dos décimas menos que en julio y el mismo nivel que en el verano de 1978. Del total de 11,3 millones de parados, 4,3 millones llevan sin trabajar más de 27 semanas. Para tener la imagen completa de la escasa calidad con la que mejora el mercado laboral en EE UU, hay que tener en cuenta además que hay 7,9 millones de personas que se ven forzadas a trabajar a tiempo parcial, además de los 2,3 millones de parados que no buscan en este momento empleo de forma activa. Si se tiene todo en cuenta, la tasa de subempleo sería del 13,7%. El dato de paro de agosto es el indicador económico más importante con vistas a la próxima reunión de la Reserva Federal, que se celebra el 17 y 18 de septiembre. La gran mayoría de los miembros está de acuerdo en que los estímulos monetarios deben empezar a moderarse a final de año. Lo que no está tan claro es si el proceso comenzará este mes, en octubre o se dejará para diciembre. Así que la cifra de creación de empleo era clave para cimentar algo más las cosas. Hay dos factores externos que juegan, además, en la decisión de la Fed. La primera, la incertidumbre geopolítica derivada de una eventual intervención militar en Siria. La segunda, el enfrentamiento fiscal en Washington y la posibilidad de que el Gobierno se quede sin efectivo para operar en un mes. Y todo esto sucede mientras queda aún por saber cuál será el candidato que propone Barack Obama para dirigir la Reserva Federal cuando Ben Bernanke abandone su puesto a final de enero de 2014. El preferido parece ser Larry Summers, quien fuera secretario del Tesoro con Bill Clinton y el principal asesor económico del actual presidente en su primer mandato. Summers, sin embargo, es una figura que crea mucha división, incluso en el seno del partido demócrata. La lista de posibles candidatos parece haberse reducido a tres. Janet Yellen, actual vicepresidenta de la Fed, y el que fuera su predecesor en el cargo, Donald Kohn, otro de los veteranos en el banco central. También se habla de Roger Ferguson, que estuvo en ese puesto antes que ellos. http://economia.elpais.com/economia/2013/09/06/actualidad/1378472691_354413.html

Crisis financiera y politica economica en Estados Unidos

Interesante articulo de Krugman sobre la politica economica de Estados Unidos desde la caida de Lehman brothers. Si la politica economica de Estados Unidos ante la crisis la califica como un fracaso, la calificacion de la politica economica europea me temo que deberia calificarse como fracaso al cuadrado. Dentro de pocos días se cumple el quinto aniversario de la caída de Lehman Brothers, el momento en que una recesión, ya mala de por sí, se convirtió en algo mucho más temible. De repente, estábamos contemplando la posibilidad real de una catástrofe económica. Y la catástrofe llegó. Un momento, dirán, ¿qué catástrofe? ¿No nos advirtió la gente de que se acercaba una segunda Gran Depresión? Y eso no ha pasado, ¿a qué no? Sí, nos lo advirtieron, y no, no pasó, aunque los griegos, los españoles y otros podrían no estar de acuerdo con este segundo punto. Sin embargo, lo importante es darse cuenta de que hay grados de desastre, de que puede darse un inmenso fracaso de la política económica aunque no llegue a provocar un desplome total. Y el fracaso de la política en estos últimos cinco años ha sido, en efecto, inmenso. Parte de esa inmensidad puede medirse en dólares y céntimos. Los cálculos razonables sobre el desfase de producción a lo largo de los últimos cinco años —la diferencia entre el valor de los bienes y servicios que EE UU podría y debería haber producido y lo que de hecho ha producido— sobrepasan con creces los dos billones de dólares. Eso son billones de dólares de puro despilfarro que nunca recuperaremos. Detrás de ese despilfarro financiero se oculta un despilfarro aún más trágico del potencial humano. Antes de la crisis financiera, el 63% de los estadounidenses adultos tenían empleo; ese número cayó rápidamente a menos del 59%, y ahí se ha quedado. ¿Cómo pasó eso? No fue un brote masivo de haraganería, aunque el ala derecha afirme que los estadounidenses en paro no están esforzándose lo suficiente en encontrar trabajo porque están viviendo a lo grande gracias a los cupones de alimentos y a los subsidios de desempleo y que hay que tratarles con el desprecio que merecen. Una pequeña parte de la disminución del empleo puede atribuirse al envejecimiento de la población, pero el resto refleja, como he dicho, un fracaso descomunal de la política económica. Dentro de pocos días se cumple el quinto aniversario de la caída de Lehman Brothers, el momento en que una recesión, ya mala de por sí, se convirtió en algo mucho más temible Dejemos a un lado la política por un momento y preguntémonos cómo habría sido la situación en los últimos cinco años si el Gobierno de EE UU hubiera podido y querido realmente hacer lo que los manuales de macroeconomía dicen que debería haber hecho, es decir, dar un impulso lo suficientemente fuerte a la creación de empleo para compensar los efectos de la recesión económica y del estallido de la burbuja inmobiliaria, y posponer la austeridad fiscal y las subidas de impuestos hasta que el sector privado hubiese estado listo para tomar el relevo. He calculado a ojo de buen cubero lo que un programa así habría conllevado: habría sido unas tres veces más grande que el estímulo que tuvimos de hecho, y habría estado mucho más centrado en el gasto que en las reducciones de impuestos. ¿Y habría funcionado una política así? Todos los indicios de los últimos cinco años dicen que sí. El estímulo de Obama, por insuficiente que fuera, detuvo la caída en picado de la economía en 2009. El experimento europeo en contraestímulos —las duras reducciones del gasto impuestas a las naciones deudoras— no produjo el prometido repunte de la confianza del sector privado. En lugar de eso, provocó una grave contracción económica, como decía la economía de manual. El gasto público en creación de empleo habría creado ciertamente puestos de trabajo. ¿Pero no habría significado la clase de programa de gasto que estoy sugiriendo un aumento de la deuda? Sí. Según mi cálculo aproximado, a estas alturas la deuda federal que soportarían los ciudadanos sería de aproximadamente un billón de dólares más de la que es en realidad. Pero las advertencias alarmistas sobre los peligros de una deuda ligeramente más alta han demostrado ser falsas. Por otro lado, la economía también habría sido más fuerte, de modo que la relación deuda/PIB —la medida habitual de la posición fiscal de un país— habría sido solo unos puntos más alta. ¿Hay alguien que crea seriamente que esa diferencia habría provocado una crisis fiscal? Y, en el otro lado de la balanza, tendríamos un país más rico, con un futuro más prometedor, y no un país en el que millones de estadounidenses desanimados con toda probabilidad hayan dejado permanentemente de formar parte de la población activa, en el que millones de jóvenes estadounidenses probablemente han visto cómo se estropeaban para siempre sus perspectivas de una carrera de por vida y donde los recortes en la inversión pública han infligido un daño a largo plazo a nuestra infraestructura y a nuestro sistema de enseñanza. Miren, sé que como cuestión política, un programa de creación de empleo eficaz nunca ha sido una verdadera posibilidad. Y no fueron solo los políticos los que se quedaron cortos: muchos economistas, en lugar de señalar el camino hacia una solución de la crisis del empleo, se convirtieron en parte del problema al alimentar los miedos exagerados a la inflación y a la deuda. Así y todo, creo que es importante darnos cuenta de hasta qué punto ha fracasado y sigue fracasando la política. En estos momentos, Washington parece dividido entre los republicanos que denuncian cualquier clase de acción gubernamental —que insisten en que todas las políticas y programas que suavizaron la crisis en realidad la empeoraron— y los leales a Obama, que insisten en que han hecho un trabajo estupendo porque el mundo no se hundió del todo. Evidentemente, la gente de Obama está menos equivocada que los republicanos. Pero si nos guiamos por cualquier criterio objetivo, la política económica estadounidense desde lo de Lehman ha sido un fracaso increíble y horroroso. Paul Krugman, premio Nobel de Economía en 2008, es profesor de la Universidad de Princeton.

Development agenda: what is next?

As the 2015 target date for the Millennium Development Goals approaches, the United Nations is intensifying its efforts to foster debate about what comes next for promotion of development worldwide. The outcome of these discussions will shape policies and investment aimed at spurring GDP growth, strengthening human capital, and promoting more inclusive prosperity.

With the global population expected to reach nine billion people by 2050 – a significant proportion of whom will reside in developing or underdeveloped countries – the international community must improve access to education, health care, and employment opportunities worldwide. Meanwhile, the prospect of a rise in global temperature of more than 2°C (3.6°F) over pre-industrial levels by the end of this century (which would trigger global warming’s most damaging effects) calls for higher investment in sustainable urbanization, climate-smart agriculture, and social safety nets. Both factors challenge us to define, in the longer term, more sustainable patterns of production and consumption.

Governments, civil society, and the private sector must rise to the challenge, cooperating to find and implement creative solutions. But, first, they must anticipate the associated financing requirements, which will soon surpass the current capacities of governments and international donors, and take action now to activate new, reliable sources of financing.

To start, governments should design targeted, evidence-based policies and support the development of sound institutions. This would make government services more effective, while helping to catalyze additional development aid from traditional donors and mobilize private-sector resources.

In many countries, there is considerable scope for domestic resource mobilization. Broadening the tax base, improving tax administration, and closing gaps in the value-added tax could make a significant difference in lower-income countries, where tax revenues account for only about 10-14% of GDP, compared to 20-30% of GDP in high-income countries.

More equitable taxation would have a positive impact on governance, another important tool for mobilizing domestic resources. With improved corporate and public governance and clear transfer-pricing policies, resource-rich countries could shore up their capacity to negotiate fair contracts with extractive industries, balance revenues and expenditures over time, and manage their natural endowments more transparently.

Progress in these areas would help governments to channel their spending more effectively toward those who would benefit the most. For example, only 8% of the $409 billion spent on fossil-fuel subsidies in 2010 reached the poorest 20% of the population. A targeted support program could increase substantially the efficiency of spending, freeing up resources for education, health, and poverty eradication.

Furthermore, promoting financial deepening and inclusiveness could accelerate private-sector growth, creating more opportunities. Indeed, broader access to financial services would help the estimated 400 million micro, small, and medium-size enterprises in developing countries to prosper, while enabling the 2.5 billion people worldwide who currently lack access to such services to build their assets.

A deeper and more efficient financial sector would also reduce transaction costs and facilitate risk management. Local-currency bond markets could help to develop domestic investor bases and mobilize domestic savings to support long-term investments.

At the same time, the international community should work to improve the availability and effectiveness of official development assistance. The ODA target of 0.7% of GDP – agreed in 2002 at the International Conference on Financing for Development in Monterrey, Mexico – should motivate countries to increase their contributions. They can also take steps to make ODA more predictable from year to year.

Donors should structure aid to ensure that it supports sound national development policies and programs, rather than their own narrow interests. This is particularly relevant as emerging development partners, especially the BRICS (Brazil, Russia, India, China, and South Africa), offer new kinds of aid packages that incorporate investment and non-financial assistance.

Private charities, which have been instrumental in promoting innovation in fields such as health care, the environment, and education, could provide valuable insight into channeling aid more effectively. More generally, improving coordination among donors would help to maximize the impact of aid on the ground.

While ODA remains an important source of financing for fragile and very-low-income countries, it represents only 7% of net financial flows to developing countries, where foreign direct investment, remittances, long-term debt, and portfolio investment have a larger impact. Donors should leverage aid to “grow the pie” and to diversify financing sources for the world’s poorest countries by providing risk guarantees, innovative investment vehicles, debt syndication, and co-financing arrangements. Attracting even a fraction of the assets held by institutional investors, sovereign-wealth funds, and public pension funds could boost development finance substantially.

Diaspora populations are another major potential source of development financing. Reducing transfer costs, which average an estimated 9% of the value of transactions, would put more money into the hands of those who need it most. Tailoring financial products for diaspora communities could attract resources for investment, while reinforcing migrants’ ties – economic and otherwise – to their home countries.

Finally, the international community bears a special responsibility for delivering global public goods. The responsibility to preserve the environment, stem the spread of communicable diseases, strengthen the international financial architecture, enhance developing-country participation in the global trading system, and facilitate the exchange of knowledge lies at the intersection of national development priorities and global interests.

Duty-free, quota-free access to OECD markets, complemented by simpler, more transparent rules of origin, would raise GDP by 1% in the least-developed countries, lifting millions out of poverty. Investment in statistical capacity would help governments and businesses worldwide to make better policy decisions, based on a more accurate accounting of the associated costs and benefits.

The challenge of the post-2015 development agenda lies in finding creative solutions to support prosperity, equality, and sustainability. Together, governments, civil society, international organizations, and the private sector can improve the availability and quality of finance for development, and shape a better future for all.

Mahmoud Mohieldin


 http://www.project-syndicate.org/commentary/activating-new-sources-of-development-finance-by-mahmoud-mohieldin#ueKi0YXgGtEv5IDy.99

What Use Are Economists?

 When the stakes are high, it is no surprise that battling political opponents use whatever support they can garner from economists and other researchers. That is what happened when conservative American politicians and European Union officials latched on to the work of two Harvard professors – Carmen Reinhart and Kenneth Rogoff – to justify their support of fiscal austerity.

Reinhart and Rogoff published a paper that appeared to show that public-debt levels above 90% of GDP significantly impede economic growth. Three economists from the University of Massachusetts at Amherst then did what academics are routinely supposed to do – replicate their colleagues’ work and subject it to criticism.

Along with a relatively minor spreadsheet error, they identified some methodological choices in the original Reinhart/Rogoff work that threw the robustness of their results into question. Most important, even though debt levels and growth remained negatively correlated, the evidence for a 90% threshold was revealed to be quite weak. And, as many have argued, the correlation itself could be the result of low growth leading to high indebtedness, rather than the other way around.

Reinhart and Rogoff have strongly contested accusations by many commentators that they were willing, if not willful, participants in a game of political deception. They have defended their empirical methods and insist that they are not the deficit hawks that their critics portray them to be.

The resulting firestorm has clouded a salutary process of scrutiny and refinement of economic research. Reinhart and Rogoff quickly acknowledged the Excel mistake they had made. The dueling analyses clarified the nature of the data, their limitations, and the difference that alternative methods of processing them made to the results. Ultimately, Reinhart and Rogoff were not that far apart from their critics on either what the evidence showed or what the policy implications were.

So the silver lining in this fracas is that it showed that economics can progress by the rules of science. No matter how far apart their political views may have been, the two sides shared a common language about what constitutes evidence and – for the most part – a common approach to resolving differences.

The problem lies elsewhere, in the way that economists and their research are used in public debate. The Reinhart/Rogoff affair was not just an academic quibble. Because the 90% threshold had become political fodder, its subsequent demolition also gained broader political meaning. Despite their protests, Reinhart and Rogoff were accused of providing scholarly cover for a set of policies for which there was, in fact, limited supporting evidence. One clear lesson is that we need better rules of engagement between economic researchers and policymakers.

A solution that will not work is for economists to second-guess how their ideas will be used or misused in public debate and to shade their public statements accordingly. For example, Reinhart and Rogoff might have downplayed their results – such as they were – in order to prevent them from being misused by deficit hawks. But few economists are sufficiently well attuned to have a clear idea of how the politics will play out.

Moreover, when economists adjust their message to fit their audience, the result is the opposite of what is intended: they rapidly lose credibility.

Consider what happens in international trade, where such shading of research is established practice. For fear of empowering the “protectionist barbarians,” trade economists are prone to exaggerate the benefits of trade and downplay its distributional and other costs. In practice, this often leads to their arguments being captured by interest groups on the other side – global corporations that seek to manipulate trade rules to their own advantage. As a result, economists are rarely viewed as honest brokers in the public debate about globalization.

But economists should match honesty about what their research says with honesty about the inherently provisional nature of what passes as evidence in their profession. Economics, unlike the natural sciences, rarely yields cut-and-dried results. For one thing, all economic reasoning is contextual, with as many conclusions as potential real-world circumstances. All economic propositions are “if-then” statements. Accordingly, figuring out which remedy works best in a particular setting is a craft rather than a science.

Second, empirical evidence is rarely reliable enough to settle decisively a controversy characterized by deeply divided opinion. This is particularly true in macroeconomics, of course, where data are few and open to diverse interpretations.

But even in microeconomics, where it is sometimes possible to generate precise empirical estimates using randomization techniques, the results must be extrapolated in order to be applied in other settings. New economic evidence serves at best to nudge the views – a little here, a little there – of those inclined to be open-minded.

In the memorable words of the World Bank’s chief economist, Kaushik Basu, “One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do.” The implications go beyond not over-selling any particular research result. Journalists, politicians, and the general public have a tendency to attribute greater authority and precision to what economists say than economists should really feel comfortable with. Unfortunately, economists are rarely humble, especially in public.

There is one other thing that the public should know about economists: It is cleverness, not wisdom, that advances academic economists’ careers. Professors at the top universities distinguish themselves today not by being right about the real world, but by devising imaginative theoretical twists or developing novel evidence. If these skills also render them perceptive observers of real societies and provide them with sound judgment, it is hardly by design.

Dani Rodrick
Read more at http://www.project-syndicate.org/commentary/the-provisional-nature-of-economic-research-by-dani-rodrik#lRFIzPzXUxdVbSi5.99