Mexican Senate Approves Telecom-Reform

I was just reading here before I ended up going to bed and I came across an interesting article regarding TelMex and Carlos Slim aka. the worlds richest man.  This article caught my interest due to researching Mexico and NAFTA and how certain industries in Mexico such as their energy and communication companies are monopolized by conglomerates of Mexican companies and their EXTREMELY wealthy owners.  This would be a great step if the Mexican senate was showing true signs to help their economy by removing this monopoly and creating a unique communication competition in Mexico.

According to Al Jazeera, Carlos Slim's fixed line company controls 80% of the industry while his wireless company controls 70% of the wireless industry.  This semi-monopoly has such a strong control over Mexico's communication industry very similar to their energy industry in which PEMEX controls virtually the entire industry and contributes a majority to the countries public spending.  The new reform is also attempting to break up Mexico's television giants in order to open up the mexican communication and television industry up to competition.  The Mexican senate hopes that this reform will also help draw in foreign companies and investment into these Mexican industries.  The new bill also will allow for foreign companies to own 100 percent of the capital of a telecom company in comparison with the previous 49%.  This step forward liberalizing their telecom industry is the first step of many that Mexico could make...Next step their energy industry.

Factory safety in Bangladesh

A garment factory in Bangladesh collapsed on itself April 24th. This event killed many, leaving even more missing. This is the type of event that lowers confidence in potential investors. There has been a lot of talk of major companies leaving Bangladesh over this event. Disney has stated they are halting all production in Bangladesh. Unfortunately this is not an isolated incident in Bangladesh, the New York Times covered a very similar fire in November of 2012. Despite the danger of the factories, some think that the threatened pull out of major companies would be even more disastrous. The Times says the industry is one of the strongest in the world, and second only to China. The decisions of these companies could set a historic precedent. If many of the companies stay, neglecting the ailing safety concerns, it could have discouraging results. If the companies enforce safety standards beyond those required by the state, they would be sacrificing profits. Unfortunately the most popular option is leaving the country all together, which could cripple the economy. Employing over 3 million people, the industry is strong, and with a and lifting the country from poverty, the Globe and Mail says the wages pay better than farming or casual labor.

As a Bangladesh struggles to raise themselves from poverty, safety is a low concern. They rate 144th in the world in terms of corruption. It is up to private firms to make the decision on what is safe. Companies want to cut costs, but they need consumers to buy products. If these companies enact some sort of corporate social responsibility will it be enough to assuage minds? It is the responsibility of the consumer to hold companies to some measure of decency by voting with their dollar. Nike in the past dealt with similar criticism with regards to child labor. They seem to have overcome their hurdle, not without admitting they "blew it". Events like these are incredibly hard to deal with, but lessons must be learned. The question stands as to whether or not these companies will learn from this most recent disaster.

The Tail End of Economic Recovery- New Challenges

Paul Krugman's article Not Enough Inflation reminds us that unemployment is not our only economic concern.  Another two articles in the times report optimistic growth in jobs overall Job Data Ease Fear of Sharp Slowdown but particularly for educated Americans Idled Young Americans.  He argues that if we allow lack of inflation to continue we may permanently establish a cycle of economic failure. It is a nice change of pace however to hear concerns over inflation instead of the immediate problems of unemployment. The stock market is improving due to the positive job numbers and means that the United States may be restoring reputation as a stable economy.  Issues with the European Central Bank and their follies should help us remember that we must keep both unemployment and inflation on the radar as real concerns. 

European Central Bank Cuts Interest Rates

On Thursday the European Central Bank cut its main interest rate from .75% to .5%. This came after new signs of weakness emerge from the Euro zone. In theory, this new cut to the main interest rate is done to encourage economic activity. Lower interest rates decrease the cost of debt. It also helps boosts the demand of debt which is then used to buy goods. It also depreciates the Euro making the Euro zone a competitive place for exports but expensive for imports. The problem with this policy relates to the expected effects it will have in the market. The Euro zone maybe unified by one currency but is experiencing big economic differences among the core countries of the north and the economically weak countries of the south.

Germany the powerhouse of Europe has expressed its concern of low interest rates and its effect on investments that are not economical over the long term. An example which helps depict the huge differences between the North and South is the unemployment rate. Germany is facing a much lower unemployment rate of 5.4% compared to Spain’s 26.7%. The continued use of loose monetary policy that the ECB continues to uphold can in the long run increase inflation and cause an increase likelihood of new unforeseen bubbles like the housing bubble of the United States. This is not the only fear. Lower interest rates in the Euro zone harms savers by decreasing the interest rates they can get for their savings. The European Central Bank understands that it needs robust economic growth in all areas of the Euro zone and has done the only thing it can do currently, and that is to decrease the main interest rate. Economic disparities between the North and South will continue. Can a better banking union fix this problem or is this just the beginning of the end for the European Central Bank? 

Can Japan turn its economy around?

Japan is the third-largest economy in the world, but like many other developed nations, it has not avoided financial crises in recent years.  The biggest problems that have plagued the Japanese economy in recent years are deflation and a trade deficit.  Both of these issues are big trouble for the economy, as it is very easy to get stuck in the cycle, according to The UK Independent.  When a state faces deflation, businesses quit investing and consumers quit spending.  As a result, prices stay low and wages don't increase.  Hence, it is very easy for countries like Japan to get stuck in this cycle for years.

Recently, however, the Japanese government is implementing new measures to get Japan out of this state of deflation and trade deficit.  In this plan known as 'Abenomics', the government is planning on expanding the money supply from 60 trillion Yen to 70 trillion Yen.  One way that the government plans on doing this is by buying more of the country's own debt through government bonds.  This method would be implemented within two years, which would shock the economy.  According to The New York Times, the Japanese government also plans on producing an annual inflation rate of two percent.

These large measures have already caused a large trade deficit in recent months.  Since November, the Japanese Yen has fallen twenty percent against the U.S. dollar, according to A BBC News article.  As a result, imports have risen, but exports out of Japan have taken a hit.  Since this is what Japan has been known for over the past several decades, this spells trouble.

There is great debate amongst economists and politicians as to the success of the "Abenomics" plan.  When Prime Minister Shinzo Abe first came into office in December, Japanese stocks rose due to the anticipation of a fixed economy.  Breaking the cycle of deflation is a keystone point of Abe's term as Prime Minister.  However, some are starting to doubt if the Japanese government will really take the necessary drastic measures to get the economy back on track.

While the "Abenomics" plan would help the Japanese economy, the short-term effects would be very drastic, which is what scares many people.  The new Bank of Japan governor, Mr. Kuroda, does not believe the side effects of this plan will cause a lot of damage.  However, only time will tell.  What is really important is that the new Japanese government keeps its promise to take drastic measures to get out of its economic slump.  With the amount of time that the Japanese government has been in this debilitating state, drastic  steps need to be taken.   

Sex, drugs and hope: How big business fought AIDS in South Africa

In the article, Sex, drugs and hope, author of the Economist, Schumpeter, describes how big businesses are taking an interest, and action, in huge social issues that would affect profitability of the company.  In this particular article, how the prevalence of HIV/AIDS is an issue for employers in high skill or labor specific sectors.

As we’ve been talking about multinational corporations in class and the affects foreign investment can have on the development of a nation, and looking at factors that incentivize or deter foreign investment, this article seemed like an interesting factor in investment that I hadn’t thought about before.

Schumpeter begins by telling the all too common story of rising HIV/AIDS rates in Africa, citing that in 2002, in South Africa the infection rate was 17% in adults.  Some industries were affected lesser or more so.  For example, a mining company whose workers were often migrants who stayed at sex hostiles, were always close to prostitution, and the disease spread and increased.  With a labor intense job, the skilled workers sickened, and were dying quickly. Often one was trained to take their place.   Thus, slowing efficiency, and production. The company decided that “in the end it was a moral decision,” said Brian Brink, Anglo Mine’s Chief Medical Officer. The company started offering testing to all employees. Testing up to 80% of the workers.  Then, posting daily reports about where, in what mine, it was statistically most safe to have sex.  The company also offered anti-viral drugs for those with critical Tcell counts. In the end, they began to control the spread of the virus, and also combatted the death of their skilled workers who had contracted in.

The article goes on to discuss other companies in other industries who have followed suit.  One last example, a beer company in Africa who gave out condemns to its workers because as a statistical fact, their product had the tendency to cause unprotected sex, in this case a life threatening side affect of a beer buzz.

Another issue mentioned, perhaps more closely to home, was obesity and diabetes. With now over 50% of the adult population in the U.S. suffering from diabetes the business culture will be affected, we are now looking to free market solutions.

Many questions come to my mind as I think about this concept in the future of businesses taking on social issues because it is economically advantageous to do so.  First, this isn’t the first time companies are doing this, lobbying politicians is the daily practice of comapny’s.  But by directly offering solutions to workers companies have the ability to gain a certain amount of control.  In the case listed above, this company got to choose which drug company to buy from, who to give drugs to etc. On a macro scale this is a big deal.  What if it was the sole responsibility of the employer to make all health care purchases and decisions for/with employees?

This issue of corporations in social issues is a major consideration when companies are deciding where to invest, and how they invest. In class, Johannes talked about how Chinese companies were funding huge development projects in Africa, using Chinese tools, and Chinese workers, so an AIDS epedemic at first may seem to not affect this industry, as they are Chinese workers.  Yet, what if the Chinese workers become infected? This is a risk for China now. Also, in another instance, a company that would have employed African workers, boosting the African economy, will now bring its own workers because of the epidemic.

As this issue is uncovered it seems to go deeper and deeper into the implications social trends and issues can have on businesses.  Then, how these considerations look differently all over the world.

Africa, Foreign Aid and Remittance

I found this article that primarily focuses on Ethiopia, Rwanda, and other African countries, but primarily the  relationship with foreign aid. I thought that this could be an interesting post since we had just been talking about foreign aid in class, and also since the topic comes up on the exam.

In the article, Alexis Akwagyiram explains how the foreign aid given to countries like Ethiopia and Rwanda is allocated: toward healthcare and education (a positive) but also allegedly toward corrupt militia. The primary focus of the article, as I stated above is foreign aid, and how more and more African countries are taking steps toward positive regime change, a lot of the time because of political reasons-- to encourage continued foreign interest and investment. What is setting Rwanda apart from other countries, beside the fact that they have had their aid suspended, is their new development plan. The plan is the result of the realization that even though foreign aid is appreciated, "it's not sustainable as a long term development plan".

The article also briefly discusses remittances and explains the development plan in greater detail.

Nothing Wrong With Immigration, As Long As It's Regulated

The UN estimates that over 105 million people are currently working outside their country of origin. These numbers are expected to keep growing in the future. For these workers, migrating to a new country offers them a plan to escape poverty, for both themselves and their family. While working abroad, the laborers send money home in the form of remittances, which hold the potential to boost the economy in their home country. The IMF warns that although remittances have benefits for developing countries, they face the problem of becoming overly connected to their host countries. In the Philippines, remittances account for approximately 10% of GDP and because of that their economy and the host country's economy become increasingly intertwined. The IMF found that for every 1% increase in GDP growth of the host country, it translated to a .5% increase in the home country. This degree of connection also works the other way; if the host country's economy is shocked, it could potentially devastate the developing countries tied to it. But is too much connection a bad thing? Peter Sutherland at the UN explains "There is no greater symbol for growing interdependence than the movement of people". The ability to transport labor has helped many countries attain the level of economic development they have now. In Malaysia for example, migrant workers make up nearly 16% of their workforce. The Malaysian companies enjoy the extra laborers because Malaysia's workforce population is small. It also helps the countries receiving remittances as well. Some argue that people leave to work elsewhere because conditions are terrible in their home countries and remittances do little to alleviate domestic problems. In Bangladesh however, only 13% of households that receive remittances are below the poverty line, while 34% of non-remittance households are. The influx of capital allows the local countries to better equip themselves and provide more opportunity for increases in infrastructure. The movement of labor has many positive qualities and has the potential to provide more in the future. The number of migrant workers are increasing, and so is the amount of remittances sent. Without regulation of these migrations, some serious problems have begun to surface.

In the most severe of cases, such as Saudi Arabia, migrant works are being exploited. By not allowing them to become citizens, to work in these countries they forfeit all forms of legal rights and labor standards. They not only face exploitation for their work, but also for their remittances. Money transfer agencies, MTA, have seized the remittance market, with big companies such as Western Union and MoneyGram. They exploit the works by charging insane amounts of fees and rates for sending money abroad. This exploitation costs both the home and host countries large amounts of capital that would have been beneficial. There is a driving need for reform to provide immigrants with civil rights and financial security. An example of a country attempting to  address the issue of MTA's is the Philippines. They are attempting to lay down uniform laws for money transfers and provide a method of both bank and non-bank transfer agencies to congregate and stimulate healthy competition. In the upcoming revision of the Millennium Development Goals, those such as Michael Clemens are pushing for immigration regulations as part of the new goals. This regulation should not act as a hindrance, but rather a method to expedite the process of becoming citizens. By allowing the immigrants to become citizens, they will be able to experience same labor laws that accompany citizenship. Making the legal process has tremendous benefits. It will serve to lower the costs of everyday services, e.g. childcare, food services, lawn care. In addition, it creates a larger source of revenue through taxation. Even though immigrants pay taxes now, this system would allow them to do so while simultaneously experience the rights of being citizens. Providing this service would also deal a massive blow the the black market for labor that migrant workers are often forced into. Many countries are worried about immigration and the negative effects it can have. There is substantial evidence to suggest that immigration, if controlled correctly, holds massive benefits for all countries involved. While immigration has a negative stigma, especially here in the United States with states along the border of Mexico, it has the potential to be remedied. Immigration is going to continue increasing, whether legally or illegally, and the countries that stand to benefit the most are the ones that instill these institutions and regulations early.

Virtual Currencies: Mining Digital Gold

The recent emergence of the "virtual currency" Bitcoin, has raised a lot of speculation and uncertainty, bringing up past issues that ultimately shut down Napster in 2001. Napster was the internet program that allowed people to directly share files that others could then downloaded for personal use. This obviously created problems because it allowed people to avoid paying for CDs and essentially download the same music for free. Bitcoin is very similar to this as it is based off of similar principles. Bitcoin is a "virtual currency" which means that it is not issued or backed by a government, therefor its value is not guaranteed. however, recently, Bitcoin has become one of the top interests for investment around the world. Part of the reason for the large inflation of Bitcoin's currency was due to uncertainty of bank depositors due to the recent Cyprus bailout. Searching for newer and greater returns on capital, Bitcoin was created, but its future existence remains in question.

Since Bitcoin is not administered by a central authority or government, its 'monetary policy' is determined by specific computer algorithms. Essentially, hackers can create virtual money from nothing by using these algorithms to solve complex math problems in competition with other users. as a result of this, the currency has become very volatile because there exists no authority to back it up, so if a transaction made with Bitcoin is not paid, they receiver of the funds has no way to enforce the transaction.

Several new institutions have been jumping on the Bitcoin bandwagon, like Mt. Gox, which specializes in the exchange of Bitcoins for real currencies like the dollar. Since Mt. Gox owns 80% of all Bitcoin trading, if the firm were to suddenly go bankrupt, the Bitcoin currency would then become 'virtually' irrelevant. Although Bitcoin allows for the easiest means for international transactions, its existence still remains a question, much like the eventual end to Napster. In the upcoming months it will be interesting to see where Bitcoin goes. Will it explode and become the "next big thing", or will it tank and see a hoard of unhappy investors, just like those Russians during the Cyprus bailout?

Interesting WSJ on military technology used to boost productivity

Check out this WSJ article, I know there was some discussion about things like this a few posts ago

How Can We Measure Development?

As we have discussed in class, political scientists, especially those in the field of International Political Economy, often times have a hard time measuring certain factors accurately. In foreign aid, it is hard to measure how effective aid is, and what effects it can have on local economies. Similarly, the discussion of accurate measurement was discussed during the unit about migration, particularly the effects of remittances. The Boston Consulting Group released a study today measuring well-being in Africa. The report, developed in conjunction with the Tony Blair Africa Governance Initiative, attempted to measure the well-being of citizens within 30 African countries. Factors for determining the overall score for well-being included access to jobs, healthcare, the governance within the country as well as personal income. The Boston Consulting Group contends that GDP alone is not an accurate measure. To be sure, it is a contributing factor, but in this study, the BCG attempts to take a more comprehensive approach toward measuring economic growth and personal well-being.

Closer to home, Bureau of Economic Analysis recently announced that it would be making changes the process of calculating GDP. Changes in definitions of certain terms will broaden what is used to calculate GDP, changing the total GDP calculated. Many critics claim that this change in measurement will only produce a different number, without addressing the factors that actually contribute to GDP fluctuation. One article even claims, "The new changes, which will include definitional changes to expand what is counted in GDP, are expected to add 3 percent to the GDP report, while not changing the actual output of the economy."

Often times, the measurements that we use to order or classify certain phenomena or outcomes is flawed. The Boston Consulting Group does not accept GDP as the only factor for determining economic growth. For them, development is measured by a comprehensive account of economic, political and social factors. They are rejecting the commonly accepted measure of growth, GDP, and establishing their own measure.

Domestically, a political agency has made the unilateral decision to alter the way GDP is measured. By modifying what factors go into GDP calculation, many believe that the US is simply increasing their GDP artificially, as they are not altering economic practices, but rather political definitions of the calculation of GDP.

Obviously, both the BCG and the US Bureau of Economic Analysis have claims as to why there measure may be more accurate. But can political scientists develop a way to standardize measurements, or ways to differentiate between certain measurement methods? IPE tries to balance the interplay between politics and economics on the international level. More universal measurements, methods of measurements and objective quantifiable data can help to better understand the filed of international political economy.

Economist view

Renewable Energy Interesting Article

I ran into this article today and I thought it was interesting and sort of relevant to class. Will a reduction of Brazilian imports of ethanol into the U.S. contribute to the production of biofuels within the U.S.? How would this affect our economy and the Brazilian economy? Just some food for thought...

Japan's easy money / re-flate plan showing positive signs

Cheaper yen means higher sales expectations for Japanese manufactures in general.  In fact, Japanese automakers are especially optimistic because a cheaper yen will reduce the cost of their autos in terms of other currencies and help them to become much more competitive in the global market.

Last December, Japan’s prime minister Shinzo Abe promised to weaken the currency and create more government stimulus in attempt to fight deflation and re-flate Japan’s economy.  The new BOJ leadership, installed by Mr Abe, are following through – announcing plans to double the amount of yen in circulation.  Although, this plan is in the very early stages, given a 20% plunge against the dollar, and rosy forecasts from the Japanese automakers, there are some positive signs already that the plan may be working.  Furthermore, the exchange rate changes will have an even greater impact on Japanese manufactures like Mazda, who make majority of their products in Japan.  Mazda’s shares are up 90% this year!  Is this the new world of cheap money or should we return to fixed exchange rates?

Debating measurement

For a long time, economists have used general principles and assumptions like utility maximization, self-interest, and GDP, among others.  These assumptions and indicators help everyone from investor to politicians make important decisions that affect everyone around the world; but do they really reflect individuals underlying preferences and general economic performance?

Intuitively, we may question some of these measures and their accuracy, and there is emerging evidence that current measures do, in fact, leave out some important factors.  A recent article in the economist discusses several of these issues, including the assumptions of an individual’s fixed preferences, which are taken as a given.  Recent research in the field of cognitive science has shown people hold on to items well past the point at which it “makes sense” to sell.  They have also found people dislike losing something more than they like gaining the same amount; a finding such as this may have implications for future tax policy.

Another article continues the discussion about GDP vs. a county’s wealth and wellbeing.  GDP calculations only measure dollars spent but not what there spent on, i.e. things that either are beneficial or detrimental to growth and prosperity.  Unpaid and open source goods and services are not calculated either; even though improving an open source code will not create a monetary exchange, it does improve the overall utility of those who use the product.

Amartya Sen, a Nobel laureate in economics at Harvard, had this to say about GDP:

“We may be in the early stages in the United States of recognizing that the gross domestic product is very misleading and something must be done to get better measures of well-being.”

While there are problems with our current measures, they do help us make decisions about policy and investment, and they are the best indicators we have.  However, as domestic and international economies become more complex and less traditional, our current measure may become less and less effective, in which case new metrics must be created.

Cash Sent Home by Immigrants Remains Stagnant

heres an interesting article in the WSJ about how cash sent home by immigrants from the United States is much lower than expected

http://online.wsj.com/article/SB10001424127887323798104578451082562984810.html?mod=e2tw

Why so little demand for protectionism?

This is a question that Paul Krugman asks this week, and Tyler Cowen has some thoughts on it. What do you all think?

Blog-worthy topic: factory collapse in Bangladesh

Last week, a textile factory in Dhaka, Bangladesh, collapsed, killing hundreds of workers. A few days later an economics/business blogger at Slate Magazine, Matthew Yglesias, wrote that

Bangladesh may or may not need tougher workplace safety rules, but it's entirely appropriate for Bangladesh to have different—and, indeed, lower—workplace safety standards than the United States.
...
The reason is that while having a safe job is good, money is also good.
...
Safety rules that are appropriate for the United States would be unnecessarily immiserating in much poorer Bangladesh.

Yglesias backtracked some of his comments later, but this poses some interesting questions nevertheless. We addressed some of these issues, for instance regulatory races to the bottom, earlier in class. But there are a number of interesting questions worth asking:

• What can political economy tell us about why this disaster happened?
• What can it tell us about why regulations are the way they are?
• What can it tell us about the gap between laws and regulations on the one side and practice (the condition of the building) on the other?
• What can a political economy approach tell us about how such tragedies might be avoided in the future?

I'm looking forward to hopefully a few posts this week that address these or other questions related to this event.

Austerity vs Growth

Greece’s struggling economy was back in the spotlight this weekend.  According to BBC News, “The Greek parliament has passed a bill which will see 15,000 state employees lose their jobs by the end of next year.”  But that’s not all, by 2015, 150,000 public employees are expected to lose their jobs.  How’s that for austerity?  Not surprisingly, the passage of the law, which will continue to swell Greece’s already high unemployment rate of 27%, was not well received and the people took to the streets in protest. 

Interestingly, also over the weekend, Business Insider published a story outlining how support for austerity in the United States may be diminishing in light of “the very public demolition of a sacred text of the austerity movement, the 2010 paper by a pair of Harvard professors arguing that once debt exceeds 90 percent of a country’s gross domestic product, it crushes economic growth.”  As we discussed in class, the validity of the Reignhart-Rogoff study has been called into question due to a coding error in their spreadsheet that led to some data being omitted.  Their data, according to The Economist, shows a steep decline in growth, from 3% to -0.1%, at 90% GDP.  But a new paper, published by Herndon, Ash and Pollin of the University of Massachusetts, Amherst stated that with the inclusion of the omitted data the decline in growth is in fact 2.2% and not the reported –0.1%.  Business Insider asserts that these findings have brought many in Washington to “The realization that growth is how you close the deficit and that austerity (because it saps growth) is counterproductive.”

In Greece’s case, it doesn’t matter.  The moves toward austerity are not self-imposed.  According to BBC News the recently passed law and other austerity measures are a condition of a structural adjustment loan that is dispersed by IMF in tranches.  If Greece hopes to receive future tranches of the loan, they have no choice but to continue to move toward austerity.  But it still begs the question: Is austerity the right move for Greece? 

Remittances--the "New Foreign Aid?"

Recent data suggests that remittances to Africa have added up to far more than Western donors send in foreign aid.  Not only are Africans sending more money home than Western donors are giving, the money is also thought to be much more effective. 

According to Adams Bodomo, a professor at the University of Hong Kong, the remittances to Africa have been “more efficient and better targeted....it’s more effective because it’s better informed.  An African family member abroad knows what is needed...only a small amount of ‘traditional aid’ ends up with the people who need it.”  

This can be connected with our in-class discussion about one of the major problems with bilateral aid: governments don’t always know what the people need.

Because of the vast influx of remittances from country to country, efforts have been made to facilitate this process.  For example the AIR project (African Institute for Remittances), commits itself to “us[ing] remittances as development tools for poverty reduction.”  In doing this, they have dedicated resources to performing more research on remittance flows and policy change in order to develop ways in which remittances can effectively contribute to development in Africa. 

Others are actually capitalizing on remittance flows.  A company called Xoom has created a convenient service to simplify the wiring of money from one country.  They do this by allowing the customer to use their bank accounts and credit cards instead of hassling with cash.  And all this for a small fee of around $5 per transaction.  Because of the immense number of remittances that are being transferred around the world, the company is sure to make a hefty profit in the billions. 

However, some claim that remittances aren't all they’re cracked up to be.  A study by Chami et al. argues that, contrary to popular belief, remittances are not necessarily correlated with economic growth.  Part of the problem, they say, is the Dutch disease, or the idea that an increase in remittance flow will appreciate the country’s exchange rate, thus distorting the market.  Dutch disease often leads to a decrease in price competitiveness for the remittance-receiving country.    

Though not everyone agrees on the effectiveness of remittances, it will be interesting to read upcoming research on whether or not remittances can become the “new foreign aid,” or, if in the long run, remittances are problematic. 

What policy recommendations could be useful to implement, given the popularity of remittances? 

Muhammad Yunus and Microfinance

I ran across an interesting piece in the NY Times that was a conversation with Muhammad Yunus, who is best known to the world for his pioneering work in microfinance.  He has also advocated the spreading of microfinance.  Microfinance providers currently reach 200 million clients globally.  Yunus, the founder of Grameen Bank which started in Bangladesh, received the Nobel Peace Prize in 2006 along with the Grameen Bank.  Yunus has received numerous awards including most recently the Congressional Gold Medal.  Yunus was also selected in 2008 for the FP Top 100 Global Thinkers list, receiving recognition as the second most important public intellectual alive.   According to the New York Times piece Grameen bank currently has 8.6 million borrowers, 96% of which are women.  The government  of Bangladesh in the last 2 years has been attacking the work of Yunus according to Yunus and the New York Times.  Yunus thinks that the government of Bangladesh is trying to takeover the Grameen Bank.  Here, NY Times, a blog in the New York Times defends the work of Yunus.

One of the themes that we have been discussing in class is the role of central banks in deciding to reduce unemployment or inflation.  When combatting unemployment central banks lower interest rates which gives incentives to people to borrow more money and stimulate the economy.  Microfinance provides financial services, including microcredit, to the world poorest people who wouldn’t otherwise receive such services if left up to normal banking institutions in the hopes that it will lower unemployment, raise the standard of living, and as an added benefit stimulate the economy.  Also instead of governments using welfare and foreign aid to address the issue of poverty, microcredit lets poor individuals have borrowing capabilities from banking institutions.

In the interview Yunus describes what he calls social business, he says “I dismiss personal profit, and focus exclusively on people and planet.”  “That’s what I call social business: a nondividend company dedicated to solving human problems.”  He goes on in the New York Times conversation to say, “I’m not saying to get away from profit-making businesses.” “I’m saying keep these separate, run them in parallel.”  Yunus is an idealist that imagines making the impossible become possible.  Yunus says in the NY Times conversation that in five years he would like to see social business make up at least 1% of the world economy.  

An article in the Economist discusses the current revival of the micro finance industry and the reckless lending to the poor that led to its initial downfall.  Regulators are playing more of a key role. “Microlenders’ annual interest rates are now capped at 10-12 percentage points above their own borrowing costs, leaving most charging 23-27%.” “Some charged 40% during the boom; dodgy local loan-sharks, the only alternative source of credit in many rural areas, have even higher rates.”  Also the article says that microlenders such as the Grameen Brank are beginning to attract capital again.  I think that microfinance is a good idea and I would like to see it continue to grow.  Either way Muhammad Yunus is fascinating person that has a vision for addressing poverty.

Boosting Economy by giving undocumented Immigrants?

I came across a very interesting article how granting a undocumented immigrants a path to a citizenship could help improve the economy.  According to the article, it talks about how as much as 11 million undocumented immigrants are in the United States and if we grant them all US citizenship they would be able to add $1.4 trillion to the country's economic growth and also create more than 200,000 jobs and also boost a tax revenue by more than $180 billion in the next decade.  Sounds like that is what exactly America needs right now during this touch economic crisis doesn't it?  According to this article a study from the Center for American Progress shows that "undocumented immigrants currently pay less in taxes than they would as citizens, so granting them citizenship would bring in additional revenue.  The article suggest that not only would earning more increase the amount of taxes they pay but it would also increase the amount of money the spend which will boost our economy by them spending more on food, clothing, housing, cars, and computers.  That spending in turn will stimulate demand in the economy for more products and services, which creates jobs and expands the economy."Also according to the article the Immigration Reform Act in 1986 which granted legal status to about 2.7 million undocumented immigrants benefited in US home ownership because these illegal immigrants were earning more money.

What I remember from Tuesday's discussion class was regarding why people cross borders?  I am sure most of these illegal immigrants present in this country came here for mostly unskilled labors and some skilled labors as well as family reunions.  Do you really think that by giving these undocumented immigrants a path to citizenship is a best way to go about fixing our economy?

I would say there is absolutely no way we can go about granting undocumented immigrants a path to citizenship because we don't know how many of these are skilled and unskilled workers.  Some of these undocumented immigrants could be students who came to US legally but after completion of their studies decided to stay here but cannot find a job.  While I do agree that immigrants in general whether legal or illegal helps boost tax revenue and help country boost economy I am sure there is gotta be a better way to fix our economy than putting our country under national threat.

http://abcnews.go.com/ABC_Univision/Politics/undocumented-immigrants-citizenship-boost-economy/story?id=18790677#.UXi9bSsjrr0

The Sequester Effecting International Non-profits

Oxfam America's "Change Makers" ads

Since March 1st , congress has started implementing the outlined concessions of the sequester as a result of both parties inability to reduce the United States deficit. With plans to increase certain taxes and cuts to federal spending already evident, domestic non-profits are not the only ones within the third sector worried about how this will effect funding to their programs. Oxfam America, an international non-profit organization which works to alleviate different human rights inequalities around the world , posted an article earlier this month voicing their concerns of how the United States sequester cuts will effect the already less then 1% of U.S. federal budget aid they receive. This 1% of funding is spread over hundreds of non-profit organizations located in numerous countries around the world and is classified as poverty-focused international aid.

At Oxfam America, the staff and many of the people they work with are concerned about those who will be directly effected by cuts to poverty-reducing aid. They wonder what Americans and policymakers imagine when they think of developing countries and their assistance they give to them through foreign aid. Furthermore, the organization posed the overarching question throughout the article , do massive federal budget cuts have human faces associated with them?

Oxfam America wanted to make it very clear to DC policymakers that there were indeed human faces tied to the international aid they give and in January they produced multiple ads containing stories of local "change makers" in developing countries. These change makers are local entrepreneurs who are holding their governments accountable, seeing results from their products, and are using US foreign aid to start and progress thier local enterprises. The ads were originally focused to get the attention of DC policymakers but to many people's surprise, the U.S. general public has picked up on these ads via social media. Their responses to the ads were mixed. Some U.S. citizens thought the ads were forced and inaccurate, thus furthering their desire to have foreign aid be the first item reduced during the sequester cuts. While others were pleasantly surprised to see a non-profit working alongside developing countries to ensure accountability and growth from the aid they obtained.

This article address a lot of the major themes discussed throughout the course relating to foreign aid, specifically within William Easterly's critiques regarding the lack of accountability and feedback given with foreign aid. Seeing a large international non-profit like Oxfam America proactively working to implement regulations on accounting where aid is going while also tracking its effectiveness is encouraging to see but is it enough to change the way Americans and U.S. policymakers view the importance of continuing foreign aid? Either way, it will be interesting to see the exact effects the sequester cuts will have on the 1% of federal budget funds given to poverty-reducing aid within the next couple of years.

Colbert Satirizes Unsupported Evidence that Supports Austerity

In the most recent Colbert Report, there is a funny segment about the central role that the idea of austerity has played in contemporary politics and fiscally conservative economic policy, as we discussed in class. It takes a look at the methodological errors that haunt Reinhart and Rogoff's study, "Growth in a Time of Debt" followed by an interview with Eric Herndon (University of Massachusetts) who unearthed the skewed spreadsheet data that has largely informed our understanding of the relationship between sovereign debt and GDP growth. Watch it!

German Parliament Backs Cyprus Bailout

I know there had been a lot of previous talk on Cyprus earlier this semester and It could be becoming monotonous...but there has been substantial process in the bailout plan and euro giant Germany has stepped up to the plate and overwhelmingly voted in favor to supply one third of the bailout for Cyprus. Earlier this week the German Parliament had a vote on a bill which would give 13 billion dollars or 10 billion euros to the future bailout plan for Cyprus.  This new and revised bailout plan would require 30 billion euros to bailout Cyprus and return them to some form of economic security and safety.  The new rescue plan plans massive reforms on Cyprus's bloated banking sector and over the next two years is expected to drop to 12% or 13%.  This new reformed version of the Cyprus bailout plan as well as Germany's example by stepping up and offering one third of the international assistance could be just what Cyprus needs.  Maybe after this new bailout if it ends up going through will help Cyprus recover from their turmoil and they might be able follow the model of Ireland and Portugal who have made some great recoveries through hard restructuring.

Test your economic literacy

The New York Times' Economix blog posted a nice little quiz that you all should be able to pass with flying colors after having worked through our seminar. Try it!

Is Immigrations the Answer to Aging Populations?

Countries around the world are facing a problem with an aging population and slowing population growth rate. Some of the countries that will be most affected by this on the near future are Japan, Spain, Italy, Germany, France and the UK among many other developed countries.  With these changing demographics governments must find a way to lessen the affect this will have on the economy, at home and abroad.

An aging population is one were a greater percentage of the population is over the age of 65, therefore increasing the dependency ratio and decreasing the number of workers in the labor force. Some of the main problems faced by this situation are, increased government spending on healthcare and pensions with lower tax revenue from fewer workers, requiring higher taxes which can create disincentives to work, a general shortage of workers, and changing sectors in the economy to markets focused on older people.

Given the adverse affects these changes could have on the economy, it is important to address these issues before they continue to grow. One proposed solution to the shrinking work force is immigration. Increasing or promoting immigration in countries affected by this change in demographics can fill the lost work force that the home country cannot replace. This not only mitigates the potential problems faced, but also improves the job possibilities for those in other countries. It is also believed that “if future immigration was at 2001-2002 levels instead of at around 900,000 per year it would reduce the Social Security trust fund’s long-term shortfall by 12%” (Forbes) in the United States. Which would have a huge impact on economy especially when taking into account state debts.

There are obviously other things to look at outside of the economic impact in the short term, such as, long term affects as well as social and political stipulations. However, those issues aside, the current immigration policies and opportunities will not be conductive the type of immigration needed to fill the vacated positions. By changing these policies to help increase both high skilled and low skilled immigration, these countries may not face the foreseen problems.

Should there be a cap on Visas?

This week in class we are looking about why people decide to move across borders and the economic effects of migration therefore I thought it would be interesting to look into immigration. For the first time in five years, America’s immigration service just recently chose to hold a lottery to allocate the visas it makes available to foreigners recruited by private business to work in the country. This is giving the opportunity for more foreigners to come to America and have the opportunity to work. The economy still is not booming here and unemployment is still an issue for many Americans…. So why are they allowing foreigners the opportunity to come work here? Possibly because many Americans are either unskilled or do not want to work in the fast food industry or either low income jobs.

According to a recent economist article, The visa system Not working, “The cap on visas is entirely arbitrary and unnecessary, and almost certainly imposes high economic costs on the country”. Immigrants may be stealing American jobs, but they are more likely than U.S. citizens to “create patentable inventions or start new businesses. As we discussed in class, U.S. citizens are more likely to move to another country because of personal interest or they possibly have family there. For many immigrants moving to the U.S. it is because of the American Dream and want for a better opportunity at life. I think it is fair to allow immigrants to move to the United States whom are wanting to work, become educated, and later be entrepreneurs.

In another article from the economist, Tourist visas: You’re not Welcomed, it is discussed how some countries make visas very hard to obtain. “Only 18% of Chinese visitors to Europe make it to Britain, but two-thirds visit France, a member of the Schengen travel zone where visas are both easier to get and are 40% cheaper.” Why is this the case, when tourists traveling to the United States are big spenders? The poorer countries are the ones charging some of the highest fees simply because they can.

What do you think? Shoulder some borders have less restrictions and be made easier accessible? What should determine whether or not someone is applicable for a visa?

http://www.economist.com/news/united-states/21575782-how-hurt-economy-needlessly-not-working

http://www.economist.com/blogs/gulliver/2013/02/tourist-visas

Credit Rating Agencies: Friend or Foe?

Department of Justice Sues Standard & Poor's

Years after the worst financial crisis since the great depression in 1933, perpetrators and those thought to be held responsible for this catastrophe are still being brought to justice. The U.S Department of Justice along with Senator Carl Levin, who heads the Senate's Permanent Subcommittee on Investigations, maintain that:

"S&P lied about its ratings being free of conflicts of interest because it downplayed or disregarded credit risks to win more business from investment banks and other issuers of the securities that paid the company to provide the ratings and that sought the highest possible ratings."

These allegations  carry large problems for S&P, not only morally, but legally as well.

If these accusations are proven true, they will carry grave penalties for Standard and Poor's. Currently the Justice Department estimates that S&P can face $5 billion or more in civil penalties "based on losses by federally insured financial institutions  that relied on S&P's ratings" (Bloomberg).

So, what really went wrong.. We know that S&P provided false and inflated ratings on structured financial products, but what does that all mean? When it boils down, S&P are being accused of giving such "financial products," like Collateralized Debt Obligations (CDO's) and Residential Mortgage-Backed Securities (RMBS), inflated or a false ratings. S&P's obligation is to rate the CDO's and RMBS's  in an unbiased and objective manner, with no incentive to rate investments other than for their real value. Here lies the moral dilemma. S&P was essentially hired by the investment banks that were selling the CDO's and RMBS's. If Standard and Poor's credit ratings on something that the investment banks are selling (CDO) is high , or AAA for that matter, business is good for everyone. S&P looks good, and the investment banks sell their CDO's, and RMBS's because of S&P's high ratings. Because Standard and Poor's credit ratings are suppose to be objective and truthful, selling these bundles of debts should not carry a ? over them. If the ratings are good, than there is no reason to not want to buy a AAA credit rated investment.

Because S&P issued false credit ratings, CDO's and RMBS's that were sold from investment banks misguided third party buyers to believe the credit ratings were good. Buying these bundles would normally represent a safe investment with a low risk, but not in this case.

From the Glass-Stegall Act of the 30's, to the Dodd-Frank act of 2009, we have seen Congress try to regulate the financial district of Wall Street for the protection of citizens and their investments. Although a central question remains, does regulation of investments and banks actually have an effect on how the industry operates? Or will the lucrative aspect of making a fortune on Wall Street by doing the wrong thing prevail?

Austerity, Cheap Money, and the 90% Threshold

Austerity is the new buzz word; and not just in Europe. Since protests and civil strife have begun to plague the western world people are now beginning to question the importance of minimizing debt. At first,  I thought this issue was relatively logical. The more you save meant that your economy was essentially more stable. Apparently I was wrong. 

As we discussed in class, Austerity policies are designed to tighten fiscal spending in order to reduce the national debt. If you reduce the debt then you don't have to print money to pay it off. In short, Austerity policies are anti- inflationary policies. We also learned that these policies are painful to implement. Countries that are already struggling financially (Greece, Ireland, and Portugal) are having a hard time forcing austerity policies onto an already poor society. They simply cannot afford it. Elsewhere in Europe the complaints are beginning to gain international attention. The link below gives a profile of each european countries' prospective on austerity policies which I found to be enlightening. http://www.guardian.co.uk/business/2012/may/08/austerity-europe-what-does-it-mean. 

"The 90 % Question" was an article that was posted yesterday (4/20) in the Economist regarding the debt to GDP ratio that we recently discussed in class. This article called into question the 90% ratio in which some economists believe is the threshold at which debt becomes bad for the economy. As we saw in class, there are some irregularities with the data used to explain the findings that 90% is the magical number to explaining debt. Rather, this article generally agrees with the fact that debt is not good for growth, but also insisted that there is no right number at which countries experience low growth. They did mention that above a ninety percent debt/GDP ratio perceptions of risk were higher but this does not doom the economy. However, sometimes in economics perceptions can account for a lot. This is a good article that proposes both sides of the Austerity debate. http://www.economist.com/news/finance-and-economics/21576362-seminal-analysis-relationship-between-debt-and-growth-comes-under. 

In the Economist article, "A World of Cheap Money," the authors provide their insight on historically low interest rates in Great Britain, Japan, Switzerland, the U.S., and others in the Euro zone. The low interest rates appeared after the global recession in 2007-2008 and were thought to have disappeared after the economy recovered. Years later, the interest rates have stayed the same and prospects are not looking much better. What does it mean when interest rates are close to 0%? Well, as we all know, low interest rates should be good for entrepreneurs and the capital sector. Low interest rates mean that more loans will be demanded which means that people will be spending money. It also means that people who own real estate will have more money in their pockets which should further stimulate the economy. If this is the case then why is the economy not getting better? Richard Katz (Oriental Economist Newsletter) provided the answer when he said, "Businesses do not invest because the economy is weak; the economy stays weak because businesses do not invest."

http://www.economist.com/news/leaders/21575760-federal-reserve-making-better-job-it-european-central-bank-world-cheap. 

Click on this link above and notice the slogan before the article.

"The Federal Reserve is making a better job of it than the European Central Bank"

Is this a question of austerity again? Everyone seems to strongly believe that austerity is killing the economy by discouraging spending. I tried to take an unbiassed stance on the issue but it seems to be true. I have been so critical of Keynesian economics in the past, but maybe I was wrong to do so. 

Foreign Aid in the Wake of the Arab Spring

It wouldn't take an economist, or even anyone who's studied economics at any level to tell you that right now Egypt is certainly a risky place for investment.  However, that doesn't seem to be stopping the government of Qatar from developing a plan to buy $3 billion dollars in Egyptian bonds (Al-Jazeera).  This deal was announced just over a week ago.  Many people might be wondering what Qatar's endgame in this is, though they claimed that they didn't expect anything in return.  This is in addition to numerous other aid pledges Egypt has received in the last six months.  Notably, the United States has also pledged $450 million in aid to Egypt, hinting at more if the Egyptian government can reach a deal with the IMF for a $4.8 billion loan (BBC News).  What's more, the EU, which promised $6.4 billion last November (BBC News), is threatening to stop aid to Egypt unless Egypt can meet conditions with regard to not only human rights and the rule of law, but also a mention of a "social safety net, [ensuring] macroeconomic stability and [strengthening] public finances, as well as [working] toward a free-trade deal with the EU," (Reuters).

All of this kind of makes a person wonder... why so much aid to Egypt?  Is this purely an issue of Egypt's neediness and the beneficence of more wealthy countries in the wake of Egypt's revolution, or is there a strategic end to this?  What the motivations behind aid are is one of the questions we've discussed in class, and it would seem that one would have to be quite foolish to assume that the aid is simply wealthy countries being friendly.  Given the strategic importance of having Egyptian and Israeli relations toward one another be peaceful, one would think that the US and EU are attempting to secure some sort of favorable situation in the region.  Plus, it seems unlikely that the EU would suggest a free-trade deal unless it had some sort of ulterior motive, or that the US would desire Egypt to reach a deal with the IMF (an institution so famous with regard to structural adjustment) if it didn't have some design on the situation.  So it seems clear that Western governments want something in return, and since that's the case it makes you wonder what Qatar actually wants in return (other than "nothing").

A Tale of Two Cows

... below the jump.

China Beaks In: Free Trade Agreement Between China and Iceland

On April 15, 2013, China signed its first trade agreement with a European country. During a state visit to China by Icelandic Prime Minister Johanna Sigurdardottir, Iceland formed an economic alliance with China when many others would not. The New York Times reported in an April 15, 2013 article that, out of fear of China’s “increasing economic might”, many other countries in the Europe have denied FTA’s with China. The articles notes that in 2011, Iceland’s GDP was $14 billion, compared with China’s $7.3 trillion GDP. Furthermore, these “two hugely mismatched economies…” engage in, what is by world standards, relatively small annual trade. Iceland’s 2012 exports to China were only $61 million and Chinese imports were valued at $341 million.

An article written by the London-based newspaper, The Daily Telegraph, examined China’s hopes for long-term gains from this agreement. “Iceland has unique importance to China as it attempts to gain a foothold in the Arctic, where melting ice is opening passages for shipping and could create a boom in extraction of resources such as gas, oil, diamonds, gold and iron.” China has been rejected by many other European nations as a trading partner, and while it was assured that China “would not gain backdoor access to the European market, Iceland is a member of, and holds influence in the European Free Trade Association and the European Economic Area.

China is also negiotiating deals with Iceland regarding exploration of natural resources. The Wall Street Journal reports that, both Icelandic and Chinese companies are discussing opportunities for exploration of, what is believed to be, vast crude oil reserves.

From the Icelandic perspective, they seek to gain from this FTA through the removal of all tariffs surrounding their number one export – fish. The Wall Street Journal notes that Chinas rising middle

As melting continues to occur in the Arctic, China seeks to gain access to key a trans-polar shipping route that, according to Yang Huigeng, the director of the Polar Research Institute of China, this passage, which could become operational as early as 2020, could reduce shipping times by as much as 40%. China’s relations with Iceland and increased presence in the Arctic will ensure their ability to utilize these routes.