Fiscal measures and global debt

Here is the latest on fiscal measures (courtesy: IMF) deployed by different countries:

Source: IMF blog

This stimulus collectively amounts $11 trillion worldwide. Yet, the state of global public debt is worrying too.

Source: IMF Blog

Authors Vitor Gaspar and Gita Gopinath write:

In the face of a sharp decline in global output, a massive fiscal response has been necessary to increase health capacity, replace lost household income and prevent large-scale bankruptcies. But the policy response has also contributed to global public debt reaching its highest level in recorded history, at over 100 percent of global GDP, in excess of post-World War II peaks.

Read more here.

Recommended: An April 2020 Bloomberg piece by Andy Mukherjee and another June 2020 piece by Somnath Mukherjee on public debt in India.

How businesses are innovating during Covid-19

“The Happiest Place on Earth” isn’t staying locked down any longer and it has spread the message far and wide with an ad campaign that is drawing mixed reactions. The visitors to the Walt Disney World in the ad face dozens of masked workers at the recreation center even as children dressed in Disney attire glide on freely without a care. The dystopian feels apart, the message is clear: the business is itching to be back and it’s innovating to put across the message of safety, precaution and “good” business in the best way it can.

Not just in ad campaigns, CEOs restricted by health complications or other issues too are finding ways to carry on with work. Those in the app stores have launched contactless apps to help customers feel comfortable shopping during the pandemic. Some businesses, seizing the opportunity for creating a hub around credible information, have pitched in with fiercer, hardworking products that focus on mitigating anxiety around Covid. Microsoft has launched virtual auditoriums, thank you from someone who hates zoom! Uber’s shift from a ride sharing company to a home delivery app has been fast, thanks to the pandemic.

This interview with retail expert Melissa Gonzalez sums up the crux of innovation needed: digital, fluid, flexible.

Joan Robinson

‘[M]y brain is quite congealed. I cannot think of a word to say to anyone.’

In India of the 1920s, a socially awkward young woman said this of her experience at the parties in Gwalior, India. In less than a decade, she joined Cambridge and became one of the foremost economic thinkers of our time.

I couldn’t help but read Joan Robinson while working on a book on unemployment. Her contribution to the understanding of unemployment remains unmatched.

Issue #6 of EconHistorienne, to be out late July, is dedicated to her. Keep watching this space.

EconHistorienne #4 The Outsider

In this edition, you will read –

What the death of an actor tells us about inequality in India

My experience of discrimination

Inequality of opportunity that arises out of discrimination

Go here to read.

If you missed issue #3 last week, read it hereQuestions? Comments? Ideas? Email me: econhistorienne@gmail.com

EconHistorienne Issue #3 is Out

Issue #3 of EconHistorienne, a newsletter to help us make sense of inequality, capitalism and globalisation around the world, is out today. Last week, EconHistorienne followed a doctor at a hospital in India’s national capital New Delhi to chronicle his regular day at work and the worsening health inequalities during Covid-19 pandemic. Just as I was preparing to write issue #3, mass protests over the killing of George Floyd in United States exploded globally. The piece I promised in the last issue now has a more urgent purpose – to talk about race as we talk about inequality because #BlackLivesMatter.

Read Issue #3 here.

EconHistorienne: Inaugural issue out now, sign up

So finally, it’s here and it would be great for you to sign up for it now.

Go to econhistorienne.substack.com and sign up.

Let me know how you like it.

Love and peace,

PS.

India and US Trade War Isn’t Unreal

United States–India trade ties have been in news for all the wrong reasons, of late. There may be optimism that it’s just a mini conflict that can be resolved easily, but the road ahead is nothing short of thorny. It’s a crisis that can snowball into a big rift if not managed properly. The institutional arrangements that currently exist between US and India are unable to manage this conflict, as is clear from the continued tone of President Trump’s tweets and statements on India. What makes worse is the protectionist nature of the governments in both countries.

Let’s look at what both sides have built in trade over the years which will be all exposed to risks if the trade ties continue to be volatile:

  • Bilateral trade in goods and services grew at an average annual rate of 7.59 percent between 2008 and 2018. This was double the value from $68.4 billion to $142.1 billion.
  • US was India’s second-largest trading partner in goods in 2018, and the single largest export destination with $54.5 billion worth of goods shipped to the US in 2017.
  • India was the ninth-largest trading partner of the United States in 2018 with US exports to India accounting for 2 percent of overall US exports in 2018, valued at an estimated $33.1 billion, up 87.3 percent from 2008.
  • US service exports to India were an estimated $25.8 billion in 2018, up 157 percent from 2008.
  • US arms exports to India touched $15 billion in the past decade.
  • Exports to India supported an estimated one hundred and ninety-seven thousand US jobs in 2015.
  • Bilateral FDI more than doubled from $24.3 billion in 2009 to $54.3 billion in 2017.

These numbers are enough to understand how important the US-India trade ties are. But as things stand, the disagreements are chronic and deep.  While Indian government’s efforts to engage in trade talks with the US have increased since 2018, the scope for existing Trade Policy Forum and the Indian Ministry for Commerce and Industry for talks between both countries remains limited. It doesn’t help that for bilateral talks, neither of the two countries has figured out an institutional mechanism to engage with each other beyond the Free Trade Agreements (but the recent conflict over FTAs negates even the possibility of any more FTAs in the near future). AT the WTO, they have sparred constantly with no concrete results.

A report released this month by the Atlantic Council’s South Asia Center recommends that both US and Indian governments take steps to manage short-term disagreements and establish a more constructive relationship in the medium and long runs. This would clearly mean reviewing the existing institutional frameworks for reform, brainstorm on creating avenues for market opening agreements and draw a roadmap for the FTAs. It’s indeed a difficult ropewalk but much-needed. Read the detailed report here.

The Big Show About Getting Nothing Done

This blog comes a bit late in the day, but I still wanted to put together some of the important thoughts that have emerged on the G20 summit this year. The big show about getting nothing done – this seems to be the prevailing criticism about the G20 meet in Japan’s Osaka. Of course, Ivanka Trump seems to have made more news than the key issues_sustainable growth, innovation and health_for the summit in 2019. Ahead of the summit, trade analysts keenly watched the highly anticipated talks between US President Donald Trump and Chinese President Xi Jinping, expecting a breakthrough in the ongoing trade war between the two economic superpowers. G20, after all, is a congregation of some of the world’s largest and most powerful economies where world leaders deliberate on the important economic and political issues of the day.

Yet, this year’s event has come under severe criticism from trade experts who mostly are terming the G20 as utterly incapable of advancing solutions to global challenges. It’s true, if you look at it, that G20 actually is a forum of bureaucrats who are good at meetings but not really generating workable outcomes. This year, for instance, what really transpired at the summit are mere mentions of climate change in its communique and US’s repeated justification of its withdrawal from the Paris accord, both quite dull and drab efforts at communicating urgency on the  very serious issue of climate change that has begun its onslaught across the world — from record heat waves in Europe, unprecedented rains and landslides to ecological disasters in Japan. (If you need more convincing on Paris accord and climate change, here is a very useful piece that I absolutely recommend to you.)

All said and done, what is true is also that globally, a broad-based organization taking care of world trade issues at the scale of G20 hasn’t emerged yet. All the best ideas that world leaders may have on pressing global issues in trade and development may stay as ideas if not for a forum like G20 where they, in the least, get discussed.

G20 this year, for instance, didn’t move forward on the utterly critical Dispute Settlement issues, a longstanding pain point in international trade, even as American president Donald Trump keeps violating all trade rules with impunity.

Folks at the NRDC, Han Chen and Claire Wang specifically, have termed this year’s G20 summit as symbolic of Japan’s failure to commit to issues of climate change and coal phaseout. Japan is the world’s 6th largest contributor to cumulative carbon emissions.

They say:

Despite the climate costs Japan has already suffered, its own climate policies are woefully out of date. Prior to the G20 summit, Japan released an uninspiring long term climate strategy that is severely out of line with climate needs, along with watered down language on climate in the draft G20 communique. Japan’s plans for domestic coal expansion and international coal finance continue to draw international criticism, since OECD countries should be phasing out of coal by 2030. The G20 as a whole has also dramatically expanded coal finance, spending at least $63.9 billion on coal per year,  despite committing a decade ago to phase out fossil fuel subsidies.

….Two weeks before the G20 summit, Japan’s cabinet adopted its Long Term Strategy on climate change as part of its commitments under the Paris Agreement. The Strategy seeks to achieve net zero emissions in the second half of the century, but does not set a specific date by which to meet this target. It also maintains Japan’s existing goal to cut emissions 80% by 2050, without specifying a baseline from which to measure emissions reductions. By delaying its net-zero target until after the middle of the century, Japan remains inconsistent with a 1.5C warming limit, which requires reaching net zero emissions by 2050.

So much for the drama in world trade and continued inefficacy of global institutions who continue to be hijacked by the hegemony of the US. Over to next year’s summit now, but if this no-show continues, the voices that doubt its very existence will only grow louder and rightly so.

Democracy versus Growth?

CapturevIs democracy dying?

This question seems to be back on the mind of economists this week. I live in the world’s largest democracy but it often confounds me. It confounds me when I see people voting for leaders who don’t do justice to their roles. It distresses me when politicians make policies that are in conflict with basic economic reasoning, but they do because they want votes from certain sections of voters. I get worried when, in the name of democracy, parties appease certain sections of people with regressive, anti-development policies. I have said enough but economists have been arguing for long if democracy is good for development, development being a difficult word here and much debated as well on its intent and purpose. Anyway, let us focus on democracy and growth for today, which seems to be the focus on this February 2019 publication by  Acemoglu, Naidu, Restrepo, and Robinson in which they argue that there is substantial evidence that democracy impacts GDP per capita positively with as much as 20% increase in GDP per capita of democratizing nations.  They add that the positive effects are driven by greater investments in capital, schooling, and health.

Yet, in his critique Alex Tabarrok argues that the academic literature has at best weakly established the causal effects of democracy on growth. Examples beyond academics to question Acemoglu et al’s research exist and the biggest one is non-democratic China’s rise as an economic superpower. Tabarrok argues the recent research’s contention of 20% growth may not be attractive enough for non-democracies to want to switch to demoracies and that there must be something more to democracy than the GDP per capita link. Read more of his thoughts here.

However, for the first time in three years, the decline of democracy stopped in 2018 according to The Economist’s Democracy Index. According to this index, Norway, Iceland, Sweden, New Zealand, and Denmark are the top five democratic countries in the world, whereas Chad, Central African Republic, Dem. Republic of Congo, Syria and North Korea are the bottom five. India is on number 45. Hmm!

Here is another interesting piece which talks about the queer contradiction that even as freedom the world over is in decline, the appeal of democracy endures! Yet, a conflicting report from Freedom House suggests otherwise primarily because of the rise of autocratic leaders such as Donald Trump.