US declares war on Isis

September 15th, 2014

FT columnist Edward Luce writes that President Obama’s policies in the Middle East are indistinguishable from those of his predecessor. The only difference is his choice of vocabulary. More than one thousand “boots on the ground” in Iraq are now “advisers” and “trainers”. “Pre-emptive war” is a “counterinsurgency campaign”.

Mr Obama’s detractors on both right and left want him to come clean – the US has declared war on Isis. Why else would his administration vow to follow it “to the gates of hell”, in the words of Joe Biden, the vice-president? Last year, Mr Obama called on Congress to repeal the law authorising military action against al-Qaeda that was passed just after 9/11. “Unless we discipline our thinking … we may be drawn into more wars we don’t need to fight,” he said. Mr Obama is already vulnerable to what he warned against. His administration is basing its authority to attack Isis on the same unrepealed 2001 law.

Why does America need to destroy Isis? The case for containment – as opposed to war – has received little airing. But it is persuasive. The main objection is that destroying Isis will be impossible without a far larger US land force, which would be a cure worse than the disease. Fewer than 1,000 Isis insurgents were able to banish an Iraqi army force of 30,000 from Mosul in June – and they were welcomed by its inhabitants. Last week Mr Obama hailed the formation of a more inclusive Iraqi government under Haider al-Abadi. But it has fewer Sunni members than the last one. Nouri al-Maliki, the former prime minister, has been kept on in government. …

Whose army – if not America’s – will chase Isis to the “gates of hell”? Which takes us back to where we started. Mr Obama wants to destroy an entity he says does not yet pose a direct threat to the US. Mr Bush called that pre-emptive war. Mr Obama’s administration calls it a counterinsurgency campaign. Is it a distinction without a difference?

Edward Luce, “America’s perpetual war on terror by any other name“, Financial Times, 15 September 2014.

Obama’s war on ISIS as a re-run of Vietnam

September 12th, 2014

Strong views from Columbia University economist Jeffrey Sachs.

We should understand from the start (as painful as it is true) that the US had a major hand in creating the new ISIS monster. The US funded the Mujahedeen in Afghanistan in the 1980s, which then morphed into al-Qaeda. Then the US destabilized Iraq from 1990 onward and Syria from the mid-2000s, in effect giving al-Qaeda and its affiliates a new stronghold. (As Assad moved closer to Iran, the US and Saudi Arabia took up the effort to topple him.) ISIS broke away from al-Qaeda, and then captured the weaponry that the US had supplied to the Iraqi army. Now, President Obama is getting us still deeper into this never-ending battle with monsters stoked by our own ill-advised policies. ….

So why is Obama leading us further down this failed path? The US fights these failed wars mainly because of domestic politics. Here the precedent of Vietnam is as deeply instructive as it is widely forgotten (or denied). The US wasted two decades and many billions of dollars, killed more than a million Vietnamese, and left over 55,000 Americans dead in a futile and ultimately lost war. Why? On the public level, the fight was supposedly about the communist threat, regional dominoes, and communist world domination. The Vietcong were the ISIS of the day. Yet the real reason for two decades of futile war, as revealed devastatingly in the Pentagon Papers, was US domestic politics. Each U.S. president knew the war they were waging was unwinnable, but they fought it to avoid the embarrassment of looking “soft on communism” before the next US election.

This time, the timeline against ISIS will be at least through 2016. We can’t win this war any more that we could win the Vietnam War, but Obama dare not “lose” the war on terror before the next election. Therefore we continue the same hopeless policies of the past dozen years, double down, and carry them through 2016.

Jeffrey Sachs, “Let the Middle East Fight Its Own War on ISIS“, Huff Post Politics, 10 September 2014.

There is much more to read and mull over in this provocative blog, which has received 133 comments so far.

universal vs contributory pensions in Bolivia

September 11th, 2014

As promised, here is a blog on the Bolivia chapter of the UNRISD book. It is wonderful, but I limit myself to copying and pasting part of the concluding section.

The Bolivian experience since 1996 clearly illustrates the respective capacity of contributory and non-contributory pension schemes to deliver income security to older people in low income countries. Put simply, it demonstrates that non-contributory social pensions are much better suited to this task. By 2007, the contributory system paid out pensions to around 65,000 older people, of which only 12,000 were paid by the new private scheme. In 2004–5, this contributory system absorbed around 5 per cent GDP in government subsidies, not including substantial indirect subsidies of up to 40 per cent of the annual transition costs through treasury bonds. …. By contrast, the [universal] social pension pays out over 830,000 benefits at a cost of less than 2 per cent of GDP. ….

The most obvious lesson for other developing countries is that non-contributory social pensions are a much more efficient means of meeting the welfare needs of older people than contributory schemes. …. In countries where both exist, government spending on social pensions is usually a fraction of spending on contributory ones. The Bolivian experience also shows that contributory pension funds create powerful vested interests among privileged groups of workers who can resist substantial reforms, even under radical non-elite governments. Only six years after Morales took office was the contributory system meaningfully modified, although many of its essential features remain.

Peter Lloyd-Sherlock and Kepa Artaraz, “Pension Reform in Bolivia: Two Models of Income Security in Old Age”, chapter 9 of Reforming Pensions in Developing and Transition Countries (Palgrave Macmillan, 2014), edited by Katja Hujo, pp. 267, 270.

I came to a similar conclusion in an earlier study of Bolivia:

The cost of the [universal] Bonosol is not low, but benefits go to the entire population of elderly. The annual fiscal cost of reform of the contributory scheme is four times greater, and benefits go to the few, none of whom are poor. Actual costs of reform of the contributory system are more than twice those projected at the beginning of the reform, largely because of fraud, but also because of increased generosity in transferring income from taxpayers in general to the small number of salaried employees (fewer than 12% of the labour force) who participate in the contributory scheme. ….

The Bonosol is a godsend for the poor of Bolivia. …. The World Bank and the Inter-American Development Bank, in a joint report (2004) use strong language to recommend “The Bonosol should be maintained, as it represents a strong redistributive policy with minimum fiscal impact.” For the World Bank, this marks a reversal of earlier views that questioned the worth and the wisdom of the Bonosol, whereas the views of the IMF continue to be quite negative.

Larry Willmore, “Non-contributory Pensions: Bolivia and Antigua in an International Context“, Financiamiento del Desarrollo 167 (United Nations, Santiago, Chile, May 2006), p. 28.

Great minds think alike!

My essay is not as good …. but it is freely accessible.

 

 

basic income for all

September 9th, 2014

[M]ost people [do not] know what the phrase “basic income” means. With that in mind, here are the basics (get it?) of the idea, in eleven questions.

1) What is basic income?

“Basic income” is shorthand for a range of proposals that share the idea of giving everyone in a given polity a certain amount of money on a regular basis. A basic income comes with no categorical eligibility requirements; you don’t have to be blind or disabled or unemployed to get it. Everyone gets the same amount by virtue of being a human with material needs that money can help address.

There are a number of different names this idea has gone by over the years. “Universal basic income” and “basic income guarantee” are used frequently. “Guaranteed minimum income” and “negative income tax” are generally used to refer to versions of the plan that also impose a tax that gradually eats up the cash transfer, as a means of reducing the cost of the policy. “Demogrant” was popular in the ’70s, and “citizens’ dividend” and “social wage” get used from time to time.

2) Who supports basic income?

Surprising people! Arguably the biggest popularizer of the idea in the 20th century was libertarian economist Milton Friedman, who specifically favored a negative income tax as a replacement for much of the welfare state. Many left-of-center economists, like James Tobin and John Kenneth Galbraith, were also on board. ….

Martin Luther King Jr. endorsed the idea in his book Where to Go From Here: Chaos or Community?, writing, “I am now convinced that the simplest approach will prove to be the most effective—the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”  ….

3) Has a basic income been implemented anywhere?

Not exactly, but a lot of countries have generous cash transfer programs of one variety or another. ….

[Well, you get the idea. Here are the remaining eight questions.]

4) Wouldn’t this destroy the economy?

5) Could a basic income ever happen in the United States?

6) I believe it’s customary to provide a music break. (“Money for Nothing” video)

7) Will a basic income save us from the robot uprising?

8) What’s the liberal/leftist case for basic income?

9) What’s the conservative/libertarian case for basic income?

10) What’s the liberal/leftist case against basic income?

11) What’s the conservative/libertarian case against basic income?

Dylan Matthews, “Basic income: the world’s simplest plan to end poverty, explained“, Vox, 9 September 2014.

Click on the link above to continue reading. Keep in mind, though, that Vox.com should not be confused with VoxEU.org.

VoxEU.org is very serious. It was set up by the Centre for Economic Policy Research to promote research-based policy analysis and commentary by leading academics. Its posts, almost always, are summaries of working papers.

Vox.com, in contrast, is non-academic. It is run by Vox Media, an online publisher based in Washington DC. The postings are jargon-free, opinionated, easy and fun to read. Its target audience is similar to that of Planet Money.

This article is the first that I have read on the site. Its simple text is illustrated with numerous graphics and embedded videos. My only complaint is that one of the promised 11 questions (#6) is not a question! Highly recommended for those who find economic writing to be boring, with impenetrable jargon.

A universal age pension is basic income restricted to older citizens/residents. Without an age restriction, the pension would be a universal basic income grant.

 

democracy in Hong Kong: the Chinese view

September 9th, 2014

Hong Kong residents, for the first time, will be allowed to choose their chief executive on the principle of one man-one vote. Critics complain that this is sham democracy, as voters will have to vote for one of three candidates, all of whom have been vetted by the Chinese government.

C Y Leung, Hong Kong’s current chief executive, responds to pro-democracy critics in today’s Financial Times. He claims, not without reason, that China has done more to move towards democracy in Hong Kong than the British did during 155 years of colonial rule. In due course, we will be able to judge for ourselves whether this is true. Recently, on the BBC television channel, I heard a member of Hong Kong’s legislative council state categorically that Hong Kong was moving towards the Iranian model of democracy.

The 28 British governors who ruled Hong Kong for a total of 155 years before 1997 were dispatched by the British government without any input at all from the Hong Kong people – or the British people, for that matter.

The Sino-British Joint Declaration signed in 1984, now cited as the basis of Britain’s legal or moral obligation to Hong Kong, makes no mention of universal suffrage.

It only states: “The chief executive will be appointed by the Central People’s Government on the basis of the results of elections or consultations to be held locally.”

Only the Basic Law, promulgated in 1990 by the National People’s Congress, China’s parliament, and implemented in July 1997, states that the ultimate goal is to elect the chief executive by universal suffrage.

C Y Leung, “Hong Kong must seize the first chance to elect its own leaders“, Financial Times, 9 September 2014.

Although Mr Leung does not mention him by name, this was obviously written in response to a column of the last British governor (Lord Patten), published in last Wednesday’s Financial Times.

Reforming Pensions in Developing Countries (new publication)

September 8th, 2014

UNRISD (the United Nations Research Institute for Social Development) has just released a new publication on pension reform in developing and transitional countries. The 368-page volume contains nine chapters of case studies written by various scholars, plus an introduction and conclusion authored by Katja Hujo. So far I have read only the introduction and conclusion, plus chapter 9 (a superb case study of Bolivia).

The book contains a wealth of information, and I will blog on some of the case studies as I read them. First, though, I would like to complain that the book pays little attention to universal  pensions, concentrating on social assistance (means-tested) pensions and on contributory pensions.

I would like to remind TdJ readers of the definition of “universal pension” – at least the definition that I use!

Age and residence/citizenship are the only tests for this pension. It is not necessary to actually retire from work to receive the pension. Benefits might be taxable as income, but only at normal rates, without surcharges to recover them.

Larry Willmore, “Types of Social Pensions“, 22 April 2012.

The UNRISD publication uses a broad definition of “universal”, which includes pension-tested schemes. (See p. 18 of the introduction.) If a social pension is given only to those without a contributory pension (or too small a pension), by definition it excludes part of the elderly population, so is not universal.

The most comprehensive treatment of universal pensions (without using the term!) is in the first sentence of last paragraph of p. 18:

Most countries have social pensions that target the elderly poor, but some countries have implemented non-contributory pension programmes covering all citizens and residents in the country – as in Bolivia, Nepal, Mauritius, New Zealand and Brazil (rural sector).

A number of examples of universal pensions in developing countries could (and should) have been added to this list: most notably rural Mexico, Mexico City, Namibia and Botswana, but also Guyana, Samoa, Brunei and Kosovo. Regrettably, there is no case study of Mauritius, a country with a long and successful history of universal pensions (from 1958). More regrettably, there is almost no mention of Mauritius in the rest of the book, and the sentence above is the only mention of New Zealand. Neither Mauritius nor New Zealand are listed in the book’s extensive index.

The paragraph at the bottom of p. 18 concludes with arguments for and against universal schemes:

As with other social transfers and services, opinions diverge on the pros and cons of targeted versus universal social provisioning. As Chapters 9 [on Bolivia] and 10 [on Argentina and Chile] explore in more detail, there are strong arguments in favour of universal schemes in countries with widespread poverty, weak administrative systems and where there is a need to strengthen social cohesion, a sense of citizenship and social solidarity. On the other hand, international financial institutions (IFIs) tend to favour the introduction of means-tested targeted transfers because they hold that these schemes are less costly and more effective in terms of poverty reduction.

Support for a universal pension is at best tepid. Strong arguments exist for universal pensions even in countries like New Zealand and Mauritius, which do not have widespread poverty nor weak administrative systems. It is a pity that the case for universal pensions was not articulated better.

Neither Argentina nor Chile have universal pensions, so I am eager to learn in what way these case studies are relevant for policymakers contemplating introduction of universal pensions. Katja Hujo (editor) is co-author, with Mariana Rulli, of chapter 10.

Below is the full reference for this publication, and the link to a site where you can download it. All quotes above are from the introduction, which can be downloaded as a free “sample chapter”. The complete book (hardcover, 368 pages) is available from Palgrave for the high price of 115 US$ plus shipping.

Katja Hujo (editor), Reforming Pensions in Developing and Transition Countries (Palgrave Macmillan, 2014).

Reforming Pensions in Developing and Transition Countries

The study of pensions in Bolivia (Chapter 9) is the best I have seen. It was written by Peter Lloyd-Sherlock (University of East Anglia) and Kepa Artaraz (University of Brighton). I will blog on it shortly.

Kissinger calls for US leadership

September 6th, 2014

Henry Kissinger, in a new book, calls for greater US leadership at this time of global disorder. Lionel Barber, editor of the Financial Times, has written a positive review.

For the past 25 years, since the fall of the Berlin Wall and the collapse of the Soviet Union, the US has occupied the role of hegemon. The unipolar moment is now coming to an inglorious end. America under George W Bush overreached after the September 11 terrorist attacks, presiding in his first term over a militarisation of foreign policy that delivered a stalemate at best in Afghanistan and a broken state in Iraq. The result: a split western alliance, a disillusioned American public and a strengthening of theocratic Iran.

Under Barack Obama, the US has arguably over-corrected. ….

From the vantage point of Moscow and Beijing … the US appears irresolute and lacking a sense of strategy. Yet America, Kissinger argues persuasively, must play a leadership role to preserve world order – not as a moralising global policeman but as a hard-nosed great power acting in concert with allies, and sometimes with rivals, to maintain equilibrium and keep the threat of war within tolerable limits. Someone, in other words, has to manage the peace. ….

In the last resort, the US must somehow find a median point between overconfidence and introspection in its dealings with the rest of the world. The quest for a balance between a values-driven foreign policy and Realpolitik is unavoidable for the superpower. Striking that balance is difficult but ultimately manageable. “What it does not permit is withdrawal.”

Kissinger’s conclusion deserves to be read and understood by all candidates ahead of the 2016 presidential election. World order depends on it.

Lionel Barber, “Lionel Barber reviews Henry Kissinger’s ‘World Order’”, Financial Times, 6 September 2014

Harvard political scientist Henry Kissinger (born 1923), was National Security Advisor and Secretary of State to presidents Ricard Nixon and Gerald Ford. His book is World Order: Reflections on the Character of Nations and the Course of History (Allen Lane/Penguin Press, 2014).

no future for Gross National Happiness

September 5th, 2014

Raising a standard against happiness is never going to be popular, but here goes.

The mountain kingdom of Bhutan has got a lot of mileage out of its practice, first adopted in 1972, of using a broad “Gross National Happiness” (GNH) measure of its people’s welfare rather than a narrow measure like income.

… [M]any people … have fallen in love with the idea – the UN went as far as declaring March 20 the “International Day Of Happiness” ….

Unfortunately for its international enthusiasts, its originators are losing faith. Tshering Tobgay, elected with a thumping majority last year in only the country’s second parliamentary election, has distanced his government from the concept. ….

GNH has proved no guarantee of individual human rights. Taking it at face value, you would never know that Bhutan has for decades been carrying out a brutal ethnic cleansing policy against the country’s Nepali-speaking minority. Once around a sixth of the population, a “Bhutanisation” campaign that began in the 1980s resulted in tens of thousands of Nepalis being expelled from the country. Their houses were seized or burned down and people deported for speaking Nepali, refusing to eat beef (Nepalis are generally Hindu while ethnic Bhutanese are Buddhist) or declining to wear traditional dress. The displaced are still living in refugee camps in Nepal, or have been resettled in the US or elsewhere: none has been allowed to return. ….

As for the future of GNH in Bhutan, Mr Tobgay seems to have exactly the right idea. He wants the king (now happily reduced to the role of a constitutional monarch) to proselytise for it in an abstract way, much as Queen Elizabeth II is sent abroad to chunter vaguely about Britain’s enduring values while the UK government gets on with running the country according to what its voters want.

Alan Beattie, “Gross National Happiness: a bad idea whose time has gone“, FT Beyond Brics blog, 4 September 2014.

household income inequality in the USA

September 5th, 2014

The Federal Reserve has just released its Survey of Consumer Finances for the year 2013. ….

The most striking finding is that the median American family earned 5 per cent less in 2013 than in 2010 after inflation even though the average American family took home 4 per cent more.

The discrepancy can be explained by the fact that only people in the top tenth of the income distribution experienced any real income gains since 2010. Put another way, more than all of the growth in real GDP went to a very small subset of the population while everyone else became worse off.

 

http://ftalphaville.ft.com/files/2014/09/Fed-SCF-real-income-changes-2007-2013.png

Matthew C Klein, “US income and wealth inequality facts of the day“, FT Alphaville blog, 4 September 2014.

Ungated (with free registration). Downloads from FT Alphaville, like downloads from all FT blogs, do not count against a registered user’s limit of 8 (previously 10) free downloads a month.

education and growth

September 5th, 2014

[G]overnments seem convinced that the best way to [stimulate employment and growth] … is to increase the number of students pursuing degrees in the so-called “STEM” subjects (science, technology, engineering, and mathematics). Are they right?

The short answer is no. ….

[T]he case for STEM education is … fundamentally flawed, because it treats an economy as an equation. According to this logic, job creation is a matter of slotting humans into identifiable opportunities, and economic growth is a matter of increasing the stock of human or physical capital, while exploiting scientific advances. This is a dark view of modern economies, and a depressing blueprint for the future. ….

What economies need instead is a boost in dynamism. …. [E]conomies today lack the spirit of innovation. Labor markets do not need only more technical expertise; they require an increasing number of soft skills, like the ability to think imaginatively, develop creative solutions to complex challenges, and adapt to changing circumstances and new constraints. ….

A necessary first step is to restore the humanities in high school and university curricula. Exposure to literature, philosophy, and history will inspire young people to seek a life of richness – one that includes making creative, innovative contributions to society. ….

The humanities describe the ascent of the modern world. Countries worldwide can use the humanities to develop or revive the economies that drove this ascent, while helping individuals to lead more productive and fulfilling lives.

Edmund S. Phelps, “Teaching Economic Dynamism“, Project Syndicate, 2 September 2014.

Columbia University economist Edmund Phelps is a Nobel laureate and author of many books, one of which is a plea for wage subsidies: Rewarding Work: How to Restore Participation and Self-Support to Free Enterprise (Harvard University Press, 1997; second edition 2007).

Professor Phelps avoids the term “aggregate production functions”, but clearly intends to criticize them when he describes the depressing way that the economy is treated as an equation, limited to “a matter of increasing the stock of human or physical capital, while exploiting scientific advances”.