(Roughly) Daily

Posts Tagged ‘global economy

“Symmetry is not the way of the world in all times and places”*…

What a difference a couple of decades make…

Asymmetries are back. Rising market power, the sudden ubiquity of global digital networks, hierarchical hub-and-spoke structures in international trade and finance and the enduring dominance of the US dollar, despite the transition to floating exchange rates, all point to their resurgence. The remarkable decay of economic multilateralism in the very fields – trade and development finance – where global rules and institutions were first tried and reigned supreme for decades, is paving the way to a redefinition of international relations on a bilateral or regional basis, with powerful countries setting their own rules of the game. This transformation is compounded by the strengthening of geopolitical rivalry between the US, China and a handful of second-tier powers.

Donald Trump’s attempt to leverage US centrality in the global economy to extract rents from economic partners was short-lived. But US policy has certainly changed permanently. For all its friendly intentions, the Biden administration leaves no doubt about its overriding priorities: a foreign policy for the (domestic) middle class – to quote the title of a recent report (Ahmed et al, 2020) – and the preservation of the US edge over China. China, for its part, has set itself the goal of becoming by 2049 a “fully developed, rich and power-ful” nation and does not show any intention to play by multi-lateral rules that were conceived by others. In this context, the rapid escalation of great power competition between Washington and Beijing is driving both rivals towards the building of competing systems of bilateral or regional arrangements.

What is emerging is not only an asymmetric hub-and-spoke landscape. It is a world in which hubs are controlled by major geopolitical powers – in other words, a multipolar, fragmented world. Nothing indicates that these asymmetries will fade away any time soon. On the contrary, economic, systemic and geopolitical factors all suggest they may prove persistent. We will have to learn to live with them.

There are several consequences. First, this new context calls for an analytical reassessment. Recent research has put the spotlight on a series of economic, financial or monetary asymmetries and has begun to uncover their determinants and effects. Analytical and empirical tools are available that make it possible to gather systematic evidence and to document the impact of asymmetries on the distribution of the gains from economic interdependence. We are on our way to learning more about the welfare and the policy implications of participating in an increasingly asymmetric global system.

Second, the relationship between economics and geopolitics must now be looked at in a more systematic way. For many years – even before the demise of the Soviet Union – international economic relations were considered in isolation, at least by economists. They were looked at as if they were (mostly) immune from geopolitical tensions. This stance is no longer tenable, at a time when great-power rivalry is reasserting itself as a key determinant of policy decisions. Whatever their wishes, economists have no choice but to respond to this new reality. They should document the potential for coercion by powers in control of crucial nodes or infrastructures and the risks involved in participating in the global economy from a vulnerable position.

Third, supporters of multilateralism need to wake up to the new context. They have too often championed a world made up of peaceful and balanced relations that bears limited resemblance to reality. Because power and asymmetry can only be forgotten at one’s own risk, neglecting them inevitably fuels mistrust of principles, rules and institutions that are perceived as biased. Multilateralism remains essential, but institutions are not immune to the risk of capture.

Asymmetry, however, does not imply a change of paradigm. Even if it affects the distribution of gains from trade, it does not abolish them. And in a world in which global public goods (and bads) have moved to the forefront of the policy agenda, there is no alternative to cooperation and institutionalised collective action. The prevention of climate-related disasters, maintenance of public health and preservation of biodiversity will remain vital tasks whatever the state of inter-national relations. What asymmetries call for is an adaptation of policy template. The multilateral project should not be ditched, but it must be rooted in reality.

Understanding the emerging new global economy: from the conclusion of Jean Pisani-Ferry‘s (@pisaniferry) paper, “Global Assymetries Strike Back,” eminently worth reading in full. [Via @adam_tooze]

*  Charles Kindelberger, economic historian and architect of the Marshall Plan

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As we find our place, we might send tight birthday greetings to Paul Adolph Volcker Jr.; he was born on this date in 1927. An economist, he was appointed Federal Reserve Chair by President Carter in 1979, and reappointed by President Reagan. He took that office in a time of “stagflation” in the U.S.; his tight money policies, combined with Reagan’s expansive fiscal policy(large tax cuts and a major increase in military spending), tamed inflation, but led to much larger federal deficits (and thus, higher federal interest costs) and increased economic imbalances across the economy. In the end, Reagan let Volcker go; as Joseph Stiglitz observed, “Paul Volcker… known for keeping inflation under control, was fired because the Reagan administration didn’t believe he was an adequate de-regulator.”

Volcker returned to government service in 2009 as the chairman of President Obama’s Economic Recovery Advisory Board. In 2010, Obama proposed bank regulations which he dubbed “The Volcker Rule,” which would prevent commercial banks from owning and investing in hedge funds and private equity, and limit the trading they do for their own accounts (a reprise of a key element in the then-defunct Glass-Steagell Act). It was enacted; but in 2020, FDIC officials said the agency would loosen the restrictions of the Volcker Rule, allowing banks to more easily make large investments into venture capital and similar funds.

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“There’s nothing in the world so demoralizing as money”*…

 

The beginning of a MUCH longer infographic

This infographic was initially created to show how much money exists in its different forms. For example, to highlight how much physical cash there is in comparison to broader measures of money which include saving and checking account deposits.

Interestingly, what is considered “money” depends on who you are asking.

Are the abstractions created by Central Banks really money? What about gold, bitcoins, or other hard assets?

Since we first released this infographic in 2015, “All the World’s Money and Markets” has taken on a different meaning to us and many others. It’s a way of simplifying a complex universe of currencies, assets, and other financial instruments in a way that people can understand.

Numbers represented in the data visualization range from the size of the above-ground silver market ($17 billion) to the notional value of all derivatives ($1.2 quadrillion as a high-end estimate). In between those two extremes, we’ve added many other familiar measures, such as the GDP of California, the value of equities, the real estate market, along with different money supply metrics to give perspective…

See the infographic in its entirety– and ponder such take-aways as that the total of all derivatives outstanding today exceeds the total before the crash of 2008 the led to the Great Recession— at “All of the World’s Money and Markets in One Visualization.”

* Sophocles, Antigone

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As we batten down the hatches, we might send careful-calculated birthday greetings to Amartya Kumar Sen; he was born on this date in 1933.  A polymathic economist and philosopher, he has made material contributions to welfare economics, social choice theory, thinking on economic and social justice, economic theories of famines, and indices of the measure of well-being of citizens of developing countries.

Sen’s revolutionary contribution to development economics and social indicators is the concept of “capability” developed in his article “Equality of What”.  He argues that governments should be measured against the concrete capabilities of their citizens. This is because top-down development will always trump human rights as long as the definition of terms remains in doubt (is a “right” something that must be provided or something that simply cannot be taken away?). For instance, in the United States citizens have a hypothetical “right” to vote. To Sen, this concept is fairly empty. In order for citizens to have a capacity to vote, they first must have “functionings”. These “functionings” can range from the very broad, such as the availability of education, to the very specific, such as transportation to the polls. Only when such barriers are removed can the citizen truly be said to act out of personal choice. It is up to the individual society to make the list of minimum capabilities guaranteed by that society. For an example of the “capabilities approach” in practice, see Martha Nussbaum‘s Women and Human Development. [source]

Called the “conscience of his profession,” Sen was awarded the Nobel Memorial Prize in Economic Sciences in 1998; India’s Bharat Ratna in 1999 for his work in welfare economics; and in 2017, the Johan Skytte Prize in Political Science.

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Written by (Roughly) Daily

November 3, 2017 at 1:01 am

Lest we doubt…

While some things stay (surprisingly, gratifyingly, depressingly) the same, there are some things– many things– that really are materially different, both in kind and in degree, from times past.

By way of demonstration, the folks at Globaia have compiled a collection of charts that is stunning (in both the literal and the figurative senses of the word).

to enlarge, click on the image above, or here, and again 

And as to the infrastructure that’s abetted all of this change, see Globaia’s Map of Global Transportation Systems.

[TotH to Curiosity Counts]

 

As we ponder the implications of so many hockey sticks all in a row, we might recall that Samuel Clemens’– Mark Twain’s– route to writing was round-about: In 1861, Clemens’ brother Orion became secretary to the territorial governor of Nevada; the national-treasure-to-be, having worked as a printer in St. Louis, New York, and Philadelphia, jumped at the offer to accompany his sibling West. Clemens spent his first year in Nevada prospecting for a gold or silver mine.  Out of money, he took a job as reporter for the Virginia City, Nevada, newspaper Territorial Enterprise; his articles on the booming frontier-mining town began to appear on this date in 1862.

Like many journalists of the day, Clemens adopted a pen name, signing his articles “Mark Twain,” a term from his old river boating days.

In 1864, he traveled farther West to cover the booming state of California, where he wrote “The Celebrated Jumping Frog of Calaveras County”– the Tall-Tale success of which catapulted Clemens out of the West to become a globe-trotting journalist.

In 1869, Clemens settled in Buffalo, New York, and later in Hartford, Connecticut.  Clemens had spent only about five years in the West, and the majority of his subsequent work focused on the Mississippi River country and the Northeast.  Still, his 1872 account of his western adventures, Roughing It, remains one of the most evocative eyewitness accounts of the frontier ever written.  And surely more importantly, even his non-western masterpieces like Tom Sawyer (1876) and Huckleberry Finn (1884), in their playful rejection of Eastern pretense and genteel literary conventions, reflect a frontier sensibility.

Mark Twain, honorary Westerner, by Mathew Brady (source)

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