Becoming More Productive

Posted on February 22, 2015 by Adela Rogers

Michael Spance writes: The world is facing the prospect of an extended period of weak economic growth. But risk is not fate: The best way to avoid such an outcome is to figure out how to channel large pools of savings into productivity-enhancing public-sector investment.

Productivity gains are vital to long-term growth, because they typically translate into higher incomes, in turn boosting demand. That process takes time, of course – especially if, say, the initial recipients of increased income already have a high savings rate. But, with ample investment in the right areas, productivity growth can be sustained.

The danger lies in debt-fueled investment that shifts future demand to the present, without stimulating productivity growth.

Crises like 2007-8 cause major negative demand shocks, as excess debt and falling asset prices damage balance sheets, which then require increased savings to heal – a combination that is lethal to growth.

Severe demand constraints are a key feature of today’s global economic environment. Another notable trend is that individual economies are recovering from the recent demand shocks at varying rates, with the more flexible and dynamic economies of the US and China performing better than their counterparts in the advanced and emerging worlds.

.Reforms aimed at increasing an economy’s flexibility are always hard – and even more so at a time of weak growth – because they require eliminating protections for vested interests in the short term for the sake of greater long-term prosperity. Given this, finding ways to boost demand is key to facilitating structural reform in the relevant economies.
That brings us to the third factor behind the global economy’s anemic performance: underinvestment, particularly by the public sector.

In the emerging world, India and Brazil are just two examples of economies where inadequate investment has kept growth below potential (though that may be changing in India). The notable exception is China, which has maintained high (and occasionally perhaps excessive) levels of public investment throughout the post-crisis period.
Properly targeted public investment can do much to boost economic performance, generating aggregate demand quickly, fueling productivity growth by improving human capital, encouraging technological innovation, and spurring private-sector investment by increasing returns. Though public investment cannot fix a large demand shortfall overnight, it can accelerate the recovery and establish more sustainable growth patterns.

The problem is that unconventional monetary policies in some major economies have created a low-yield environment, leaving investors somewhat desperate for high-yield options.

Though monetary stimulus is important to facilitate deleveraging, prevent financial-system dysfunction, and bolster investor confidence, it cannot place an economy on a sustainable growth path. Structural reforms, together with increased investment, are also needed.

Policymakers must find ways to ensure that public investments provide returns for private investors. Fortunately, there are existing models, such as those applied to ports, roads, and rail systems, as well as the royalties system for intellectual property.

Such efforts should not be constrained by national borders. Given that roughly one-third of output in advanced economies is tradable – a share that will only increase, as technological advances enable more services to be traded – the benefits of a program to channel savings into public investment would spill over to other economies.

That is why the G-20 should work to encourage public investment within member countries, while international financial institutions, development banks, and national governments should seek to channel private capital toward public investment, with appropriate returns. With such an approach, the global economy’s “new normal” could shift from its current mediocre trajectory to one of strong and sustainable growth.

The End of EU Austerity?

Posted on January 31, 2015 by Adela Rogers

Joschka Fischer writes: Not long ago, German politicians and journalists confidently declared that the euro crisis was over; Germany and the European Union, they believed, had weathered the storm. Today, we know that this was just another mistake in an ongoing crisis that has been full of them. The latest error, as with most of the earlier ones, stemmed from wishful thinking – and, once again, it is Greece that has broken the reverie.

Austerity – the policy of saving your way out of a demand shortfall – simply does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls, and Europe’s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty, and scant hope.

Warnings of a severe political backlash went unheeded. Shadowed by Germany’s deep-seated inflation taboo, Chancellor Angela Merkel’s government stubbornly insisted that the pain of austerity was essential to economic recovery; the EU had little choice but to go along. Now, with Greece’s voters having driven out their country’s exhausted and corrupt elite in favor of a party that has vowed to end austerity, the backlash has arrived.

The euro, as the Swiss National Bank’s recent move implied, remains as fragile as ever. The subsequent decision by the European Central Bank to purchase more than €1 trillion ($1.14 trillion) in eurozone governments’ bonds, though correct and necessary, has dimmed confidence further.

If negotiations between the “troika” (the European Commission, the ECB, and the International Monetary Fund) and the new Greek government succeed, the result will be a face-saving compromise for both sides; if no agreement is reached, Greece will default.

Though no one can say what a Greek default would mean for the euro, it would certainly entail risks to the currency’s continued existence. Just as surely, the mega-disaster that might result from a eurozone breakup would not spare Germany.

A compromise would de facto result in a loosening of austerity, which entails significant domestic risks for Merkel. Given the impact of the Greek election outcome on political developments in Spain, Italy, and France, where anti-austerity sentiment is similarly running high, political pressure on the Eurogroup of eurozone finance ministers – from both the right and the left – will increase significantly. It does not take a prophet to predict that the latest chapter of the euro crisis will leave Germany’s austerity policy in tatters.

There is no indication that she does. So, regardless of which side – the troika or the new Greek government – moves first in the coming negotiations, Greece’s election has already produced an unambiguous defeat for Merkel and her austerity-based strategy for sustaining the euro.

The question now is not whether the German government will accept it, but when. Will it take a similar debacle for Spain’s conservatives in that country’s coming election to force Merkel to come to terms with reality?

Nothing but growth will decide the future of the euro. Even Germany, the EU’s biggest economy, faces an enormous need for infrastructure investment. If its government stopped seeing “zero new debt” as the Holy Grail, and instead invested in modernizing the country’s transport, municipal infrastructure, and digitization of households and industry, the euro – and Europe – would receive a mighty boost.

The eurozone’s cohesion now depends on whether it can overcome its growth deficit. Germany has room for fiscal maneuver. The message from Greece’s election is that Merkel should use it, before it is too late.

Modi the Margaret Thatcher of India?

Posted on January 7, 2015 by Adela Rogers

Prime Minister Narendra Modi on Monday named right-leaning economist Arvind Panagariya to run his new Policy Commission, hammering a final nail into the coffin of socialist planning that defined the first 67 years of independent India.

Panagariya, a professor at Columbia University in New York, will head a bench of thinkers comprising fellow free-market ideologue Bibek Debroy and a former top government scientist who designed a nuclear-capable ballistic missile.

The Indian-born economist’s calls to roll back the state have influenced Modi’s outlook and drawn comparisons, which he rejects, with Margaret Thatcher’s attack on labour regulations and state industry in 1980s Britain.

India’s first prime minister, Jawaharlal Nehru, adopted socialism to industrialise India after independence in 1947, a route that was later partly abandoned as India fell behind giant neighbour China’s rapid economic growth.

But the legacy of central planning survived a round of liberalising reforms in the 1990s in the form of 5-year plans drawn up by a Soviet-influenced planning commission.

India’s growth has hit its longest trough since the 1980s over the past two years, a cycle blamed by private economists on a lack of structural reforms to revive investment and create jobs and infrastructure.

Panagariya said that he did not support a Thatcherite agenda, saying India should give markets a freer rein but that it still needed growth in social spending in a country that has about a third of the world’s extremely poor.

Panagariya has previously advocated a loosening of fiscal deficit targets that he said were stifling growth to allow for more capital spending.

That view is shared by Arvind Subramanian, another heavyweight economist brought in last year. In a December economic report Subramanian advocated higher infrastructure spending by the government to kick-start stagnant private investment.

Their views could be influential as Finance Minister Arun Jaitley prepares his first full budget, to be presented in parliament in February.

Panagariya, Subramanian and Debroy were vocal critics of Jaitley’s first budget. Their appointment suggests that Modi also wants a more radical finance bill this year.

Modi scrapped the 65-year-old Planning Commission in the New Year, replacing it with a body he said would do more to involve the regions.

Carbon Taxes?

Posted on January 5, 2015 by Adela Rogers

The case for carbon taxes has long been compelling. With the recent steep fall in oil prices and associated declines in other energy prices, it has become overwhelming. There is room for debate about the size of the tax and about how the proceeds should be deployed. But there should be no doubt that, given the current zero tax rate on carbon, increased taxation would be desirable.

The core of the case for taxation is the recognition that those who use carbon-based fuels or products do not bear all the costs of their actions. Carbon emissions exacerbate global climate change. In many cases, they contribute to local pollution problems that harm human health. Getting fossil fuels out of the ground involves both accident risks and environmental challenges. And even with the substantial recent increases in U.S. oil production, we remain a net importer. Any increase in our consumption raises our dependence on Middle East producers.

All of us, when we drive our cars, heat our homes or use fossil fuels in more indirect ways, create these costs without paying for them. It follows that we overuse these fuels. Advocating a carbon tax is not some kind of argument for government planning; it is the logic of the market: That which is not paid for is overused. Even if the government had no need or use for revenue, it could make the economy function better by levying carbon taxes and rebating the money to taxpayers.

While the recent decline in energy prices is a good thing in that it has, on balance, raised the incomes of Americans, it has also exacerbated the problem of energy overuse.

Would a carbon tax place an unfair burden on some middle- and low-income consumers? Those who drive long distances to work, say, or who have homes that are expensive to heat would be disproportionately burdened. Now that these consumers have received a windfall from the fall in energy prices, it would be possible to impose substantial carbon taxes without them being burdened relative to where things stood six months ago.

Could taxing fossil fuels will hurt the competitiveness of U.S. industry and encourage offshoring? A well-designed tax would be levied on the carbon content of all imports coming from countries that did not impose their own carbon levies.

What size levy is appropriate? Here there is more danger of doing too little than too much. Once the principle of taxation is accepted, its level can be adjusted. A tax of $25 a ton would raise more than $100 billion each year and seems a reasonable starting point.

How should the proceeds be used? Perhaps the funds to be split between investments in infrastructure and pro-work tax credits. Progressives who are most concerned about climate change should rally to a carbon tax. Conservatives who believe in the power of markets should favor carbon taxes on market principles. And Americans who want to see their country lead on the energy and climate issues that are crucial to the world should want to be in the vanguard on carbon taxes.

Young People Can’t Find Jobs

Posted on December 31, 2014 by Andi Howe

Like many countries around the world, it is the young people, our future, who can’t find jobs in the US.

A Congressional report released Tuesday found that millennials are not feeling the impacts of the economic recovery. Millennials are delaying major life decisions such as buying a home and getting married.
In 2003, nearly 40 percent of Americans between the ages of 25 and 34 headed a household. In 2013, the rate declined to 37.2 percent.

Meanwhile, the percentage of millennials living with their parents has increased from 11 percent before the recession to 14 percent. Household income adjusted for inflation for Americans aged 25 to 34 declined by more than 10 percent.

While the national unemployment rate remains at 5.8 percent, millennial unemployment is at nearly 17 percent. American millennials are also more educated than any other previous generation. Sixty-three percent of them have at least some college education. That’s an 11-percentage-point increase from the 52 percent of Americans in that same age bracket who had some level of college education in 1994.

Even if young people land new, better-paying jobs at some point, lower earnings earlier in their careers may result in permanently lower retirement savings and net worth than might have been the case if economic conditions had been better when they first entered the labor force. Millennials

Should the US Join the ITU?

Posted on December 22, 2014 by Adela Rogers

Randoph J. May writes: In a coauthored essay in Re/code titled “Protecting the Internet from Government Control,” Reps. Fred Upton (R-Mich.), Henry Waxman (D-Calif.), Ed Royce (R-Calif.) and Eliot Engel (D-N.Y.) argue that the United States must not hand over Internet governance to the International Telecommunications Union (ITU), controlled by 193 nations, or a similar international organization.

In no uncertain terms, the essay’s authors, a foursome of committee chairs and ranking members, assert: Handing over the reins of Internet governance to a body like the ITU would imperil the Internet at a time when its dynamism and innovation are benefitting more people around the globe than ever before. It is critical that, on issues of Internet governance, the ITU-member states refrain from changing the current, well-functioning system. For continued advancement of the Internet, the world must maintain multi-stakeholder governance and reject efforts to recast the ITU or any other similar intergovernmental entity as an international Internet regulator

There are a few lines buried in the essay well worth highlighting, especially in light of President Obama’s recent statement explicitly asking the supposedly independent Federal Communications Commission (FCC) to adopt burdensome new net neutrality mandates by classifying Internet service providers as “telecommunications” providers under Title II of the Communications Act.

What the ITU regulates, by the very terms of its operative agreement, is “telecommunications,” and the agreement recognizes the right of each country to regulate telecommunications as it sees fit.

Title II telecommunications designation by the FCC will have real-world impacts far more consequential than merely ironical. The effect of the FCC’s regulation of Internet providers as telecommunications providers is likely to be just what Messrs. Upton, Waxman, Royce and Engel claim they wish to avoid — that is, the action will make it more likely that other countries will succeed in their quest to put Internet governance under government control.

Can India Go High Tech?

Posted on December 22, 2014 by Adela Rogers

Raghunath Mashelkar and Anu Madgavkar-write about the irony that India, which produces solutions to many of the knottiest information-technology problems faced by the world’s largest companies, has benefited little from technological progress. Fortunately for India’s citizens, Prime Minister Narendra Modi intends to change that.

The gap between India and its emerging Asian counterpart China is significant. Whereas China has created the world’s largest online bazaar and become a global leader in renewable energy, India has just begun to explore the potential of e-commerce; IT remains beyond the scope of millions of small and medium-size enterprises; and most citizens remain cut off from the digital economy.

To bring India up to speed, Modi’s government announced in August a national digital initiative. The rapid decline in costs and increase in performance capabilities of a range of digital technologies including mobile Internet, cloud computing, and expert systems make large-scale adoption a distinct possibility in the coming decade.

These digital technologies together with genomics (supporting agricultural and medical and unconventional energy will enable financial inclusion for hundreds of millions of Indians and potentially redefine how services like education, food allocation, and health care are delivered.

Educational innovations could enable some 24 million workers to receive more years of education and find higher-paying employment. Mobile financial services will give 300 million Indians access to the financial system, allowing them to build credit. And precision agriculture can help 90 million farmers increase their output and reduce post-harvest losses, with access to timely market data bolstering their incomes.

Moreover, some 400 million Indians in poor rural areas can gain access to better health care in field clinics, where health workers can diagnose and treat some ailments using low-cost diagnostic tools, expert software, and online links to physicians. Finally, by digitizing government services, such as food-distribution programs for the poor, India could eliminate the leakage that diverts, according to our estimates, half of the food from intended recipients.

Even with low prices for devices and data plans relative to the rest of the world, Internet access in India remains beyond the grasp of close to a billion people. Indian policymakers should be working with the country’s tech industry and other private-sector actors to implement measures that would enable technology adoption.

Challenges to entrepreneurship, such as India’s cumbersome procedures for starting new businesses, should be removed. Scaling up for massive impact requires more than start-up innovation; it also demands a regulatory environment characterized by a liberal approach to pricing, manufacturing, and distribution.

Sustaining the benefits of technological adoption and innovation will require continued investment and adjustment to compensate for its disruptive effects.

With thoughtful planning, productive collaboration between public and private institutions, and capable execution, India’s government can clear the way for technological progress.

Internet Regulation?

Posted on December 15, 2014 by Andi Howe

Wayne Brough writes: President Obama recently weighed in on the Federal Communications Commission’s (FCC) net neutrality proceedings. New regulations come at the price of reduced innovation and lower levels of capital investment, which is unfortunate, because neither the administration nor the FCC have yet to make the case that current internet policies have been problematic.

In fact, a look at the internet’s development demonstrates just the opposite: limited regulation has fostered the development of one of the most important and disruptive technologies of our time. In spite of-or, more likely, because of-light-handed regulation, the internet has evolved at a pace that is transforming large swathes of the economy. Today, there are 2.5 billion people connected to the internet. By the 2016, the internet is expected to generate $4.2 trillion in economic activity among the G-20 nations.

In the Clinton era, FCC Chairman William Kennard led the effort to ensure the internet was allowed to expand on its own, free of the burdensome regulations that governed telecommunications. But there has always been a tension between regulators and broadband providers, with increasing efforts to place the internet under greater government scrutiny. Under the guise of protecting a free and open internet, proponents of net neutrality rallied to the call for tighter regulations. They have been joined by internet giants such as

Google and Netflix have their own economic interests at heart in their push for increased regulation.

President Obama’s call for Title II regulations addresses the U.S. Court of Appeals’ rejection earlier this year of the FCC’s 2010 “Open Internet Order.” The court concluded that because the agency refused to classify the internet as a telecommunications service, it could not be subjected to the Title II regulations, which were adopted to regulate the telephone system. Reclassifying internet service as a telecommunications service, therefore, would remove any legal impediments to Title II regulation. In response to the court’s decision, current Chairman Tom Wheeler opened a new rulemaking on how best to regulate the internet, which is the source of the current debate.

Title II was first enacted in 1934 to regulate the telephone network as a utility, or common carrier. Utility regulation is a cumbersome, time-consuming process typified by ratemaking hearings where providers and regulators dispute what comprises a “just and reasonable” price. And more often than not, this type of economic regulation benefits the regulated industry, not the consumer. This is why, starting under President Jimmy Carter, there was a concerted move away from this form of regulation, a move that saved consumers billions of dollars. With the FCC, the Federal Trade Commission, and the Department of Justice already looking at anticompetitive practices, is a massive new regulatory structure required?

The internet is still evolving and placing federal regulators in charge will alter that evolution in ways that net neutrality advocates do not expect. It is not intuitively obvious that FCC regulators would be better managers of the internet.

The statutory basis for the FCC’s desire to impose Title II regulations on the internet is tenuous at best, as demonstrated by the court’s consistent rulings against the FCC’s past attempts at internet regulation. Given the legal uncertainties and the explicit pressure from the White House on a supposedly independent agency, it may be time for Congress to revisit this issue to resolve the current regulatory uncertainty, which has already led one significant broadband provider to delay further investments in broadband deployment. If the courts are questioning the FCC’s statutory authority, perhaps the new Congress should clarify the FCC’s regulatory limits, and allow the internet to continue its dynamic evolution free from unnecessary federal regulations.

Can US Play Catchup on Carbon Emissions?

Posted on December 8, 2014 by Adela Rogers

Christopher Favelle writes: Are the developing countries blocking global carbon emissions standards?

The Barack Obama administration went into the talks with a lot to brag about, including new fuel-efficiency standards, proposed rules on power plants and a commitment to cut emissions by as much as 25% by 2025. Meanwhile, solar power production is set to double this year for the seventh year in a row.

Except for one number: 9 percent. That’s the share of electricity generation that will come from renewable power, excluding hydroelectric sources, in 2030, according to the Environmental Protection Agency. (Include hydro, and that figure is still just 16 percent.) And that’s with the proposed power-plant rule. Without it, the EPA projects renewables will make up just 8 percent of generation capacity, or 14 percent including hydropower.

In other words, the Obama administration’s signature change to electricity production will lead to an increase in the share of power from solar, wind and similar sources of just one percentage point. The fast growth in solar and wind still isn’t fast enough to make a significant dent in the national power fleet.

Compare that with other countries. The European Commission has a target to reach 20 % renewable power by 2020. Mexico’s target is to get a third of its power from renewable sources by 2020. Even China, in its deal last month with the U.S., pledged to get 20 percent of its power from non-fossil-fuel sources by 202.

Why is the U.S. trailing on renewables, even with the new rule? One reason is how the EPA structured that rule, giving each state enormous flexibility to meet emissions targets. That flexibility includes the ability to choose whether, and how much, renewable power is used to hit those targets.

Also U.S. renewable power depends in part on better storage technologies, which the EIA says are “in early stages of development or not yet commercially avialable” When that will change is anyone’s bet; I asked the Department of Energy two weeks ago how much it’s spending on researching storage technology, and have yet to get an answer.

Why does it matter how much of the country’s power supply comes from renewables, so long as emissions are going down? Meaningful, lasting emissions reductions require moving away from fossil fuels, not just making them more efficient or shifting the distribution from oil to natural gas. “In the long term, we’re going to have to get away from gas.

If the government’s own projections are right, it means that absent more aggressive policy — such as increasing the renewable targets in the EPA’s final power-plant rule, action from Congress or tougher renewable mandates from states — the U.S. won’t break double digits on solar and wind by 2030. And at that rate, we’re not fixing the climate problem.

Can Renewable Energy Be Cost Effective?

Posted on December 7, 2014 by Adela Rogers

The Swiss company Alevo opened a battery manufacturing plant in the USA this year. But the batteries are not for mobile phones. They are making batteries that can store megawatts hours of electricity and they plan to sell them to grid operators.

These batteriee will smooth the consequences of irregular demand during the day. They will eliminate plans for gas-powered sqeaker stations. Alevo estimates that if a grid as big as the American west were to use 18gw worth of batteries, it could save $12 billion a year. Alevo has no North American contracts yet, but it does have contracts with Guangdong, China,

Today we count on pumped hydro. But pumoed-to storage depends on friendly geography Hills and valleys are not present in many areas. Alevo is not alone. Tesla is building a plant near Reno Nevada. Stations that regulate output in wind farms have already been built. Toshiba is building one based in lithium batteries,

Alevo thinks these batteries can not only deal with irregular demand, but also with the regular supply. Sun power is highly irregular as is wind power. Cheap grid scale storage would overcome irregularities. Renewables could compete on cost alone, a tantalizing prospect.

W-T-W.org

Women and Finance

Category Archives: Infrastructure