Global Economics and Management

Trash, Methane, and Global Climate Change

Bloomberg today features a sobering report on the problem of methane emissions from the piles of untreated trash that are accumulating in several South Asian countries. As I prepare for our module on the environment in this summer's offering of Global Trends, as well as for the global immersion class to India that I will conduct in Winter/Spring, this is well-timed reading. We focus a lot on carbon dioxide emissions, but methane (and hydrogen) are in many ways more powerful greenhouse gases. Substantial progress could also be achieved by focusing on these sources - with many local pollution benefits also obtainable in tandem.

What I Have Been Reading this Weekend

1) The Financial Times on Europe's woes. There is a real danger that the Eurozone could implode, if different governments continue to face very different borrowing conditions. The article states that the yield spread between German government bonds and Italian ones is very high right now: investors demand a premium for buying up the public debt of Europe's economic laggards. In response, the ECB has announced a new bond buying program directed at countries with high public debt borrowing costs. This amounts to monetization of the debt of Europe's slower-growing countries. Such a goal conflicts with the ECB's other pressing objective - that of tamping down inflation. This is a situation that deserves close monitoring, as the repercussions of a new European debt crisis would be global.

2) Over at the WSJ, Gwynn Guilford provides a useful update on the inflation situation in the US. I agree with the gist of the article - inflation may have settled at a 7-8% level, i.e. prices may have stopped accelerating. Getting inflation down back to the Fed's 2% target is another matter altogether. Also at the WSJ, Senator Elizabeth Warren criticizes the Fed's approach to fighting inflation. It is a useful counterpoint to the conventional wisdom on the subject, but I am afraid I cannot agree with Senator Warren. Demand management is an essential - perhaps the essential - component of an inflation-fighting strategy. And her proposed enhancement of antitrust policy stringency, while perhaps desirable for other reasons, would do almost nothing to tamp down inflation at the horizon that is required: antitrust enforcement entails court proceedings that take years to come to fruition - assuming they ever do. It is true that a recession would more severely impact the most vulnerable in society - recessions always do. But continued high inflation would also hurt the more vulnerable disproportionately. Raising interest rates will slow down growth and perhaps generate a recession. Instead, a rapid end to our inflationary outburst would create the conditions for a resumption of growth on a healthier, broader basis - as it did in the early 1980s. Finally let me point (via Bloomberg) to the latest pronouncements by Larry Summers on Fed policy. These strike me as right on the mark.

3) Adrian Wooldridge on Henry Kissinger's new book and the current crisis of leadership. There is much to like in this article, and also much to take issue with. For instance I am not sure it is correct to imply that President Nixon "[rose] to the challenge of [his] times" - at least not all the time! But there does seem to be a crisis of leadership around the world - and it is not at all clear how to solve it. Food for thought. (Hat tip: Marginal Revolution)

4) Stephen Roach on globalization and how China fits into it. In an ideal world, the policy of engagement with China that was a staple of the 1990s would have continued unabated, and we would have had a chance to see if the forces of rising incomes and greater international integration ended up facilitating political and social modernization in this great country. Instead, events both in China and in the rest of the world conspired to interrupt and reverse the policy of engagement. The world is worse-off for it.

The Sanctions on Russia

Prior to our first class, I made a quick trip to France. Some of my friends there were voicing hopes that the West's robust reaction to Russia's invasion of Ukraine - economic sanctions coupled with arms shipments and aid to Ukraine - would finally bear fruit in weeks to come. I have more doubts. The arms shipments and aid seem to be too little too late, as Russia has made some progress militarily in the Donbass region. And the sanctions in many ways have hurt the West more than Russia. Witness the energy crisis which is particularly pronounced in Western Europe due to the shortfall in Russian oil and gas shipments, contributing to a worldwide rise in the price of these essential energy sources. 

Recently The Hill published a very cogent article by Brahma Chellaney on this very theme. The author goes through the many ways these sanctions have hurt Western economies while having a relatively small effect on Russia's. Part of the reason for the latter fact is that Russia was able to redirect much of their energy exports to other countries (China, India). Even at discounted prices, given the increases in the prices of crude oil and natural gas, these can be highly lucrative sales. This article is recommended reading, on themes we will discuss throughout this summer's iteration of Global Trends.

The Future of Populism

Over at Bloomberg, Adrian Wooldridge discusses the recent fall of Boris Johnson as Britain's PM. The article raises interesting questions about the future of populism. On Sunday, at the first in-person meeting of the Global Trends class, we will discuss the structural factors that led to the emergence of populist movements in multiple countries around the world. Wooldridge is correct to point out that these movements have witnessed setbacks in recent months - first with Donald Trump's failure to get reelected, and now with Boris Johnson's resignation. Macron's reelection in France is also a case in point. It is true that, in many ways, populist movements are self-defeating: the sorts of policy prescriptions that they offer are unlikely to deliver the results that their electorates hope for, and their lack of experience in government makes for, shall we say, rocky tenures. Wooldridge does a great job describing this self-destructiveness.

But, like Wooldridge, I would not read too much in these recent events. The underlying factors that are associated with the success of populist political movements have not drastically changed: rising inequality, stagnant economic opportunities, continued globalization in terms of trade and immigration, and a reaction against progressive value change (highlighted in the readings for Module 3) - among other factors. It is possible that electorates will realize that populist movements do not have magical answers to their concerns. But until these concerns are addressed in meaningful ways by the political system, the systematic rejection of incumbents that we tend to see in country after country will likely continue.