Global Economics and Management

The 20th Anniversary of the JEEA

The Journal of the European Economic Association, the flagship economics journal in Europe, is celebrating its 20th anniversary. As its managing editor, I would be remiss if I did not mention this momentous occasion on this blog! To celebrate the anniversary, two initiatives were undertaken: 

1) The editors curated a special issue of the JEEA that brings together some of the best and most influential paper published in the journal in its 20 year history. The authors of these papers wrote short (1,000 word) introductions commemorating their papers, providing anecdotes on the publication process, and reflecting on the influence that their papers had in the aftermath of their publication. You can find the special issue here. And in particular, you can read the wonderful introductory chapter here. 

2) The European Economic Association commissioned a film where some of the major players in the history of the JEEA look back on its 20-year journey. Here is the film:

The Facebook Files

In a remarkable investigative series, the Wall Street Journal covers the dark side of Facebook. This is Pulitzer-worthy reporting, in my opinion.

An associated podcast series is also worth listening to. The picture that emerges is one of an extremely corrosive, socially destructive platform. Personally, I quit Facebook years ago, and have no plans to go back.

John Cochrane on Modern Monetary Theory

Over in the Wall Street Journal, John Cochrane writes a scathing critique of Stephanie Kelton's "The Deficit Myth". Every word of this critique is correct.

Wouldn't it be nice if MMT really worked? The US government could just print dollars and buy everything it wants. Everything Stephanie Kelton wants, and also everything everyone on the right side of the political spectrum wants. No trade-offs! We would eliminate the need to even have political disagreements overnight. Unfortunately, that's not how the economy works. Real GDP is the sum of value added created in a given year. Value-added comes from value-creating production and consumption. Imagine US value-added in a given year is 100 potatoes. No amount of money the US government could print will change the number of potatoes that are produced. It's really quite simple.

Guest Blogging: Pradnya Parulekar

Your classmate Pradnya Parulekar sends me these important and timely observations on the current situation in the United States:

Thinking about our discussion on whether or not corporations should have and then voice their opinions. Given the current political situation, and BSC (formerly Guidant) being a prominent employer in Minneapolis, I found this article compelling.

I also had time to read how Citigroup, Reebok, Warner and Ben & Jerry’s are taking a stand.

I think what makes this different than 1992 (Rodney King) is that corporations know what to write and know they have an obligation to say something. I think this is best for moving the dialogue forward.

Here was my response to Pradnya:

Many thanks. These are very interesting links. I think in this particular case there is no moral ambiguity in the underlying issue, so it is obviously the right call for corporations to make these pronouncements. And even more so for corporations that are localized near the epicenter of the tragic event that led to such justifiable popular outrage. I suppose these cases help elucidate the main question we asked a couple of classes ago, regarding circumstances under which corporations should be involved in public / societal / political issues.

You are right that corporations have become more savvy with these issues since 1992. Another difference is that they are now under the constant eye of social media. Saying the wrong thing is immediately sanctioned, but so is, increasingly, not saying the right thing.

I want to add the following thoughts, ahead of our class this afternoon. These are times of unprecedented turmoil and it is easy to lose our sense of perspective in the face of tragedy and injustice. But we should remember that human societies are resilient, and that progress often emerges from convulsions, setbacks, and unfathomable hardship. Indeed it is hard to imagine the current situation could get any worse, with a combination of the lockdowns, the economic disruption that the COVID pandemic unleashed, and now the widespread injustice and racial hatred that George Floyd's tragic death has revealed. But the underlying forces that over the last couple of centuries propelled more and more societies to unprecedented progress - not just economic but also in terms of human dignity - are still at play underneath the current awful developments. May they reemerge triumphant in the months and years ahead.

Your thoughts, reactions, comments are of course welcome in the comments section.

An Asia Society Event on the Future of US-India Relations

On Wednesday evening I will be participating in an event of the Asia Society on the future of US-India relations. The announcement is below: 

The U.S.-India Economic Partnership in the Era of America First and India First

Asia Society Southern California is pleased to present a panel discussion on the future of the U.S. – India relationship and in particular its relevance to Southern California. On February 24-25, President Trump became the fourth consecutive U.S. President to visit India, reinforcing the bipartisan consensus that the world’s largest and world’s oldest democracies are “natural allies” and a 21st century partnership is not only mutually beneficial but also will promote peace and prosperity throughout the region and the world. However, thorny trade issues persist and outcomes consistently fall short of expectations. What can realistically be achieved politically given each countries domestic priorities? What are the chances of the relationship realizing its full potential? What role, if any, can the local Indian diaspora play in overcoming these political challenges? And, what does that mean for deepening economic ties between our region and one of the world’s largest markets?

Wednesday, 8 April 2020

US: 9:00 p.m. ET/ 6:00 p.m. PT

Facebook Live Webcast

Register for Zoom Webinar

PANELISTS: 

Praful Kulkarni is Founder/CEO of Gkkworks, now part of Cannon Design where he is a Principal/Director. The company has offices in the US as well as in Mumbai, India specializing in planning, design and construction of healthcare, education, corporate/commercial and civic projects. Kulkarni earned his Bachelor of Architecture degree from the Indian Institute of Technology in Kharagpur, India, followed by a Masters of Architecture from the Illinois Institute of Technology and Masters of Business Administration from Pepperdine University. Kulkarni won Ernst & Young’s Entrepreneur of the Year Award.

Ravi Tilak is President of Almex USA, Inc., a company specializing in metallurgical plants and process equipment supply to the aluminum industry worldwide. He is a graduate of IIT Bombay (1980), and has a master’s degree in metallurgical engineering as well as 16 patents to his credit. Tilak is on the board of trustees of the American India Foundation, of which President Clinton is the honorary chairman. He is active in several Indo-American philanthropic and community activity organizations such as Akshaya Patra USA, SAHARA, Dharma Civilization Foundation, Ekal Vidyalaya USA, Pratham USA, and BMM USA. He is also an active member of The American Society for Metals and The Minerals, Metals & Materials Society.

Romain Wacziarg is Professor of Economics and the Hans Hufschmid Chair in Management at UCLA Anderson, where he teaches “The Business Environment of India” among other courses. Prior to joining UCLA in 2008, he taught for 10 years at the Stanford Graduate School of Business. He grew up in India for the first seven years of his life, and travels there several times every year to take care of a family business started by his father. Professor Wacziarg's research is concerned with studies the macroeconomy and political economy of emerging economies, and within those he focuses on the Indian economy. He is a citizen of the United States, a citizen of France, and an Overseas Citizen of India. His research can be accessed here.

CHAIR: Richard Drobnick, Chairman of Asia Society Southern California and Trustee of Asia Society. Drobnick is the director of the IBEAR MBA Program at USC’s Marshall School of Business, which has been supported by the U.S. Department of Education since 1990 as one of its 33 national resource centers on international business.

MODERATOR:  Gunjan Bagla, CEO of Amritt Ventures, India Business Consultant, Author of Doing Business in 21st Century India. Organizations that have benefited from Bagla's expertise include Becton Dickinson, Bose, Boeing, Cisco, Clorox, DigiKey, Hanson Research, Medtronic and the Wonderful Company. Bagla speaks frequently about US-India relations and was featured at Harvard, Michigan, Chicago, Northwestern, UCLA & USC. He also writes about India for the Harvard Business Review.  Bagla is a mechanical engineer from IIT Kanpur, India and was President of the Alumni Association of all the IITs. He holds an MBA with honors from Southern Illinois University.  Reach him at https://www.linkedin.com/in/gunjan/ 

For any questions for the speakers for this program please submit in advance to [email protected].

The Spread of Coronavirus

I have been reluctant to post on the global spread of coronavirus because of the uncertainty regarding the extent, costs and future development of the disease. But I have been reading a lot about it, and it is now time to write something about it on the GEM blog, as I get ready to teach two new sections of Global Trends this Spring. Coronavirus epitomizes global trends, a subject I will have to deal with in depth in my course. Indeed the pandemic illustrates many facets of the class as it already exists - globalization, the nationalist backlash against it, the rise of China, the increasing range of human networks and the growing pluralism that characterizes them.

Perhaps the single article that comes closest to my current thinking on the issue is one authored by historian Niall Ferguson, just published in the Wall Street Journal. It is an excellent piece. I agree with Professor Ferguson that the global nature of the human network makes the potential spread of the virus very hard to contain, and that we are likely to continue to witness an exponential growth in confirmed cases and deaths. I also agree that there has been a lot of overreaction, including on the stock market. A recent Washington Post article illustrates the spread of the disease graphically, in the US, the World and in China. A resource dealing with the economic fallout from outbreak in a smart way is John Cochrane's "Grumpy Economist" blog. You will find his take on the issue here. Some have speculated on the likely political consequences of the pandemic, though it is perhaps unseemly to do so at this stage. Gerald Seib at the WSJ elaborates on how the coronavirus will change the political economy of modern societies. These are all recommended resources.

In all this, it is important to realize that we know very little about the subject - about the epidemiology, about the likely path of disease spread, and above all about the economic, social and political consequences of coronavirus. Humility is key, and sweeping pronouncements should be avoided.

A Superb Essay on Thomas Piketty's New Book

By Idrees Kahloon, in the New Yorker. Highly recommended for its balanced coverage of "Capital and Ideology".

I am highly appreciative of Piketty's efforts to tackle central economic problems of our day and to propose bold, ideological solutions (I use the word "ideological" in its noblest, most positive sense: putting ideas first). I say this even though I do not agree, to say the least, with many of his policy proposals. 

I agree with Mr Kahloon that the policy proposals that come out of this book are very radical, and exceedingly unlikely to see the light of day anytime soon. But what is the role of a sincere intellectual? Is it to limit policy proposals to those that have a good chance of passage, or is it to advocate for what he honestly thinks are desirable solutions to social problems? The answer is obviously the latter. An intellectual is not a policymaker but someone who thinks logically from a set of observations about the state of the world all the way to a set of normative prescriptions. The intellectual is not part of the political system but outside of it, and should advocate for reforms that they really think are needed, not merely those that are politically feasible.

But perhaps this is not what motivates the actions of intellectuals like Piketty. Many in fact behave like politicians, not scholars. Perhaps Piketty doesn't really think having confiscatory taxation, installing a "world government" and erasing national borders would actually be desirable. Instead, what he really thinks, more modestly, is that greater international coordination in taxation would reduce the likelihood of a "race to the bottom" in tax rates. Advocating for extreme solutions, in this context, is a way to impress minds about the underlying policy problem, in the hopes that the status quo will change to some degree in the desired direction. If this is the hope, I think it is likely to be dashed in a major way. Advocating for extreme solutions in the hopes of achieving modest change has a way of backfiring politically, and could lead to the election of your opponents.

Another possibility is that Piketty thinks he is prescient. Sure, these solutions see pie-in-the-sky right now. But prolong the inequality trends for a few more decades, and they will become more in vogue. If they are ever implemented, Piketty will seem like a visionary. There are limits to this view. The trend toward rising inequality has been with us for a long while, and has not led to greater redistribution (quite the contrary) or lessened the electorate's nationalist proclivities. What makes us think things will be any different with just a little more inequality? We will reach some sort of breaking point? Elizabeth Warren's defeat and Bernie Sanders' current difficulties in the Democratic primary suggest such a breaking point is not right around the corner.

I must conclude that Piketty is an honest intellectual, then.

UPDATE: Paul Krugman did not like Piketty's new book (New York Times).

The Upcoming Ayodhya Decision

The Supreme Court of India is about to hand down its decision on the Ayodhya issue, reports the Wall Street Journal. This is a dispute between Hindus and Muslims about control of a religious site - the site of a now-destroyed Mosque in Ayodhya that the Hindus claim was built on the exact spot where their deity Ram was born. This issue encapsulates much of what defines contemporary India: the divisions between religions, exploited for political gains by some parties, the role of courts in resolving disputes in a heterogeneous population, and the potentially explosive effects of religious cleavages on civic cohesion. 

UPDATE: A 2012 Wall Street Journal in-depth dossier covers the dispute in detail. I highly recommend this article as it will give you plenty of insights into the Indian civilization in the contemporary era. It provides excellent context to understand the rise of the BJP and the use of identity and religious issues by politicians to gain popularity and power. It also teaches us many lessons on the importance of religion in Indian culture. My only qualm about the article is the ending - the authors seem to see the Ayodhya events as benign and unlikely to lead to: 1) one side's outright victory and 2) further inter-faith conflict. On the first issue at least, they have been proven wrong - the Indian Supreme court just handed an unequivocal victory to the Hindu side of the dispute. And on the second issue, it is too early to tell, but I fear the worst. It is simply not correct, as the authors assume, that the advent of economic growth and modernity will lead to the dampening of identity-based conflicts. In fact, I think the recent experience of the worldwide rise of populism might suggest quite the opposite - when people no longer worry about putting food on their tables, they turn to issues of culture and identity. We did not stop looking for things to divide us just because we are comfortable.

The Nobel Prize to Banerjee, Duflo and Kremer

I was delighted to wake up and learn that the Economics Nobel Prize had been awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer. I could not think of a more deserving set of recipients. And I feel privileged to know all three. Esther was a graduate student at MIT when I was studying at Harvard, and she was a regular attendee in the weekly economic development lunch that I organized there with my dear friend Francesco Caselli. Abhijit was already a professor at MIT then, but he visited Harvard for the purpose of teaching a course on development economics (jointly with Jonathan Morduch). Of course, I took this class, and it inspired me to do research with a strong economic development influence. Michael was a junior professor at MIT in those days, and I was a big fan of his work, both micro and macro. It is amazing to look back and realize how marginalized the field of economic development was at that time, and how mainstream this trio has made it since then.

Over the years since, I have kept in touch with Esther and Abhijit. They were the organizers of an annual conference on Indian economic policy at the Neemrana Fort Palace, which is one of the properties in the group of hotels that my father spent the latter part of his life - and much of his own hard-earned capital - building. Esther and Abhijit visited the Paris School of Economics the year before I did, and we crossed paths there. And Esther came to UCLA a few years ago to give the Harberger Lecture, which I still remember fondly.

If you want to learn about the research that Banerjee, Duflo and Kremer did, consult the Nobel Committee's announcement. The coverage by Alex Tabarrok over at Marginal Revolution is also first rate, and I agree with his choice of papers to focus on. Of course, the recipients of this year's Nobel Prize have worked a lot on India. We will have many opportunities to discuss their work in the India Immersion Course.

Reactionary and Retrograde Research Findings Over at the NBER

The new batch of NBER working papers contains at least 3 papers that will challenge conventional wisdom and are likely to provoke either deep reflection or pushback. I would characterize these as "retrograde", perhaps even "reactionary". You be the judge:

1) Behavioral Responses to State Income Taxation of High Earners: Evidence from California. It turns out that when you tax the rich, they respond. Out-migration and the disincentive effects on stayers was enough to undo about half of the extra revenue expected from this specific tax hike.

2) Maternal and Fetal Health Effects of Working during Pregnancy. Does this paper imply that women should not work while pregnant? Of course not - it is not a full cost-benefit analysis. But I would still characterize it as somewhat reactionary.

3) The Gender Gap in Self-Promotion. I don't need to comment on why this one is deeply retrograde.