Monthly Archives: October 2009

Volcker’s Voice Fails to Sell a Bank Strategy

Published: October 20, 2009
Listen to a top economist in the Obama administration describe Paul A. Volcker, the former Federal Reserve chairman who endorsed Mr. Obama early in his election campaign and who stood by his side during the financial crisis.

Mannie Garcia/Bloomberg News

Paul A. Volcker, second from left, in a meeting in May at the White House with President Obama and his economic advisory board.

“The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.”

Well, not lately. The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children.

He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations. Continue reading

Sachs says to meet MDGS, the bottom line is rich countries must pay more

 

DEVELOPMENT: Meeting MDGs “Not Rocket Science”
By Andrea Bordé

UNITED NATIONS, Oct 13 (IPS) – Achieving an ambitious set of anti-poverty benchmarks will take much more financing from rich countries, Jeffrey Sachs, the special advisor to the U.N. secretary-general on the Millennium Development Goals (MDGs), warned Monday.

There is currently no budgetary plan of action to implement the MDGs as world leaders prepare for a summit next year to assess progress ahead of the final deadline in 2015, Sachs said at a U.N. panel discussion.

“This is not rocket science. This is basic decency,” said Sachs, as he waved blank spreadsheets in the air.

The eight MDGs include a 50 percent reduction in extreme poverty and hunger; universal primary education; promotion of gender equality; reduction of child mortality by two-thirds; cutbacks in maternal mortality by three-quarters; combating the spread of HIV/AIDS, malaria and other diseases; ensuring environmental sustainability; and developing a North-South global partnership for development.

A summit meeting of 189 world leaders in September 2000 pledged to meet all of these goals by the year 2015. But their implementation has been undermined by the shortage of funds, cuts in development aid, and most recently, by the global economic crisis. Continue reading

Copenhagen 2009

This article in the economist summarizes a few of the issues that have arisen at the penultimate round of talks before the climte change summit in december. It is important to think about what the issues are and what sort of outcomes we can hope for from these negotiations. The IPE theories that we have looked at offer different ways to analyze the problems and the prospects for solutions.

http://www.economist.com/world/international/displaystory.cfm?story_id=14646499

Questioning the Invisible Hand: Can liberalised energy markets cut carbon emissions? Britain is starting to doubt it.

FOR many left-wingers, the credit crunch was proof that markets do not always know best. The near-collapse of the world’s banking system shows once and for all, they argue, that an industry as important as finance cannot be left to the whims of the invisible hand. Yet despite much speechifying from banker-bashing politicians, such views do not seem to have taken hold. Bonuses are back in many City dealing-rooms, and the old argument against regulation—that it would drive firms away from Britain and impoverish the country—is being heard again.

Away from the spotlight, though, another industry is facing its own crisis of confidence in laissez-faire liberalism. Climate change, a looming shortage of electricity and worries about the risks of relying on imported energy are causing many to doubt whether Britain’s vaunted liberalised energy markets are up to the job.

The most recent salvo was fired on October 12th, when the Committee on Climate Change, chaired by Lord Turner (who is also a financial regulator), published its first report. The CCC was appointed to advise the government on how to meet its targets for greenhouse-gas emissions, which call for an 80% reduction, relative to 1990, by 2050. It concluded that far too little is being done. Although recession is holding emissions back, they are dropping at an average annual rate of under 1%, rather than the 2-3% needed (see chart).

The committee’s diagnosis was stark: the market, left to its own devices, is failing to deliver. Consumers are not buying energy-efficient appliances or insulating their houses, carmakers are failing to get emissions down and power companies still prefer fossil fuels to greener alternatives. A bracing dose of re-regulation was prescribed: the CCC suggests compulsory emissions caps for cars, feed-in tariffs to help green-power producers and a state-enforced minimum carbon price to encourage nuclear and “clean” coal power stations. David Kennedy, the committee’s chief executive, put it plainly: “We’ve stuck with the market a long time,” he said. “We don’t think we can stick by it any more.”

Similar doubts about the wisdom of the markets are to be found throughout the energy sector, from academics and analysts to managers at some of its biggest companies. Lord Browne, a former boss of BP, an oil firm, opined publicly this year that state-owned banks should be forced to lend money to renewable-energy projects. Sam Laidlaw, head of Centrica, a big generating company, has admitted that nuclear and renewable power will struggle under the current arrangements.

On the surface, this sudden enthusiasm for the firm hand of government seems strange. Britain’s markets, freed by a Conservative government in the mid-1990s, are among the most liberal in the world. Investments in power stations are made on purely commercial grounds; half a dozen big firms compete to sell power to consumers. Price controls are unheard of and state ownership is confined to a couple of old, rickety nuclear-power plants. Politicians used to boast that Britons paid less for their electricity and gas than the rest of Europe, and Britain has been lobbying hard for other European countries to follow its lead.

A dose of dirigisme

Three things are casting doubt on the free-market approach. The first is climate change. The CCC thinks—as do ministers—that a big expansion of renewable energy and the construction of carbon-capturing coal plants and new nuclear-power stations is the way to decarbonise electricity generation. But it isn’t happening: despite spending £872m ($1.4 billion) in the financial year to March 2008 on subsidies, Britain generates far less renewable energy, as a proportion of the total, than most of its European neighbours. New nuclear reactors are promised, but many doubt that such high-cost, long-lived projects can work in a messy, unpredictable market without price guarantees.

At the same time, and secondly, energy firms must replace around a third of Britain’s power-generation capacity over the next decade. Dozens of old coal and nuclear power plants are due to close. Plugging the hole will be expensive: Ofgem, the industry regulator, estimated on October 8th that the total bill could be between £90 billion and £200 billion, pushing up household bills by as much as 60%.

Yet firms are leaving all this building rather late. Energy-watchers now fret about possible blackouts as power stations close and are not replaced. Such tardiness lends strength to an alternative reading of the past 15 years: that low prices were as much a result of firms sweating their assets as of competition and ingenuity.

Finally, most of the new power stations being built are gas-fired. With 40% of Britain’s power already coming from gas plants, that is causing worries about over-reliance on a single fuel, particularly since dwindling North Sea stocks will force Britain to import more gas from overseas.

But despite the rehabilitation of the case for regulation, politicians may find it hard to get a grip. A deregulated industry is useful: ministers can bask in the benefit of low prices while deflecting blame for price rises on to rapacious energy giants. Reimposing central control at a time when bills are rising to pay for new power stations and other infrastructure risks attracting the odium of a hard-pressed public.

Yet blackouts at home and embarrassment abroad are even worse, and so government pronouncements have been growing increasingly prescriptive. Ministers are beginning to specify how many new nuclear-power stations and wind turbines they want built. The government has already tweaked the planning system to allow Whitehall to overrule local objections to new power stations, and a new Infrastructure Planning Commission is supposed to take a more dirigiste approach to big building projects.

Still, a return to full-on state control is not on the cards. The CCC’s suggestions—some good, some bad—would only bring Britain roughly into line with other European countries. France has imposed a minimum price on carbon, for instance, and Germany and Spain give subsidies directly to renewable-energy firms. Yet to row back on deregulation would be intensely shaming for a country that pioneered the idea in the first place, and has been preaching its benefits ever since.

http://www.economist.com/world/britain/displaystory.cfm?story_id=14649058

Elinor Ostrom’s Nobel prize marks a departure for economics

Elinor Ostrom celebrates winning the Nobel Prize in economicsElinor Ostrom celebrates winning the Nobel Prize in economics. Photograph: John Sommers II/Reuters

Her research was conducted in India, Nepal and Kenya. She was cited for work into how fish stocks can be husbanded for the benefit of all. She has spent her academic life as an [political scientist] investigating how people co-operate rather than are motivated by self-interest.

The award of the Nobel prize to Elinor Ostrom marks a departure for economics. It was not just that the prize went to a woman for the first time: it was that Ostrom was working in a branch outside the financial mainstream. The mayhem caused to the global economy by market fundamentalism made it unlikely that a member of the “unfettered markets are best” school would win this year. But it was significant that the judges chose someone whose work is relevant to debates about resource use and the future of the planet.

Ostrom’s work has been based around the need to find an answer to how resources are managed in the face of population growth and increasing prosperity. The conventional wisdom was that there were only two options – for the state to be in charge, or privatisation. As the Nobel judges noted, Ostrom challenged the orthodoxy through in-depth studies of commonly managed fish stocks, pastures, woods, lakes and groundwater basins – and found that the outcomes were better than predicted by standard theories.

Larry Elliott

guardian.co.uk, Monday 12 October 2009 22.49 BST

Financial crisis testing EU foundations, says Stiglitz

Financial crisis testing EU foundations, says Stiglitz

ANDREW WILLIS

12.10.2009 @ 18:07 CET

Original article on: http://euobserver.com/9/28814

EUOBSERVER / BRUSSELS – Nobel prize winner in economics, Joseph Stiglitz, says the financial crisis is forcing the EU to re-examine its cornerstone policy area – the single market.

“The crisis has brought home a couple of fundamental questions for the single market concept of Europe that have not really been adequately discussed,” said the star economist at a conference on banking regulation in Brussels on Monday (12 October).

Referring to the banking collapses in Ireland and Iceland late last year, Mr Stiglitz said financial regulation in one country clearly presented problems for depositors in other countries. “And we need to get a grasp on that,” he said.

But the former World Bank economist, turned critic of its sister organisation the International Monetary Fund, questioned whether Europe was now dealing with such economies correctly. Continue reading

The Bigger Picture – The Nobel prize for economics

Not surprising the first woman in 40 years to win the Nobel Prize for Economics is a political scientist!

Oct 12th 2009
From Economist.com 

This year’s Nobel prize has rewarded the use of economics to answer wider questions

 
 
 

NEITHER Oliver Williamson of the University of California at Berkeley nor Elinor Ostrom of Indiana University at Bloomington was widely tipped to win this year’s Nobel prize for economics. This may be because their work sits at the boundary of economics, law and political science, and tackles different questions to the ones that economists have traditionally studied. Ms Ostrom is also notable as the first woman to win the economics prize in its 40-year history.

Mr Williamson and Ms Ostrom work independently of each other but both have contributed plenty to economists’ understanding of which institutions—firms, markets, governments, or informal systems of social norms, for example—are best suited for conducting different types of economic transactions. Why, for example, do some transactions take place within firms, while others are carried out in competitive markets?NobelEconomics Continue reading

Migration and Development: The aid workers who really help

Oct 8th 2009
From The Economist print edition

How much do migrants, by sending remittances and other means, act as catalysts for development in the countries they leave behind?

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AS THE dust settled after the attacks of September 11th 2001, officials in America and elsewhere started tracking cross-border flows of money from migrants, in the hope of nabbing terrorists. Remittance agencies were regulated more heavily; cash transfers from foreign workers were monitored. Not much was discovered about terrorism, but lots of new data emerged on the economics of migration. Continue reading

The Future of the Global Economy Roundtable on Campus this Thursday!

Date: Thursday 15 October
Time: 12:30-2:00 pm
Location: Women’s Federation Room, Level 1, Old Government House, near the corner of Princes Street and Waterloo Quadrant, Auckland.

 Presenters: Jane Kelsey, University of Auckland, and Rod Oram

This seminar is hosted by the University of Auckland Masters in Public Policy programme. Click here for information about upcoming seminars.

The past eighteen months have proved especially turbulent for the global economy. The recession has had different impacts around the world, but many commentators have declared it to be the worst economic downturn since the Depression of the 1930s. As a small, open economy, New Zealand has always been highly sensitive to global economic conditions. In this seminar, we discuss key drivers of the contemporary global economy. We are particularly keen to consider the likely trajectory of the global economy in the coming decade and expected implications that forthcoming changes will have on New Zealand’s economic performance and social wellbeing. Continue reading

Ditch the Directive: UK stands up for hedge funds

As the Sunday Telegraph launches its Ditch the Directive campaign to support the fight against excessive EU regulation of the financial sector, Helia Ebrahimi reveals how the battle will be fought in the corridors of power.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6293803/Ditch-the-Directive-UK-stands-up-for-hedge-funds.html

London Mayor Boris Johnson’s rallying cry at last week’s Tory party conference in support of the beleaguered financial services sector could have backfired but, as ever, his timing was impeccable, his jokes good and instead he received a standing ovation.

What helped was not the stirring background music of the EastEnders theme tune, but that Mr Johnson was defending bankers and their ilk against an even more disliked foe – interfering officials from Brussels.

The City, he told the packed hall of the Tory faithful, was “not so much a problem as a vital part of the solution” to the economic downturn. Continue reading