Human Development: We've Still Got It Pretty Good

Image source: hdr.undp.org

The United Nations released its annual Human Development Report on November 4th. The report showcases the human development index, which ranks countries along three dimensions: health, education, and living standards. The HDI is not without critics, but it is broadly referenced and discussed because it represents a thoughtful, empirical attempt to analyze and compare human welfare among countries using a broader measure than income alone. In this year's index, Norway was the top performer, followed by Australia and New Zealand.

Times are hard for many Americans, and I share the concerns voiced by many about the future of our country. But I do take a bit of comfort in the HDR's suggestion that the US is still among the best places in the world to be a human being.

U.S. Monetary Policy and Emerging Economies' Capital Controls, or "When a Butterfly at the Fed Flaps Its Wings..."

Image source: Wikimedia Commons/Tropenmuseum

A volcano in Indonesia erupts?

Well, perhaps the Fed's decision to buy $600 billion worth of Treasury bonds and the eruption of Mount Merapi (pictured at left) were not directly linked. But as Howard Schneider reported in today's Washington Post, a lot of people in Indonesia are worried that the Fed's move could have adverse effects on Indonesia's economy. How? If the Fed's punt succeeds in pushing U.S. interest rates even lower, then investors might seek to move their money to places where they can get a better yield -- and emerging economies like Indonesia's are prominent on their radar screens. If investors seek to buy more assets in Indonesia, then they may bid up the price of those assets. Increased demand for Indonesia's currency, the rupiah, could cause it to appreciate (i.e., to become more expensive vis-a-vis other currencies). And this would make Indonesia's exports more expensive.

As Schneider reports, emerging economies' fears are causing them to consider ever more seriously the wisdom of using capital controls. Liberal economists long argued against them (while iconoclasts like Joseph Stiglitz argued in their favor) but now many economists and policymakers acknowledge that they can be useful if applied judiciously. My own, evolving, view: like many regulatory measures, they have ample potential for legitimate use and harmful abuse. It will be interesting to watch in the coming months how and to what extent countries apply them and how their economies perform. Raw material for many interesting empirical investigations (and op-eds) to come...

An excellent example of clear writing about economic policy

Photo source: Wikimedia Commons/U.S. Federal Reserve

Ben Bernanke, the Chairman of the Federal Reserve Board of Governors, wrote an op-ed in today's Washington Post.   The topic is the Federal Reserve's decision to buy $600 billion of Treasury bonds in hopes of stimulating the sluggish economy.

His piece is a model of clear and concise writing on economic policy--a topic that is subjected all too often to muddled prose. He avoids buzzwords and highly technical jargon, offers straightforward justifications, and effectively addresses counterarguments.

None of us knows whether the Fed's move will work. But we can at least take a bit of inspiration from the clear writing of its Chairman.

Industrial policy

Image Source: Wikimedia Commons. Photo by Joshua Rappeneker

Tucked behind the mountains of election coverage in today's Washington Post was a very interesting story about a publicly-funded effort to promote the semiconductor industry in upstate New York. This is an example of industrial policy. The debate on the virtues of industrial policy has grown more lively recently, even among those who typically favor market-determined outcomes. A recent article by the Economist examines the arguments in depth.

My own internal debates on this topic were stirred through the work several colleagues and I did for a recent study into economic integration in the ASEAN region. For example, in Vietnam, we visited the publicly-funded industrial park where Intel built its massive new testing and assembly facility, which recently opened. There were clearly hiccups in the park's operations and some questionable investments in facilities for which there did not seem to be high tenant demand. On other hand, those tenants had voted with their feet by being there. Was it the most efficient expenditure of public funds? Might there have been other ways to attract equal amounts of desirable investment without generous incentives, such as broad-reaching reforms to the business environment? The jury is still out on these questions in my own mind. How about yours?

The economics of food retailing in a nutshell

Image source: Wikimedia Commons

This brief article from the Economist about Asda (the UK branch of Wal-Mart) neatly illustrates how regulatory and operational issues influence choices about store location, size, and merchandise selection.

The Effects of Offshoring on U.S. Employment

Several colleagues and I are presently researching the effects on U.S. employment when U.S. service firms expand overseas. Our study touches upon one aspect of a broader debate about the effects of multinational firms' activities outside the United States.

I am often struck by how heated the rhetoric becomes in debates on this issue--and how often this rhetoric is not accompanied by careful consideration of empirical evidence. One of my goals over the coming weeks is to digest what literature I can find on this topic.

As a point of departure, I thought I might recommend National Public Radio's recent story about the issue. The host interviews two well-known economists, Matthew Slaughter and Thea Lee, who bring different perspectives to the discussion. They both make thoughtful observations.