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2591. China and COVID-19: a shock to its economy, a metaphor for its development

Author:
George Magnus
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
LSE IDEAS
Abstract:
The Chinese government’s draconian actions to control the coronavirus seem to be producing a remarkable economic contraction. As so many are unable to attend or resume work at the moment, the government’s palliative economic measures may gain little traction. Although the demand shock will eventually fade, other longer-term issues will surely endure. The supply shock will be less obvious but more corrosive. The government’s questionable conduct in managing the public health crisis has unveiled significant features about governance in Xi’s China that can be mapped on to China’s development. While this crisis is the biggest challenge Xi has faced, there is little doubt that he will survive it, champion the party’s role in the nation’s rescue, and feel emboldened to continue with his authoritarian governance. Yet it is this that, in the long run, will prove incompatible with China’s economic development ambitions.
Topic:
Development, Economy, COVID-19, and Health Crisis
Political Geography:
China and Asia

2592. Battleground Southeast Asia: China's Rise and America's Options

Author:
Charles Dunst
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
LSE IDEAS
Abstract:
Southeast Asia, while still a reservoir of goodwill for the US, has in recent years come increasingly under China's umbrella. In this Strategic Update, Charles Dunst analyzes China's expansion there, discusses Southeast Asians' American predeliction, and offers steps the US can take to "win back" the region.
Topic:
Foreign Policy, Politics, International Affairs, and Strategic Competition
Political Geography:
China, Southeast Asia, and United States of America

2593. Making Sense of Technological Spheres of Influence

Author:
Valentin Weber
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
LSE IDEAS
Abstract:
The deterioration of Sino-American relations and the rise of novel forms of statecraft have given way to a worrying new feature of the international system: technological spheres of influence. In this Strategic Update, Valentin Weber explains how we have arrived at this novel geopolitical arrangement, where in the world the greatest contestation lies, and what the future of technospheres may hold.
Topic:
Science and Technology, Bilateral Relations, and International System
Political Geography:
China and United States of America

2594. Reporte de Recomendaciones de Política: Hacia un Loreto más próspero

Author:
Ricardo Hausmann, Miguel Angel Santos, Jorge Tudela Pye, Frank Muci, Yang Li, Fernando Miralles-Wilhelm, Ana Cristina Grisanti, and Jessie Lu
Publication Date:
12-2020
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Loreto es un lugar de contrastes. Es el departamento más grande del Perú, pero se encuentra entre los de menor densidad poblacional. Su capital, Iquitos, está más cerca de los estados fronterizos de Brasil y Colombia que de las capitales de sus regiones vecinas en el Perú - San Martín y Ucayali. Sólo se puede llegar a Iquitos por vía aérea o fluvial, lo que la convierte en una de las mayores ciudades del mundo sin acceso por carretera. Desde la fundación del departamento, la economía de Loreto ha dependido de la explotación de recursos naturales, desde el boom del caucho a finales del siglo XIX y principios del XX hasta la extracción petrolera y explotación de recursos forestales que predomina en nuestros días. Este modelo ha traído consigo daños ambientales significativos y ha producido un patrón de crecimiento lento y volátil, que ha abierto una brecha cada vez más amplia entre la economía de la región y la del resto del país. Entre 1980 y 2018, Loreto creció a una tasa promedio compuesta anual cuatro veces menor a la del resto del Perú. Es decir, mientras el resto del Perú triplicó el tamaño de su economía, la de Loreto creció algo menos que un tercio. En la última década (2008-2018), la región también se ha venido distanciando de sus pares amazónicos en el país (Ucayali, San Martín y Madre de Dios), que han crecido a una tasa promedio anual cinco veces mayor. En este período, el ingreso promedio por habitante en Loreto ha pasado de ser tres cuartas partes del promedio nacional en 2008 a menos de la mitad para 2018. Además del rezago económico - o quizás como consecuencia de él -, Loreto también se ubica entre los departamentos con peores indicadores de desarrollo social, anemia y desnutrición infantil del Perú. En este contexto, el Laboratorio de Crecimiento de la Universidad de Harvard se asoció con la Fundación Gordon and Betty Moore para desarrollar una investigación que proporcionara insumos y recomendaciones de política para acelerar el desarrollo de la región y generar prosperidad de forma sostenible.
Topic:
Environment, Natural Resources, Economic Growth, and Sustainability
Political Geography:
South America and Peru

2595. How Market Sentiment Drives Forecasts of Stock Returns

Author:
Roman Frydman, Nicholas Mangee, and Josh Stillwagon
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
We reveal a novel channel through which market participants’ sentiment influences how they forecast stock returns: their optimism (pessimism) affects the weights they assign to fundamentals. Our analysis yields four main findings. First, if good (bad) “news” about dividends and interest rates coincides with participants’ optimism (pessimism), the news about these fundamentals has a significant effect on participants’ forecasts of future returns and has the expected signs (positive for dividends and negative for interest rates). Second, in models without interactions, or when market sentiment is neutral or conflicts with news about dividends and/or interest rates, this news often does not have a significant effect on ex ante or ex post returns. Third, market sentiment is largely unrelated to the state of economic activity, indicating that it is driven by non-fundamental considerations. Moreover, market sentiment influences stock returns highly irregularly, in terms of both timing and magnitude. This finding supports recent theoretical approaches recognizing that economists and market participants alike face Knightian uncertainty about the correct model driving stock returns.
Topic:
Economics, Markets, and Stock Markets
Political Geography:
United States

2596. Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016

Author:
Alina K. Bartscher, Moritz Kuhn, Moritz Schularick, and Ulrike I. Steins
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level dataset that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, middle-class families borrowed against the sizable housing wealth gains from rising home prices. Home equity borrowing accounts for about half of the increase in U.S. household debt between the 1970s and 2007. The resulting debt increase made balance sheets more sensitive to income and house price fluctuations and turned the American middle class into the epicenter of growing financial fragility.
Topic:
Debt, Finance, Income Inequality, and Economic Growth
Political Geography:
United States

2597. The Economics and Politics of Social Democracy: A Reconsideration

Author:
Servaas Storm
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Questions about the decline of Social democracy continue to excite wide interest, even in the era of Covid-19. This paper takes a fresh look at topic. It argues that social democratic politics faces a fundamental dilemma: short-term practical relevance requires it to accept, at least partly, the very socio-economic conditions which it purports to change in the longer run. Bhaduri’s (1993) essay which analyzes social democracy’s attempts to navigate this dilemma by means of ‘a nationalization of consumption’ and Keynesian demand management, was written before the rise of New (‘Third Way’) Labor and before the Great Financial Crisis of 2007-8. This paper provides an update, arguing that New Labor’s attempt to rescue ‘welfare capitalism’ entailed a new solution to the dilemma facing social democracy based on an expansion of employment, i.e. an all-out emphasis on “jobs, jobs, jobs”. The flip-side (or social cost) of the emphasis on job growth has been a stagnation of productivity growth—which, in turn, has put the ‘welfare state’ under increasing pressure of fiscal austerity. The popular discontent and rise of ‘populist’ political parties is closely related to the failure of New Labor to navigate social democracy’s dilemma.
Topic:
Labor Issues, Democracy, Capitalism, Economic Growth, Welfare, Productivity, and Social Democracy
Political Geography:
United Kingdom and Europe

2598. How the Disappearance of Unionized Jobs Obliterated an Emergent Black Middle Class

Author:
William Lazonick, Philip Moss, and Joshua Weitz
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
During the 1960s and 1970s, blacks with no more than high-school educations gained significant access to well-paid unionized employment opportunities, epitomized by semi-skilled operative jobs in the automobile industry, to which they previously had limited access. Anti-discrimination laws under Title VII of the 1964 Civil Rights Act with oversight by the Equal Employment Opportunity Commission supported this upward mobility for blacks in the context of a growing demand for blue-collar labor. From the late 1970s, however, the impact of global competition and the offshoring of manufacturing combined with the financialization of the corporation to decimate these stable and well-paid blue-collar jobs. Under the seniority provisions of the now beleaguered industrial unions, blacks tended to be last hired and first fired. As U.S.-based blue-collar jobs were permanently lost, U.S. business corporations and government agencies failed to make sufficient investments in the education and skills of the U.S. labor force to usher in a new era of upward socioeconomic mobility. This organizational failure left blacks most vulnerable to downward mobility. Instead of retaining corporate profits and reinvesting in the productive capabilities of employees, major business corporations became increasingly focused on downsizing their labor forces and distributing profits to shareholders in the form of cash dividends and stock buybacks. Legitimizing massive distributions to shareholders was the flawed and pernicious ideology that a company should be run to “maximize shareholder value.” As the U.S. economy transitioned from the Old Economy business model, characterized by a career with one company, to the New Economy business model, characterized by interfirm labor mobility, advanced education and social networks became increasingly important for building careers in well-paid white-collar occupations. Along with non-white Hispanics, blacks found themselves at a distinct disadvantage relative to whites and Asians in accessing these New Economy middle-class employment opportunities. Eventually, the downward socioeconomic mobility experienced by blacks would also extend to devastating loss of well-paid and stable employment for whites who lacked the higher education now needed to enter the American middle class. By the twenty-first century, general downward mobility had become a defining characteristic of American society, irrespective of race, ethnicity, or gender. Since the 1980s, the enemy of equal employment opportunity through upward socioeconomic mobility has been the pervasive and entrenched corporate-governance ideology and practice of maximizing shareholder value (MSV). For most Americans, of whatever race, ethnicity, and gender, MSV is the not-so-invisible hand that has a chokehold on the emergence of the stable and well-paid employment opportunities that are essential for sustainable prosperity.
Topic:
Labor Issues, Civil Rights, Unions, Black Politics, African American Studies, and Workforce
Political Geography:
United States

2599. Immaculate Deception: How (and Why) Bankers Still Enjoy a Global Rescue Network

Author:
Edward J. Kane
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Dodd-Frank is an example of counterfeit reform. It is designed principally to benefit very big banks and it has helped these banks to increase their market share greatly during the last 10 years. The Act provides lesser and contradictory forms of costs and comfort to smaller US bankers and taxpayers, foreign bankers (especially the managers of Deutsche Bank), and foreign governments. Small bankers and taxpayers are encouraged to believe that the 2007-2009 US rescue of the world’s biggest banks was a one-time maneuver. But an opposite message is sent through the press as (with great fanfare) the industry absolves and congratulates ex-officeholders: (1) for having transferred massive amounts of subsidized support not just to stakeholders in US megabanks, but also to European bankers and governments, and (2) for keeping the subsidies flowing long past the panic’s expiry date. Genuine reform will require changes in fraud laws and an effort to post on a continuing basis the value of the safety-net subsidies individual megabanks enjoy.
Topic:
Government, Reform, Regulation, Finance, Global Financial Crisis, and Banking
Political Geography:
United States

2600. Gang Relationships in a Black Township in South Africa

Author:
Diana Gibson and Godfrey Maringira
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Social Science Research Council
Abstract:
This paper examines the ways in which young men involved in gang violence forge and sustain their relationships over time in Gugulethu, a township in Cape Town, South Africa. We argue that even though gang members employ violent techniques to sustain their relationships, such relationships are also alternative sources of social and emotional support especially in a context characterized by extreme poverty and fractured fam- ilies, as well as communities having to deal with great financial hardship. These relationships tend to extend beyond gangs to include community leaders and close family members. The paper draws from an ethnography of walking the township streets, being in them, observing and engaging in conversations with young men involved in gang violence. We used thematic analysis to achieve a detailed understanding of the data, using the voices of the participants on which this study is based to recognize, draw out and analyze the themes.
Topic:
Security, Youth, Violence, Gangs, and Identity
Political Geography:
Africa and South Africa