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  • Author: Trevon Logan, Peter Temin
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This paper records the path by which African Americans were transformed from enslaved persons in the American economy to partial participants in the progress of the economy. The path was not monotonic, and we organize our tale by periods in which inclusiveness rose and fell. The history we recount demonstrates the staying power of the myth of black inferiority held by a changing white majority as the economy expanded dramatically. Slavery was outlawed after the Civil War, and blacks began to participate in American politics en masse for the first time during Reconstruction. This process met with white resistance, and black inclusion in the growing economy fell as the Gilded Age followed and white political will for black political participation faded. The Second World War also was followed by prosperity in which blacks were included more fully into the white economy, but still not completely. The Civil Rights Movement proved no more durable than Reconstruction, and blacks lost ground as the 20th century ended in the growth of a New Gilded Age. Resources that could be used to improve the welfare of whites and blacks continue to be spent on the continued repressions of blacks.
  • Topic: Economics, Race, History, Capitalism, Slavery
  • Political Geography: United States, Global Focus
  • Author: Nathan Nunn
  • Publication Date: 01-2020
  • Content Type: Policy Brief
  • Institution: Economics for Inclusive Prosperity (EfIP)
  • Abstract: In this brief, I discuss the current state of economic development policy, which tends to focus on interventions, usually funded with foreign aid, that are aimed at fixing deficiencies in developing countries. The general perception is that there are inherent problems with less-developed countries that can be fixed by with the help of the Western world. I discuss evidence that shows that the effects of such ‘help’ can be mixed. While foreign aid can improve things, it can also make things worse. In addition, at the same time that this ‘help’ is being offered, the developed West regularly undertakes actions that are harmful to developing countries. Examples include tariffs, antidumping duties, restrictions on international labor mobility, the use of international power and coercion, and tied-aid used for export promotion. Overall, it is unclear whether interactions with the West are, on the whole, helpful or detrimental to developing countries. We may have our largest and most positive effects on alleviating global poverty if we focus on restraining ourselves from actively harming less-developed countries rather than focusing our efforts on fixing them.
  • Topic: Development, Economics, International Political Economy, Developing World, Economic Development
  • Political Geography: United States, Global Focus
  • Author: John Macwilliams, Sarah Lamonaca, James Kobus
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Center on Global Energy Policy
  • Abstract: The Pacific Gas and Electric (PG&E) bankruptcy, which was caused by liabilities resulting from massive wildfires, has widely been called the first climate change bankruptcy. It will likely not be the last, as climate change exacerbates natural disasters, leading to more frequent and intense wildfires, storms, and flooding. Wildfires alone could become up to 900 percent more destructive in certain regions by midcentury, and utility assets will also be increasingly exposed to threats stemming from hurricanes, rising sea levels, and other climate-related events. These extreme weather events will increase costs to utility-sector stakeholders, including investor-owned utilities, state and local governments, ratepayers, and taxpayers. These risks could place financial stress on utility companies, drive up electricity rates, crowd out essential investment in renewable energy and grid upgrades, and disrupt service. In this paper, Columbia University’s Center on Global Energy Policy reviews and analyzes the PG&E bankruptcy, assesses how capital markets have reacted to the bankruptcy through the lens of valuations in the US utility sector, and discusses policy implications of California’s recent legislative response to wildfire risk. This paper examines market indicators to assess investor expectations of climate risk exposure and likely cost allocation. Neither debt nor equity markets suggest widespread concern about climate risk in the utility sector. In the absence of strong market signals to encourage climate risk mitigation, the authors find that policy frameworks are needed to ensure that companies make necessary preventative investments and to define how costs will be allocated among stakeholders. This paper also reviews a recently passed California bill aimed at achieving these objectives and the lessons and best practices it offers for other policy makers. In short, the paper finds the following: Market indicators suggest that the California wildfires and subsequent PG&E bankruptcy have not caused imminent concern about climate risks in the utility sector. Equity valuations for the sector remain strong, with a utility stock index trading at a higher-than-average premium to the market benchmark. In credit markets, regulated utilities in the United States have raised more than $50 billion of corporate debt in 2019 to date, and borrowing spreads are currently below historical averages. There are several reasons why markets may not reflect widespread climate risk to utilities, despite the scientific evidence around likely future damage. Investors may believe that cost increases from climate change will occur too far in the future to materially impact the present value of their investments. Even if investors believe that climate change risks are material to valuation, they may also believe that such risks will not be considered by other investors for some time. Investors may be viewing wildfires as a California-specific risk, though the regional skew of wildfires is likely to shift significantly in coming years. They may lack the information or modeling tools for assessing the likelihood and geographic dispersion of high-impact tail events, such as the wildfires that PG&E faced. Financial markets may also reflect the belief that the costs of climate change in the utility sector will fall predominantly on ratepayers, insurance companies, and/or taxpayers rather than investors, and therefore investors may not view themselves as materially exposed. California’s recent creation of a wildfire insurance fund with contributions from both ratepayers and companies provides important policy lessons for designing comprehensive frameworks to allocate climate damage costs. These include the strengthening of both regulatory and corporate climate resilience expertise, mandating preventative investment as a prerequisite for cost-recovery mechanisms, defining utility financial exposure for climate damage situations, and providing cash for utilities to provide essential services when facing large disasters. The policy also presents some potential pitfalls that may be instructive for other state policy makers. The legislation sets aside large reserves for future damage, a necessary measure, but one that will result in higher electric bills. The bill does not allow utilities to earn a return on safety-related spending, which broadly diminishes incentives for proactive climate mitigation investment. The potential insufficiency of the wildfire fund also creates uncertainty about future cost allocation. Finally, failing to reform the California legal framework that allows utilities to be held liable for damages they did not cause perpetuates risks for companies and ratepayers. If the first climate change bankruptcy is indicative of a new reality, it is not that utilities are going to go bankrupt overnight. Rather, climate disasters will increasingly add financial stress to utility-sector stakeholders, as costs accumulate from both acute events and damaging extreme weather impacts. Adapting the regulatory bargain for a climate-exposed future will require lawmakers, regulators, and shareholders to develop new approaches and new incentive structures to ensure an accountable, robust utility sector. Moreover, while climate change is already presenting real financial challenges to utilities, it will not be the only sector to face large climate-driven costs. Other corporate actors can look to the utility experience to better understand how policy makers, investors, and companies will respond to the growing financial threat from climate change.
  • Topic: Climate Change, Economics, Gas, Electricity
  • Political Geography: United States, California
  • Author: Enea Gjoza
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Defense Priorities
  • Abstract: The American economy, dollar, and banking system create unparalleled power for the U.S. in the global financial system. This power provides disproportionate influence over the world’s key economic and financial institutions, regulatory authority over major foreign companies and banks, and allows borrowing on favorable terms and in dollars, enabling long-term deficit spending.
  • Topic: Economics, International Trade and Finance, Hegemony, Sanctions, Finance, Global Political Economy
  • Political Geography: United States
  • Author: Michael Kende1, Nivedita Sen
  • Publication Date: 01-2019
  • Content Type: Working Paper
  • Institution: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
  • Abstract: E-commerce has long been recognized as a driver of growth of the digital economy, with the potential to promote economic development. The benefits come from lower transaction costs online, increased efficiency, and access to new markets. The smallest of vendors can join online marketplaces to increase their sales, while larger companies can use the Internet to join global value chains (GVCs), and the largest e-commerce providers are now among the most valuable companies in the world.
  • Topic: Development, Economics, Science and Technology, World Trade Organization, Digital Economy, Economic growth, Free Trade
  • Political Geography: United States, Europe, Switzerland, Global Focus
  • Author: Tarek A. Hassan, Laurence van Lent, Stephan Hollander, Ahmed Tahoun
  • Publication Date: 01-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world: the share of discussions in quarterly earnings conference calls on costs, benefits, and risks associated with the UK’s intention to leave the EU. Using this approach, we identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate the effects of these different kinds of Brexit exposure on firm-level outcomes. We find that concerns about Brexit-related uncertainty extend far beyond British or even European firms. US and international firms most exposed to Brexit uncertainty have lost a substantial fraction of their market value and have reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects of Brexit (the first moment), should it come to pass. Most prominently, firms expect difficulties resulting from regulatory divergence, reduced labor mobility, trade access, and the costs of adjusting their operations post-Brexit. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet had significant effects on firm actions.
  • Topic: Economics, Political Economy, Regional Cooperation, Brexit, Global Political Economy, Economic Policy
  • Political Geography: Britain, United States, United Kingdom, Europe, European Union
  • Author: Joseph Halevi
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This paper analyzes the early stages of the formation of the Common Market. The period covered runs from the end of WW2 to 1959, which is the year in which the European Payments Union ceased to operate. The essay begins by highlighting the differences between the prewar political economy of Europe and the new dimensions and institutions brought in by the United States after 1945. It focuses on the marginalization of Britain and on the relaunching of French great power ambitions and how the latter determined, in a very problematical way, the European complexion of France. Because of France’s imperial aspirations, France, not West Germany, emerged as the politically crisis prone country of Europe acting as a factor of instability thereby jeopardizing the process of European integration, Among the large European nations, Germany and Italy appear, for opposite economic reasons, as the countries most focused on furthering integration. Germany expressed the strongest form of neomercantilism while Italy the weakest.
  • Topic: Economics, Political Economy, Global Political Economy, World War II, Common Market
  • Political Geography: United States, Europe, Germany, Global Focus
  • Author: Lance Taylor
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Expansionary macroeconomic policy with a strong redistributive component is an attractive proposition, most recently launched on the basis of Modern Monetary Theory or MMT. The Theory is a synthesis of familiar ideas, newly relevant but scarcely path-breaking. Its basics – Chartalist or fiat money, functional finance, and models based on consistent national accounting – come straight from Maynard Keynes, Abba Lerner, and Wynne Godley. Functional finance is the heart of fiscalist Keynesianism built upon automatic stabilizers for the business cycle. MMT’s job guarantee proposal is one more stabilizer which could be a modest helpful supplement to the system which exists. National accounting comparisons of a possible MMT package with the 2008 crash and the Trump tax cut are presented with emphasis on autonomous shifts in demand. The package could have problems with debt sustainability and external balance. Inflation is unlikely if wage repression in the USA is not reversed. But strong wage increases are presumably a goal of MMT.
  • Topic: Economics, Monetary Policy, Finance, Economic Theory, Macroeconomics, Money
  • Political Geography: United States
  • Author: Catherine Ruetschli, Mark Glick
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: The Big Tech companies, including Google, Facebook, Amazon, Microsoft and Apple, have individually and collectively engaged in an unprecedented number of acquisitions.When a dominant firm purchases a start-up that could be a future entrant and thereby increase competitive rivalry, it raises a potential competition issue. Unfortunately, the antitrust law of potential competition mergers is ill-equipped to address tech mergers. We contend that the Chicago School’s assumptions and policy prescriptions hobbled antitrust law and policy on potential competition mergers. We illustrate this problem with the example of Facebook. Facebook has engaged in 90 completed acquisitions in its short history (documented in the Appendix to this paper). Many antitrust commentators have focused on the Instagram and WhatsApp acquisitions as cases of mergers that have reduced potential competition. We show the impotence of the potential competition doctrine applied to these two acquisitions. We suggest that the remedy for Chicago School damage to the potential competition doctrine is a return to an empirically tractable structural approach to potential competition mergers.
  • Topic: Economics, Science and Technology, Communications, Law, Digital Economy, Macroeconomics, Monopoly, Antitrust Law
  • Political Geography: United States
  • Author: Mark Glick
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have defended “Consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement priorities. This paper argues that the CW is actually an empty concept and is an inappropriate goal for antitrust. Welfare economists concede that there is no credible measurable link between price and output and human well-being. This means that the concept of CW does not legitimate limited antitrust enforcement, nor does it justify the exclusion of other antitrust goals that require more active enforcement practices. This paper contends that antitrust policy is not welfare based at all, and that if it were, antitrust policy and enforcement would differ significantly from the Chicago School vision. Without the fiction that economists can establish that in the short run lower price and higher output measurably increases welfare more than other goals, recent defenses of the CW standard resolve down to arguments based on unsupported assumptions.
  • Topic: Economics, Law, Legal Theory , Economic Theory, Macroeconomics, Antitrust Law, Microeconomics
  • Political Geography: United States