June | 2015 | Normative Narratives

June 22, 2015
by bzupnick 1 Comment

The Democratic Costs of a “Grexit”

To Grexit, or not to Grexit?

Greece’s negotiations with its creditors have not gone smoothly. The Greek government treated an interim deal reached in February as a starting point for negotiations, while it’s creditors considered it more of an non-negotiable outline of a deal. The result has been two sides talking past each other; the longer this situation persists, the more likely a “Grexit”–Greece leaving the Eurozone and / or EU–becomes.

There is a ton of middle ground for the two sides–both want Greece to return to growth and full employment. The Greek government also wants a safety-net for people negatively affected by labor market and other structural reforms; pushing already impoverished people further into poverty is not only morally reprehensible, it is bad economics.

To prevent this result, Greece has passed an “anti-poverty law” to protect its most vulnerable citizens. The problem is financing this program; the Greek government needs room to implement needed structural reforms without further destabilizing Greek society.

In addition to staving off a humanitarian crisis, Greece also needs a long-term growth strategy beyond structural reforms. There are few options for the Greek government:

1) It can completely comply with creditor demands.

2) It can continue to push its lenders for more fiscal space (smaller primary surplus and / or promises of greater EU level aid / debt relief).

Or,

3) It can default on its debts and exit the Eurozone.

The first option is a non-starter, as the Greek government feels current demands would exacerbate social and economic hardship in Greece.

The second option would allow Greece to leverage more public money for safety net programs, educational and workforce training programs, and public private partnerships. This would allow Greece to avoiding default while mapping out a plan to boost economic growth.

The last option would be painful in the short-run as Greece would get battered by financial markets and possibly have to deal with currency instability as it reintroduced the drachma(?), but it would open policy space and make Greece much more competitive in terms of cost of doing business. A Grexit could also lead to a domino effect–if other ailing E.U. countries see a post-E.U. Greece succeeding, it would bolster anti-E.U. parties within these countries.

It is obvious that the second choice is in everyone’s best interests. Unfortunately, that is no guarantee this route will be taken:

Herman van Rompuy [former head of the European Council of EU leaders] told a Brussels conference that if Greece were to leave the euro zone, that would also have geopolitical repercussions in the current standoff with Russiaover Ukraine, emboldening Moscow to see Europe as weak.

Van Rompuy urged all sides to consider the political and geopolitical implications of such a step and not just the economic and financial arguments.

“I hope we will never have to answer the Grexit question,” he added

Greece staying in the E.U. is important for both sides of the negotiation. There are enough crises in the world without manufacturing one in Greece. It is exactly times like these when budgetary restrictions should be relaxed in the name of pragmatic, longer-term priorities. But so far Greece and it’s lenders have been unable to map out a solution that worksall parties involved, and so the current impasse and possibility of an “accidental Grexit” persists.

Greece did submit a new proposal to it’s creditors yesterday, and it was apparently strong enough that it got an unofficial endorsement from French Prime Minister Francois Hollande. This could be meaningful development, as heads of major European states have to this point been reluctant to acknowledge Greek concessions. It is a step towards the “political dialogue” Tsipras has been pleading for (framing the debate less in adversarial terms between debtor and creditor, and more as a mutual compromise between equal partners working towards a common goal).

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“Democracy in Recession”

If Greece were to leave the EU, (aside from the economic impact) there would be significant geopolitical repercussions, including a Greek pivot towards Russia. The Greek government has already signaled it disagrees with EU sanctions on Russia. More recently, it was reported that Putin and Tsipras “did not discuss financial aid” on the sidelines of the St. Peteresburg International Economic Forum. Generally speaking, whenever someone has to defend that something “wasn’t discussed”, it means it either was discussed or very likely will be in the future.

This is not to say that Greece would stop being functioning as a democracy if it leaves the EU. In fact, it is a strong belief in democratic ideals that underpin the current standoff between Greece and it’s creditors. But a fracturing of the EU would certainly be a blow to the ideals the EU stands for–peace and prosperity through a cooperative, democratic international system. Specifically, if Greece signed a natural gas pipeline deal with Russia, it would undermine the current sanctions regime against Russia.

Even more alarmingly, Greece’s problems are emblematic of a greater inward shift by major democratic powers:

A recent NATO Poll found that “At least half of Germans, French and Italians say their country should not use military force to defend a NATO ally if attacked by Russia,” the Pew Research Center said it found in its survey, which is based on interviews in 10 nations.

In the United States, the study notes, support for NATO remains fairly strong. Americans and Canadians, it says, were the only nationalities surveyed in which more than half of those polled believed that their country should take military action if Russia attacked a NATO ally.

This is further evidence of a worrying global trend, what Thomas Friedman calls “Democracy in recession”:

“…perhaps the most worrisome dimension of the democratic recession has been the decline of democratic efficacy, energy, and self-confidence” in America and the West at large. After years of hyperpolarization, deadlock and corruption through campaign financing, the world’s leading democracy is increasingly dysfunctional, with government shutdowns and the inability to pass something as basic as a budget. “The world takes note of all this,” says Diamond. “Authoritarian state media gleefully publicize these travails of American democracy in order to discredit democracy in general and immunize authoritarian rule against U.S. pressure.”

Diamond urges democrats not to lose faith. Democracy, as Churchill noted, is still the worst form of government — except for all the others. And it still fires the imagination of people like no other system. But that will only stay true if the big democracies maintain a model worth following. I wish that were not so much in question today.

Look, I get it. The world is still emerging from a generational economic crisis. Democracies are first and foremost accountable to their electorates, and in the face of short-term problems it is difficult to sell the importance of dealing with seemingly longer-term issues. But this is what we should demand of our political leaders–the ability to meet peoples short term needs while simultaneously laying the groundwork for long-term peace and prosperity.

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The Democratization Process

Modernization theory and recent history support the idea that sustained democratic movements must result from organic desire by local factions. When these natural movements towards democratic governance emerge, they must be nurtured.

Democratic movements are always opposed by those who stand to lose power should they succeed. If the primary champions of democracy (the U.S. and the E.U.) seem increasingly unwilling to provide the resources needed to defend those who share our values, democratic movements are less likely to take shape against adversaries that tend to have economic and military advantages.

Autocratic rulers have always used propoganda and media control to make democracy look less appealing. This job becomes easier when traditional democratic stalwarts appear unable to govern effectively at home, and unwilling to defend their ideals abroad.

June 3, 2015
by bzupnick 3 Comments

Economic Outlook: Fiscal Policy, Equality of Opportunity, and Social Mobility

“Your chances of achieving the American Dream are almost two times higher … if you are growing up in Canada than in the United States,” said Harvard’s Raj Chetty at a Center on Children and Families (CCF) event held on Monday. Chetty, the Bloomberg Professor of Economics and a leading scholar on opportunity and intergenerational mobility, presented his latest research on how where one grows up has a huge impact on success later in life.

Chetty and colleagues calculated upward mobility for every metro and rural area in the United States.

The heat map below shows the chances that a child born in the bottom fifth of the income distribution in that particular place will reach the top fifth later in life.

My more perceptive readers may be thinking, “Ben, you usually advocate for equality of opportunity, not outcomes, what gives?”

This is a fair observation. Generally speaking, I do believe more in equality of opportunity than equality in outcomes. But these two concepts cannot be fully separated. In fact, they intersect at what has become an important issue for politicians, academics, and social scientists alike–social mobility.

Observing social mobility outcomes at the macro level provides insight into opportunity (or lack thereof) at the micro level. At more macro levels (neighborhood, city, county, etc), the differences in individuals’ development experiences (wealth, culture, parental values, personal ability, luck, etc.) are naturally smoothed out. Taking into consideration every possible permutation of personal development, these forces offset one another. What we are left with is the “average” (for lack of a better word) personal development experience.

This “average” experience leaves a common factor–public goods and services–as the variable explaining why certain areas recognize greater social mobility than others (as shown on Mr. Chetty’s map). The fact that the administration of many important public services is carried out at these same levels reinforces the idea that social mobility outcomes are the result of policy choice(s).

Once we get past the question of “if” government programs can impact people’s opportunities, we can focus on which programs are most effective in promoting social mobility. Data mapping serves an important role here, highlighting areas that may have a working policy mix (although since economic development is context sensitive, even the seemingly best policy mix must be adapted to local realities to be effective).

The question then becomes how to pay for the programs which enable equality of opportunity. Fiscal debates are always implicitly an often explicitly shaped by underlying budgetary positions. The unwillingness of governments around the world to engage in stimulus spending despite low interest rates and high un(der)employment (a liquidity trap) is case-in-point.

In order to pay for the services needed to enhance social mobility in poorer neighborhoods, significant investments are needed. This necessitates higher effective tax rates on the ultra-wealthy (which in turn requires a multi-faceted approach, closing loopholes in capital gains, income, and inheritance/gift taxes to name a few); people whose wealth is often unrelated to productivity.

The economic outcomes of the wealthiest ultimately must be impacted in order to finance programs that promote equality of opportunity. This fact, however, does not necessitate class warfare between the lower, middle, and upper-middle classes–the vast majority of the America’s citizenry.

The American economy must work for everybody who is willing to work hard to succeed, regardless of their socioeconomic background. Once this condition is met, inequality is not only defensible, it actually spurs hard work and innovation. Unfortunately, contemporary America is nowhere near this “good inequality”; our inequality is not the result of meritocracy, but primarily the result a political process / tax code beholden to wealthy interests and an outdated criminal justice system.

June 1, 2015
by bzupnick Leave a comment

Green News: The Needed E-Recycling Movement

Artist rendition of an e-waste pile from the movie “Idiocracy”

If you live in the developed world, chances are you either have or know someone who has a drawer, cabinet, or closet full of “e-waste”–a combination of old electronic devices and wires that serves absolutely no purpose but to take up space. Why does our e-waste get hoarded? I believe it is because e-recycling options are few and far between.

The head of the United Nations body tasked with setting the global environmental agenda today stressed the need to limit the use of dangerous chemicals and to find a solution to the masses of electronic waste building up around the world, as a Conference of Parties to three major Conventions on the subject began in Geneva today.

Achim Steiner, Executive Director of the UN Environment Programme (UNEP), told journalists that the “tsunami of e-waste rolling out over the world” not only accounted for a large portion of the world’s non-recyclable “waste mountain” but also needed dealing with because many elements found in electronic equipment are potentially hazardous to people and the environment.

“Never mind that it is also an economic stupidity because we are throwing away an enormous amount of raw materials that are essentially re-useable,” said Mr. Steiner. “Whether it is gold, silver or some of the rare earths that you have heard about perhaps in recent years, it is still an incredible amount.”

Mr. Steiner said that the amount of some such materials that are available above ground in unused electronics now exceeds the amount still in the ground and he looked to the potential of the Basel Convention to help access ‘urban mines’ by working to better inform people of how to dispose of their e-waste.

“Annually, one million people die from occupational poisoning,” Mr. Steiner said, referring to the effects of the use of chemicals on people’s bodies. “This is something that is, in this day and age, not only unnecessary it’s really intolerable. And this is why the sound management of chemicals is something that has brought Governments, civil society but also the private sector and the chemical industry together.”

One of the more well known theories of Technology, “Moore’s Law“, states that the number of transistors per square inch on integrated circuits has doubled every year since their invention, and will continue to do so into the foreseeable future–this “law” has remained relevant for 50 years. While Moore’s law may sound like techno-babble that doesn’t affect the average person, it has a lot to do with our collective e-hoarding problem; due to some combination of technological innovation and planned obsolescence, the viable life of electronic products is incredibly short.

Between consumption patterns in developed countries and efforts to bridge the “digital-divide” in the developing world, the world’s e-waste problem will only get worse if left unaddressed. Absent a systematic way of dealing with our e-waste, we will continue hoarding rare-earth metals while simultaneously extracting them from the ground (with all the environmental degradations that accompany resource mining).

E-recycling can also help lower the costs of producing the stripped-down versions of smart-phones and tablets that play an important role in reducing poverty in poor countries. Due to the value of rare earth metals and the costs of extraction, e-recycling could potentially provide a revenue stream for cash strapped municipalities.

So we come to the need to promote global e-recycling efforts. To be effective, this movement should involve all concerned private and public sector actors.

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I would like to end this blog with a personal anecdote. I have a broken computer in my apartment that has been sitting there for weeks as I try to figure out how to dispose of it in a responsible way–What exactly should I do?

If your answer involves going online and researching how to dispose of e-waste where I live, then I say to you this unnecessary burden is representative of the exact problem I am railing against. Most people do not have the time or desire to take this extra step. Instead, they will just throw out their e-waste, trashing valuable resources, necessitating further extraction of rare earth materials, and endangering public health.

It is not as if we are waiting for some technological breakthrough to address this issue. A solution as simple as e-recycling bins or designated days for e-waste pickup could help solve this looming global problem.