Normative Narratives


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Economic Outlook: Guaranteed Income vs. Guaranteed Employment

Dr. Martin Luther King Jr., a man whose understanding of social justice was unrivaled, knew the importance of gainful employment in achieving his goals. In his day, Dr. King advocated for (among other things) good jobs for African Americans who had been systematically discriminated against for centuries. This was largely something the private sector could provide, if racial discrimination was sufficiently deterred.

Today, it is not an individual race that faces barriers to gainful employment, but a whole socioeconomic lower class. With corporate profits at an all time high, and interest rates at historic lows, the past few years would have been the perfect time for corporations to ramp up hiring. However, due to forces such as globalization and automation, it appears the private sector alone will not provide the number of well-paying jobs American’s need–it simply does not have to in order to maximize profits (at least in the short-run).

A recent Brookings blog advocated for guaranteed income (i.e. welfare) in the face this reality:

The labor market continues to work pretty well as an economic institution, matching labor to capital, for production. But it is no longer working so well as a social institution for distribution. Structural changes in the economy, in particular skills-based technological change, mean that the wages of less-productive workers are dropping. At the same time, the share of national income going to labor rather than capital is dropping.

This decoupling of the economic and social functions of the labor market poses a stark policy challenge. Well-intentioned attempts to improve the social performance of the labor market – through higher minimum wages, profit-sharing schemes, training and education – may not be enough; a series of sticking leaky band-aids over a growing gaping wound.

As Michael Howard, coordinator of the U.S. Basic Income Guarantee Network, told Newsweek magazine: “We may find ourselves going into the future with fewer jobs for everybody. So as a society, we need to think about partially decoupling income from employment.

…the answer for American families is an old idea whose time has come—a universal basic income.

While an interesting idea, I think having the government act as an “employer of last resort” is a better way of achieving the goals of “universal basic income”, in a way that would be more politically viable. Aside from the economic benefits of employment, there are numerous social benefits as well, including: less crime, improved self-esteem / mental health, and experience / skill building (making people more desirable to private sector employers).

Government jobs could work in many sectors, at lower average wages (so people look for private sector work first), but with more of a training component to promote eventual private sector employment.

Below are a few potential areas for government jobs–areas that are severely under-invested in, and have strong positive “externalities“:

Infrastructure:

The most often cited example when discussing greater government employment is infrastructure. America’s roads and bridges are largely neglected, costing billions a year in lost economic output and putting people’s safety at risk.

Community Development: 

New evidence suggests that where a person grows up has a significant impact on their chances of being successful later in life. Those who grow up in poorer areas find it much harder to “get out” and live productive lives. This is, of course, a huge hindrance to social mobility.

Community development initiatives include mentoring programs (which can mitigate the effects of bad parenting), and “after-school activity” type programs (which can steer young people towards constructive hobbies which often become the basis of employable skills, and away from destructive behavior). Community centers could also offer affordable / free daycare services for younger children.

Parent(s) determine both “who” raises a child, and “where” (since adults make the choice of where they raise their kids)–winning or losing the “parenting lottery” should not be such a strong determinant of future success. While it is impossible to separate the genetic link between parents and their child (the “nature” side of human development), the “who” and “where” (“nurture” side of human development) can be impacted by investing in community development.

Mental Healthcare:

The ACA ensures mental health parity, but not everyone gets the help they need.  To close this gap, government work could increase the “supply” of mental healthcare workers. What I propose is a Mental Health Corp, featuring a new job type–something akin to nurse practitioners taking on more of a doctor’s duties to reduce healthcare costs–in the mental healthcare field.

One does not need a PhD or MD to provide meaningful help to someone struggling with mental illness. There will always be demand for the best trained mental health professionals from people with the means to afford their services, but for those who cannot, surely some care–even if it is not “the best”–would be greatly beneficial. Such care could help people overcome issues that make them unable to find/hold a job and/or lead to criminal activity. 

Feel free to disagree with me on any of the fields mentioned above. The point I am trying to make is that government employment need not be “digging holes to fill them back up again”.

Robust analyses are needed to compare the costs of our current welfare and criminal justice systems versus the cost of a guaranteed employment program. Not all criminal justice or welfare costs would be eliminated with guaranteed employment (criminal justice reform and a livable minimum wage are also needed) but a significant portion would. It is possible a guaranteed jobs program would not cost much more than what we currently pay to combat the symptoms of unemployment, with much greater benefits. 

While on the topic of welfare, guaranteed employment would remedy one of the major holes in the otherwise sound work-for-welfare requirement of the 1996 welfare reform act. After this reform, those unable to find a job also found themselves without a safety-net, falling into “extreme poverty” (which has more than doubled since the reforms were passed)There is a common saying that a nation should be judged not by how well off its wealthiest are, but by how well off its poorest are–with guaranteed employment for those who want it, America would be doing much better on this count. It is past time to plug this obvious hole in welfare reform.

While no one would get rich from government employment, they would be able to live a comfortable life and provide the resources needed for their children to realize their full potential, fulfilling the promises of equality of opportunity and social mobility that America is built upon.

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Economic Outlook: Malnutrition and Sanitation in India

https://i0.wp.com/www.livemint.com/rf/Image-621x414/LiveMint/Period1/2013/08/13/Photos/rural_sanitation--621x414.jpg

Original article:

So why was Vivek malnourished?

It is a question being asked about children across India, where a long economic boom has done little to reduce the vast number of children who are malnourished and stunted, leaving them with mental and physical deficits that will haunt them their entire lives. Now, an emerging body of scientific studies suggest that Vivek and many of the 162 million other children under the age of 5 in the world who are malnourished are suffering less a lack of food than poor sanitation.

Like almost everyone else in their village, Vivek and his family have no toilet, and the district where they live has the highest concentration of people who defecate outdoors. As a result, children are exposed to a bacterial brew that often sickens them, leaving them unable to attain a healthy body weight no matter how much food they eat.

“These children’s bodies divert energy and nutrients away from growth and brain development to prioritize infection-fighting survival,” said Jean Humphrey, a professor of human nutrition at Johns Hopkins Bloomberg School of Public Health. “When this happens during the first two years of life, children become stunted. What’s particularly disturbing is that the lost height and intelligence are permanent.”

“Our realization about the connection between stunting and sanitation is just emerging,” said Sue Coates, chief of water, sanitation and hygiene at Unicef India. “At this point, it is still just an hypothesis, but it is an incredibly exciting and important one because of its potential impact.”

Half of India’s population, or at least 620 million people, defecate outdoors. And while this share has declined slightly in the past decade, an analysis of census data shows that rapid population growth has meant that most Indians are being exposed to more human waste than ever before.

Other developing countries have made huge strides in improving sanitation. Just 1 percent of Chinese and 3 percent of Bangladeshis relieve themselves outside compared with half of Indians. Attitudes may be just as important as access to toilets. Constructing and maintaining tens of millions of toilets in India would cost untold billions, a price many voters see no need to pay — a recent survey found that many people prefer going to the bathroom outside.

One analysis found that government spending on toilets pays for itself in increased tax receipts from greater productivity, but the math works only if every member of a family who gets a toilet uses it.

“We need a cultural revolution in this country to completely change people’s attitudes toward sanitation and hygiene,” said Jairam Ramesh, an economist and former sanitation minister.

India now spends about $26 billion annually on food and jobs programs, and less than $400 million on improving sanitation — a ratio of more than 60 to 1.

The present research on gut diseases in children has focused on a condition resulting from repeated bacterial infections that flatten intestinal linings, reducing by a third the ability to absorb nutrients. A recent study of starving children found that they lacked the crucial gut bacteria needed to digest food.

Just building more toilets, however, may not be enough to save India’s children.

Phool Mati lives in a neighborhood in Varanasi with 12 public toilets, but her 1-year-old grandson, Sandeep, is nonetheless severely malnourished. His mother tries to feed him lentils, milk and other foods as often as she can, but Sandeep is rarely hungry because he is so often sick, Ms. Mati said.

“We all use the bathroom,” she said.

The effluent pipe that served the bathroom building is often clogged. Raw sewage seeps into an adjoining Hindu temple, and, during the monsoon season, it flooded the neighborhood’s homes. The matron of the toilet facility charges two rupees for each use, so most children relieve themselves directly into open drains that run along a central walkway.

Much of the city’s drinking water comes from the river, and half of Indian households drink from contaminated supplies.

“India’s problems are bigger than just open defecation and a lack of toilets,” Dr. Laxminarayan said.

When determining the efficacy of social programs, one must consider both supply and demand side factors:

Supply Side — Investment in public toilets, clean water / sanitation infrastructure.

Demand Side — People in India do not seem to think funding for sanitation is a priority. An Educational / media / social media campaign to increase demand is required alongside greater investment (supply side). Furthermore, even a small fee can be enough to discourage toilet use when an alternative (public defecation) exists, particularly in a country such as India where extreme poverty makes such fees prohibitory to society’s most vulnerable.

My World 2015 survey results show global demand for nutritious foods and sanitation / clean water at roughly same priority level across level development / education level–this is clearly not the case in India.

In a democracy such as India, supply side impediments can sometimes be caused by (or blamed on) inadequate demand (voters do not think the issue is important). Therefore, people must be better educated about the costs of open defecation and benefits of modernized sanitation systems.

There are temporal / necessity reasons that nutritional support receives such greater attention and resources compared to sanitation support. There is no substitute for food–without food, people die relatively quickly (typically 10-14 days). One can always defecate in public, with little immediate risk to their health (although, as the article highlights, there are real health problems and externalities associated with public defecation).

Furthermore, compared to food delivery, the upfront costs associated with sanitation infrastructure may seem very high (even if, as the article proposes, these costs “pay for themselves” in the long run). One potential solution could be the proliferation of composting toilets, which do not need to be attached to plumbing systems.

Sanitation is, of course, not a substitute for nutritious / vitamin fortified foods. Even with perfect sanitation services, people can still go hungry / be malnourished. They are compliments; investing in sanitation yields greater returns on investments in nutrition, education, etc. Public resources must more closely reflect that (reduce the 60:1 discrepancy).

For example, providing school meals has been a popular program in developing countries, meant to improve attendance rates. But the ultimate goals of education, human development and social mobility,  are decidedly less effective if parasites and infections divert nutrients from cognitive / physical development towards survival.

This article highlights a general realization in the field of development economics, the need for a context-sensitive, human rights based approach to poverty alleviation and human development.

Without taking into consideration cultural attitudes towards public defecation present in India (but not in many other developing countries), and providing a wide variety a basic services (sanitation, nutritional support, healthcare, education, etc.–a human rights based approach to development that recognizes human rights violations as interconnected), the malnutrition epidemic in India might never improve, regardless of the amount of resources dedicated to nutritional support alone.

The situation in India also presents an prime opportunity for information sharing, what those in the field of development call “South-South cooperation“. This concept is simple; by sharing experiences of what has worked (and failed) in other developing countries, a country may be able to avoid common policy mistakes (and the subsequent misallocation of scarce financial resource). At first this may seem antithetical to a context sensitive approach to human development, but it is not. While lessons learned from other countries through south-south cooperation must be amended to reflect the context of the country considering them (in this case India), this does not mean that there is not real value in the information shared through South-South cooperation.


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Economic Outlook: Europe Addresses “Too Big To Fail” and Speculation v. Investment

Original article

“Finance ministers in Luxembourg will try to resolve one of the most difficult questions posed by Europe’s banking crisis – how to shut failed banks without sowing panic or burdening taxpayers.”

“But France and Germany are divided over how strict the new rules should be, with Paris worried that imposing losses on depositors could prompt a bank run.”

A draft EU law that will form the basis f discussions recommends a pecking order in which first bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros ($132,000) in their account.”

“A central element to ensure the euro zone’s long-term survival is a system to supervise, control and support its banks, known as banking union.

Common rules in the wider European Union are considered a stepping stone towards the euro zone’s banking union.

Agreeing EU-wide norms would address Germany’s demand that European rules on closing banks be in place before the 17-nation euro zone’s bailout fund can help banks in trouble.”

“If agreed, the new EU rules would take effect at the start of 2015 with the provisions to impose losses coming as late as 2018.”

“Britain and France say countries should have the final word in deciding how to close banks and not be tightly bound by any new EU rules.

But Germany, the Netherlands and Austria want regulations that will be applied in the same way across all 27 countries in the European Union. They fear that granting too much national leeway would undermine the new law.

“Some flexibility might be necessary, but it shouldn’t be too much,” Joerg Asmussen, the German member of the European Central Bank executive board, told reporters, arguing that investors need to know the rules of the game. ($1 = 0.7590 euros)”

By systematically imposing losses on investors, the EU is attempting to address the “too big to fail” issue from the demand side.

Combined with preferential rates for long run investments vs. short run investments, and a FTT (which is implicitly higher for short-run investments, as a potential investor is likely to reinvest multiple times, he/she will pay more for many short-sighted investments since he/she is paying for each investment individually), policy changes can funnel money towards “investment” and away from “speculation”.

Investment v. Speculation

 Keynes: The General Theory of Employment, Interest and Money

“But there is one feature in particular which deserves our attention. It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it “for keeps”, but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.

Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.”

Keynes’s words still ring true today (even truer really). At the core of the issue is that the term “investment” in a financial sense has evolved in a way that economic policy makers have yet to adjust too. Most “investment” today is little more than rent-seeking speculation.

Consider the following definition from Investopia.com:

“Investment: An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

The building of a factory used to produce goods and the investment one makes by going to college or university are both examples of investments in the economic sense.

In the financial sense investments include the purchase of bonds, stocks or real estate property.

Be sure not to get ‘making an investment’ and ‘speculating’ confused. Investing usually involves the creation of wealth whereas speculating is often a zero-sum game; wealth is not created. Although speculators are often making informed decisions, speculation cannot usually be categorized as traditional investing.”

Don’t want to take my (or Keynes or Investopia’s) word for it? It is not only “outsiders” who believe the financial sector has evolved in a way that is detrimental to society as a whole. Consider the summary of a book recently written by financial guru and pioneer by John C. Bogle:

“Over the course of his sixty-year career in the mutual fund industry, Vanguard Group founder John C. Bogle has witnessed a massive shift in the culture of the financial sector. The prudent, value-adding culture of long-term investment has been crowded out by an aggressive, value-destroying culture of short-term speculation. Mr. Bogle has not been merely an eye-witness to these changes, but one of the financial sector’s most active participants. In The Clash of the Cultures, he urges a return to the common sense principles of long-term investing.”

As I have often advocated, the financial sector needs policy reforms to make it more sustainable–for both society as a whole and for the future of the sector itself in a post-too-big-to-fail world. Policies need to be reshaped to reward the positive externalities of investment,  while holding speculators accountable for the negative externalities of their “investments”.

This will require great political will to overcome the vested interests that the financial sector has secured. It will also require the chasm between investment and speculation to be accepted as common knowledge.

Europe has made strong efforts to “push the needle” on these reforms, with its innovative approach to address too big to fail financial institutions and it’s repeated calls for a FTT. The financial sector cannot continue to thrive to the detriment of society as a whole. The burden of change ultimately falls on the people of the world (surprise surprise), we must elect leaders who possess the political will to make these necessary changes.