Archive for June 22nd, 2021

The last thing this century needs is a cold war between US and China

June 22, 2021

Joschka Fischer, Germany’s foreign minister and vice chancellor from 1998 to 2005, in this Proj Syndicate piece:

This month’s G7 summit seemed to confirm what has long been apparent: The United States and China are entering into a cold war similar to the one between the US and the Soviet Union in the second half of the twentieth century.

The West no longer views China just as a competitor and rival but as a civilizational alternative. Once again, the conflict seems to be about mutually exclusive “systems.” Amid an escalating clash of values and competing claims to global power and leadership, a military confrontation – or at least a new arms race – seems to have become a distinct possibility.

But on closer examination, the Cold War comparison is misleading. The systemic rivalry between the US and the Soviet Union was preceded by one of the most brutal and catastrophic “hot” wars in history, and reflected the frontlines of that conflict.

….

The situation between the West and China today is totally different. Though the Communist Party of China calls the country “socialist” to justify its political monopoly, no one takes that label seriously. China does not define its difference from the West according to its position on private property; rather, it simply does and says whatever is necessary to maintain one-party rule. Since Deng Xiaoping’s reforms in the late 1970s, China has established a hybrid model that accommodates both markets and central planning, and both state and private ownership. The CPC alone stands at the top of this “Market-Leninist” model.

So why have a cold war at all?

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Patchy data is a good start – from Kuznets and Clark to supervisors and climate

June 22, 2021

Frank Elderson of ECB in this speech reflects on how unprepared European banks are towards climate change.  The data is still patchy but is work in progress. He points how this is similar to starting the concept of national accounts and then gradually building it:

Supervising and managing climate risks represents a long journey into a new and complex topic for all of us. But progress is possible, as a few banks have already shown. Our efforts to raise the bar for climate risk management and disclosures are motivating some banks to explore climate and environmental risks further and manage them better. And it is important that we share the knowledge we gain and the lessons we learn along this journey.

When thinking of lessons learned, one looks to the past.

So let’s go back almost a century to the 1930s, a time when governments were struggling to pull their economies out of the abyss of the Great Depression.

After experimenting with new tools, it was the development of national accounts by economists like Clark in the United Kingdom and Kuznets in the United States that gave policymakers a first real grip on of how the economy was doing. It was a faulty measure – and remains so to this day – but it was the best possible solution at the time. No, national accounts were not harmonised. And yes, the data were patchy and incomplete at first. But as imperfect a measure as it was, it enabled progress and was a fundamental step towards lifting economies out of the Great Depression.

Fast forward 90 years – and you will find us here, today, facing an even greater challenge than the Great Depression: climate change. We have got better at collecting information on the consequences of climate change. As patchy as those data may be for now, it will enable progress in climate issues too. And in any case, banks do already have access to enough information to start making real progress.

Finance, Growth, and Inequality: A Literature Review

June 22, 2021

Ross Levine in this IMF paper surveys literature on impact of financial development on growth and inequality:

Finance and growth emerged as a distinct field of economics during the last three decades as economists integrated the fields of finance and economic growth and then explored the ramifications of the functioning of financial systems on economic growth, income distribution, and poverty. In this paper, I review theoretical and empirical research on the connections between the operation of the financial system and economic growth and inequality.

While subject to ample qualifications, the preponderance of evidence suggests that (1) financial development—both the development of banks and stock markets—spurs economic growth and (2) better functioning financial systems foster growth primarily by improving resource allocation and technological change, not by increasing saving rates. Some research also suggests that financial development expands economic opportunities and tightens income distribution, primarily by boosting the incomes of the poor.

This work implies that financial development fosters growth by expanding opportunities. Finally, and more tentatively, financial innovation—improvements in the ability of financial systems to ameliorate information and transaction costs—may be necessary for sustaining growth.


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