Archive for the ‘Growth and development’ Category

Missed Opportunities: The Economic History of Latin America

October 6, 2017

There is a new book on Latin America by Beatriz Armendáriz and Felipe Larraín.

IMF interviews Prof Larrain. What sums up the missed opportunities in the region?

Latin America has vast natural resources and a talented population. Why has the region remained so poor compared with its northern neighbors?

Our book highlights five theories of why Latin America has lagged behind, some of which date back to the region’s colonial origins.

The first is geography. Over 70 percent of Latin America is in the tropics, which makes everything more difficult. The region is more exposed to disease—malaria, yellow fever, dengue, cholera, and others—and it is far from key markets.

Second, Latin America was exposed to civil law tradition after independence, as opposed to common law. A common law system—where judges have a more active role—is more conducive to economic growth and development.

Third is large-scale agricultural plantations in Latin America. In the North, there was more mixed farming centered on grains and livestock, and smaller units, which led to more democratic political institutions, a more robust protection of property rights, and a larger middle class.

Fourth, the region’s institutional legacy is a part of the story too, where institutional arrangements in the South are weaker as opposed to the North.

And finally, ethno-linguistic and cultural fragmentation in Latin America, which goes back to the colonial periods, have also held back the region, although the influence of this factor is much less important than in Africa, for example.

Hmm… How these factors continue to impact the region..



20th Anniversary of British transferring Hong Kong to China: Remembering John Cowperthwaite’s role in shaping the island

July 3, 2017

On 20th anniversary of Hong Kong, Neil Monnery has a nice piece on role of John Copwerwaithe in shaping the island economy:

Could Industrial Revolution have happened in Mysore and Gujarat?

June 29, 2017

This looks like a fabulous book by Kaveh Yazdani of University of the Witwatersrand: India, Modernity and the Great Divergence Mysore and Gujarat (17th to 19th C.).  Industrial Revolution studies are mainly Eurocentric and this book looks at two regions from India – Gujarat and Mysore. These were two relatively advanced regions in India and so could they have their own industrial revolution as well?

Yazdani has a blogpost on the Economic Sociology blog:


Joblessness: The great Global crisis of the twenty-first century

June 28, 2017

Edward Galesar of Harvard University writes a long essay covering history, society, politics and economics. The kind of essay which was basically how economists wrote and tried communicating with the public. This art is mostly lost now as much of economic thinking has become garbled amidst equations and race for publishing.

He takes you through a tour on how the jobless problem in America started. He focuses on America joblessness is a global problem:


Comparing Rainfall patterns and human settlement in tropical Africa and Asia

June 15, 2017

Interesting study by Kostadis Papaioannou and Ewout Frankema. If geography was given adequate focus while teaching economics, these issues should have been pretty well-known:

Our study adds support to the idea that the climatological challenges posed to agricultural development were larger in tropical Africa than in tropical Asia, and that this may be one of the keys to understanding why large parts of tropical Asia have historically been more densely populated than tropical Africa. In so far as higher degrees of climatological variability posed more severe constraints to the adoption of modern, productivity-enhancing farming technologies, this may also partially account for the diverging trajectories of agricultural development in the post-1960 era.

However, the implications of our findings go even further. The increasing frequency and intensity of weather shocks observed today, such as heat waves, droughts, floods, and hurricanes, adversely affect conditions of agricultural production and jeopardise efforts to achieve global food security. A rapidly expanding literature shows that climate-induced food shortages pose severe threats to societal cohesion by triggering civil conflict, raising property crime rates, and increasing migration (Miguel et al. 2004, Papaioannou 2017).

The effects of climate change are felt harder in Africa than elsewhere. Our study suggests that African farmers also have a longer experience in coping with climate shocks, even though more evidence is needed to explore whether this has been a structural historical condition, or one specific for the interwar era.


Kerala diaspora in West Asia jittery..

June 6, 2017

It is always fascinating to learn about people’s migration to other regions in search for better economic opportunities. Kerala-West Asia ties are as old as any such migration history.

So this story tells you how Kerela people are preferring Qatar in recent times and why that is worrying now:

Apprehension prevails among the Kerala diaspora in West Asia, with the Gulf states, including Saudi Arabia and the United Arab Emirates, severing diplomatic ties with the oil-rich Qatar.

Non-Resident Keralites and their families are panicked as consular ties have been severed by these countries, and all land, sea, and aviation ports to Qatar closed. Of the 6.5 lakh Indians working in the gas-rich Qatar, 3.5 lakh are from Kerala, and their safety has become a concern for their families back home as well as the State government.

Though Qatar Airways, the state-owned flag carrier of the Emirate, has cancelled its flights to Saudi Arabia following the diplomatic crisis, flights to the three international airports of the State were operated according to schedule on Monday.

The airline conducts daily flights to Thiruvananthapuram and Kozhikode international airports and 11 weekly flights to Cochin International Airport. Keralites working in Gulf states prefer to travel via Doha, and it is reflected in the flights being operated from the Hamad International Airport to the State.

Though sources in the airline maintained that flights to Kerala on Tuesday would be operated as per schedule, uncertainty prevails over the travel of Keralites to Gulf states like the United Arab Emirates, Saudi Arabia, Bahrain, Yemen, and Egypt. Many use Qatar as the gateway to reach Saudi Arabia.

 Abu Dhabi’s state-owned Etihad Airways has suspended all its flights to and from Doha. As a result, those proceeding via Emirates flights from its hub in Dubai to Doha will have to depend on other airlines.

Sources in the airlines said the impact of the diplomatic crisis on the aviation sector would be felt in the coming days, and flyers would have to skip the Hamid International Airport in Doha for proceeding to other Gulf states.

The crisis will also be a setback for the Kerala diaspora in Qatar that has been growing noticeably in the wake of the booming construction sector as part of the build-up to the FIFA World Cup 2022.

Unlike other the Gulf Cooperation Council (GCC) nations where the Kerala diaspora is shrinking due to a host of reasons, Keralites have been looking forward for greener pastures in Qatar of late.


How Paul Romer has been sidelined in World Bank due to war over words and usage of ‘and’…

May 26, 2017

Interesting piece on politics of economic research and grammar usage  in World Bank.

The World Bank’s chief economist has been stripped of his management duties after researchers rebelled against his efforts to make them communicate more clearly, including curbs on the written use of “and.”

Paul Romer is relinquishing oversight of the Development Economics Group, the research hub of the Washington-based development lender, according to an internal staff announcement seen by Bloomberg. Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Romer will remain chief economist, providing management with “timely thought leadership on trends directly affecting our client countries, including the ‘future of work,’” World Bank President Jim Yong Kim said in the note to staff dated May 9.

Romer said he met resistance from staff when he tried to refine the way they communicate. “I was in the position of being the bearer of bad news,” he said in an interview. “It’s possible that I was focusing too much on the precision of the communications and not enough on the feelings my messages would invoke.”

It’s unusual for the World Bank’s chief economist, a role once occupied by heavyweights such as Stanley Fischer and Lawrence Summers, not to run the Development Economics Group, known as DEC, which publishes original research, develops the bank’s forecasts and oversees its data. The move raises questions about how much freedom the bank’s economists will have to do outside-the-box research on policies to help the world’s poorest.


As developing world aspires to become the developed US, the developed US is becoming like a developing country..

April 26, 2017

Prof Peter Temin of MIT who is a distinguished economic historian warns about decline of US. He actually goes a step further and says US has descended into a developing economy. He has recently written a book called The Vanishing Middle Class.

He actually says America is no more one country but divided into two parts. One part keeps growing and other keeps declining. The explanation is quite similar to India vs Bharat:


Why have both Venezuela and South Africa failed to achieve what their leaders sought?

March 20, 2017

Another interesting piece by Prof Ricardo Hausmann. He brings in the case of South Africa whose leaders have tried to redistribute capital. But like most others, the results have not materialised.

Why? The reason is leaders have been inspired by Marx who seek to redistribute income. In a Marxian world only two ingredients matter: capital and labour. But another key ingredient – knowhow- misses from their thinking:


Did Thatcher reverse UK decline? Questioning the standard narrative…

March 15, 2017

It is quite fashionable to build narratives around economic growth/development of a country with one/two individuals. Nothing sells as much as this narrative. It has an immediate appeal. What starts as a narrative eventually becomes a fairy tale of sorts and that person a very popular character. What better than India to see this where 1991 was the year when Dr Manmohan Singh just changed Indian economy.

The problem with such grand narratives is the story starts much before and is a series of multiple steps and actors which culminates in that big narrative. So in India’s case researchers have often pointed things started with Rajiv Gandhi post 1985 but it does not really capture the mood.

Similarly in this piece, Profs. Nauro Campos and Fabrizio Coricelli question the Thatcher narrative:

 Though, both EEC membership and Thatcher actions are complementary:

These results provide new evidence that the great British reversal was driven by membership of the European Economic Community, not Mrs Thatcher’s structural reforms. These two explanations may, however, be complementary.

These reforms were implemented in the second term of the Thatcher government. Her June 1983 general election victory was the most decisive since Labour’s victory in 1945. The main reforms that defined her second term covered labour, product, financial market liberalisation, privatisation and openness to foreign investment (Card and Freeman 2004, Oulton 2016).

Our main finding was that the 1969 turning point is more powerful than structural breaks at the launch of Mrs Thatcher’s programme of structural reforms in 1983 or 1986. Our earlier Vox column on this topic discusses the determinants of the UK decision to join the EU (Campos and Coricelli 2015), while here we focus on its implications by providing new statistical evidence on the effects of European integration on UK economic performance, compared to Mrs Thatcher’s reforms. Hence our study combines the empirical identification of structural breaks with an analysis of how and why the benefits from EEC – and later, EU – membership changed over time (Campos et al. 2016, Crafts forthcoming). The UK’s per capita GDP relative to the EU founding members declined steadily from 1945 to around 1970, and became relatively stable after that. If the UK joined the EEC to stop its relative economic decline, it worked. It also laid the ground for future improvements in relative economic performance with the introduction of the single market.

The success of Mrs Thatcher’s reforms required EEC membership. These structural reforms were not implemented in a vacuum. They could not have existed without the powerful support of British entrepreneurs (Grossman and Helpman 2001), who benefited from a larger, deeper and more innovative market (contrast the EEC at the time with EFTA and the Commonwealth). These entrepreneurs also realised that to be competitive they would need access to deeper capital and labour markets supported by a set of common standards, rules and regulations (Baldwin 2016, Mulabdic et al. forthcoming). Without support from such powerful constituencies, Mrs Thatcher’s reforms would not have been implemented as they did, and certainly would not have been as successful.

This explanation draws parallels with the French experience in the immediate post-war period (Adams 1989). Between 1945 and 1957, there was a conflict of interest between powerful groups of French entrepreneurs, some of whom were against, and some in favour of, further European economic integration. The interests of those against were associated mostly with the former French colonies, though they lost influence in the run-up to the Treaty of Rome and found themselves locked into the European integration project even after de Gaulle was elected president in 1958 (Moravcsik 2012). At that point, they could redirect but not reverse the process.

Nice bit..

Christian missions’ heterogeneous effects on development in sub-Saharan Africa…

March 9, 2017

Fascinating research by Julia Cagé and Valeria Rueda.

How apprenticeship institutions helped in rise of Europe…

March 6, 2017

David de la Croix, Matthias Doepke, Joel Mokyr have a nice post.This quest to explain rise of Europe remains one of the holy grails of political economy.

They say apprentice system played an important role:

We look for big ideas but the smaller ones matter equally.

US share of World GDP declining, but share of US Dollar keeps rising

March 3, 2017

Carmen Reinhart has a piece explaining this dilemma:

Since the end of World War II, the United States’ share in world GDP has fallen from nearly 30% to about 18%. Other advanced economies have also experienced sustained declines in their respective slices of the global pie. But you wouldn’t know it from looking at the international monetary system.

Over the same period, China’s share of world GDP almost quadrupled, to around 16% (just behind the US), and emerging markets now account for about 60% of global output, up from about 40% in the immediate post-war years. Given that advanced-economies’ growth prospects remain subdued, these trends are likely to continue – even with the evident slowing in China and other emerging markets.

And yet global finance has not mirrored this shift in balance from the advanced to the emerging. The post-war Bretton Woods arrangements institutionalized the role of the US dollar as the main reserve currency, and until the 1970s, about two-thirds of global GDP was anchored to the greenback. The remainder was largely split between the British pound and the Soviet ruble.

In a recent study that I undertook with Ethan Ilzetzki and Kenneth Rogoff, we document that the US dollar has retained its dominant position as the world’s reserve currency – and by a significant margin. Over 60% of all countries (accounting for more than 70% of world GDP) use the US dollar as their anchor currency. Other metrics, which include the proportion of trade invoiced in dollars and the share of US assets (notably Treasuries) in central banks’ foreign exchange reserves, suggest a similar degree of “dollar dominance.”

The euro is a distant second. From the early 1980s until the introduction of the euro in 1999, the Deutsche Mark’s (DM) influence expanded first in Western Europe and later in Eastern Europe. But the rise of the euro, which consolidated the DM and French franc (Africa) zones, appears to have stalled. By some measures (given the shrinking share of Europe in world output), its global importance has declined.

No other major established international currencies currently compete for global leadership.

This is nothing but the modern Triffin dilemma. The US can continue its existing ways but there are other possibilities as well:

Now as then, the US could meet the rest of the world’s appetite for dollars by issuing more dollar debt. This would require the US to run sustained current-account deficits, mirrored in fiscal deficits. Of course, while the link to gold is passé, any domestic fiscal objective to curb US debt growth would be at odds with the international role as sole provider of the reserve currency.

One way or another, China will figure prominently in the resolution of this modern “Triffin dilemma.” One possibility is that the inevitable reduction of US current-account deficits (whenever that comes) may result from sustained dollar depreciation (as in the 1970s), implying a capital loss for China and other major holders of US Treasuries. Alternatively, China could eventually become a new supplier of reserve assets. In this scenario, the supply of the reserve asset would align with the world’s fast-growing regions.

This connection could be direct, if the renminbi acquires reserve-currency status; or indirect, if the International Monetary Fund’s unit of account, special drawing rights, becomes a favored asset of reserve managers, as the renminbi is now in the SDR currency basket. Reserve status for the SDR is a long-held IMF ambition, though the idea has never gotten much traction.

But there is a third possibility: global demand for US reserve assets may subside. While China’s ongoing capital flight is fueling an immediate and substantial decline in demand for US Treasuries, a more sustainable scenario would entail China’s transition to a managed floating exchange-rate regime with a deeper domestic financial market – and less emphasis on maintaining a credible war chest of foreign reserves.

One doubts whether the transition would be as easy.

Crony Capitalism: Shifting fortunes of Indonesia and Malaysia

February 22, 2017

Interesting piece on how tides have turned for the two countries.

Earlier Indonesia was a hotbed of cronyism but now it is Malaysia:

With populists emulating autocrats from Azerbaijan to Zimbabwe, free markets are being forced to confront crony capitalism.

One response is visible in the reversal of fortunes of Malaysia and Indonesia. The two nations still wrestle with the politics of ethnicity and religion at odds with the capitalism of market competition. In Indonesia, Basuki Tjahaja Purnama, a Chinese Christian who is the governor of Jakarta, is running for office while defending himself against charges of blasphemy against Islam in a country of predominantly Muslim voters. Malaysia’s embrace of an ideology of Malay supremacy and the low interest rates that invite a debt bubble are impediments to a dynamic economy.

But the historic advantage that Malaysia, with just 30 million people, has enjoyed over its Southeast Asian neighbor of 250 million is disappearing amid a barrage of corruption allegations challenging Prime Minister Najib Razak.

Najib, who was elected in 2009, says hundreds of millions of dollars in his personal bank accounts came from a gift from an unidentified Saudi donor, denying a U.S. Justice Department complaint filed in federal court last July that accuses Najib of stealing from a Malaysian government investment fund, 1Malaysia Development Berhad, or 1MDB. 

The markets have noticed this:

The divergent growth rates are reflected in the stock market, where the 539 companies in the Jakarta Stock Exchange Composite Index gained 287 percent during the past 10 years, according to Bloomberg data. That’s more than three times the 95 percent return during the same period for the 30 companies that make up the FTSE Bursa Malaysia Kuala Lumpur Index, and amounts to Indonesia outperforming Malaysia by 7.6 percent each year. The gap has grown more pronounced since 2014, as the Indonesia market has outperformed Malaysia’s by 9.3 percent annually.

In the bond market, Indonesian government securities provided a total return (income plus appreciation) of 100 percent since 2010. That’s 6.5 percent per year more than Malaysian government debt, which returned 30 percent over the same six years, according to Bloomberg data. Since 2014, Indonesia’s advantage has widened to 7 percent.

The inferior performance of Malaysia’s debt is reflected in the country’s deteriorating fiscal outlook during the past two decades. Since 1997, when both countries saw their surpluses transformed into deficits, Indonesia kept its budget close to balanced with an average annual deficit of 1.32 percent of its GDP, according to data compiled by Bloomberg.

Nothing is granted..

Wasted urban infrastructure: The city of Detroit

February 17, 2017

City/urban economics is always more interesting to read. Even if the papers are highly technical, atleast there is something real to learn and ponder.

This interesting bit of research looks at the issue of why in Detroit people do not live near the business centre of yore?

McCloskey’s Dutch Problem: Capitalist Rhetoric and the Economic History of Holland

February 9, 2017

A nice paper reviewing Deridre McCloskey’s work on Dutch economic history. It is written by Prof. Michael Douma of Georgetown University.

One gets a good glimpse of differences between Dutch and Other Scholars on why Dutch made progress ahead of others:

Deirdre McCloskey argues that rhetoric and ideas were essential for the rise of capitalism in the Netherlands in the seventeenth century. Dutch scholars could benefit from McCloskey’s views on the topic, but they will be reluctant to engage her work because it is void of primary research and does not engage most major works in the relevant historiography. Indeed, McCloskey appears to mostly select older English-language works sympathetic to her thesis, but ignores competing views. Contemporary scholarship, in Dutch and in English, emphasizes the important role of institutions and government actors in early Dutch capitalism. This article aims to situate McCloskey’s work within this literature, with the hope for more discussion in the field.
Superb stuff..

The Long Economic and Political Shadow of History

January 25, 2017

Voxeu team is coming up with a series of three e-books (free) all of which make one’s eyes to lighten up.

The first one is there on the website:

 Volume 1 of the e-book starts with our more detailed discussion of the recent literature on economic history that aims to explain the considerable persistence in economic and political development. It also includes some additional introductory chapters that review works on the spatial distribution of development, as depicted in satellite images on light density at night, summaries of fascinating new papers on the macrogenoeconomics of comparative development, and studies on environmental economic history. Next, it includes chapters which explore watershed events that have global repercussions, such as colonisation, the role of the Enlightenment on the Industrial Revolution, and the spur of commerce during the first era of globalisation.
The chapters in Volume 2 (forthcoming) feature research on the deep origins of African development and works on the legacy of colonial practices in India, China, and Australia. They cover a diverse set of major historical issues, such as the impact of the slave trades, colonial divide-and-rule policies and investments in infrastructure and human capital, the legacy of British direct and indirect rule in India, the long-lasting effect of convict resettlement in Australia, and the role of colonial ports in China. 
Volume 3 (also forthcoming) focuses on Latin and North America and Europe. The chapters on the Americas cover a plethora of colonisation-related events, such as the legacy of the mita (forced labour system in Peru), the role of Christian missions, the resettlement of indigenous communities in reserves in North America, and many more. The chapters on Europe discuss, among other topics, the role of the Protestant Reformation on industrialisation and the legacy of the Holocaust, Nazi occupation, and communism on social structure, politics, and norms. They also cover research tracing beliefs, trust and norms related to trust and social capital to the medieval times.


Importance of teaching about migration in economics: Learning about girmitiyas and geet gawai..

January 11, 2017

The more you read and follow, the more you realise how much of economics training is just so narrow. It hardly tells you anything about the society at all.

Thanks to the ongoing Pravasi Bharatiya Diwas in Bangalore one came across this group of migrants from India- Girmitiyas (pardon this blog’s ignorance). They were not migrants per se but forced labor from India taken onto further British interests in their other colonies of Fiji, Mauritius, Caribbean and so on.

Girmitiyas’ (indentured labourers), the name given to generations of Indians, who were forced to leave the country in the middle and late 19th century to serve as laborers in the then British colonies where they eventually settled down for more than a century. Girmit is a corrupt form of the English word ‘agreement’; an agreement under which thousands of laborers used to emigrate, a labour so emigrating under Girmit is a Girmitia. The word ‘Girmitia’ was coined by Father of the Nation, Mahatma Gandhi, who called himself ‘Pehla Girmitia’ (first Girmitia), as a recognition of his fight for the cause of the community.

Migration of unskilled manual workers from Bihar and other parts of India is not a new phenomenon. It began in the middle of the 19th century, when they left for Mauritius, Fiji, Suriname, Guyana, the Caribbean Islands and other distant lands during the British Raj as indentured labourers. Years of toiling by these people in their adopted countries has transformed barren lands into the mines of golden crops, bringing prosperity and abundance for themselves, fellow African labourers and the natives.

Most of them ended up leading lives of unmitigated hardship and abject penury. But some fought against all odds to not only to survive, but also to pave the way for a better future for their descendants. They embraced the local culture and assimilated themselves totally in the alien lands. In fact, some of their descendants went on to become the heads of the governments in those countries, underlining the triumph of human spirit over all impediments.

One just partly knew all this but did not understand the linkages and details.

It was also fascinating to read about how this diaspora is keeping traditions alive by singing geet gawai – songs in bhojpuri:

Geet Gawai, a musical ensemble that encapsulates the cultural heritage in the Girmitiya nations (to which indentured labourers were brought from India’s Bhojpuri belt by the British two centuries ago) was recognized by UNESCOas “The Intangible Cultural Heritage of Humanity” last December.

Geet Gawai came to Mauritius when the first batch of indentured labourers arrived at its capital city Port Louis in 1834 and has been orally passed down through generations. The Indian diaspora emphasized the need for making Geet Gawai a recognized cultural expression and worked towards it. One such Mauritian who was instrumental in getting the “intangible heritage” tag for Geet Gawai was Sarita Boodhoo, the chairperson of Mauritius Bhojpuri speaking union and head of Global Woman Council of GOPIO.

Amazing to read all this.

These migratory forces are so so crucial to understand economics not just from a historical perspective but to understand issues until today. But these matters are termed as soft and not discussed in mainstream economics at all. How people migrate (forcefully or intentionally) from one place to the other in search of better livelihood or economic opportunities. Then how they bring their own traditions and mix with their new place. Sometimes this mixing becomes positive and other times negative. These outcomes eventually matter for development. If we look at it, this is all there is to economic development after all..

What wind, currents and geography tell us about how people first settled Oceania

October 26, 2016

Alvaro Montenegro, Professor of Geography at The Ohio State University has this really interesting research:

Just look at a map of Remote Oceania – the region of the Pacific that contains Hawaii, New Zealand, Samoa, French Polynesia and Micronesia – and it’s hard not to wonder how people originally settled on these islands. They’re mostly small and located many hundreds to thousands of kilometers away from any large landmass as well as from each other. As our species colonized just about every region of the planet, these islands seem to be the last places our distant ancestors reached.

A comprehensive body of archaeological, linguistic, anthropological and genetic evidence suggests that people started settling there about 3,400 years before present (BP). While we have a relatively clear picture of when many of the major island groups were colonized, there is still considerable debate as to precisely where these settlers originated and the strategies and trajectories they used as they voyaged.

In new experiments, my colleagues and I investigated how environmental variability and Oceania’s geographical setting would have influenced the colonization process. We built computer seafaring simulations and analyzed wind, precipitation and land distribution data over this region of the Pacific. We wanted to understand how seasonal and climate variability in weather and currents might lead to some potential routes being favored over others. How would these factors, including the periodic El Niño and La Niña patterns, affect even the feasibility of different sailing strategies? Did they play a role in the puzzling 2,000-year pause we see in eastward expansion? Could they have provided incentives to migration?

Findings? Yes wind patters played a role:

Overall, our results lend weight to various existing theories. El Niño and La Niña have been proposed as potential migration influences before, but we’ve provided a much more detailed view in both space and time of how this could have taken place. Our simulations strengthen the case for a lack of technology being the cause for the pause in migration, and downwind sailing as a viable strategy for the first colonization pulse 3,400 BP.

In the future, we hope to create new models – turning to time-series of environmental data instead of the statistical descriptions we used this time – to see if they produce similar results. We also want to develop experiments that would evaluate sailing strategies not in the context of discovery and colonization but of exchange networks. Are the islands along “easier” pathways between distant points also places where the archaeology shows a diverse set of artifacts from different regions? There’s still plenty to figure out about how people originally undertook these amazing voyages of exploration and expansion.

As this blog keeps saying. knowing geography is so crucial to understanding much of the world. Even economists are discovering the same as research of recent years has shown. Just that it keeps being ignored in curriculums…

Here’s what economists don’t understand about race…

October 21, 2016

We just ape economics taught in the US. But now US seems to be looking at issues which have long troubled India.

I had written about Fed looking to increased diversity in both its employment and policy. But perhaps this is just the tip of iceberg. Large ignorance of racial differences and subsequent inequality is leading to a much wider discussion and need for reservations.

These issues are not new to US but have been ignored by economists for a long time.  The 2008 crisis and its eventual fallouts are leading all these buried issues to come back.

An undergraduate at Brown University in the 1970s, William Darity, Jr. expected to learn the reasons behind the inequality he’d seen all around him growing up in the Middle East and North Carolina. He realized pretty quickly that economists were not going to be much help.

Darity, the son of North Carolinians, spent his first eight years in Lebanon and Egypt while his father worked for the World Health Organization, then lived until the age of twelve in Chapel Hill, North Carolina. During the Jim Crow era, he visited his grandmother in a town where a railroad track divided the city into black and white sections, marking two separate economic worlds.

At Brown, Darity was disappointed by how his teachers explained why some people reap the benefits in a society and some don’t. Most taught that some individuals and groups grew more prosperous than others because of differences in education — what economists refer to as “human capital.” Labor economists tended to say that educational differences meant that some people were more productive than others, which explained why some flourished and others languished in the long run. They believed that competitive markets would ensure that everybody ended up earning according to what they produced. Those with higher earnings were able to save more, and so they accumulated more wealth over the course of their lifetime.

Darity wondered, then, why disparities persist, even when markets are competitive. Black Americans, for example, are paid less than their white counterparts at every level of education.Motivated by what he describes as youthful hubris, Darity got a Ph.D. in economics and set out to change the way economists deal with these issues.

This is so so similar to India.

The solutions too. They recommend jobs reservations!


Darity is unimpressed.

“If you buy the black dysfunction story, then the key is for young black men to pull up their pants or the equivalent,” he says. “But that’s a very different policy from saying, well, we should assure all Americans a human right to work. Or even if we don’t talk about an employment guarantee, then at least the basic income guarantee.”

“If we’re concerned about black-white disparities specifically and we want to have a race-specific policy, then I think we have to start talking about a program of reparations [for slavery].” (Darity and his wife, Kirsten Mullen, are currently completing a book that details how a reparations program might be executed, due to hit the shelves by mid-2017).

“If we are not willing to pursue race-specific policies,” Darity argues, “then we need universal programs that are race-conscious in the sense that they will disproportionately benefit the most disadvantaged groups even though they are programs that everyone is eligible for.” One such program would be a Federal job guarantee.

INET is even holding a conference looking at reasons for decline of Detroit which is linked to all these differences:

The racism of the prevailing political order was baked into the economics profession from its inception. Race is a social construct rather than a scientific concept. But that construct expresses a power relationship with profound consequences for the lives of millions of Americans, black, brown and white.

Detroit was the first major American city to fall victim to badly-managed globalization, but it won’t be the last. Race, particularly focused on the failings of African-American administration in the City of Detroit, was used as a mask to avoid the real failures of the American economy and governance. The violence and velocity of Detroit’s decline frightens everyone who holds a belief in the American Dream. Attempts to blame racial tension for the problems of Detroit is a mask and an anesthetic.  The nation’s failure to manage the city’s de-industrialization left tens of thousands of working-class Americans to fend for themselves on an increasingly bleak economic landscape, deepening political polarization. Racial animosity did not cause these problems, but it was certainly inflamed by them. 

Understanding the causes of Detroit’s decline — and potential pathways to renewal — is a critical challenge facing policy makers, and the economists who advise them.

Our conference on “Detroit’s Tomorrows and Tomorrow’s Detroits”, will investigate how a clear-eyed perspective on new methods of healing of racial polarization can contribute to the revitalization of this great city, and also lend insight to the challenges facing myriad other multi-ethnic cities in America and around the world facing the stress of economic adjustment in the era of globalization.


All such solutions for India have obviously invited mock from media and experts. We have long been sold on the idea of meritocracy as “it happens in US”. Now with US talking about all these matters as well, what will we say?

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