Archive for the ‘Growth and development’ Category

New Testament’s Matthew effect and modern finance: on the nexus between wealth inequality, financial development and financial technology

July 9, 2020

Jon Frost, Leonardo Gambacorta and Romina Gambacorta of BIS in this paper:

In the social sciences, the idea of the well endowed receiving further privilege, eg the rich getting richer, is often called the “Matthew effect” (New Testament Book of Matthew, 25:29). In economics, this effect is relevant particularly for wealth inequality. The effect could be amplified by financial development and technological advances that give investors access to better financial services or to assets with higher returns.

This paper analyses the role of financial development and financial technology in driving inequality in (returns to) wealth. Using micro data from the Survey on Household Income and Wealth (SHIW) conducted by the Bank of Italy for the period 1991-2016, we find evidence of the “Matthew effect” – a capacity of wealthy households to achieve higher returns than other households. With an instrumental variable approach, we find that financial development (number of bank branches) and financial technology (use of remote banking) both have a positive association with households’ financial wealth and financial returns. While households of all wealth deciles benefit from the effects of financial development and financial technology, these benefits are larger when moving towards the top of the wealth distribution. Still, the economic significance of this gap fell in the last part of the sample period, as remote banking became more widespread.


Late Soviet America

July 3, 2020

Prof Harold James in this damning Proj Synd piece:

Like the Soviet Union in its final years, the United States is reeling from catastrophic failures of leadership and long-suppressed socioeconomic tensions that have finally boiled over. For the rest of the world, the most important development is that the hegemony of the US dollar may finally be coming to an end.


In fact, many aspects of America’s current annus horribilis recall the final years of the Soviet Union, starting with the intensification of social and political conflict. In the Soviet case, long-suppressed ethnic rivalries and competing national aspirations quickly bubbled to the surface, pushing the entire country toward violence, secession, and disintegration. In the US, Trump’s response to nationwide protests against racism, police brutality, and inequality has been to stoke further the country’s historic racial divide. And, like statues of Lenin during the collapse of the Soviet empire, statues of Confederate leaders are being toppled just about everywhere.

Another parallel concerns the economy. The Soviet Union had a large, complicated planning and resource-allocation apparatus that attracted the society’s best-educated people, only to consign them to unproductive and frequently destructive tasks. The US has Wall Street. To be sure, America’s vast financial-services sector is not the equivalent of Gosplan (the Soviet State Planning Commission), but it does frequently extract value rather than create it, and thus will inevitably be part of any debate about the allocation of resources.

Up until the moment the Soviet system collapsed, very few thought it could actually happen. In assessing the state of the American system, it is important to remember that economists are not very good at prediction. The entire discipline relies on extrapolating from contemporary conditions on the assumption that the underlying fundamentals of what is being analyzed will not change. Knowing full well that this is an unrealistic and absurd assumption, economists often emulate medieval theologians by dressing up their prognoses in arcane language and jargon. One doesn’t need to know Latin to invoke ceteris paribus (“other things being equal”) as the premise of one’s forecasts.

US Dollar hegemony is under question mark:

Given this standard practice, we should pay close attention to long-run counter-intuitive forecasts that actually are borne out. In the late 1960s, the economist Robert A. Mundell made three predictions: that the Soviet Union would disintegrate; that Europe would adopt a single currency; and that the dollar would retain its status as the dominant international currency. Considering that the par-value system (gold standard) collapsed soon thereafter, triggering a depreciation of the dollar, these looked like wild predictions. But Mundell turned out to be right on all three counts.

But the circumstances to which the dollar owes its longstanding hegemony are now changing. The COVID-19 pandemic is driving a more digitalized form of globalization. While the cross-border movement of people and goods plummets, information is flowing like never before, ushering in an increasingly weightless economy.

Moreover, for the past three and a half years, the Trump administration has been inviting an eventual backlash against its weaponization of the dollar for political ends. Financial and secondary sanctions were highly effective in their original form, when they were directed against small, isolated bad actors like North Korea. But their more extensive deployment against Iran, Russia, and Chinese companies has proved counterproductive. Not only Russia and China but also Europe have quickly taken steps to develop alternative mechanisms for international payments and settlement.

Non-state digital payments systems are also undergoing , particularly in places where the state is weak, distrusted, or otherwise lacking credibility. The payments revolution will likely occur fastest in poor countries, such as in Africa or some former Soviet republics. New digital technologies already offer these societies the means to move from poverty and institutional underdevelopment to institutional complexity and the chance of innovation and prosperity.


Prison Labor: The Price of Prisons and the Lasting Effects of Incarceration

July 1, 2020

Belinda Archibong (Barnard College) and Nonso Obikili (Stellenbosch University) in this paper:

Institutions of justice, like prisons, can be used to serve economic and other extra- judicial interests, with lasting deleterious effects. We study the effects on incarceration when prisoners are used primarily as a source of labor using evidence from British colonial Nigeria. We digitized sixty-five years of archival records on prisons from 1920 to 1995 and provide new estimates on the value of prison labor and the effects of labor demand shocks on incarceration. We find that prison labor was economically valuable to the colonial regime, making up a significant share of colonial public works expendi- ture. Positive economic shocks increased incarceration rates over the colonial period. This result is reversed in the postcolonial period, where prison labor is not a notable feature of state public finance. We document a significant reduction in contemporary trust in legal institutions, like police, in areas with high historic exposure to colonial imprisonment. The resulting reduction in trust is specific to legal institutions today.

sixty-five years of archival records on prisons from 1920 to 1995!

The Role of ICT in the Evolution of U.S. and European Productivity Growth (1977-2015)

June 29, 2020

Robert J. Gordon and Hassan Sayed in this new NBER WP:

We examine the role of the ICT revolution in driving productivity growth behavior for the United States and an aggregate of ten Western European nations (the EU-10) from 1977 to 2015. We find that the standard growth accounting approach is deficient when it separates sources of growth between ICT capital deepening and TFP growth, because much of the effect of the ICT revolution was channeled through spillovers to TFP growth rather than being limited to the capital deepening pathway. Using industry-level data from EU KLEMS, we find that most of the 1995-2005 U.S. productivity growth revival was driven by ICT-intensive industries producing market services and computer hardware.

In contrast the EU-10 experienced a 1995-2005 growth slowdown due to a paucity of ICT investment, a failure to capture the efficiency benefits of ICT, and performance shortfalls in specific industries including ICT production, finance-insurance, retail-wholesale, and agriculture.

After 2005 both the U.S. and the EU-10 suffered a growth slowdown, indicating that the benefits of the ICT revolution were temporary rather than providing a new permanent era of faster productivity growth. This joint transatlantic post-2005 slowdown is consistent with the broader view that ongoing innovation has been less potent in boosting productivity growth compared to earlier decades of the postwar era.


Adam Smith and the Virtue of Punctuality.

June 23, 2020

Maria Pia Paganelli of Trinity University in this interesting paper:

Commercial society changed many things, including what is considered virtuous and what is considered valuable. The increase in productivity observed in commercial society changed the ways we use our time and thus the value of time. Time is now money. So punctuality becomes a virtue. Adam Smith explicitly recognizes the virtue of punctuality as a commercial virtue.

Have heard a few economists write how they saw some the society valued punctuality as the economy progressed and grew…


How Kurzarbeit, Germany’s Short-Time Work Benefit, is helping its economy?

June 22, 2020

Kurzarbeit, Germany’s short-time work scheme, was instrumental in keeping employment stable during the global financial crisis. But this crisis is likely to be even more profound, and affect more sectors of the economy.

Shekhar Aiyar, the IMF’s Mission Chief for Germany, discusses whether the program is likely to be effective this time around:

What are the main features of Kurzarbeit?


How City of Medellin transitioned from world’s most violent city to one of the most innovative, inclusive, and sustainable cities in the world.

June 5, 2020

In 1988, a Time Magazine article called Medellin, a city in Colombia as the most dangerous city in the world.

However, in the next few decades the city turned around its fortunes to become one of the most interesting cities in the world.

Federico Gutiérrez, the mayor of the city from 2016 to Jan-2020 in this IMF interview tells us about the transition.

F&D: What was the turning point for Medellín?

FG: In the 1980s and 1990s our society hit rock bottom with the tragedy of narcoterrorism. In 1991 we recorded a homicide rate of 381 murders per 100,000 inhabitants. Today the rate is approximately 20 per 100,000 inhabitants—a 95 percent decrease. Although the only acceptable figure is zero, we have achieved significant progress in curbing violence and ensuring respect for life.

As to whether there was a specific turning point, that is complicated and open to debate. Ever since businesspeople decided to stay in Medellín in the 1980s and 1990s—not giving in to the violence—we began to develop a vital strategy rooted in teamwork. The business fabric of our city is extremely solid, and this can be explained to a great extent by the difficulties that the private sector had to face in order to survive. In the midst of violence, staying was a great act of bravery.

There were no shortcuts, but there were practical solutions. One of the latter involved partnerships between the public sector, private sector, academia, and civil society. Teamwork as a society was a determining factor in the city’s social transformation. The mafia upended our values: it turned hard and honest work into easy money, sobriety into opulence and, worst of all, it took the value out of life and instead put a price on it. Though we still have a long way to go, we have started recovering such values as life, respect, and freedom.

In fewer than three decades, Medellín has become a benchmark for the world. It is a socially innovative city that is today an affiliate center for the Fourth Industrial Revolution for Latin America, in partnership with the World Economic Forum. Experiencing the worst things possible as a society has made us stronger and more resilient. Medellín is a city that acknowledges its past, takes pride in its present, and above all, views its future optimistically.

Lot more insights in the interview…

States’ Loss of Fiscal Autonomy in a Centralised Federal System

June 4, 2020

Prof M. Govinda Rao has penned a piece in The IndiaForum:

The response to Covid-19 has brought out the fragility of the Indian federal system. A tendency towards extreme centralisation during the pandemic and the absence of checks and balances to correct this centralisation is a matter of concern. The process of concentration that happens when a country is at war with another comes from a patriotic zeal to empower the government to fight the war. However, the pandemic has to be fought by both the centre and the states as both have stakes in protecting lives and livelihoods­—in fact, the states more so since they are in the forefront. But they do not have the fiscal strength to do so. In such a scenario, the centre is using the states’ distress situation to force them to adopt its economic and institutional agenda.


Profile of Abhijeet Banerjee, Esther Duflo and Iqbal Dhaliwal

June 3, 2020

IMF’s Finance and Development Quarterly Magazine profiles the trio behind rise of JPAL.


Growth, War, and Pandemics: Europe in the Very Long-run

June 1, 2020

Leandro Prados de la Escosura and Carlos-Vladimir Rodríguez-Caballero in this new paper at EHES:

This paper contributes to the debate on the origins of modern economic growth in Europe from a very long-run perspective using econometric techniques that allow for a long-range dependence approach. Different regimes, defined by endogenously estimated structural shocks, coincided with episodes of pandemics and war. The most persistent shocks occurred at the time of the Black Death and the twentieth century’s world wars.

Our findings confirm that the Black Death often resulted in higher income levels, but reject the view of a uniform long-term response to the Plague while evidence a negative reaction in non-Malthusian economies.

Positive trend growth in output per head and population took place in the North Sea Area (Britain and the Netherlands) since the Plague. A gap between the North Sea Area and the rest of Europe, the Little Divergence, emerged between the early seventeenth century and the Napoleonic Wars lending support to Broadberry-van Zanden’s interpretation.

After ignoring pandemics in economic research, we are just getting an overdose..

Success through failure? Four Centuries of Searching for Danish Coal

May 29, 2020

Kristin Ranestad and Paul Richard Sharp in this new paper:

Natural resources, especially energy resources, are often considered vital to the process of economic development, with the availability of coal considered central for the nineteenth century. Clearly, however, although coal might have spurred economic development, development might also have spurred the discovery and use of coal. To shed light on this, we suggest that the case of resource poor Denmark, which spent centuries looking for coal, is

Specifically, we emphasize that the process of looking for coal and the creation of a natural resource industry in itself is important beyond the obvious dichotomy of haves and have-nots. We seek to understand this process and find that prices proved an important stimulus to coal surveys.

Apart from finding the natural resource, developing the entire ecosystem is as important:

In his analysis of natural resource exploitation and the growth of international business, Geoffrey Jones presents some common features that mining industries share, which should be stressed here, and all of which we touch on below. These include the importance of geology, the capital-intensity and high risk nature of their business, and, although there are important differences in their availability, the fact that most metals and minerals are sold on the world market (Jones, 2005: 45). He finds that mineral and metal surveys and mining have been risky businesses, which is related to the nature of their operation. The extension and composition of ores has often been difficult to know in advance and operational techniques have changed along the way. There have been many uncertainties related to such production and large capital investments have often been required. These, in turn, have involved uncertainties regarding costs, completion time and operational performance. As mineral deposits are located in remote places, and sometimes in rough terrain, challenges concerning infrastructure and logistics have also been common. Finally, fluctuations in prices represent another risk factor (Jones 2005: 52). In sum, capital, knowledge about the composition of ore, and the extension of the ore deposit; as well as relevant operational techniques and infrastructure to mine and process the ore need to be in place before rational mining can occur. 


Revisiting Amartya Sen vs Jagdish Bhagwati debate: Was Sen right after all?

May 29, 2020

Manas Chakravarty revisits the Sen vs Bhagwati debate in this moneycontrol article:

Just before the general elections in 2014, a rather unlikely fight erupted in the pink papers. In the Left corner, wearing what some people said were bright red shorts, was Nobel Laureate and economist Amartya Sen. In the Right corner, wearing true blue shorts, was eminent trade economist Jagdish Bhagwati.

The dispute was whether social welfare and health and education were best served by rapid economic growth, which was the view from Bhagwati’s corner, or whether social equity and health and education lay the groundwork for rapid growth, which was Sen’s thesis.

These arguments became prominent in the context of the 2014 elections. The pundits said Narendra Modi stood for rapid growth, while the UPA was all about social welfare.

The UPA’s critics, who were legion, made Bhagwati their intellectual mascot and argued there could be no redistribution without rapid growth. Let India grow first, they said, by freeing markets and allowing the ‘animal spirits’ of entrepreneurs free rein and there would soon be a surplus that would trickle down to the masses. Go in for social welfare too soon, they added, and growth would falter, just as it had done under the UPA government.


And then came the COVID-19 pandemic. 


A charter city finally in Honduras?

May 19, 2020

Few years ago, Paul Romer had argued the need to build charter cities. He even got permission to build one in Honduras but was later denied.

Tyler Cowen informs that Honduras has once again given a green signal to the project:

Prospera, Honduras just launched on the island of Roatan. It is a ZEDE (Zona de Empleo y Desarollo Economico), the legacy of Paul Romer’s time in Honduras promoting charter cities. It has substantial autonomy, different taxes, different courts, different labor law, and more. It is one of the most innovative jurisdictions in the world.

First, a bit of history. The ZEDE legislation was passed in 2013. It allows for the creation of a special jurisdiction with an almost unprecedented amount of autonomy. The only recent comparison is the Dubai International Financial Center, which, as the name suggests, focuses exclusively on finance. The ZEDE legislation allows for different labor law, environmental law, business registration, dispute resolution, and more. It is more analogous to Hong Kong, or at least the Hong Kong ideal, of one country, two systems.

In 2013 and 2014 rumors swirled about ZEDE projects, including a port in the Gulf of Fonseca, but nothing materialized. I even moved to Honduras in 2014, at the time the murder capital of the world, to be closer to the action. As late as 2017, the Honduran government was saying projects were about to begin.

The ZEDE legislation is the successor to the RED (Regiones Especiales de Desarrollo) legislation, which Romer helped introduce to build charter cities. Romer had a falling out with the Honduran government in 2012. Shortly after his departure, the RED legislation was declared unconstitutional. The ZEDE legislation was passed to address the constitutional shortcomings of the RED legislation, though it also benefitted from seeing the Supreme Court judges who ruled against the RED legislation fired. To be fair, the government claims they were fired for a ruling on a police brutality case, which I am wont to believe. If there was sufficient government support behind ZEDEs to fire Supreme Court justices, it would not have taken seven years for the first ZEDE to be launched.

I worked with much of the Prospera team under the previous incarnation, NeWAY Capital (I’m not sure of the formal relationship between the two). I left around the time they pivoted to Honduras, 2.5 years ago. I was skeptical, as Honduras was the place projects went to die. Years had gone by without projects gaining meaningful traction and I expected them to run out of funding before launching. I’m happy to have been proven wrong.

Congratulations to Erick Brimen and the team. It is a lot of work to create a new jurisdiction, especially one as innovative as Prospera. The Charter Cities Institute has two team members spending approximately two thirds of their time on developing a “Governance Handbook,” a guide to the governance of a new jurisdiction. It will likely take about 9 months to complete, and that is just for the handbook, not implementation…

Residency costs $1300 annually, unless you’re Honduran, in which case it costs $260. Becoming a resident also requires signing an “Agreement of Coexistence,” a legally binding contract between Prospera and the resident. Prospera, therefore, cannot change the terms without exposing itself to legal liability. Most governments have sovereign immunity, this goes a step beyond removing that, with a contract that clearly defines the rights and obligations on both sides.

After signing the Agreement of Coexistence, all residents are required to buy general liability insurance which will ensure themselves against both civil and criminal liability. General liability insurance, as well as criminal liability insurance, has been proposed by economist Robin Hanson, among others


How South Korea stopped COVID-19 early?

April 29, 2020

Myoung-hee Kim, Director of the Center for Health Equity Research at the People’s Health Institute in South Korea saw it all up and close.

In this Proj Synd piece, he narrates his experience:

Government testing and tracing alone did not halt the spread of the coronavirus in South Korea. The country’s civil-society organizations also played a critical role by monitoring the situation closely, helping to hold the authorities accountable, and reaching vulnerable social groups.

Reads similar to Kerala’s approach.

Patents vs. the Pandemic (Profits vs Humanity?)

April 23, 2020

Nice piece by Joseph Stiglitz. Arjun Jayadev and Achal Prabala.

In responding to the pandemic, the global scientific community has shown a remarkable willingness to share knowledge of potential treatments, coordinate clinical trials, develop new models transparently, and publish findings immediately. In this new climate of cooperation, it is easy to forget that commercial pharmaceutical companies have for decades been privatizing and locking up the knowledge commons by extending control over life-saving drugs through unwarranted, frivolous, or secondary patents, and by lobbying against the approval and production of generics.

With the arrival of COVID-19, it is now painfully obvious that such monopolization comes at the cost of human lives. Monopoly control over the technology used in testing for the virus has hampered the rapid rollout of more testing kits, just as 3M’s 441 patents mentioning “respirator” or “N95” have made it more difficult for new producers to manufacture medical-grade face masks at scale. Worse, multiple patents are in force in most of the world for three of the most promising treatments for COVID-19 – remdesivir, favipiravir, and lopinavir/ritonavir. Already, these patents are preventing competition and threatening both the affordability and the supply of new drugs.

We now have a choice between two futures. In the first scenario, we continue as usual, relying on the big pharmaceutical companies, hoping that some potential treatment for COVID-19 will make it through clinical trials, and that other technologies for detection, testing, and protection will emerge. In this future, patents will give monopoly suppliers control over most of these innovations. The suppliers will set the price high, forcing downstream rationing of care. In the absence of strong public intervention, lives will be lost, particularly in developing countries.

In the second possible future, we would acknowledge that the current system – in which private monopolies profit from knowledge that is largely produced by public institutions – is not fit for purpose. As public-health advocates and scholars have long argued, monopolies kill, by denying access to life-saving medicines that otherwise would have been available under an alternative system – like the one facilitating the yearly production of the flu vaccine.
Time to think of an alternative approach:
For too long, we have bought into the myth that today’s IP regime is necessary. The proven success of GISRS and other applications of “open science” shows that it is not. With the COVID-19 death toll rising, we should question the wisdom and morality of a system that silently condemns millions of human beings to suffering and death every year.
It’s time for a new approach. Academics and policymakers have already come forward with many promising proposals for generating socially useful – rather than merely profitable – pharmaceutical innovation. There has never been a better time to start putting these ideas into practice.

The Transportation‐​Communication Revolution: 50 Years of Dramatic Change in Economic Development

March 19, 2020

Paper in Cato Winter 2020 Journal:

The Industrial Revolution transformed subsistence living into sustained growth, but only for about 15 percent of the world’s population. Throughout the rest of the world, change was minimal. In 1950, the real per capita income for developing countries outside of Africa was slightly less than $4 per day, approximately the same as that of the high‐​income, developed countries at the onset of the Industrial Revolution. But income levels in the developing world have increased dramatically during the past half century, particularly for the 70 percent of the world’s population living in less geographically disadvantaged developing countries.

The huge reductions in transportation and communication costs over the past half century provided the foundation for the remarkable increases in economic development and worldwide income. The Transportation‐​Communication Revolution triggered four changes that have altered life in the developing world: gains from large increases in international trade; gains from higher rates of entrepreneurship and expanded opportunities to borrow successful technologies and business practices from high‐​income countries; improvement in economic freedom; and the virtuous cycle of development.

Our empirical analysis of the annual growth rate of real per capita GDP since 1960 indicates that the expansion of international trade, higher rates of economic freedom, and increases in the share of the global population in the prime working‐​age category have exerted a strong and highly significant impact on economic growth. Due to the sharp reductions in transportation and communication costs, the volume of international trade has risen sharply in recent decades. The growth of trade in less geographically disadvantaged developing countries has been particularly remarkable. Measured in real dollars, the size of the international trade sector in these countries was 44 times higher in 2017 than it was in 1960. This astonishing rate of growth in international trade was approximately 2.5 times higher than it was in high‐​income and more geographically disadvantaged countries over the same time frame. Propelled by the growth of trade, the real per capita GDP of the five billion people living in the less geographically disadvantaged developing world has grown at nearly twice the rate of high‐​income countries in recent decades. The historically high rates of economic growth have transformed these developing countries even more rapidly than the Industrial Revolution transformed the West between 1820 and 1950.

While the Industrial and Transportation‐​Communication Revolutions exerted a similar impact on the lives of those most affected, they differ in three major respects. Compared to the earlier economic revolution, the more recent revolution has been broader, generated more rapid rates of economic growth, and reduced income inequality rather than enlarged it. Both the general populace and the academic literature show an appreciation of the human progress that accompanied the Industrial Revolution. It is now time for both groups to recognize the remarkable human progress brought about by the Transportation‐​Communication Revolution.


Capital market integration can reduce misallocation: Evidence from India

March 16, 2020

Interesting research by Natalie Bau and Adrien Matray. They try and find out whether India’s capital market reform has helped firms increase output and productivity:


From crony capitalism to crony communism

February 26, 2020

Capitalism is often criticised for promoting growth amidst select club of industrialists/business persons.

This voxeu post by Artjoms Ivlevs, Milena Nikolova, Olga Popova shows how similar cronysim flourished in erstwhile communist countries:

50 years of Norway discovering oil

February 20, 2020

Nice speech by Norges Bank Governor Øystein Olsen:

“We are now moving into the final phase of a period where domestic raw materials and energy sources have provided an essential basis for economic expansion. Hereafter, growth must increasingly rely on the production of finished goods in areas where we do not have a natural advantage.”[1]

The same could be said about the challenges facing the Norwegian economy today. But this quote is from 50 years ago – from the annual address by central bank governor Erik Brofoss on 16 February 1970.

The 50th anniversary of the first oil discovery on the Ekofisk field was commemorated in October last year. Aptly enough, this took place on the same day as the Government Pension Fund Global (GPFG) topped NOK 10 000 billion.

In the governor’s address on the economic situation, there was no mention of what was to become Norway’s main revenue source over the next half-century.

In hindsight, it can be said that what was to be his last annual address may not have been the most prescient. To be sure, it was still highly uncertain at that time how much oil and gas were actually hidden under the ocean floor 320 kilometres southwest of Stavanger. Not to mention, the value of that natural resource was much lower than today.


In the quote from 1970, Erik Brofoss predicted a shift away from a resource-based economy. Fifty years later the structural shift is underway. Brofoss was optimistic about the way ahead, and he was clear about what the main source of progress is as he formulated in his speech:

“Now is the time to reap the fruits of our efforts in general education and vocational training to boost human capital.”

Brofoss had high hopes for the coming generations of well-educated young people.

The young workers in Brofoss’ day are now retired, or close to retirement. In the coming years, the dependency ratio will increase. The aim must therefore be to make structural changes without further declines in labour force participation.

We also have reason to be optimistic despite an ageing population. We still have a highly skilled workforce. We have an economic policy framework that has served us well for nearly 20 years. In addition, our room for manoeuvre puts us in an enviable position. Last, but not least, we have a business sector that has already proved its adaptability, which can now also build on the expertise gained in oil production and services.

The Norwegian economy has fared well through the first phase of the structural shift away from an oil-driven economy. The sharpest downswing in oil activities may be behind us. The overall downward potential is smaller than a few years ago, and the business sector is less dependent on oil.

But structural changes take time. Companies have to seek out new markets, new businesses need to be established and workers have to move into new jobs. As long as the transition to a less oil-dependent economy is gradual, the business sector will have the chance to adapt. The challenges will be much greater if there are abrupt changes in operating conditions or policies.

Brofoss was mistaken about one point. The final phase would come many decades later than he anticipated, but is now drawing near.   

Central bank governors tend to get it right, sooner or later. Come what may!


Though, not applicable to Norway’s case but if central bank governor get things right later, fair bit of damage is done by then!

Evaluating the Success of President Johnson’s War on Poverty

February 20, 2020

Did not know that US President Johnson (1963-69)  had declared war on poverty in US .

In this Federal Reserve paper Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore analyse the war and its impact:

We evaluate progress in President’s Johnson’s War on Poverty. We do so relative to the scientifically arbitrary but policy relevant 20 percent baseline poverty rate he established for 1963. No existing poverty measure fully captures poverty reductions based on the standard that President Johnson set. To fill this gap, we develop a Full-income Poverty Measure with thresholds set to match the 1963 Official Poverty Rate. We include cash income, taxes, and major in-kind transfers and update poverty thresholds for inflation annually. While the Official Poverty Rate fell from 19.5 percent in 1963 to 12.3 percent in 2017, our Full-income Poverty Rate based on President Johnson’s standards fell from 19.5 percent to 2.3 percent over that period. Today, almost all Americans have income above the inflation-adjusted thresholds established in the 1960s. Although expectations for minimum living standards evolve, this suggests substantial progress combatting absolute poverty since the War on Poverty began.




%d bloggers like this: