This news is very disturbing:
Jashuli Bista, 26, who was living an impoverished life in Sunkada VDC of the district on Friday, killed her daughters, four-year-old Ramkala and eight-month-old Ramita, before she hanged herself to death.
Bista had been raising her daughters all alone as her husband Min Bahadur Bishta had gone to India for work.
This story is also very troubling. A woman is stripped naked and beaten up by a group of stupid men in the middle of Kathmandu.
Sachs has finally responded to Dambisa Moyo’s new book Dead Aid, where she basically follows on Easterly’s line of argument that aid is hurting Africa more than it is helping them.
The debate about foreign aid has become farcical. The big opponents of aid today are Dambisa Moyo, an African-born economist who reportedly received scholarships so that she could go to Harvard and Oxford but sees nothing wrong with denying $10 in aid to an African child for an anti-malaria bed net. Her colleague in opposing aid, Bill Easterly, received large-scale government support from the National Science Foundation for his own graduate training.
I certainly don't begrudge any of them the help that they got. Far from it. I believe in this kind of help. And I'd find Moyo's views cruel and mistaken even she did not get the scholarships that have been reported (Easterly mentioned his receipt of NSF support in the same book in which he denounces aid). I begrudge them trying to pull up the ladder for those still left behind. Before peddling their simplistic concoction of free markets and self-help, they and we should think about the realities of life, in which all of us need help at some time or other and in countless ways, and even more importantly we should think about the life-and-death consequences for impoverished people who are denied that help.
Recently Paul Kagame, President of Rwanda, wrote an op-ed for the Financial Times praising Moyo's fresh thinking. This is extraordinary. His government has depended on aid for more than a decade. Nearly half the budget revenues currently come from aid. Rwanda currently imports around $800 million of merchandise each year, but only earns $250 million or so in exports. So how does it do it? Aid, of course, helped to pay for around $450 million of the imports. Without foreign aid, Rwanda's pathbreaking public health successes and strong current economic growth would collapse. Kagame's op-ed did not help FT readers to understand this.
At some level, the works of Sachs and Easterly (and Moyo) are more ideological than practical (I think Sachs is little bit more practical!). Easterly is in an all out war with economists who favor some form of government intervention and industrial policy (such as Sachs, Rodrik, and Collier). Easterly’s work is more in line with Hayek’s and free-market views and Sachs’ is more interventionist. These two are reviving the 1940’s back-and-forth argument between Hayek and Keynes (and later followed by Hayek and Samuelson) and applying them in the development field. And now we know who was right in the epic ideological battle between the centrists and the rightists.
The number of births in a year in India = the total population of Nepal = 27 million
This is probably the most pessimistic (but realistic) description of India:
INDIA is a land of bright promise. It is also extremely poor. About 27m Indians will be born this year. Unless things improve, almost 2m of them will die before the next general election. Of the children who survive, more than 40% will be physically stunted by malnutrition. Most will enroll in a school, but they cannot count on their teachers showing up. After five years of classes, less than 60% will be able to read a short story and more than 60% will still be stumped by simple arithmetic.
Michael Pettis argues that the fiscal stimulus enacted in the Asian economies, particularly China which is providing a “steroid-fuelled” growth, will potentially boost growth in the short term but their growth model is not sustainable.
One of the consequences of the Asian development model has been that production outgrew consumption for decades. When a country produces more than it consumes, it must run a trade surplus to export its excess capacity. The Asian model consequently required high and rising trade surpluses that allowed Asian producers to produce far in excess of what Asian consumers could afford to absorb.
But there cannot be trade surpluses without trade deficits elsewhere. A fundamental requirement for the Asian model was that foreigners were able to run the requisite trade deficits. In practice, only the US economy and financial system were large and flexible enough to play this role. The Asian model, in other words, implicitly involved a massive bet on the willingness and ability of the US to continue to run large and rising trade deficits.
The assumption that implicitly underlay the Asian development model – that US households had an infinite ability to borrow and spend – has been shown to be false. This spells the end of this model as an engine of growth. The sooner Asian policymakers accept this and force through the necessary economic and political changes, the less painful the transition will be. Unfortunately this does not seem to be happening.
Many Asian nations are using fiscal stimulus to prop up export-based sectors. Is exports-based growth model still the answer to higher GDP per capita in developing and emerging nations? As the main buyers (US and the EU) are cutting back consumption expenditure and the governments ‘required’ to maintain fiscal balance down the road (deficits can’t go forever), will the exports-based growth obsessed nations find customers to buy their goods and services? Also, will domestic demand in the developing countries be strong enough to prop up GDP growth rate? Is the exports-based growth model still relevant for the low income countries? And, is the model nearing death for emerging nations? Interesting questions that need answers!
Here is Szirmai arguing that the manufacturing sector still matters for growth and catch up in the developing countries.
According to Szirmai, the manufacturing sector still matters for growth and catch up in the developing countries because of the following reasons:
That said, he argues that the role of manufacturing sector on growth is weakening, especially in the industrialized nations. The strongest contributions are found in the period 1950-1973, when there were special opportunities for absorption of mass production techniques by developing countries. In the advanced economies, the role of services has become much more important.
Here is a critical assessment of the stuff we learn in econ in light of the financial crisis.
The global financial crisis has revealed the need to rethink fundamentally how financial systems are regulated. It has also made clear a systemic failure of the economics profession. Over the past three decades, economists have largely developed and come to rely on models that disregard key factors—including heterogeneity of decision rules, revisions of forecasting strategies, and changes in the social context—that drive outcomes in asset and other markets. It is obvious, even to the casual observer that these models fail to account for the actual evolution of the real-world economy. Moreover, the current academic agenda has largely crowded out research on the inherent causes of financial crises. There has also been little exploration of early indicators of system crisis and potential ways to prevent this malady from developing. In fact, if one browses through the academic macroeconomics and finance literature, “systemic crisis” appears like an otherworldly event that is absent from economic models. Most models, by design, offer no immediate handle on how to think about or deal with this recurring phenomenon. In our hour of greatest need, societies around the world are left to grope in the dark without a theory. That, to us, is a systemic failure of the economics profession.
This failure has deep methodological roots. The often heard definition of economics—that it is concerned with the ‘allocation of scarce resources’—is short-sighted and misleading. It reduces economics to the study of optimal decisions in well-specified choice problems. Such research generally loses track of the inherent dynamics of economic systems and the instability that accompanies its complex dynamics. Without an adequate understanding of these processes, one is likely to miss the major factors that influence the economic sphere of our societies.3 The inadequate definition of economics often leads researchers to disregard questions about the coordination of actors and the possibility of coordination failures. Indeed, analysis of these issues would require a different type of mathematics than that which is generally used now by many prominent economic models.
We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest.
They argue that economists have an ethical responsibility to communicate the limitations of their models and the potential misuses of their research. And, this time they failed to do just that. They argue that there was some sort of “academic moral hazard”. Also, Rodrik argues that the failure has to do more with ideology-wrapped economists than economics itself. See this one about economics crisis under heterogeneity as well.
These are a collection of blog posts related to growth diagnostics of the Nepali economy, which I finished in April 2009. I will post a link to the full paper later.
Nepal’s growth story:
Binding constraints:
Incompatible constraints:
Policy implications:
