All posts by mdgordo

Poor Mexico, So Far from God and So Close to the United States

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This article hits hard in illuminating the ways in which the US has contributed to and caused the violence in Mexico. Structural adjustment policies, arms sales, and demand for cocaine are a few of the ways. Here is a highlight:

Dube, Dube, and García-Ponce found that the lifting of the U.S. federal ban led to a “substantial increases in homicides …  tied specifically to guns” in the non-California Mexican border zones, with murders rising “60% more in municipios at the non-California entry ports” in Texas, New Mexico, and Arizona. [33] Mexico suffered “at least 238 additional deaths annually in the area located within 100 miles of the border ports” in the non-California border zones in Mexico. Today the Mexican cartels routinely load up on U.S. military-grade weapons with larger clips. The easy availability of U.S. weapons made for war has transformed much of Northern Mexico a war zone.

Violence in Mexico and Latin America

A bridge you could never use…

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I have been obsessed with the BBC’s Human Planet series lately. In this episode on ‘Rivers’, people in Meghalaya, India care for a system of living bridges made of vines that span the rivers of their region:

So what are the economic incentives to work on a bridge that will take more than just one person’s lifetime to complete? A bridge that the builder could never use or even see completed!

Techno-Institutional Complex

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I don’t know if I fully realized this when I came here, but it turns out that most of my studies on economics and development are actually about technology. It makes sense when you think about access to technology being the driver of rising living standards around the world, but sometimes technology that has the potential to be hugely beneficial doesn’t become widespread.

If I asked you why we haven’t switched to renewable energy instead of carbon based technologies, you would probably respond that the technology isn’t there yet, or that it’s too expensive. Yet studies have shown that renewables are a cost effective efficient alternative in many instances. If that is the case then why do we still use carbon based technology?

We say, ‘Necessity is the mother of all invention’, and generally think about successful technologies being the ones that fulfill a need the most effectively. If the way we pick technologies as meritocratic, then the best ones will become widely adopted. But it is worth examining whether our culture (values and needs) influences the technology that gets adopted, or whether technology influences culture.

The keys I am typing on provide a good example. The QWERTY keyboard was originally designed to slow down typing, by putting letters next to each other that are not commonly used together. This was because the earliest typewriters would get jammed if you typed too fast. Obviously this is no longer a problem, but our habits have caused this technology to become ‘locked-in’, and efforts to change to a more efficient system flounder as a result (the attempts to switch the US to the metric system are another example). The idea that certain technological systems get locked into place by historical flukes or accidents is called ‘path-dependency’.

Nikola Tesla and Thomas Edison, the inventors of alternating current (AC) and direct current (DC) electricity, respectively, had a famous feud over who’s system would be used to bring electricity to the masses. This feud played out against the backdrop of the beginnings of mass production (Fordism) and urbanization in the early 1900s. Tesla’s system, which alllowed electricity to be centrally produced and then transmitted over great distance, won out, largely as a result of this backdrop. DC would have resulted in a large decentralization of energy production, avoiding the problems of utility monopolies, and potentially resulting in a grid system that would have been much more suitable to the adoption of new renewable technologies.

The centralization of electricity and oil production means it is out of sight and out of mind for most consumers. All most of us in the developed world know about energy is that it is relatively cheap and abundant. This has a huge impact on the way we design our houses, offices, consumer appliances, commuting patterns, and even courtship rituals (think about drive-in movies). These preferences affect the way we design roads, the things that mechanics know how to work on, and the concerns that government regulates. In fact, fossil fuels are mostly cheap because they are heavily subsidized by the government by R+D, limited liability, and externalization of pollution costs (so much for not picking winners and losers – in fact conventional fuels, including nuclear, get 90% of energy subsidies, and many economists say that without those subsidies renewables would already be much more profitable).

Furthermore, the invisibility of our electricity generation is relevant. Power lines are almost like trees in our psyche, we barely notice them. We tend to oppose the industry when it becomes visible again, leading to the nimby-ism plaguing Massachusetts wind farm projects.

The way that energy production technology completely permeates our life doesn’t just cause problems, it creates the way we see problems. In another example,  it’s possible that the welfare state is simply a by-product of mass production technology. This technological system requires people who can afford its goods, and also relies on cheap labor mobility via unemployment. Hence, the New Deal.

Changes in technology are mostly incremental in that they involve slight tweaks or improvements to existing designs rather than radical re-inventions. This is why manufacturers of electric cars try to make them look, act, and sound exactly like gas powered cars rather than re-inventing the concept of transportation.

When a radical innovation (like the internet for example) is introduced, there is typically a period of chaotic competition, with many differing visions competing for market share. Over time, however, certain conventions win out (the mouse, keyboard, windows and mac operating systems). The conventions that win out influence what can later be easily introduced. Even if an innovation has relative advantages, it may not be adopted if it doesn’t fit well with current behavioral customs, regulatory frameworks, or knowledge bases. Renewable energy can’t be widely adopted, even if it is more efficient, unless we also remove government subsidies for fossil fuels, reinvent transportation networks, change behavioral patterns, and decentralize utility production.

The good news is that since the same infrastructure and institutions are not yet in place in many developing countries, they might have a chance to start from scratch and bypass carbon intensive development, similarly to how many developing nations adopted mobile phones without using landlines as an intermediary. India is electrifying much of Ladakh using small scale hydro projects. The bad news (for Americans anyway) is that we will probably get left behind. China already gets 15% of its energy from renewables.  The US? 3%

Measuring Progress

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Measuring GDP is easy, there is a formula:

GDP = Consumption + Government Spending + Investment + (Exports – Imports)

Every since Amartya Sen realized that GDP is not a good measure of development, however, there have been attempts to quantify a better indicator of well-being. One interesting one is called the Genuine Progress Indicator (GPI). The formula looks like this:

GPI = (Per capita consumption adjusted for inequality)*  + (Services from domestic labor)** + (Services from consumer durables)*** + (Services from streets and highways) + (Public expenditure on health and education) – (defensive private expenditures on health and education)**** – (costs of commuting) – (costs of personal pollution control) – (costs of automobile accidents) – (costs of water, air, and noise pollution) – (loss of natural habitats) – (loss of farmlands) – (depletion of non renewable resources) – (costs of climate change) – (costs of ozone depletion) + (investment) – (foreign debt) + (change in international position)

*reflects the fact that an equivalent increase in income means more to someone below the poverty line than it does to a millionaire

**includes unpaid childcare and domestic services from family members since feminist economists made the point that if a man marries his domestic servant, GDP goes down

***reflects the durability of consumer goods. If a product lasts 10 years for the same price that is better than if it lasts for 1 year from a waste perspective

****reflects that private consumption to make up for shortfalls in public health or education services does not increase wellfare

The cool thing about this is that it takes GDP as its starting point and then adds or subtracts based on various externalities that are all bundled together in GDP. The fact that it is per capita means it accounts for population growth. It accounts for government expenditures that increase well being, but not prison or military build-up which would be the result of negative externalities. It is possible to come up with a number for each input and punch them in and come out with a number for GPI! Although I am sympathetic with those who would argue against quantifying every aspect of life, it is an improvement from GDP, and it is interesting to see what is behind the so called quality of life indices.

The Relationship between Growth and Poverty

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In the 12 years that Michael Bloomberg was mayor of New York, he largely pursued policies encouraging economic growth, believing that the increases in consumption and activity would benefit all New Yorkers. By many measures, including per capita income, the city has done extraordinarily well under his management, attracting unprecedented numbers of billionaires as new developments and luxury apartments pop up across the city.

‘A rising tide lifts all boats’, is the cliche for those who would say policy must target growth. We measure the success of politicians by the changes in GDP under their tenure. We assume that all growth is good growth. But to what extent do people at the bottom of the economic pyramid benefit from rising GDP?

The answer is complicated. GDP usually correlates quite closely with employment. In some circumstances, however, growth creates fewer jobs. This is common in high tech sectors, whereas manufacturing tends to create a lot of jobs. As the US has transitioned to a service economy, the middle class that relied on manufacturing jobs has hollowed out.

Depending on the sectoral composition of the economy, growth may have little to no effect on reducing poverty rates. New York has attracted many transplants over the last 12 years who have flocked to neighborhoods that were once run down and unsafe. New businesses boom in Brooklyn and Harlem, but they usually hire and cater to the transplants rather than the people who used to live in these neighborhoods. Wall Street is doing better than ever, but the poverty rate hasn’t changed at all during Bloomberg’s mayoralty. His successor, Bill de Blasio, ran on a campaign of ‘inclusive’ economic opportunity and won in a landslide largely because of these inequities.

So what type of jobs and policies can create more inclusive growth in the modern US service economy? Education is important, and the role of community colleges and vocational training can be invaluable. Elderly care is one field that provides a ladder out of poverty for many people. Government jobs also have strong anti-poverty effects.

Nationally, as the US pulls out of the financial crisis real wages have in fact declined and the poverty rate has risen. This results in the rising numbers of working poor, people who have full time employment yet still live below the poverty line. These phenomena are reflected in the rising inequality that the US is currently witnessing. Growth and anti-poverty can go hand in hand, but in times like ours, its important to remember that they might not.