Topic: International Economics and Development

Obama Meets the Pope

President Obama met with Pope Francis at the Vatican yesterday. After the meeting, Obama said that he was “was grateful to have the opportunity to speak with him [the Pope] about the responsibilities that we all share to care for the least of these, the poor, the excluded… And I was extremely moved by his insights about the importance of us all having a moral perspective on world problems and not simply thinking in terms of our own narrow self-interests.”

Later, in an interview with the Italian newspaper Corriere della Sera, “Obama pointed to the Pope’s concern for income inequality, saying … ‘Given his great moral authority, when the Pope speaks it carries enormous weight.’ Continuing to focus on income inequality, Obama said, ‘And it isn’t just an economic issue, it’s a moral issue. I think the Pope was speaking to the danger that over time we grow accustomed to this kind of inequality and accept it as normal. But we can’t.’”

Writing in The Atlantic last December, I took issue with some of Pope Francis’ assertions about the state of the world, including income inequality:

Academic researchers—from Xavier Sala-i-Martin of Columbia University, to Surjit Bhalla, formerly of the Brookings Institution and RAND Corporation, to Paolo Liberati of the University of Rome—all agree that global inequality is declining. That is because 2.6 billion people in China and India are richer than they used to be. Their economies are growing much faster than those of their Western counterparts, thus shrinking the income gap that opened at the dawn of industrialization in the 19th century, when the West took off and left much of the rest of the world behind.

Similarly, in a recent ReasonTV video, I explained why more—rather than less—capitalism is good for the poor. Simply put, poor people in countries with more economic freedom earn a higher share of the national income and have higher per capita incomes than poor people in countries with less economic freedom.

If Pope Francis and President Obama want to help the world’s poorest people, they should advocate for:

  • Free trade, so that African farmers and Asian tailors can sell their goods in Europe and America free of tariffs and quotas.
  • Ending agricultural (and other) subsidies, which are the products of modern crony capitalism and benefit agricultural conglomerates and large corporations at the expense of everyone else.
  • Property rights, so that poor people can gain title to their land and use it as collateral for borrowing.
  • Privatization of education, water supply, health care and other supposedly public goods, which the corrupt and unaccountable governments in poor countries have underdelivered for decades.

Visiting Nigeria: Tragic Failure, Greater Potential

ABUJA, NIGERIA—Arriving in Abuja, Nigeria results in an almost simultaneous impression of poverty and potential.  After decades of economic disappointment, even collapse, much of Africa is growing. Yet even its leading states, such as Nigeria, remain locked in an impoverished past and fail to live up to their extraordinary potential.

I’ve arrived with a journalist group organized by SLOK Holding Co., chaired by former Gov. Orji Uzor Kalu, a potential presidential contender. Although cities such as Abuja (Nigeria’s capital), Lagos (Nigeria’s most populous urban area), and Port Harcourt (dominated by the nation’s oil industry) enjoy significant development, poverty is never far away. 

In Lagos, wealth has created a genuine skyline on Victoria Island. Yet crowded streets filled with poor street vendors sit in the shadows of these fine structures. Electrical outages are constant, requiring any serious enterprise to maintain a generator. 

Rural Nigeria is much poorer. Even the main highways are in desperate need of minimal maintenance, while burned and rusted wrecks, stripped of anything useful, litter the sides and medians.

Trash is tossed alongside or piled in medians. Roads off the main drag are dirt, always rutted, often muddy, and barely adequate. Most shops are shacks built on dirt just feet from traffic. 

Still, hope remains. Every where in Nigeria I saw enterprise. Open-air markets, which seem to occur every couple miles, are bustling, with people dashing hither-and-yon selling most everything you can find in a department store or supermarket. At major intersections and along busy streets, people sit in the median and walk into traffic hawking most anything, including triangular hazard signs (quite appropriate given Nigeria’s roads!). 

Intellectual capital also is growing. Citizens of this former British colony typically speak English, the global commercial language. I visited a university filled with bright and engaging students hoping to make better lives for themselves and their country. 

Putin’s Animal Farm

In today’s Washington Post, Pamela Constable describes the scene in Crimea, and it reminds me of George Orwell’s Animal Farm.

Vladimir Putin is playing the starring role of Napoleon the pig. To consolidate his power, Putin is employing menacing dogs, just as Napoleon did. Constable writes:

As the referendum approached, the capital was calm, but the streets were filled with a swelling number of stocky security men on corners and outside government facilities … For the most part, they stood around looking tough, but their mere presence was intimidating …

As on Orwell’s farm, Crimea has a few skeptical donkeys, but most people are apparently gullible sheep:

Occasionally, I met someone who questioned the official line … One was a stocky former soldier in his 50s named Volodya who was downing shots of vodka between bites of potato salad at a working-class cafe. “They say my pension will go up, but so will this meal,” he said. “People in a crowd tend to hear slogans and get excited.”

In Orwell’s book, the animals are propagandized with “four legs good, two legs bad.” In Crimea, people are being told that the folks in Kiev have two legs. Constable talked to one person who: “confided that his parents had been won over by the barrage of pro-Russian propaganda warning of fascist threats from Kiev. ‘They told me to be careful and not to associate with people there,’ he said with chagrin. ‘It is like a demon that possesses people and they are no longer able to think.’” 

Finally, the Russian national anthem is stirring the nationalist sole in Crimea, just as “Beasts of England” did on Animal Farm. Constable says:

Even if you don’t know the lyrics, the state anthem of the Russian Federation is one of the most stirring national anthems ever written. This week, on assignment in Crimea, I heard it in full rousing splendor, sung by a chorus of uniformed young men standing at attention, and I had to catch myself from being swept up in the moment.

Another Defective IMF study on Inequality and Redistribution

IMF Warns on the Dangers of Inequality,” screams the headline of a story by Ian Talley in the Wall Street Journal. The IMF – which Talley dubs “the world’s top economic institution”– is said to be “warning that rising income inequality is weighing on global economic growth and fueling political instability.” 

This has been a familiar chorus from the White House/IMF songbook since late 2011, when President Obama’s Special Assistant David Lipton became Deputy Managing Director of the IMF.  It echoes a December 2012 New York Times piece, “Income Inequality May Take Toll on Growth,” and a January 14, Financial Times feature, “IMF warns on threat of income inequality.”  This isn’t news.

Talley writes, “The IMF … says advanced and developing economies need to raise more revenues through taxes, focusing on progressive taxation that moves more of the burden for social security, health care and other state benefits to the high-income earners.” That isn’t news either.  The IMF has an ugly history of advising countries to raise tax rates, with disastrous results.  The inequality crusade is just a new pretext for old mistakes.

North Korea: Dealing with a Human Rights Scourge and Security Threat

The Democratic People’s Republic of Korea long has been recognized as one of the globe’s most difficult challenges.  For two decades concern over Pyongyang’s nuclear program has dominated international attention toward the Korean peninsula. 

What to do about The North Korea Problem has troubled three successive U.S. administrations.  The result is a tentative nuclear state seemingly ruled by an immature third-generation dictator willing to terrorize even his own family. 

Particularly unlucky are the residents of North Korea.  There never has been any question about the extraordinary nature of DPRK tyranny.  But the United Nations just released its own gruesome analysis. 

The finding is simple: “systematic, widespread and gross human rights violations have been and are being committed” by the DPRK.  “In many instances, the violations found entailed crimes against humanity based on State policies.” 

As I point out in my latest article in National Interest:

Yet the challenge facing the U.S. and other nations regarding human rights in the North is a lot like the security problem:  what to do?  The Kim dynasty has demonstrated no interest in disarming.  Nor has it ever hinted at the slightest interest in treating the North Korean people better.  Arguing that human rights should be an international priority doesn’t change matters.

Trying to convince the isolated and militaristic regime that a more pacific policy is in its interest so far hasn’t worked.  Trying to convince the same leadership that it also should dismantle the political system that it dominates is even less likely to succeed. 

However, the human rights report might be more effectively directed at another nation, the People’s Republic of China.  The PRC is North Korea’s chief enabler.  (For a time South Korea shared that title, with its bountiful subsidies as part of the Sunshine Policy.)  

The reasons are understandable if not necessarily laudable.  Washington’s push for Beijing to press the DPRK more seriously, repeated during Secretary of State John Kerry’s recent China visit, founders on the PRC’s perception of its interests. 

The North is unpredictable, except for always being ever unreasonable and difficult.  Nevertheless, Beijing fears destabilizing the peninsula more than it fears North Korea nuclearizing the peninsula.

To change China’s position requires addressing that government’s concerns, particularly regarding the impact of a united Korea allied with America at a time when the U.S. appears committed to a policy of soft containment.  The DPRK’s growing reputation as a human rights outlaw might help.

Beijing obviously is sensitive to the issue, given its own human rights failings.  Nevertheless, there is no comparison between the two nations.  China also has much at stake in the global order, including its reputation, which will be tarnished if it continues to be widely seen as the only reason the Kim regime survives.

Simply bashing Pyongyang won’t be enough.  Washington needs to develop a positive package for a reform North Korean leadership: peace treaty, trade, aid, and integration.  The U.S. also should involve South Korea and Japan.

This approach should directed as much at the PRC as North Korea.  Even Chinese officials frustrated with the DPRK tend to blame the U.S. for creating the hostile threat environment which led the North to develop nuclear weapons.

The PRC still might decide the price of cooperating with America is too high.  But the allies have no better alternative approach.  The DPRK has spent recent years alternating whispers of sweet nothings with screams of blood-curdling threats, tossing in occasional missile and nuclear tests for good measure.  Nothing suggests that the younger Kim has abandoned brinkmanship as Pyongyang’s preferred policy and decided to negotiate away his nation’s most important weapon.

Some day monarchical communism will disappear from the Korean peninsula.  It will do so sooner if China uses its considerable influence—and threatens to withdraw its even more important aid—to press Pyongyang to reform.  The UN’s scathing report on DPRK human rights practices might help win Beijing’s cooperation.

Sweden, Spending Restraint, and the Benefits of Obeying Fiscal Policy’s Golden Rule

When I first started working on fiscal policy in the 1980s, I never thought I would consider Sweden any sort of role model.

It was the quintessential cradle-to-grave welfare state, much loved on the left as an example for America to follow.

But Sweden suffered a severe economic shock in the early 1990s and policy makers were forced to rethink big government.

They’ve since implemented some positive reforms in the area of fiscal policy, along with other changes to liberalize the economy.

I’m particularly impressed that Swedish leaders imposed some genuine fiscal restraint.

Here’s a chart, based on IMF data, showing that the country enjoyed a nine-year period where the burden of government spending grew by an average of 1.9 percent per year.

Swedish Fiscal Restraint

From a libertarian perspective, that’s obviously not very impressive, particularly since the public sector was consuming about two-thirds of economic output at the start of the period.

But by the standards of European politicians, 1.9 percent annual growth was relatively frugal.

And since Mitchell’s Golden Rule merely requires that government grow slower than the private sector, Sweden did make progress.

Real progress. It turns out that a little bit of spending discipline can pay big dividends if it can be sustained for a few years.

This second chart shows that the overall burden of the public sector (left axis) fell dramatically, dropping from more than 67 percent of GDP to 52 percent of economic output.

Swedish Spending+Deficit as % of GDP

By the way, the biggest amount of progress occurred between 1994 and 1998, when spending grew by just 0.27 percent per year. That’s almost as good as what Germany achieved over a four-year period last decade.

Let’s Try Anti-Sanctions

As U.S. policymakers develop their response to the Russian incursion into Ukraine, it seems quite likely that some form of sanctions will be employed.  But sanctions are always harmful to innocents and never particularly effective.  It’s worth considering, then, whether there are policy options that would have a positive impact on the geopolitical situation in Ukraine while directly improving human lives and increasing liberty.  We could call them “anti-sanctions.”

One possibility would be to liberalize U.S. exports of natural gas.  John Boehner and others in Congress have argued that doing so would reduce Russia’s influence in the region by providing countries like Ukraine a non-Russian source of energy.  Even if the geopolitical benefits are slow to materialize, allowing more oil and gas exports would have tremendous economic benefits for the United States.

A much simpler anti-sanction response would be to drop U.S. tariffs on imports from Ukraine.  Normally, many products from Ukraine would be allowed to enter the United States duty free under the Generalized System of Preferences.  But that program, meant to aid development in poor countries, expired last summer.  Renewing GSP would reduce Ukraine’s economic dependence on Russia while directly helping Ukrainians and the Americans they do (or would do) business with.  

Perhaps I am hopelessly naïve, but exploring avenues for peaceful interaction seems to me like a much friendlier and more constructive way to approach international problems.  I suspect there are a great number of pro-liberty “anti-sanctions” that the U.S. government could employ as a response to the crisis in Ukraine that might actually make a positive difference in the lives of Ukrainian people.