Corruption in a Trump Presidency

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The president of the United States

In December 2009, I moved to Philippines just before the presidential election.  Like most of the former leaders of the Philippines, the outgoing president, Gloria Macapagal Arroyo, was exiting under a cloud of scandal.  The candidates pledged to end the corruption that plagued the country, promising to jail Arroyo and clean up the government.   

The leading candidate was a man named Manny Villar.  I remember him for two reasons.  First, he had possibly the smarmiest campaign ad I’d ever seen.  But more importantly, he was a billionaire politician – the only Filipino on the Forbes list – running on a promise to end poverty and corruption.  During the campaign, the Senate investigated Villar for using his position as Senate president and head of the finance committee to authorize the building of an extension to the C5 highway around Manila that would pass directly through properties he owned, making them far more valuable in the process.  To go through Villar’s land, the Filipino government would need to pay him for “right-of-way” compensation. The government had already paid right-of-way compensation to different landowners when Villar modified the plans for the road, inserting a provision to pay himself much more than others received.  Not content simply wasting millions in taxpayer money on a massive infrastructure plan to increase his own property values, Villar insisted on extracting payments from the government for the inconvenience to himself.  

The C5 road extension.  The orange houses are Manny Villar's properties.

The C5 road extension.

Once the favorite in the polls and considered a sure winner by the press, Villar couldn’t recover from the scandal.  He finished third, and Benigno “Noynoy” Aquino III, the son of Benigno Aquino Jr., a politician assassinated on tarmac upon returning to the Philippines from exile, and Cory Aquino, who became the first president after her husband’s death catalyzed the People Power Revolution, the largest non-violent revolution in modern history, became the president.  As a candidate, Noynoy was uninspiring.  But with a family name synonymous with the modern chapter of the country, he might be less susceptible to rampant corruption that ensnared his predecessors. He went on to become president for the next six years.  

The story of Manny Villar always stuck with me.  The corruption was so brazen, it was almost as if he hadn’t bothered covering his tracks because he was so confident he’d get away with it.  And despite it all, he came very close to becoming the president of the Philippines.  

Maybe more importantly, the story taught me why corruption is such a destructive force in a country.  It erodes the trust people have in their government, reinforcing their belief that politicians only care about enriching themselves.  It undermines trust in institutions, calling into question every decision made by those in charge.  When people become convinced that their taxes will be misspent, if not stolen outright, they become less willing to pay.  World Bank economist Augusto Lopez-Carlos explains this dynamic:

There is a delicate tension between the government in its role as tax collector and the business community and individuals as tax payers. The system works reasonably well when those who pay taxes feel that there is a good chance that they will see a future payoff, such as improvements in the country’s infrastructure, better schools and a better-trained and healthier workforce. Corruption sabotages this implicit contract. When corruption is allowed to flourish taxpayers will feel justified in finding creative ways to avoid paying taxes or, worse, become bribers themselves.

Lopez goes on to explain the other reasons why corruption is a “destroyer of human prosperity”, including inefficiency, misallocation of resources, and inequality. Corruption makes capital investment projects like the C5 Highway prime targets for exploitation, allowing politicians to extract rents – whether campaign donations, jobs after leaving office, or outright bribes – from businesses vying for contracts.  And in each country I lived – the Philippines, Ghana, and Kenya – I saw the destructive power of systemic corruption.

money-and-politics

I hadn’t thought about Manny Villar until this week, when Donald Trump said of his business interests, “The law’s totally on my side, the president can’t have a conflict of interest.” Michael Shear of the Times asked Trump, “what do you see as the appropriate structure for keeping those two things separate, and are there any lines that you think you won’t want to cross once you’re in the White House?” Trump gave a meandering answer, but the point is clear – he doesn’t intend to separate from his business in a way that would eliminate the conflicts of interest (if that was even possible).  In 2010, I couldn’t believe a man whose real estate interests were so entwined with his role in government could come in third in the Philippines.  With Trump, it’s as if Manny Villar won the presidency of the United States.

Before unpacking why this is so troubling, let me give a quick rundown of Trump’s conflicts of interest (for a comprehensive overview, check out this article from the Atlantic).  

When individuals actively running companies are elected to office, they put their business holdings into a “blind trust”, which is managed by a trustee with whom they have no contact.  This isn’t a true Chinese wall, since presumably they know what is best for their business and can still enact policies favorable to their business.  But at least it is an attempt to separate them.  Trump, on the other hand, plans to hand over management of his business to his children.  Unless they spend next Thanksgiving talking about something other than business or politics – is there anything else? – it is hard to believe that one won’t influence the other.  Even if he does turn the business over to his children, all three of them are on his transition team, and his son-in-law, Jared Kushner, is considered to be his most trusted advisor.  Anyone who claims that arrangement constitutes legitimate separation of interests is either lying or delusional.

Then there is his new DC Trump hotel.  According to the Washington Post, the General Services Administration (GSA) provided a 60-year lease to Trump the Post Office Pavilion for $180 million a year.  As president, Trump will nominate the head of the GSA, whose employees will then re-negotiate the terms of the lease with Trump’s children, who will be in charge of the company.  On top of that, any foreign diplomat visiting Washington will be staying in that hotel, because they’d be crazy not to.  

The opening of Trump International Hotel in DC

The opening of Trump International Hotel in DC

Trump has property holdings in foreign countries.  He has an office building in Buenos Aires, and Trump asked the Argentinian prime minister – in his first official state call – to deal with permit issues that were holding up construction.  He has properties in Saudi Arabia, a key frenemy in the Middle East, a golf course in Scotland, where he’s asked Nigel Farage to oppose wind farms that would obscure the view from the fairway, and an apartment complex in Mumbai, whose co-investors visited Trump during his transition.  Unlike domestic policy, where congress passes legislation that becomes law, foreign policy is mainly the purview of the executive branch.  Donald Trump is the commander-in-chief and head diplomat of the United States.  And regardless of who is running his company, he knows where it operates.

Trump with his Indian business partners

Trump with his Indian business partners

And finally, the Philippines.  In April 2016, Rodrigo Duterte, a violent strongman, became the president of the Philippines, succeeding Noynoy Aquino and portending the election of Trump six months later.  Duterte, who called President Obama a “son of a whore”, elected Trump’s business partner in Manila, Jose E.B. Antonio, as the official trade envoy to the United States.  

That is the abridged version of his massive conflicts of interest in the U.S. and around the world.  Already, supporters are offering explanations of why it won’t be a problem.  Reince Preibus, his chief-of-staff, seems to be laying the groundwork for a “we’ll abide by the law” justification, knowing that, as Trump himself said, the law doesn’t explicitly prevent the president from holding these conflicts of interest.  Holman Jenkins, a columnist for the Wall Street Journal, offers a less convincing explanation in his column, “Living with Donald Trump’s Conflicts”:

To imagine that Donald Trump, in order to eliminate conflicts of interest, would or could cash out his stake in his business empire is entirely unrealistic. This, we ought to admit to ourselves, was simply part of the bargain when voters elected Mr. Trump, in full view of his business interests. If the criterion now for supporting President Trump or accepting the legitimacy of his actions is to require of him a basically impossible task of de-conflicting himself from the Trump family business, that would have been a criterion to stipulate before Election Day, not after.

This explanation is a little ridiculous.  I don’t put too much stock in what a hack like Jenkins has to say (just read his column from two months prior about how Trump might clean up corruption), but his take is useful in understanding how Trump’s defenders distort the truth to justify his inherent corruption.  First of all, Trump made this entire election a referendum on corruption.  He promised to “drain the swamp” and claimed that Hillary Clinton was the most corrupt candidate in history.  Here is a statement from October 6th – one month before the election – on Trump’s website:

The more that comes out, the clearer it is that the Clinton State Department was for all intents and purposes an arm of the Clinton Foundation. The fact that Hillary Clinton was handing out government contracts to family friends, siding with Clinton Foundation donors over human rights activists in Burma and having her aides coordinate activity between the State Department and her foundation is deeply troubling. A Clinton White House would be more of the same but worse: the highest office in the land would be brimming with corruption and compromised by undue foreign influence.

Compromised by undue influence?  It has been exactly two weeks since Trump has been elected president and he has already tried to exert his influence to his own benefit in five countries (that we know of).  So, I don’t buy the idea that somehow the voters knew that they were electing a president who would have inherent conflicts of interest.  I think a more plausible explanation is that Trump simply lied.

The larger point is not about whether Donald Trump will become richer as president.  He will.  Every politician does – it is how the system works.  But generally, they wait until they are out of office to cash in.

So what happens now?  For an example of how Trump’s foreign policy might play out, you could look at the example of the Dulles brothers and the United Fruit Company, which bribed officials and exploited Latin American workers in the fifties.  In his book, “The Fish that Ate the Whale”, Rich Cohen explains the network of influence:

John Foster Dulles, who represented United Fruit while he was a law partner at Sullivan & Cromwell – he negotiated that crucial United Fruit deal with Guatemalan officials in the 1930s – was Secretary of State under Eisenhower; his brother Allen, who did legal work for the company and sat on its board of directors, was head of the CIA under Eisenhower; Henry Cabot Lodge, who was America’s ambassador to the UN, was a large owner of United Fruit stock; Ed Whitman, the United Fruit PR man, was married to Ann Whitman, Dwight Eisenhower’s personal secretary. You could not see these connections until you could – and then you could not stop seeing them.

United Fruit Company – known today as Chiquita – became a monopoly in several Central American countries, known today as “Banana Republics”.  The lasting impact on the economies of Honduras and Guatamala is profoundly negative.

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But, more importantly, what happens to our perception of our own government?  Trump ran on a promise to end corruption.  As a candidate, he would drain the swamp from the Washington beltway and work on behalf of the forgotten masses.  As a president, it is looking increasingly like he’ll be presiding over the type of kleptocracy more often seen in the developing world.  If he does, he’ll continue undermine the democratic institutions he has already called into question through his speeches and rallies.  And he has convinced a large swath of the country that the one institution that can shine a light on his corrupt dealings – the press – is itself corrupt.

How will Americans look at our institutions in four years?  Maybe they will be fed up with Trump’s self-dealings and elect someone else.  More likely, we’ll live in country with a weaker press – due to media economics, restrictions placed by President Trump, etc. – and one in which what we now call “corruption” is simply the way things are done.  

The people of the Philippines had the good sense to not reward Manny Villar’s corruption with the presidency.  In the U.S., people are asking to give Donald Trump a chance.  But we’ve seen this film before.  And the ending isn’t good.

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Racism in America

Queensbridge_Houses

I. Introduction

In August of 2014, a police officer shot dead Michael Brown, a black teenager from Ferguson, Missouri, blowing the lid off a debate about racism in America. Protesters filled the streets, yelling “Hands up, don’t shoot.” The hashtag “#blacklivesmatter” began trending on Twitter. A few weeks before, bystanders filmed a police officer in Staten Island choking to death Eric Garner, an African-American man who’d been arrested for selling untaxed cigarettes. When the grand jury chose not to bring charges against the officers responsible for the deaths of Brown and Garner, many Americans sadly shook their heads.

This isn’t the first time the deaths of young black men have sparked a national conversation about race. In 2012, George Zimmerman shot and killed Trayvon Martin, an unarmed black teenager in Florida. On New Years Day in 2009, a police officer shot Oscar Grant, a 23 year-old black man, point blank while on top of him at Fruitvale Station in Oakland, California (a film was later made about his death). But unlike in those incidents, the conversation stemming from Ferguson has continued long past the shooting, in part due to a string of stories of overt racism around the country. In March of 2015, a video surfaced showing members of SAE, a fraternity at the University of Oklahoma, singing a racist song on a bus. The fraternity chapter was disbanded, the students expelled, and the national conversation about race and privilege continued.

These incidents are not unique, but are considered emblematic of a broader societal problem with racism in America. Police unfairly target people of color, filling prisons with blacks and hispanics and criminalizing generations of young people. In Ferguson and the communities around St. Louis, municipalities effectively run debtors prisons, jailing people for minor infractions like an expired tag or broken tail light. In 2013, Ferguson alone issued 32,975 arrest warrants for its 21,135 people, overwhelmingly to African-Americans. Clearly, there is a problem.

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Unfortunately, these incidents, and even the unjust policies they exposed, are symptoms of the much larger, more nefarious disease of institutional racism. Unlike the overt racism on display in the shooting of Michael Brown or the chants of drunk fraternity members in Oklahoma, institutional racism is not easily seen, measured, or even defined. It has no beginning or end, having permeated every aspect of our society, and its effects are felt all around us. Michael Brown’s death, like Trayvon Martin’s death and Eric Garner’s death, was the output of a system so deeply corrupted by institutional racism that outcomes like these are not only unsurprising, but expected.

In this essay, I will explain the concept of institutional racism, (try to) break down the components of the complex systems that govern society, and explain how institutional racism within those component parts creates a self-reinforcing, unjust system where ethnic minorities are discriminated against not only by individuals within the system, but by the system itself.

II. Unpacking Institutional Racism

It makes sense to start with a definition of institutional racism. From Wikipedia:

Institutional racism is the differential access to the goods, services, and opportunities of society. When the differential access becomes integral to institutions, it becomes common practice, making it difficult to rectify. Eventually, this racism dominates public bodies, private corporations, and public and private universities, and is reinforced by the actions of conformists and newcomers. Another difficulty in reducing institutionalized racism is that there is no sole, true identifiable perpetrator. When racism is built into the institution, it appears as the collective action of the population.

Institutional racism is a difficult concept to unpack because discrimination is rarely overt or entirely unjustified. It can be subtle and almost imperceptible at the individual level, and often stems from discrimination within another system. Let’s look at particular example and trace it back to the origins.

Institution 1: The Prison

Anthony is a 22 year-old African-American kid living in the Queensbridge Housing Projects in Queens, New York. He’s got a girlfriend and a two year-old baby boy, and has been selling drugs since he was a teenager. When he is arrested for selling a small amount of crack cocaine, he is sent to jail on $1,000 bail, which neither he nor his family can afford to pay, so he ends up staying in jail until his trial. Because he has a prior record, the odds are not in his favor when he finally gets his day in court.

Anthony has a one-in-three chance of going to prison.= during his lifetime.

Anthony has a one-in-three chance of going to prison during his lifetime.

In 2009, the incarceration rate of black males in the U.S. was six times that of whites. Is that because blacks are more likely to go to prison than white people? Perhaps. According a report from the Sentencing Project, white Americans overestimate the proportion of crime committed by people of color and tend to support more punitive measures even though they experience less crime. In Florida, a Washington Post poll found that whites believed 50% of crimes were committed by black people, when the real number is closer to 20%. This bias makes them more likely to support tough-on-crime policies, which politicians are more than willing to oblige.

new york prisonersAs a result, blacks are both more likely to be convicted of crimes and receive longer sentences than whites. Nationwide, blacks are 10 times more likely to go to jail for drug offenses. In 2012, a study found that blacks and Hispanics received longer sentences for the same or lesser offenses than white offenders.  People of color remain in prison longer and naturally comprise a larger percentage of the prison population.

If he could afford a lawyer, Anthony might receive a lighter sentence. But he can’t, so he is assigned an overworked public defender who might be meeting him for the first time on the day of his trial, and he appears before a judge wearing a jail uniform, since he couldn’t afford bail. Meanwhile, he’s been evicted from his apartment because he has been in jail, and his girlfriend and baby are staying at her mother’s house, while the primary breadwinner is sitting in jail, unable to work. With a few strikes against him, he receives two years and is sent to prison.

Anthony isn’t the only one dealing drugs in New York City, but this isn’t the first time he’s been arrested. The next questions is: why are so many blacks arrested in the first place?

Institution 2: The Police

Anthony hangs out on the corners and is frequently stopped by the police and searched. Because Queensbridge has a history of drug-dealing, there is a strong police presence in this overwhelmingly black and Latino neighborhood. People in the community have an uneasy relationship with the police, who simultaneously make the neighborhood safer and arrest young people in much higher numbers than in the rest of the city.

Part of the problem is that black males are unfairly targeted by police officers. In New York, a controversial policy called “stop-and-frisk” allows police to stop and question a pedestrian before searching them for guns and contraband. Despite the fact that blacks and Latinos make up 52.6% of the population, they consistently account for 85% of stop-and-frisk encounters. And, if they’re caught, blacks are four times more likely to be arrested for marijuana possession and selling, despite consuming the drug at largely same proportion as white people.

Stop-and-frisk has a notoriously low yield, subjecting thousands of innocent people to unnecessary searches.

Stop-and-frisk has a notoriously low yield, subjecting thousands of innocent people to unnecessary searches.

So it is true the police are overwhelmingly targeting people like Anthony, who was arrested in a stop-and-frisk encounter.  And the stats seem to support a pattern of profiling. New York City releases a report on race and crime statistics every year. In 2012, blacks and Hispanics accounted for 73% of arrestees for misdemeanor mischief, compared with 23% for whites. It is certainly possible, and even probable, that whites are getting away with more crimes than people of color. But blacks and Hispanics are, at the very least, getting caught more often.

The police argue that they’re job is to stop crimes, and arrest those who are committing them, whether they are black, white, or any other color.  When asked about racial bias in Ferguson, former NYC mayor Rudy Giuliani asked: “I find it very disappointing that you’re not discussing the fact that 93 percent of blacks in America are killed by other blacks.”  In a similar vein, responding to critics of stop-and-frisk, the NYPD released a report in mid-2012 showing that people of color made up 96% of shooting victims and 97% of shooting suspects during the first half of the year. The police commissioner, Raymond Kelly, defended stop-and-frisk as “proactive engagement”, calling it a “life-saving measure.” In other words, we’d arrest fewer black people if they committed fewer crimes.

Of course, these shooting suspects represent a tiny fraction of black and Latino youth in NYC, and hardly justify such a blunt policy. Still, given these realities, it is possible to see why police officers would target Anthony for reasons other than racial bias.

Institution 3: The City

Regardless of policy, Anthony was stopped because the police felt they had reason to suspect he may be engaged in illegal activity, so they approached him. But part of the problem is that Anthony lives in Queensbridge, a housing project with a pattern of gang violence and drug dealing. And that means cops approach kids in Queensbridge like Anthony all the time.

The concentration of violent crime around certain geographies has given rise to programs like predictive policing, which uses data analytics to identify crime hotspots and preemptively deploy resources to prevent crimes before they occur. Because those crimes are often committed in predominantly ethnic neighborhoods, police presence is higher and more people of color are arrested. The resulting higher arrest rates are not necessarily due to overt racial bias, but actually an analysis of where crimes are most likely to occur. And, in Anthony’s case, Queensbridge fits the bill.

Stops by neighborhood.  In the ten highest crime precincts, there are 16.9 stops per 100 residents - three times the city average (Source: NYT)

In the ten highest crime precincts, there are 16.9 stops per 100 residents – three times the city average (Source: NYT)

So why do specific urban neighborhoods like Queensbridge have such a problem with crime? Sociologists, criminologists, and economists have tried to answer that question for decades, and proposed several explanations. Conflict theory is one of the more prominent criminological explanations for the concentration of crime in certain neighborhoods:

As a general theory of criminal behavior, conflict theory proposes that crime is an inevitable consequence of the conflict which arises between competing groups within society. Such groups can be defined through a number of factors, including class, economic status, religion, language, ethnicity, race or any combination thereof.  Sociologists and criminologists emphasizing this aspect of social conflict argue that, in a competitive society in which there is an inequality in the distribution of goods, those groups with limited or restricted access to goods will be more likely to turn to crime. 

According to conflict criminology theory, people with fewer means are more likely to turn to crime to make ends meet. And, in a self-fulfilling way, crime begets crime – a fact that underlies the controversial broken windows theory of policing.

It is critical to note that poverty, not race, explains high levels of crime in this and just about every other theory of criminology. The link between poverty and crime is well-documented, going all the way back to Aristotle, who said, “Poverty is the parent of revolution and crime.” In a 2005 paper in the American Journal of Public Health titled “Social Anatomy of Racial and Ethnic Disparities in Violence”, three researchers from the Rand Corporation posit that the relationship between race and crime is based on underlying factors specific to racial groups:

Our theoretical framework does not view “race” or “ethnicity” as holding distinct scientific credibility as causes of violence. Rather, we argue they are markers for a constellation of external and malleable social contexts that are differentially allocated by racial and ethnic status in American society. We hypothesize that segregation by these social contexts in turn differentially exposes members of racial and ethnic minority groups to key violence-inducing or violence-protecting conditions.

The authors go on to offer a few statistically-significant examples of those social contexts, including marital status of parents, immigrant generation, and neighborhood characteristics associated with racial segregation. So, what exactly is it about these neighborhoods that help to explain the propensity to commit crimes?

Institution 4: The Neighborhood

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Nas in Queensbridge

Anthony’s neighborhood, Queensbridge, is the largest housing project in the borough of Queens in New York City. It was first built in 1939, and has around 6,500 residents at any given time. During the late 1950’s, the management converted it to a low-income housing project, transferring families with an annual income of more than $3,000/year, most of whom were white, to a middle-income project, leaving a predominantly poor black and Hispanic population.

Throughout the 70’s and 80’s, poverty increased, and Queensbridge became notorious for the prevalence of crime, gaining the dubious distinction of having the most murders of any project in New York in 1986. Queensbridge’s most famous resident, Nas, described growing up there in the song, “Memory Lane”, from one of your correspondent’s favorite albums, Illmatic:

My window faces shootouts, drug overdoses
Live amongst no roses, only the drama, for real
My pen taps the paper then my brain’s blank
I see dark streets, hustling brothers who keep the same rank
Pumping for something, some’ll prosper, some fail
Judges hanging niggas, uncorrect bails for direct sales
My intellect prevails from a hanging cross with nails

Things have changed from the days when Nas lived there. Since the 2000s, crime in Queensbridge, along with the rest of NYC, has decreased, but is still higher than in many places around the city. The median income today is between $21,000 and $25,000 a year, and the average rent is less than $500.

Queensbridge fits a common pattern of poor urban neighborhoods during the 20th century that has been well-researched by sociologists. In his 1987 book, The Truly Disadvantaged: The Inner City, The Underclass, and Public Policy, William Julius Wilson, a Harvard professor focused on urban communities, introduced the concept of “concentrated poverty” – a poverty incidence of 40% or greater, which has since become the de facto threshold for sociological research around urban ghettos. He argued that concentrated poverty creates “social isolation”, in which the community has fewer interactions with mainstream society, and, as a result, limited access to job networks and economic opportunities. With fewer opportunities to earn a living, people in poor communities are more likely to turn to crime as an alternative.

Share of the poor population living in neighborhoods with poverty rates of 40 percent of higher, 2008-2012. (Source: Brookings Institution)

Share of the poor population living in neighborhoods with poverty rates of 40 percent of higher, 2008-2012.
(Source: Brookings Institution)

According to Wilson, there are a number of reasons for the high proportion of blacks and Hispanics in communities marked by concentrated poverty. First and perhaps foremost to this discussion, overt systemic racial discrimination and segregation pushed more minorities into the inner cities:

Blacks were discriminated against far more severely in the early twentieth century than were the new white immigrants. Through restrictive covenants, municipal policies, and federal housing programs, blacks, unlike other immigrant groups, were forced into particular areas inner cities. At the same time blacks were discriminated far more severely than other groups in the labor market making them disproportionately poor and concentrated in low-paying jobs, particularly in the industrial sector. Collectively these forms of racial and spatial discrimination laid the basis for most areas of contemporary concentrated poverty.

Later on in the twentieth century, broad societal changes that I describe in another post, “The Convergence: America’s Long Arc of Development”, ushered in a period of de-industrialization, reducing the number of low-wage jobs available to blacks, while white flight and “spatial mismatch”, which describes the expanding geographic rift as economic growth shifted from the cities to the suburbs, all led to the further decline of urban ghettos.

This is exactly what happened to Queensbridge. The shift to a low-income housing project in the 50’s increased racial segregation in the community and declining socioeconomic conditions intensified, causing violent crime to increase. The escalation of the war on drugs during the Reagan Era only exacerbated the situation, and Queensbridge became a more dangerous place than ever.

The result for communities like Queensbridge is a decades-old poverty trap, in which social isolation and declining economic opportunities make it increasingly difficult for the overwhelmingly minority inhabitants to pull themselves out of poverty, creating a permanent underclass.  And for people like Anthony, fewer economic opportunities put pressure on them to support their families in other ways.  When drug dealing is ubiquitous in a community, it becomes an attractive proposition for someone without a lot of options.

Institution 5: The Schools

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The kids from Season 4 of The Wire.

Poverty does not only lead to more crime in neighborhoods like Queensbridge. It affects just about every institution that is built in and around the community. The Brookings Institution explains some of the other ramifications of concentrated poverty:

Poor individuals and families are not evenly distributed across communities or throughout the country. Instead, they tend to live near one another, clustering in certain neighborhoods and regions. This concentration of poverty results in higher crime rates, underperforming public schools, poor housing and health conditions, as well as limited access to private services and job opportunities.

We have covered higher crime rates and limited access to private services and job opportunities, so let’s turn our focus to the underperforming public schools. In the U.S., funding for public schools comes from local property taxes. As the poverty level creeps up, housing prices decline dramatically. According to one study, once the poverty level in a community exceeds 10%, housing and rental prices steeply decline until it reaches the 40% threshold of concentrated poverty, at which point prices level out.

Since property taxes are calculated using housing prices, schools in poor communities have fewer resources available than those in more affluent communities, where housing prices are higher. This systemic problem, coupled with limited job opportunities for high school graduates due to spatial mismatch, fewer mentors to provide positive guidance, and the high prevalence of crime in and around the schools, results in an inferior education for children in areas of concentrated poverty, leaving them ill-prepared to succeed, further widening the income divide and compounding socioeconomic inequality.

In New York City, spending on a pupil in a neighborhood with 30% poverty is 11% less than in one with very little poverty.

In New York City, spending on a pupil in a neighborhood with 30% poverty is 11% less than in one with very little poverty.

I have covered the tragedy of the American education system ad nauseum in this blog, and have discussed the importance of education for economic development in several posts. Without a decent education, generations of children born into poverty have few opportunities to break the cycle of poverty, keeping them ensnared in a vicious cycle of poverty that all too often ends with prison.

It is impossible to say whether a strong public school system would have set Anthony on a different path. But the purpose of education is to give children the tools to succeed and skills to find employment. Without a good education, the opportunities are limited.

III. Conclusion

Let’s take a step back and review the each of the institutions, starting at the beginning. Anthony is arrested, tried, and convicted of dealing drugs, after being stopped-and-frisked on a project corner. His neighborhood, Queensbridge, is poor and overwhelmingly black and Hispanic. The school system is underfunded, the community is isolated, and few economic opportunities exist for young people, increasing the likelihood that they join a gang, either to earn money from selling drugs or simply for protection. Anthony gets caught up in the life and goes to jail, leaving his girlfriend without a breadwinner and son without a father.

Systemic racism has a long history in America

Systemic racism has a long history in America

Now we can generalize his experience more broadly. Historical racial segregation and discrimination and the changing dynamics of the American economy led to concentrated poverty and increasing social isolation in urban ghettos, the majority of whose inhabitants are black and, more recently, Hispanic. Higher levels of poverty drive down housing prices, which deprive the community of property taxes, which creates an inferior school system for black children and prevents poor urban communities from improving.

Those inhabitants have fewer economic opportunities and are more likely to turn to crime as a way of making ends meet. Crime becomes increasingly concentrated in these communities, leading to a greater police presence and higher rates of arrest. Various factors, including generic racial bias, politicians’ fears of being labeled soft on crime, and the disproportionate media coverage of black criminality, leads to policies like mandatory sentencing that unfairly result in longer sentences for people of color. And all of these factors combined result in an incarceration rate of six times that of white people, which is right where we started.

The dog whistle that results in tough-on-crime policies

The dog whistle that results in tough-on-crime policies

In this essay, I have tried to break down the infinitely complex systems that govern individuals and highlight how systemic institutional racism pervades every aspect of society. This racism is not overt, and it is not sensational. It is not a white police officer shooting an unarmed black teenager and leaving him to die in the streets. It is not a bunch of white fraternity members chanting racial epithets on a bus. It is not spoken, nor is it perpetrated by any one individual. This racism is built into the very fabric of our society, creating a permanent underclass that is overwhelmingly black and Hispanic. And it is getting worse.

I don’t know the answer to this problem. I fear that it is so ingrained into our society that we cannot diagnose, much less eliminate, the disease. As a society, we must be be willing to engage in collective self-criticism that makes most people uncomfortable.  Whenever a politician tries to have an honest conversation about systemic racial inequality, they risk being labeled an apologist for America.  And, unfortunately, in every society, the underclass, despite having the numbers, rarely has the political influence or money to effect real pro-poor policies.

I welcome the discussion about race that the the events of the last year have forced America to have. But as long as we focus on the symptoms, rather than the disease, the problem will only continue to get worse.


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Travelogue: India

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As I mentioned in the last post, I decided to figure this India trip on the fly, refusing to make any concrete plans that might hinder my freedom to do whatever I wanted. The day before I left, I ordered a copy of the Lonely Planet India on Amazon to be delivered the next day (which it did, five hours before my flight). Armed with a book about India and a couple recommendations from friends, I felt confident that the trip would work itself out. Unfortunately, within 24 hours, I lost the Lonely Planet and was back to square one.

The original plan was to explore Varanasi, a city on the Ganges River that is among the holiest for Hindus, and Rajasthan, a region in Northern India known for beautiful landscapes, brightly-colored clothes and architecture, and a rich culture dating back thousands of years. I would take a bus from Pokhara to Varanasi and cross from Nepal to India by land. After a few days, I would fly to New Delhi and follow a path called the Golden Triangle, starting in Delhi, moving on to Agra, the site of the Taj Mahal, and Jaipur, known as the pink city for its reddish-hued stucco buildings, before returning to New Delhi.

After college, my brother worked on a nature documentary in India and spent a week in Varanasi, which he claimed is the coolest place in the world. With such a strong recommendation, I felt I had to go. Given that Varanasi is in the northern part of India, the Golden Triangle felt like a natural fit for the second half of the trip. As with most of my plans, this one quickly fell apartment when I decided to take a bus from Pokhara to Kathmandu, book a flight from Kathmandu to Varanasi, and figure things out from there.

The more I spoke with people, however, it sounded like Delhi was just another giant metropolis and Jaipur a slightly smaller metropolis. Coming to the conclusion that I didn’t know anything, I decided to let Ashaya, who attended boarding school in India, decide my itinerary. She suggested two days in Varanasi, back to Delhi for the Taj Mahal, and down to Udaipur, a small and beautiful city of palaces situated on a lake and surrounded by rolling hills. With a tentative itinerary and two days before my trip, all that was left was to book it.

Having made no reservations of any kind, I spent the day before my flight trying to book a flight from Varanasi back to New Dehli, a round-trip ticket to Udaipur, and a flight back to Kathmandu. India actually has a fledgling low-cost airline industry, with several carriers offering cheap flights around the country. Having talked to a few people who’d done the trip before, I assumed booking travel would be relatively straightforward. Sadly, as with most simple tasks in India, that was not the case.

I first tried to book a flight on Yatra.com, India’s equivalent of Kayak, searching for the lowest fares across the four major airlines in India. Having found a cheap flight from Varanasi to New Dehli, I entered my credit card information, only to be informed that they only accept international credit cards five days in advance of booking, which wasn’t going to help me book a flight in three days. I tried to book directly on website of the airline, SpiceJet, which brought me all the way through the process, including entering my credit card, before bringing me back to the main website and forgetting all about the reservation it was supposed to be processing. Feeling a little like Sisyphus, I began to doubt the wisdom of winging a trip to India.

Having decided to punt on that Delhi flight, I went back to Yatra to book the rest of my flights. I found a great deal on a round trip flight to Udaipur – 8,000 rupees there and back. When I selected the flight, a notice popped up on the screen telling me that, in the time between selecting the flight and bring it up, the price had increased by 2,000 rupees. “Son of a bitch,” I thought. So I decided to wait a bit and check again. Fifteen minutes later I found the flight again for 8,000 rupees. When I click purchase, the same thing happened. I couldn’t help but be amused that an Indian e-commerce website was haggling with me the same way as a shopkeeper selling knockoff watches.

Regardless, it didn’t matter, since every site selling airline tickets in India seemed to be broken. Sensing my desperation, Ashaya told me she’d take care of it and called her ticket-agent cousin, who booked four flights for me on SpiceJet for a total of $380. And with that, I finally had the beginnings of a plan.

Unfortunately, my trip to India got off to a characteristically rocky start when my Air India flight from Kathmandu to Varanasi was first delayed by four hours, and subsequently cancelled altogether. Fortunately, my friend Ashaya called her uncle, Kamal Rana, who works at the airport to guide me through security and ensure I made my flight to New Dehli. This was the first of several saves that made my India trip go much more smoothly than it otherwise might have.

Mr. Rana met me at the airport, shepherded me through immigration and security, bought me coffee, and sent me on my way. Aboard the flight, I sat next to an older Canadian couple, Doug and Estela, also trying to get to Varanasi. Doug struck up a conversation, and we started talking about our respective trips. Once a year, Doug went hunting with a group of American and Canadian guys. One of the America guys had a form of cancer for which an experimental treatment was available in Canada. When he asked Doug to connect him with a doctor in Canada, Doug happily obliged. In return, the American, who worked for Delta Airlines, offered him and Estela first-class, round-trip tickets to anywhere in the world. So they started preparing for a month-long trip through India, with a five-day stopover in Nepal.

Over the course of the two-hour flight, we covered a lot of ground. Doug inherited a farm from his grandfather in Canada, and he and Estela, who is originally from Colombia, bred and raised racehorses. They recently bought a 20-acre farm two hours north of Bogota and were turning it into a ranch and guesthouse for people looking to experience the lush Colombian countryside. I said I’d never been to Colombia, and showed him the places I’d lived on the Air India “Where We Fly” map. When I told him I was in business school, he warned me not destroy the world economy and take advantage of people for financial gain, which I happily obliged.

Before we left, we’d been assured that we would be put on a flight to Varanasi early the following morning. When we deplaned, the Varanasi refugees coalesced, growing to 20 by the time we found out what we needed to do. Each airport employee we asked gave us contradictory instructions, ultimately leading us to leave the airport, take a staircase to the second floor, and re-entering it at the departures terminal. After one guy told us to go back the way we came, Doug mused “Kafka would appreciate this.” There were two Germans in their twenties, each traveling alone, a Dutch family of four who were midway through a four-month trip through India, an older Czech couple that were starting their fourth consecutive month-long India trip and talked about how much had changed from 25 years ago, when they first traveled to the subcontinent, and a handful of others.

When we finally arrived at the Air India customer service desk, it was pandemonium. We were not the only flight that had been cancelled, and people were screaming. The Czech guy, who looked like Mr. Magoo, immediately stepped up as the de facto leader of the group, and reported that we were all going to be re-booked on an already-overbooked flight the following morning. At that point, the Dutch couple decided to cut their losses and head north instead. In the ensuing commotion, I found another airline – IndiGo – with flights the following day for $80. So once we were back at the terrible hotel Air India put us up at, Doug called the travel agent who organized his trip and the three of us booked another flight to Varanasi.

The next morning, we flew out without any problems, short of a three-hour fog delay that left us grounded on the tarmac. I caught a ride into the city with Doug and Estela, where they gave me a postcard of their Colombian getaway and bid me adieu.

In the next post, I’ll talk about Varanasi and beyond.


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The Freedom of Winging a Trip

What should we do next?

What should we do next?

In this post, I’ll take a detour from the travelogue to talk about the benefits of winging it.

After the wedding, people began to go their separate ways. The people with jobs prepared for their flights back to their homes where they would return to being productive members of society. Given my current status as a man of leisure, such responsibilities and obligations don’t apply to me, so I headed off to Pokhara, a lakeside town seven hours north of Kathmandu, with Ellie and Adea, two of the bride’s friends that we’d been hanging out with. In true flashpacker status, we rented a car and driver to take us to the city. I personally wanted to fly, but was soundly overruled when Ellie discovered that Yeti Airlines is ranked one of the least safe airlines in the world. So we set off for Pokhara.

Just before we left, I needed to find a place to stash my wedding clothes. My plan was to take an eight-hour bus ride from Pokhara to Varanasi, the holy Hindu city on the banks of the Ganges River, and I didn’t want to lug around dress shoes and a kurta for 20 days around Nepal and India. My friends couldn’t fit it in their luggage back to the US, and I didn’t know when I was coming back, so I got the hotel to agree to hold onto it until I got back, knowing that there was a small chance I would need to buy a new pair of shoes when I got back to the States.

This isn’t an important detail, except to illustrate one of the key themes of this trip for me: the tradeoffs for planning vs. just winging it. When I first started traveling seriously in 2009, I was much more of a planner than I am today. I would loosely plan a trip, booking a bungalow or hostel days in advance to make sure that I had a place to stay. On trips with friends, we’d have an itinerary, with a few days in each place before taking a bus or a flight to the next place. As I traveled more, my philosophy changed, along with my priorities. Increasingly, keeping my options open became more important, and freedom trumped certainty. Cutting my teeth in Southeast Asia helped – you can show up in Bangkok with your passport, wallet, and a toothbrush, and make your way around the region without ever picking up a phone or turning on a computer. But it is also something that is personality-driven, with Type A people putting more emphasis on the plan, and others preferring to go with the flow.

In the past, I’d winged a few trips, but had organized them around activities or events, which made jettisoning the original plan easier to do on the fly. In the Philippines, I spent a month island-hopping to hit the best dive spots. After spending four days in Coron, a major naval battleground of the Pacific Ocean Theater during WWII, I flew to Luzon and thought I would head north to a beach known for being one of the only places in the Philippines with good surfing. When I arrived at the Manila airport, I looked out at the nighttime city skyline, and remembered how much I didn’t like Manila. So I turned around, walked up to the Cebu Pacific counter and bought a ticket for Cebu that left an hour later.

Regions like Southeast Asia, with well-trafficked destinations, multiple low-cost airlines, and accommodation to fit every budget, enable this kind of travel. You may end up spending more money than you’d like or sleeping in a barely-passable hotel, but, as long as it is not peak season, you’re almost certain to find a bed in the place you want to be. It is a bit more difficult in Africa, but even there you can roll up to a place that attracts tourists – like Cape Coast in Ghana, Diani Beach in Kenya, or Zanzibar – and figure it out.

The downside of this approach is that you are more likely to experience some discomfort and added stress from not knowing what you are doing. Also, when you only have a limited amount of time and want to see a lot, plans are necessary. But the benefit of winging it is that you are completely free to do whatever you want, unconstrained by flight itineraries, hotel deposits, and, most importantly, plans. And that freedom, which it may cost you a little more in dollars and peace of mind, is invaluable in other ways.

In the next post, I’ll relay my adventures trekking in the Himalayas.


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Travelogue: Nepal, Part 1

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On December 3rd, 2014, I flew to Nepal by way of Istanbul for a wedding in Kathmandu. I’d spent the last week writing papers and preparing to leave school a week early for the trip. My flight was at 11 PM, so I had to leave for airport at 9. The Lonely Planet guides for Nepal and India I’d ordered the day before arrived at 4 in the afternoon, but I missed getting my new Capital One card with no foreign exchange fees by an hour. I grabbed the blue backpack that I carried for three years around Southeast Asia and Africa, which was filled with mostly cheap t-shirts and jeans that I wouldn’t mind jettisoning if I needed extra room, plus one pair of all-purpose dress clothes for the four-day wedding I would be attending, and took the red line to Logan Airport.

Being a Wednesday at 9:30, I breezed through security, found my gate at the international terminal, and ordered a whiskey on the rocks at the airport bar to pass the time until my flight. I’ve written about my affinity for airport bars on this blog. There is something about sitting at a cookie-cutter bar, listening to the boarding calls, and watching people come and go that brings you back to all the airports where you’ve done the exact same thing and makes you excited to head back out on the road. A half-hour later, my friend Jeff showed up and we ordered another drink. A man next to us tried to strike up a conversation. He was heading to Mumbai, and had spent a few years teaching English in China and Thailand, which we both took as a cue about the purpose of this man’s travels. After he yelled at us for some perceived slight, we finished our drinks and headed to the gate.

En route to airport with my old friend

En route to airport with my old friend

With the exception of the meal, the flight was long and uneventful. When I booked my ticket, I must not have been paying attention, because I thought I was required to select a meal option and chose the “bland meal”, which I took to be the default option. Of course, the bland meal is not the default option and is as bad as its name would imply. It consists of a piece of white chicken with no sauce of any kind, with a side of steamed spinach. When the stewardess on Turkish Airlines brought it to me, I was devastated. Fortunately, I was able to trade up for a regular meal, but only after everyone was served.

We arrived in Istanbul after a 10-hour flight to find that our connection was delayed, so we spent the next few hours playing the first of the many games of Uno that would be played over the next month. I’d bought it for another trip, and discovered that it is really the Cadillac of travel games. Gin rummy and spades are great two- and four-player games, respectively, but they can be hard to teach to someone who’s never played. Yahtzee, which I picked up when I visited two of my friends in Buenos Aires after college, is another excellent way to while away the hours with people, but one game takes a long time and requires a pen, paper, five dice, and a good rolling surface. Uno, on the other hand, is easy to learn and requires only an Uno deck. It is complex enough to not be stupid, but simple enough to let conversation take precedence over game play. And, given that a good travel game is merely the vehicle for the experience rather than an end in itself, Uno is among the best I’ve found.

Fast forward four hours and we are boarding again. By this point, we’d rendezvoused with Aditya, another friend of Ashaya, whose wedding we were all going to attend. We knew that Ellie and Adea, two of Ashaya’s friends from her time at the World Bank who we’d never met before, were on the same flight to Nepal, so we began playing rocks, paper, scissors to see which of us would approach random pairs of girls who seemed sufficiently socially-conscious and erudite to be Ashaya’s friends and ask them if they were by chance heading to a wedding in Kathmandu. Jeff lost, and the first one turned out to be a case of mistaken identity, so we chalked it up to a lost cause. When we finally boarded, two girls pointed at us and asked if we were heading to Ashaya’s wedding. With the five of us aboard, we settled in for a 7-hour trip aboard a quarter-filled plane. I traded in my second bland meal for the chicken, stretched out across four seats, and slept the rest of the way to Kathmandu.

When we landed at 11 in the morning, we were greeted by Kamal Rana, Ashaya’s uncle and an employee of Nepal Airlines who worked at the airport. He took our passports, led us through the VIP lane of customs and immigration, brought a porter to take our bags, and took us to the van that would take us to our hotel. This was the first of four encounters with Mr. Rana, who shepherded me through Tribhuvan International Airport in a fraction of the time it took the rest of the poor, friendless masses.

Ashaya put us up at the Shanker Hotel, formerly a palace located in the heart of the city. The place had a lot of character, with old unique rooms, a bar called the Kunti Bar, and killer pool bar surrounded by a grassy field. After dropping off our stuff, Jeff and I headed out to try to meet with a few of our friends, but missed them by a few minutes. Without a cell phone or Internet, finding your friends in downtown Kathmandu is next to impossible, so we found an upscale lounge bar on Durbar Marg called Mezze by Roadhouse, ordered an Everest beer, and used the wifi to discover that our friends had gone to a store called Monalisa Textiles to pick up kurtas for the formal event the next day and had already left for Ashaya’s house.  So we went the same store, bought our kurtas, and went back to the hotel to freshen up and head to Ashaya’s house to catch the tail-end of the mehendi ceremony and meet our friends.

ZZ gets her mehendi game going strong.

ZZ gets her mehendi game going strong.

The house – located in an area referred to as Bhatbateni, after the eponymous supermarket – is beautiful. Bustling with 20-30 workers and a full band, and decorated with brown and orange colors and icons designed by Ashaya of two elephants holding a heart, the place was a beehive of activity. After 24 hours of travel, it was nice to finally see Ashaya and the rest of the crew, who were busy getting their mehendi tattoos – floral patterns for the ladies, the image of Ganesh for the men. I respectfully declined, though in retrospect, it was probably a mistake.

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Ashaya and crew dancing on stage

With four hours to kill between the ceremony and the party, we all went back to nap before grabbing a drink at the Kunti Bar. Aditya wore a white linen suit straight out of Miami Vice, and I had on my all-purpose blazer and slacks. Everyone else wore their kurtas and saris, as white people are wont to do at traditional South Asian wedding events. We were joined by the rest of our Shanker crew – Graham, Yscaira, and Kaia. After making the van wait for an hour, we finally piled in and left for the party.

The party was in full-swing when we arrived. With two fully-stocked open bars, a military band playing jazz songs, and several hundred people milling around, I set about to get a drink. We were told by our friends that we would need to perform a dance on stage when the bride is introduced. “Just follow what she does,” I was told. At that point, I decided I wanted no part in this, ordered a Ballantine scotch on the rocks, and convinced Jeff to hang back with me while the rest of our friends made fools of themselves on stage in front of 200 Nepalis.

Eventually, the combination of an open bar with a never-ending supply of Ballantine and aggressive peer-pressuring by Brandon, the husband of one of Ashaya’s friends, got the better of me, and I wound up in rough shape back at the Kunti Bar, where we were all playing a terrible drinking game called Ibble Dibble, which sent me on a downward spiral that was fortunately cushioned by my bed two floors up.

Jeff, Ashaya, Adea, and myself during the party.

Jeff, Ashaya, Adea, and myself during the party.

The next day was the first of the main wedding ceremonies. The groom’s family comes to the bride’s house, where an engagement takes place, followed by the actual wedding. We headed over to the house for gift-giving ceremony and watched as people streamed onto a stage with two couches for the couple to present them with gifts. After a hearty lunch of Nepali food, we headed back to the hotel to spend the rest of the afternoon at the pool bar at the Shanker.

The ceremonial stage

The ceremonial stage

As a rule of thumb, when you leave Boston in December for a landlocked city that is 75 degrees and sunny and stay in a hotel with a pool bar, you not only try to maximize your time there, you do things to make it seem even more ridiculous than it is. To that end, I ordered a Singapore Sling – my go-to pool-bar drink, after Hunter S. Thompson ordered one at the Polo Lounge in Fear and Loathing in Las Vegas – put on a playlist created by a friend called “Sexy 80’s Pool Party”, and broke out the Uno deck. A few drinks later, the rest of the crew showed up in their saris and kurtas, so I headed back to get ready before leaving for the party.

Ashaya and Yscaira at the pool bar at the Shanker

Ashaya and Yscaira at the pool bar at the Shanker

The second night turned out to be as lively as the first, with an open bar and several hundred people milling around the compound, drinking scotch and mulled wine, watching a slideshow of Ashaya and her friends through the years, and listening to the band and DJ. One of the uncles – colloquially referred to as “Crazy Uncle”, who I subsequently found out was the CEO of the largest steel company in Nepal – saw that the young folks were fading, and took it upon himself to take shots with everyone and tell the DJ to put on pop music and create a dance party, which took the party to another level. At midnight, another wedding ceremony began, with the parents of the bride washing the feet of the couple, to the soundtrack of “Timber” by Pitbull.

The crazy uncle

The crazy uncle

We had most of the following day free to check out Kathmandu and the surrounding area. The Shanker crew piled into two cabs and headed first to Durbar Square, where we wandered the streets, dipped into shops to look at fabrics and gurkha knives, walking down narrow alleys that opened up into huge squares with Buddhist stupas and Hindu temples sprinkled everywhere. The buildings are old and rundown, with brightly painted doors and chipped paint. Street dogs are everywhere, and sacred cows wander around, doing whatever they please.

A fabric seller in Kathmandu

A fabric seller in Kathmandu

While tame in comparison Indian cities, Kathmandu is a chaotic place. With few perceivable driving or walking rules, the streets are polluted and loud, as drivers honk anytime a person or animal ventures close to the car. Vendors sell everything from jewelry to raw fabrics, silver pots to knives, art, trinkets, and more. Inlaid statues of Ganesh and other Hindu gods are tucked between old doors and alleyways, and passing pedestrians will briefly pray at the shrine before ringing a bell and moving on. Not dissimilar from other big cities in developing countries, like Bangkok, Manila, Phnom Phen, or Accra, it is best described as ordered chaos.

Children outside the Kumari Ghar in Durbar Square

Children outside the Kumari Ghar in Durbar Square

One fascinating part of Durbar Square is the house of the Royal Kumari, known as the Kumari Ghar. In Nepali culture, the kumari is the tradition of worshiping young pre-pubescent girls as manifestations of the divine female energy or devi in Hindu religious traditions. She is selected through a rigorous process from a particular caste, and must have perfect features, which have quite poetic descriptions, such as a neck like a conch, a body like a banyan tree, a chest like a lion, and a voice as soft and clear as as duck’s. The philosophical basis for her existence is seriously heady:

“The worship of the goddess in a young girl represents the worship of divine consciousness spread all over the creation. As the supreme goddess is thought to have manifested this entire cosmos out of her womb she exists equally in animate as well as inanimate objects. While worship of an idol represents the worship and recognition of supreme through inanimate materials, worship of a human represents veneration and recognition of the same supreme in conscious beings.”

The Kumari comes to the window of her palace, to which she is confined until she reaches puberty, once a day to allow visitors to view her. We waited for a half hour to catch a glimpse of the living goddess, but unfortunately, like the elusive snow leopard, she never showed. So, content with the fact that we almost saw a living goddess and having mixed feelings about perpetuating an arguably exploitative, anachronistic tradition, we searched for the highest possible bar we could find to regroup, have a drink, play Uno, and plan the next move.

Uno in Durbar Square

Uno in Durbar Square

Once we had our fill of tourism for the day, we headed back to Ashaya’s house for another key part of the wedding ceremony, when the bride is ceremonially led around a structure built specially for the occasion, and is taken to a horse-drawn chariot with the husband to leave for the house of the groom, where she will stay for the rest of the ceremony. During this ceremony, the women cry as she is led from the home for the last time (ceremonially), and the band plays a loud and, at least to these western ears, eerie repetitive song. The two prominent instruments are a nadaswaram, which is a kind of non-brass horn that has a tinny sound like a muted trumpet that you might see a snake charmer play, and a sringa, which is a giant semi-circular horn that you’d find in an old James Bond movie and is blown loudly over and over again. We watched as the chariot took off and the procession followed them to the house of the groom’s uncle, who hosted the groom’s party, since the groom’s family lives in Baltimore and doesn’t have property in Kathmandu.

The bride

The bride

That night we headed to another party at the groom’s family’s house. By this point, two days of wedding parties and sightseeing and a 12-hour time difference were beginning to take its toll on me and my friends, and the spirit that drove the first two nights had largely subsided. Fortunately, when we got to the party, we were greeted by a much more subdued party and “The Essential Kenny G” playing, on repeat, all the way through. I had a brief moment when I thought to myself, “Is this the Kenny G version of ‘My Heart Will Go On?’” The answer was yes, so I made a mental note that that was a funny music choice, and moved on to the bar. The night ended early for us, and we crashed early.

The Shanker crew outside Bodhnath Stupa

The Shanker crew outside Bodhnath Stupa

The next morning we headed to the Boudhanath Stupa, referred to as the “monkey temple” after its simian inhabitants. The climb to the top was treacherous, with twenty flights of steps leading to the top of a large hill at the outskirts of Kathmandu. The temple is certainly impressive. It is one of the largest ancient Buddhist stupas in the world, and it dominates the skyline. It was built in the 8th century AD by the Tibetan emperor Trison Detsan, along a trade route between Tibet and Nepal, serving as a resting place for many Tibetans who traveled through and, in the 1950s, the neighborhood of choice for Tibetan refugees seeking asylum in the country.

After spending an hour exploring the stupa and checking out the shops, we headed to another Durbar Square in a smaller city called Patan. This was my favorite part of the Kathmandu Valley. With old brown buildings built in the 1600s by Newari kings, the Patan Durbar Square is beautiful and clearly rich with history and culture. We lazily explored the square for an hour, before finding a place to sit and plan the next move. We jumped into two cabs and headed back to Thamel Square, the beating heart of Kathmandu, to check out a few shops and head back to the hotel to prepare for the final party of the four-day event.

Patan Durbar Square

Patan Durbar Square

When we arrived at the Officers Club of the Nepali army, I looked around at a party of 1,200 people and thought to myself, “Wow, this is a big party”. There were bars everywhere, and a buffet line that made me wish I hadn’t eaten that day so that I could take advantage of the Indian, Nepali, Chinese, and Italian food that was there in abundance. Almost as soon as we got there, the party started winding down, so we headed back to the hotel, where we threw an impromptu party for Ashaya and her new husband.

In the morning everyone said their respective goodbyes as we all went on to the next legs of our journeys. Ellie, Adea, and I were driving up to Pokhara, a lakeside town at the foot of the Annapurna range in the Himalayas that was 7 hours to the north. Jeff, Graham, and Yscaira had another day before flying out, and everyone else was set to leave that day. Four days and a lot of ceremonies later, the next chapter began.


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Some Countries Just Can’t Catch a Break: A Review of the Theories

Life in Mogadishu

Life in Mogadishu, the capital city of Somalia (Photo credit: Sudarsan Raghavan / Washington Post)

In the last post, I explained the concept of “least developed countries” and discussed some of the characteristics shared by the 48 countries that bear the label. In this post, I’ll review a few different theories for why some countries are so much poorer than others.

In Why Nations Fail, Daron Acemoglu and James A Robinson, economists at MIT and Harvard, respectively, argue that the key to prosperity are strong institutions. This is a common refrain among a lot of economists, and certainly rings true in a lot of cases. Here at Develop Economies, your humble correspondent wholeheartedly subscribes to the premise, and has written about it extensively in the past. In a previous post titled “The Convergence: America’s Long Arc of Development”, I explain some of the same concepts and apply them to the example of the United States.  For a time, international organizations, like United Nations, the World Bank, and the IMF, and donor nations demanded reforms in governance in exchange for loans, aid, and other resources. According to the authors, stronger institutions enable countries to grow.

Specifically, economic institutions, like property rights, enforceable contracts, a functional legal system, and an overall business climate that promotes competition, create incentives for individuals to invest in the future. Conversely, economic institutions enrich a wealthy political elite at the expense of the masses. These weak economic institutions are ultimately a function of what the authors call “extractive” political institutions, which effectively rig the system in favor of the elite. Seeking onerous rents, they exploit the system to their benefit, leaving the nation paralyzed economically, with few prospects for growth. Inclusive political institutions, on the other hand, promote growth by creating the economic institutions that enable creative destruction, and, therefore, progress.

A helpful (or confusing) chart explaining the why nations fail

A helpful (or confusing) chart explaining the why nations fail

Acemoglu and Robinson focus on the political failings of LDCs as an explanation for their condition, and provide a lot of good examples of the theory in action. While most people agree that inclusive political institutions are key to a country’s success, many dispute the idea that they are elemental. What I mean by this is that strong institutions are a prerequisite for prosperity, but their absence is not the root cause of why some countries are so poor.

Rather, the physical attributes of a nation – its geography, climate, and soil content, and whether it has depleted its natural resources through deforestation and other environmental degradation – ultimately determine a country’s fate. This is an idea Jared Diamond lays out in Collapse: How Societies Choose to Succeed or Fail, and it stands in contrast to the theory of institutions put forward by Acemoglu and Robinson.

Unlike Acemoglu and Robinson, Diamond is scientist and historian famous for examining trends in human history through a lens of geography, science, and culture. While Collapse deals with the decline of once-great societies, his borderline deterministic view on what makes countries succeed or fail places much of the blame on environment rather than governance. In a review titled “What Makes Countries Rich or Poor?”, he delivers a rejoinder to the institutions theory, attributing success to location instead. While he acknowledges the importance of strong institutions, he is not convinced that they provide the whole story:

While institutions are undoubtedly part of the explanation, they leave much unexplained: some richer temperate countries are notorious for their histories of bad institutions (think of Algeria, Argentina, Egypt, and Libya), while some of the tropical countries (e.g., Costa Rica and Tanzania) have had relatively more honest governments. What are the economic disadvantages of a tropical location?

The answer, according to Diamond, is twofold: prevalence of disease and agricultural productivity. First, the tropics are notoriously unhealthy because, unlike in temperate climates, bacteria and parasites thrive year-round. In addition, they are far more numerous in the tropics, evolving at a faster pace without the threat of dying off in the winter. This public health challenge saps the productivity of people living in the tropics, hindering economic growth. Second, agricultural productivity in the tropics is lower for a variety of ecological and geological reasons, including glacier mass, energy content, soil fertility and more. If you are interested in learning more, read the review, because it is far too dry to talk about here.

A sampling of the poorest countries in Africa, with the least developed in red.

A sampling of the poorest countries in Africa, with the least developed in red.

Another unfortunate characteristic of many LDCs is lack of access to oceans. This is something I saw firsthand in East Africa, which is home to quite a few landlocked nations, like Uganda, Rwanda, and Burundi. Diamond explains the challenge for these countries:

It costs roughly seven times more to ship a ton of cargo by land than by sea. That puts landlocked countries at an economic disadvantage, and helps explain why landlocked Bolivia and semilandlocked Paraguay are the poorest countries of South America. It also helps explain why Africa, with no river navigable to the sea for hundreds of miles except the Nile, and with fifteen landlocked nations, is the poorest continent. Eleven of those fifteen landlocked African nations have average incomes of $600 or less; only two countries outside Africa (Afghanistan and Nepal, both also landlocked) are as poor.

So, rather than purely a failure of institutions, Diamond attributes perhaps 50% of the LDCs misfortune to something other than institutions – whether location, environmental degradation, or something else. The authors of Why Nations Fail disagree with his conclusion, and, if you are really into it, read Acemoglu and Robinson’s response to Diamond.

In the third and final book, The Bottom Billion, Paul Collier, a development economist at Oxford, puts forward another theory (or, more specifically, a suite of theories) explaining just why these countries are in such rough shape.  According to Collier, there are four key explanations for the state of the 60 poorest countries in the world (he adds a few more in addition to the LDCs), which are overlap with the institutional theory of Acemoglu/Robinson and environmental theory of Diamond:

  1. The conflict trap
  2. The natural resource trap
  3. Landlocked with bad neighbors
  4. Bad governance in a small country.

The conflict trap refers to civil wars and the political, economic, and social toll they take on countries. At a cost of $64 billion each, civil wars unwind any progress and plunge the countries back into misery. Think of Sierra Leone, Liberia, Rwanda, Somalia, Cambodia, Myanmar and others. What makes conflicts particularly pernicious is that, with every successive conflict, the likelihood of devolving back into civil war increases, continually threatening any progress going forward.

A child solider in the Congo in 2003.  A sad product of the conflict trap.  (Photo credit: Evelyn Hockstein)

A child solider in the Congo in 2003. A sad product of the conflict trap. (Photo credit: Evelyn Hockstein)

The natural resource trap, also known as the natural resource curse, explains why, somewhat paradoxically, natural resources can make ill-prepared countries worse off. Collier explains why this is the case:

  • Resources make conflict for the resources more likely.
  • Natural resources mean that a government does not have to tax its citizens. Consequently, the citizenry are less likely to demand financial accountability from the government.
  • The exploitation of valuable natural resources can result in Dutch disease, where a country’s other industries become less competitive as a result of currency valuation due to the revenue raised from the resource.[4]

I described the problem of being landlocked above, and, of course, Acemoglu and Robinson spend an entire book explaining by why bad governance is a real deal-killer for the LDCs.

Collier’s assessment takes elements of all the theories and mashes them up in to one big super-theory. The book was well-received by critics, in no small part to the fact that, unlike a lot of books about development economics, like Bill Easterly’s White Man’s Burden and Jeffrey Sachs’ The End of Poverty, he offers some feasible solutions to the problems. It is perhaps more centrist than the others, trying to find a middle ground Easterly’s bottom-up approach and Sachs’ top-down one. For a review of his policy prescriptions, you can check out this review from Michael A. Clemens in Foreign Affairs.

So, those are some of the many theories about why LDCs are so poor. But what does it all mean? Is there hope for these countries. According to Clemens in the same review, the answer is a quite pessimistic and very sad, “no.” In response to Jeffrey Sachs’ proposal for what he calls “clinical economics,” Clemens lays out some harsh realities:

The problem of the bottom billion, however, is not that they live in places where functioning modern economies have become sick and require a doctor. It is that they live in places where there have never been functioning modern economies. Development assistance began as an effort to rebuild Europe after war — indeed a case of helping a sick patient become healthy once again. In countries of the bottom billion, there are not and never have been preexisting healthy economies to which to return. There is, in the medical metaphor, simply no patient. As interesting and correct as it may be to list self-reinforcing “traps” that prevent an absent organism from existing, this exercise tells us nothing about how to fabricate the body from scratch.

Unfortunately, in the unforgiving realpolitik world of global development, realities are, more often than not, harsh. While I am not sure I share the fatalistic views of some, I agree with Clemens’ assertion that we will be unlikely to see any of the LDCs or other bottom billion countries graduate from their moribund status in our lifetime. This does not, of course, mean that we can’t do everything we can to help ease the suffering of those struggling to survive. But, regardless of the reasons for their misfortune, these countries have never quite caught a break, and, in all likelihood, never will.


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Why Do Some Countries Have It So Bad?

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Open a newspaper today and you’ll be bombarded with a panoply of terrible news. Ebola is ravaging West Africa, with a projected 10,000 new cases per week and the possibility for 1.4 million people infected in Sierra Leone and Liberia alone. Two decades ago, those same countries were embroiled in one of the most horrific civil wars in modern history. A few thousand miles away, a possible genocide in the Central African Republic has been unfolding – largely unnoticed – since the end of 2013. Head south and you’ll find never-ending violence in the Democratic Republic of Congo that has claimed the lives of 5.4 million people since 1998. Outside Africa, uprising and rage are threatening to topple the government in Yemen, and Haiti struggles to recover from the earthquake that killed 160,000 people. The list goes on and on. Beyond the penchant for inflicting misery on the people who live in them, these countries share a common bond.

Among the 196 nations in the world, some countries, it seems, consistently draw the short straw. There is no shortage of colloquial terms for them – basketcases and failed states, to name a few – but the United Nations has a specific designation for countries that occupy the bottom of the human and socioeconomic development indices: the “least-developed countries”. Of the 48 countries to receive the ignominious distinction of being considered an LDC, only four have ever graduated to “developing country” status: Botswana, Cape Verde, Maldives, and, until 2014, Samoa. The LDCs have 880 million people, or 12% of the world’s population, yet they contribute 2% of its GDP and 1% of its global trade in goods. With so many people, the question is: why do these countries have it so bad?

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The least developed countries in the world.

Before examining the underlying causes, let’s first define what it means to be a least-developed country. Here is the United Nations’ description of the attributes that warrant the distinction:

The Least Developed Countries represent the poorest and weakest segment of the international community. Their low level of socio-economic development is characterized by weak human and institutional capacities, low and unequally distributed income and scarcity of domestic financial resources. They often suffer from governance crisis, political instability and, in some cases, internal and external conflicts. Their largely agrarian economies are affected by a vicious cycle of low productivity and low investment. They rely on the export of few primary commodities as major source of export and fiscal earnings, which makes them highly vulnerable to external terms-of-trade shocks. Only a handful has been able to diversify into the manufacturing sector, though with a limited range of products in labour-intensive industries, i.e. textiles and clothing.

These constraints are responsible for insufficient domestic resource mobilization, low economic management capacity, weaknesses in programme design and implementation, chronic external deficits, high debt burdens and heavy dependence on external financing that have kept LDCs in a poverty trap.

There is a lot to unpack in that statement, but, suffice it to say, LDCs are in a tough spot. Most of the people are subsistence farmers, growing just enough for themselves and their families, and relying on nature for their livelihoods. More than 70% live in rural areas, compared with 55% for other developing countries. They struggle to get by and move from crisis to crisis with little opportunity to implement systemic changes and reforms that will break the cycle of poverty and stagnant growth. With much of the population growing just enough to feed their families, the people are one natural disaster, family illness, or armed conflict away from the edge. They are the proverbial sailors in the boat with a hole in the bottom, bailing out just enough water to keep them from sinking any further. Only these boats are trying to stay afloat amidst raging seas, and a big enough wave – in the form of an earthquake or cyclone, a planned genocide, or an ultra-deadly virus that kills more than 70% of people it infects – is enough to tip the boat and send the sailors overboard, reversing any progress they have made in the past.

The question is: why these particular 48 countries? Economists have different underlying causes, ranging from the strength of institutions to the physical attributes of the geography. In the next few posts, I’ll review at a high level three arguments from three different books: Why Nations Fail, by Daron Acemoglu and James A. Robinson, Collapse: How Nations Choose to Fail or Succeed by Jared Diamond, and The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, by Paul Collier. In the end, I’ll weigh in on the question myself and give my own opinion, though, as a mere dilettante in the field of development economics, your humble correspondent warns you in advance of the dangers of listening to him.

In the next post, I’ll cover some of the theories explaining why LDCs are so poor.


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Free Trade is Good for Global Development

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This is the fourth in a series of six posts about the trouble in America today and policy solutions going forward.  The first post is about income inequality, the second introduces the basis for my policy recommendations, and the third presents economic policies.  In this post, I will address policies related to international trade.

I know less about the specifics of free trade agreements, and, admittedly, they are one of the most contentious economic policies that exist.  I find myself on the side in favor of free trade agreements, and believe that they are fundamentally good for America. A lot of the proposals I have made in previous posts are ending inherent subsidies – whether tax breaks, refunds, or direct payments from the government – that do not benefit the economy as a whole. These solutions are generally associated with left-leaning politics. Free trade agreements, in contrast, are more often advocated by conservative politicians and liberal economists (yes – political conservatives are economic liberals).

Going back to how economies work, economic policy is dictated at the level of of the entity that is being governed. In my hometown, the board of selectmen granted the first liquor license to a restaurant, hoping to entice more restaurants to the town, which would generate higher taxes, which could then be spent on schools, roads, and other projects. People opposed it because they saw it as a slippery slope that threatened to upset the utter boringness of the place. They debated, and the other side won.

The same thing happens at a country level, only, instead of 15,000 people in a suburb outside of Boston, 300 million people have skin in the game. And when you open up borders to competition by establishing free trade agreements, like NAFTA (North America Free Trade Agreement) between Mexico, Canada and the US, or the TPP (Trans-Pacific Partnership) with the US and much of Southeast Asia, you not only strengthen relations with the those countries, reducing the possibility of conflict in the future, but also generate a tremendous amount of wealth by leveraging the competitive advantages of each country.

In free-trade agreements, countries agree to reduce or eliminate tariffs on one another’s goods. So let’s say that China and the U.S. both manufacture laptop computers. Because labor is so much cheaper, China is able to build a computer for $200, while it costs $300 to build one in the U.S. Now, if there were no tariffs, everyone would buy computers from China, and all of the U.S. manufacturers would go out of business. But U.S. politicians in districts where U.S. computer manufacturers have their factories would stand to lose if those companies went under. So they pass tariffs, which are effectively taxes on imported goods that are designed to make domestically-produced goods more competitive.

Here is how the International Trade Administration – an within the U.S. Department of Commerce – describes the impact of free-trade agreements:

Free Trade Agreements (FTAs) have proved to be one of the best ways to open up foreign markets to U.S. exporters. Trade Agreements reduce barriers to U.S. exports, and protect U.S. interests and enhance the rule of law in the FTA partner country. The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it easier and cheaper for U.S. companies to export their products and services to trading partner markets. In 2012, 46 percent of U.S. goods exports went to FTA partner countries. U.S. merchandise exports to the 20 FTA partners with agreements in force totaled $718 billion, up 6 percent from 2011. The United States also enjoyed a trade surplus in manufactured goods with our FTA partners totaling $59.7 billion in 2012, a 30 percent increase from the surplus in 2011.

Tariffs are harmful for several reasons. First, they discourage innovation by stifling competition. When companies know that they can remain competitive through government intervention, rather than from greater efficiency, innovation, or marketing – they have little incentive to change. The same is true for monopolies. When was the last time you had a good customer service experience with Comcast, Verizon, or United Airlines (on which I am actually writing this post as I fly from San Francisco to Boston)?

Second, and more relevant to the present discussion, tariffs drive up costs for everyone else. If a computer costs $200 to build, consumers should pay $220 to buy one (or some other margin, which is irrelevant). Because of tariffs, they pay $320 instead. Instead of saving $100, which could be spent on other things, consumers pay more to inefficient manufacturers in order to preserve jobs.  The graph below explains how tariffs increase the price to consumers, creating an aggregate societal loss.

The pink regions are the net loss to society caused by the existence of the tariff.

The pink regions are the net loss to society caused by the existence of the tariff.

Passing FTAs is difficult, because, in the near term, people stand to lose their jobs. But, if you were to reduce tariffs in concert with the tax proposals listed above, the additional revenue generated not only from cost reductions, but also increased exports to other countries in the FTA, would allow the U.S. to invest in job training and other social welfare programs, like a higher minimum wage and a greater earned income tax credit (which I will explain in subsequent sections). As a result, you could enrich the broader population without completely pulling the rug out from under the workers whose jobs would be outsourced.

In my next post, I’ll talk about immigration reform.


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Simple Economic Solutions to Big Problems

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“My business, Miss Taggart?” said Midas Mulligan. “My business is blood transfusion—and I’m still doing it. My job is to feed a life-fuel into the plants that are capable of growing. But ask Dr. Hendricks whether any amount of blood will save a body that refuses to function, a rotten hulk that expects to exist without effort. My blood bank is gold. Gold is a fuel that will perform wonders, but no fuel can work where there is no motor. . . . No, I haven’t given up. I merely got fed up with the job of running a slaughter house, where one drains blood out of healthy living beings and pumps it into gutless half-corpses.” – Ayn Rand, Atlas Shrugged

In my last post, I discussed what I thought were some of the fundamental problems with America today, giving an egregiously oversimplified explanation of why we are heading toward oligarchy. For an actual explanation of why we are heading toward oligarchy, read this review of Thomas Piketty’s Capitalism in the 21st Century, titled “Why We’re in a New Gilded Age” by Paul Krugman, or, better yet, read the actual book itself.

Given that a financial magazine for investors released it’s annual “Rich List” of the top 25 highest-paid hedge-fund managers (whom, combined, earned more last year than all of the kindergarten teachers in the U.S. combined – two times over), today felt like a good day for the second post in my series about how to get the U.S. back on track. In this post, I cover a few basic financial and economy policy proposals that are steps in the right direction.

Raise the capital gains tax

There are two primary sources of income: earned income (wages) and capital gains (returns on investments). Earned income is based on your salary. If you earn more than $100k per year, you are taxed at a higher rate than if you earn $30k. This is called a progressive tax system, because higher earners pay a disproportionate amount in taxes. People debate the nuances of this tax system, and, though it is among the lowest of any high-income countries, it is not so low as to be egregious.

In contrast, capital gains are taxed at a lower rate. There are two types: short-term capital gains and long-term capital gains. Short-term capital gains are investments that are held for less than one year, and are taxed at 35%. Buying and selling a stock or flipping a house in 6 months are examples of short-term capital gains. Long-term capital gains are investments held for longer than one year, and taxed at 15%, regardless of income level. This is effectively an implicit government subsidy for those wealthy enough to invest, and is, in effect, a regressive tax.

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During Mitt Romney’s presidential race in 2011, the subject of his taxes were a hot topic on the campaign trail. The founder of Bain Capital, a private equity firm (perhaps the most excessive beneficiaries of capital gains largesse), Romney tried hard to connect with the common people, yet refused to release his tax statements. When he finally did, it showed that he had an effective tax rate of 15% on incomes of $50 million. That is because of capital gains. Capital gains are the reason that Warren Buffett has a lower tax rate than his secretary.

This is how investors make money. Financial services has experienced the most rapid growth of any sector in the modern post-industrial economy. There is no reason that individuals who earn a living trading financial products – stocks, bonds, etc. – should be taxed at a lower rate than everyone else. Ignoring the fact that, for the most part, bankers and traders are effectively rent-seekers that add no value to society and siphon money from the system, functioning more as a parasite than anything else, these individuals need to be taxed at a higher rate.

Defenders will say that lower taxes on capital gains create incentives for people to invest for the future, hold stocks for longer, and encourage long-term thinking at companies where pressure from quarterly earnings statements engender poor decision-making. Raising the capital gains tax will hardly negatively affect any of those things. People will still invest, because, what else are they going to do? Companies that think long-term will outlast their competitors.

The only people who will be hurt bby this are career investors – the bankers, the short-sellers, the hedge funds – that have a disproportionate amount of influence in government. Raising the capital gains tax will not only generate big revenue for the federal government, it will reduce the oligarchic power that that financiers currently hold in America.

Simplify the tax code

Michael Bloomberg said that when you want people to do less of something, you tax it. The opposite is also true. The U.S. tax code is a leviathan, bloated from years of deductions and exceptions designed to incentivize specific behaviors deemed good for the economy or society as a whole. The most obvious example is the tax deduction on charitable contributions. The reason your donation to the United Way is tax-deductible is because the government wants to incentivize you to give money to charity. The tax code is filled to the brim with similar deductions, which, with the help of a savvy accountant, can turn a progressive tax system into one that rewards those who can pay for a guide to navigate the murky waters for them.

Ideally, we could start over. Get rid of the entire tax code and start over from the beginning. Make it simpler, easier to understand, and, above all else, more transparent.

For years, politicians have talked about simplifying the tax code. For an issue that receives as much bipartisan support as it does, the tax code is arguably the most difficult thing to reform, short of the prison system. There are simply too many powerful stakeholders who have a lot to lose when their deductions go away.

End farm subsidies

Farm subsidies are another egregious boon for the rich. Originally designed to make American agriculture more competitive on a global scale, the oft-debated Farm Bill contains huge subsidies for largely corporate farmers – Archer Daniels Midland, Cargill, and other conglomerates – which was hardly the intention when the legislation was originally passed.

Aside from the fact that it undermines the agriculture sectors in developing countries through a combination of cheap crops and tied aid, farm subsidies take money out of the pockets of the American people and put them in the hands of corporate farmers, without providing any real benefit to the country. The reason they still exist is because the agriculture lobby controls enough politicians in the House of Representatives and Senate that dislodging them would require a degree of political gamesmanship and backbone that this or any other congress lacks.

Tax carbon

This one is not directly related to the current issue of the hollowing out of the middle class and America’s march toward oligarchy, but I thought I would put it in here because it is both essential to our survival as a species and a fantastic source of revenue for the government. In economics, carbon emissions are what is known as a “negative externality” – a byproduct of something else that is not factored into the cost. Car emissions are a good example. A hybrid car costs more than regular gas-powered one. That is partly because the technology is newer, and partly because it is paid off over time through lower gasoline expenditures. But it also has lower emissions than gas-powered cars. Emissions from normal cars pollute the environment – a reality that isn’t factored into the cost.

That Bloomberg quote was actually a reference to his advocacy for a carbon tax. If you want people to do less of something, tax it. By taxing carbon, we could both reduce emissions and replace other taxes. Elizabeth Kolbert describes the options in The New Yorker:

In the United States, a carbon tax could replace other levies – for example, the payroll tax – or, alternatively, the money could be used to reduce the deficit. Within a decade, according to a recent study by the Congressional Budget Office, a relatively modest tax of $25 per metric ton of carbon would reduce affected emissions by about 10%, while increasing federal revenues by a trillion dollars. If other countries failed to follow suit, the U.S. could, in effect, extend its own tax by levying it on goods imported from those countries.

Normally, I wouldn’t advocate for protectionist trade policies, because, as I will explain in the next section, they are generally counterproductive and damaging to an economy. But, unfortunately, climate change, man-made or not, is a real threat. And this is an externality that is currently untaxed.

What’s next

In my next post, I’ll present a hodgepodge of other policy recommendations.


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How to Get America Back on Track

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Introduction

In my last post, I discussed the unfortunate state of affairs in the United States today. From a pre-industrial agrarian economy controlled by wealthy landowners, to an era of industrialization marked by the creation of a middle class and a period of prosperity, and ultimately a post-industrial phase where the middle is systematically being hollowed out and the extremes once again dominate the landscape, the United States finds itself at a crossroads. The country can ignore the state of affairs or rationalize it as a byproduct of modernization, continue along its current path, where increasing income stratification creates an oligarchy controlled by wealthy elites from a few key sectors – financial services and petrochemicals, to name a few. Or, it can collectively come to terms with the fact that the country has fundamentally changed over the last four decades in ways that demand significant political and culture reform.

Identifying the problems is not sufficient. With that in mind, I want to propose solutions that address what I consider to be the root causes. The criteria is that they be practical, yet attainable. They are ambitious reforms that include a mix of proposals embraced by Democrats, Republicans, or both (or neither). While they are achievable legislatively, I am ignoring the political horsetrading and gamesmanship that would be required to have them pass.

What’s Next

The thirty years leading up to 2008 are generally considered to be a period of prosperity in the U.S. A few cyclical recessions aside, the 80’s, 90’s, and 00’s were marked by solid GDP growth and a strong increase in the overall wealth of the country. Yet, with the outsourcing of labor-intensive jobs (and the weakening of labor unions in the manufacturing sectors that remained) and the overall movement toward a service-based economy, dominated by a fast-growing financial sector, income gains largely went to the top 10% of earners, with a disproportionate share going to the top 1%. Simultaneously, short-sighted economic policies designed to control government spending steadily dismantled much of the social welfare system – a trend that continues today at an accelerating pace, with family planning and food stamps as the most recent victims of the guillotine.

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Some of this was inevitable. The depletion of the middle class is a byproduct of globalization. On a global scale, it is actually a good thing, as developing countries reap the benefits of burgeoning manufacturing sectors. The result will be the greatest migration out of poverty the world has ever seen. But there is no denying that the U.S. itself will be worse off. More specifically, the low-wage workers, the urban minorities, the recent immigrants, the rural whites, the high school-educated, and all of the other would-be chasers of the elusive American dream will find fewer opportunities in this new world, and their struggles will only get worse.

So the question remains: what can we do about it? If we are undergoing a systemic change at a global level, is the situation hopeless? The answer to the second question is no. The answer to the first question is the subject of this post.

Why Tax Reform Makes Sense

On the most basic level, an economy – whether a nation or a household – is a self-contained entity in which goods and services are exchanged. In a modern economy, the medium of exchange is money – a fiat currency issued by a central bank that regulates its volume and the cost of borrowing it. When economies trade with one another, money either comes in or goes out. Rather than trying to do everything, economies specialize in whatever they are best at doing, relative to their peers. On the most basic level, you pay a plumber to fix your pipes or a carpenter to build your cabinets because it doesn’t make sense for you to do those things yourself. Instead, you earn money by specializing in what you do, and use the money generated from your expertise to pay others who specialize in something else. On a much higher level, nations specialize in broad industries. Manufacturing in Germany, financial services in Switzerland, carmaking in Japan, and electronics in South Korea are all examples of what is known as competitive advantage – where countries excel in particular sectors and trade with one another.

Within larger economies, there are smaller economies – the household, the community, the city, the state, etc. – that also trade with one another. The doctor provides care for patients and decides to re-do his kitchen. He hires a general contractor, who subcontracts to an electrician, a painter, a plumber, and a carpenter, all of whom purchase materials at Home Depot, which employes hourly workers and buys products wholesale from equipment manufacturers, which hire truck drivers and warehouse workers to move pallets. All of these people buy food from the grocery store and clothing from retailers. They buy cars and houses and school supplies. And all of those products – known as “durable goods” – that used to be manufactured here in the U.S., are now made overseas. And the people who used to make them have find new jobs, which are now in shorter supply.

So why does any of this matter? Because money moves around an economy is when people spend it. After the financial crisis, the Bush administration send every American a check for $600 so that they would get out and spend it. The much-maligned stimulus package and the tactic called “quantitative easing” – otherwise known as printing money – are both massive efforts to get people to spend money. There is a term in economics called velocity, which is the number of times a dollar changes hands during a year. The velocity of money describes the speed with which people are spending money, and, in general, faster is better.

Chart showing the log of US M2 money velocity (green), calculated by dividing nominal GDP by M2 stock, M1 plus time deposits 1959–2010. Employment-to-population ratio is displayed in blue, and periods of recession are represented with gray bars).

Chart showing the log of US M2 money velocity (green), calculated by dividing nominal GDP by M2 stock, M1 plus time deposits 1959–2010. Employment-to-population ratio is displayed in blue, and periods of recession are represented with gray bars).

So when the economy is moribund and fewer people are reaping the benefits of broader economic prosperity, the solution is to spend money. And the people who spend the most money, as a percentage of their income, are the ones who have very little. As I mentioned in my last post, the bottom 20% of earners spend more than 60% of their income on clothing and housing. After food, schooling, car payments, and other incidental expenses, they have very little left to save, much less invest in the future. To make ends meet, these individuals take on debt, which traps them in an escalating spiral of interest payments that culminate in eviction and bankruptcy.

In short, the best way to increase the velocity of money in an economy is to put it in the hands of people who have very little, because they will spend every last penny. And the people they buy goods and services from will, in turn, spend that money at the same pace. In contrast, the best way to slow the velocity of money is to give it to people with nothing to spend it on.

It is this insight that leads liberal economists to the conclusion that taxing the rich is the solution to the problem. I don’t fully agree with this point. There is a legitimate case to be made that excessive taxes on the rich create a perverse incentive toward investment. I am not advocating raising taxes on ordinary income for the top quintile of earners. But there is another road.

In my next post, I will explain what that I believe that road looks like, from a financial and economic policy perspective.

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