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January 2, 2017

Political rage went global in 2016, fueling a populist backlash across the democratic world and appalling terrorist violence in the Middle East, Europe, and beyond. Here is a selection of commentaries – of the year’s 1,140 published by Project Syndicate – on the global political upheaval of the last 12 months, and its economic causes and consequences, that resonated most with our online readers.]]>

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Rescaling China’s Debt Mountain

May 11, 2016

MONTREAL – There is widespread agreement on two facts about the Chinese economy. First, the slowdown has ended and growth is picking up. Second, not all is well financially. But there is no agreement on what happens next.
The good news is that domestic demand continues to grow. Car sales were up nearly 10% in March over the same month in 2015. And retail spending grew at an annual clip of 10% in the first quarter.
The most dramatic increase, though, is in investment. Real estate investment is growing again, following its collapse in 2015. Industrial investment, especially by state-owned enterprises, has been rallying strongly.
At the root of this turnaround is enormous credit growth, as the authorities, concerned that the earlier slowdown was excessive, encourage China’s banks to lend. Credit growth, known in China as “total social financing,” grew at an annual rate of 13% in the fourth quarter of 2015 and again in the first quarter of this year – that is, double the rate of annual GDP growth. Since the financial crisis erupted in September 2008, China has had the fastest credit growth of any country in the world. Indeed, it is hard to point to another credit boom of this magnitude in recorded history.
The bad news is that credit booms rarely end well, as the economists Moritz Schularick and Alan Taylor have reminded us.

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Europe Sells Out

May 10, 2016

BRUSSELS – Europe’s refugee crisis is far from solved, but there are signs that the agreement finalized by the European Union and Turkey on March 18 is reducing the flow of refugees and migrants from Turkey to Greece. According to Frontex, the European border-management agency, the 26,460 migrants detected crossing the EU’s external borders in the eastern Mediterranean in March amounted to less than half the figure recorded in February.
The president of the European Council, Donald Tusk, has already declared that the deal, whereby the EU pays Turkey billions of euros to shut down the Turkey-Greece migratory route, is “producing results.” Many EU governments are breathing a sigh of relief. The flows of refugees on this route may well have been stemmed.
But at what price?
Turkey and the EU are now working together closely to execute the agreement, yet relations between them are increasingly strained. And the deal’s legitimacy and legality has rightly faced a wave of skepticism from NGOs, charities, and human-rights lawyers. As the agreement is implemented, a number of flashpoints are already foreseeable.
A key element of the deal is that EU leaders agreed to allow visa-free travel for 75 million Turkish citizens by the end of June. Originally, Turkey was obliged to meet 72 benchmarks by then, with some EU diplomats claiming that only half have been met.

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Helicopters on a Leash

May 9, 2016

PARIS – Faced with a slowing global economy, a number of observers – including former US Federal Reserve Chair Ben Bernanke and Berkeley economist Brad DeLong – have argued that money-financed fiscal expansion should not be excluded from the policy toolkit. But talk of such “helicopter drops” of newly printed money has produced a strong counterattack, including from Michael Heise, the chief economist of Allianz, and Koichi Hamada, the chief economic adviser to Prime Minister Shinzo Abe and one of the architects of Japan’s “Abenomics” economic-recovery program.
I disagree with Heise and Hamada, but they rightly focus on the central issue – the risk that allowing any monetary finance will invite excessive use. The crucial question is whether we can devise rules and responsibilities to guard against that danger. I believe we can and must, and that in some countries the alternative will not be no monetary finance, but monetary finance implemented without discipline.
As I argued in a recent International Monetary Fund paper, the technical case for monetary finance is indisputable. It is the one policy that will always stimulate nominal demand, even when other policies – such as debt-financed fiscal deficits or negative interest rates – are ineffective.

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The Global Growth Funk

May 2, 2016

NEW YORK – The International Monetary Fund and others have recently revised downward their forecasts for global growth – yet again. Little wonder: The world economy has few bright spots – and many that are dimming rapidly.
Among advanced economies, the United States has just experienced two quarters of growth averaging 1%. Further monetary easing has boosted a cyclical recovery in the eurozone, though potential growth in most countries remains well below 1%. In Japan, “Abenomics” is running out of steam, with the economy slowing since mid-2015 and now close to recession. In the United Kingdom, uncertainty surrounding the June referendum on continued European Union membership is leading firms to keep hiring and capital spending on hold. And other advanced economies – such as Canada, Australia, Norway – face headwinds from low commodity prices.
Things are not much better in most emerging economies. Among the five BRICS countries, two (Brazil and Russia) are in recession, one (South Africa) is barely growing, another (China) is experiencing a sharp structural slowdown, and India is doing well only because – in the words of its central bank governor, Raghuram Rajan – in the kingdom of the blind, the one-eyed man is king.

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New Politics for Clean Energy

April 27, 2016

NEW YORK – The diplomats have done their job, concluding the Paris climate agreement in December. And political leaders gathered last week at the United Nations to sign the new accord. But implementation is surely the tough part. Governments need a new approach to an issue that is highly complex, long term, and global in scale.
At its core, the climate challenge is an energy challenge. About 80% of the world’s primary energy comes from carbon-based sources: coal, oil, and gas. When burned, they emit the carbon dioxide that causes global warming. By 2070, we need a world economy that is nearly 100% carbon-free to prevent global warming from running dangerously out of control.
The Paris agreement recognizes these basic facts. It calls on the world to cut greenhouse-gas emissions (especially CO2) to net-zero levels in the second half of the century. To this end, governments are to prepare plans not only to the year 2030 (the so-called Nationally Determined Contributions, or NDCs), but also to mid-century (the so-called Low-Emission Development Strategies, or LEDS).
The world’s governments have never before attempted to remake a core sector of the world economy on a global scale with such an aggressive timeline. The fossil-fuel energy system was created step by step over two centuries.

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Playing by the Rules in Asia

April 26, 2016

CANBERRA – China’s adventurism in the South China Sea has prompted a change in Australian policymaking that merits wide international attention. In making maintenance of a “rules-based global order” a core strategic priority, Australia’s new Defense White Paper adopts language not often found at the heart of national defense charters. It is all the more surprising coming from a conservative government that is usually keen to follow the United States down any path it takes.
Australia wanted a readily defensible basis for contesting China’s claims that could not be portrayed as just another reflexive embrace of the American position. For a country trying – as are others in the region – to avoid zero-sum choices between our strategic partner, the US, and our economic partner, China, the White Paper’s words were astutely chosen and deserve emulation.
Part of the attraction of a “rules-based global order” is that it would constrain all relevant players. US policymakers, unlike those in most of the rest of the world, don’t find the concept inherently attractive. Although they – like everyone else – do pay lip service to it, willingness to be bound by international rules is not part of US officials’ DNA.
The invasion of Iraq in 2003 remains Exhibit A.

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The Post-Crisis Economy’s Long Debt Hangover

April 21, 2016

CAMBRIDGE – The meeting of G-20 finance ministers and central bank governors in Washington, DC last week concluded on a sour note. Small wonder: Global growth prospects have dimmed amid a variety of risks now emanating from both advanced and developing countries.
The meeting’s participants addressed – yet again – the need for greater policy coordination, more fiscal stimulus, and a variety of structural reforms. And that discussion has become more urgent, given the widespread view that monetary policy may not have much ammunition left, and that competitive devaluations would do more harm than good.
But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.
In the early stages of the financial crisis of 2008-2009, Kenneth Rogoff and I noted that recovery from severe financial crises are protracted affairs, as it takes time for households and firms to work down the debts accumulated during the boom. At the same time, banks, faced with a surge in nonperforming loans and compromised balance sheets, may be unable or hesitant to engage in new lending.

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Learning from Libya

April 8, 2016

MELBOURNE – There are important lessons to be learned from what went wrong with the NATO-led military intervention in Libya in 2011. US President Barack Obama was right about that in his recent wonderfully frank interview in The Atlantic. But if we are not to compound the world’s misery, we have to take away the right lessons from that intervention.
We can agree that Libya is now a mess, with Islamic State forces holding significant ground, the United Nations-facilitated peace process faltering, and atrocities continuing on all sides. Indeed, human security is generally in worse shape than it was under Muammar el-Qaddafi.
We can also agree, as Obama evidently does, that far less thought, energy, and resources went into planning for life after Qaddafi than tearing him down; that France, the United Kingdom, and other US allies pulled their weight less than they should have; and that all the interveners profoundly underestimated the complexity of the shifting personal, tribal, and regional enmities and alliances that made the civil war both so bloody and so inconclusive.

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Sowing the Seeds of Syria’s Future

April 7, 2016

LONDON – We are at risk of producing a lost generation of young Syrians. Nearly six years of civil war have displaced them from their homes, denied them the chance to plan for their future, and stolen their hopes. And in hopelessness, as we now know all too well, lie the roots of future violence in the Middle East.
The end of Syria’s brutal war may seem far off. But we must not behave as if peace will never come, because, when it does, Syria will have to call upon its best and brightest – the generation at risk of being lost – to rebuild their country.
Today, almost all of those young people have been denied training in the skills they will need in the future. If there is to be any hope for meaningful reconstruction, it will have to be built on the bedrock of a higher education.
We must, of course, be realistic and acknowledge the obstacles in the way of delivering higher education to refugees outside their country. There are language barriers. Academic credentials must be documented or verified in some way. And significant new funding will be necessary (with just 1.3% of global humanitarian aid directed toward education, such funding will be hard to come by).
Notwithstanding these challenges, there is one significant step we can and should take immediately: the creation of an international clearinghouse dedicated to providing access to higher education.

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The Case for Higher Estate Taxes

April 6, 2016

WASHINGTON, DC – According to conventional wisdom, inequality is an inevitable byproduct of strong economic growth. Talent, innovation, and entrepreneurship will inevitably capture the lion’s share of the income being generated, and efforts to redistribute wealth can only be counterproductive, because they weaken the incentives that drive an economy forward.
The truth, of course, is more complicated. Not all sources of wealth – and by extension not all types of inequality – are the same. The wealth that is created when new products, processes, and technologies are introduced is, indeed, correlated with faster economic growth. But wealth obtained by other means has a much smaller effect, if any, on the economy. So there is no reason it cannot be safely redistributed.
Consider, for example, the rise of a billionaire class, which many think represents the most extreme form of inequality. There are, essentially, four paths to becoming a billionaire. Company founders and executives, like Bill Gates and Jack Ma, became rich by providing useful products and services. Financial wizards, like George Soros and Warren Buffet, generated their wealth through smart investments.

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The Rise of German Isolationism

April 6, 2016

BERLIN – In Germany’s recent regional elections, voters delivered a resounding rebuke to Chancellor Angela Merkel’s party, the Christian Democratic Union. With an increasing number of Germans losing confidence in a European solution to the ongoing refugee crisis, calls for German isolation and unilateralism are growing louder – and far-right political forces are gaining traction.
This is highly troubling, but it should not be shocking. The European Union has consistently failed to find joint solutions to shared problems, even as it has been wracked by a series of crises. In the current refugee crisis, EU countries have shown a distinct lack of solidarity with Germany, with many refusing to take on even a small share of the burden. Despite the recent deal with Turkey aimed at reducing the flow of Syrian refugees, most Germans do not expect their EU partners to change course.
This is all the more infuriating for Germans, given that their country bore the heaviest financial burden for the rescue programs carried out in Cyprus, Greece, Ireland, Portugal, and Spain in recent years. Add to that sense of betrayal the looming possibility of a British exit from the EU, and it is not difficult to see why Germans feel that distancing themselves from Europe may well be their best bet.

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Helping Refugees Together

April 4, 2016

LONDON – This year is likely to be the most momentous for refugee protection and migration since the signing of the Geneva Convention in 1951. Depending on the choices we make, we will either help create more open societies, based on greater international cooperation, or we will abet authoritarian governments and their nationalist agendas. So we must treat this issue with exceptional urgency and seriousness of purpose.
The refugee and migration crises in the Mediterranean, Asia, Africa, and Central America have led to widespread and appalling human suffering. The significance of this can hardly be overstated, for the world’s failure to help its most vulnerable people reflects an extraordinary breakdown of morality in the international community.
We are at risk of losing our collective understanding of why the multilateral system and international cooperation matter. When we refuse to protect those facing persecution, we not only endanger them; we subvert our principles of civil liberty and put our own freedom at risk.
Last year, we were offered literally a million reminders that the system of refugee protection was failing. Each asylum-seeker bravely crossing the Mediterranean was telling us that something was wrong in countries of first asylum.

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Part 3: The Ineffectiveness of Economic Policy

March 28, 2016

Photo: Nicolas Raymond
While the central bank and government policies have stabilised conditions, they have not restored growth or created sufficient inflation to address the world’s debt problems. As Helmuth von Moltke, a 19th century head of the Prussian army, observed: “No battle plan ever survives first contact with the enemy”.
Given that the bulk of recent growth was driven by debt fuelled consumption and investment, slower credit growth has predictably affected the level of economic activity. Slower population growth, lack of new markets with most nations integrated into the global trading system, slower rates of innovation, slower productivity improvement, an aging population in developed nations, declines in science education, the effect of climate change and decreasing return on investment in energy and food combined with the overhang of debt will limit growth for some time.
There is also little evidence of inflation, although asset prices have increased sharply in response to low interest rates.
From a policy perspective, inflation would assist in reducing debt levels by increasing nominal growth rates above the nominal interest rate. It would decrease purchasing power reducing the value of debt. Where the debt is held by foreign investors, it would reduce the value through depreciation of the currency.

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The State of the United States

March 24, 2016

NEW YORK – The US presidential election is still more than half a year away, and it is impossible to know with any certainty who will be nominated to represent the major parties, much less who will be the 45th occupant of the White House. But it is not too soon to assess the mood of the country’s more than 320 million inhabitants and what it will mean for the man or woman who ultimately prevails in what must seem to most people around the world to be an endless political soap opera.
The dominant mood in the United States today is one of considerable anxiety, if not outright anger. The Washington Post recently published a four-part series of articles revealing popular fury aimed at Wall Street, Muslims, trade deals, Washington, police shootings, President Barack Obama, Republicans, immigrants, and other targets.

One of the worst descriptions to be applied to a person nowadays is “professional politician.” The beneficiaries of this state of mind are anti-establishment candidates who espouse policies in opposition to free trade and immigration reform and who call for a radical overhaul of current tax and spending policies. The details of what they advocate may well differ, but their platforms share a promise of radical departure from the status quo.

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Part 2: Monetary Madness

March 24, 2016

Photo: againstcronycapitalism 
Central banks have reduced official interest rates to historically lows, either near zero (known as ZIRP or Zero Interest Rate Policy). Long term bond rates are also at historically low levels. In some parts of the world, interest rates are now negative; that is, you get paid to borrow and punished if you save.
With interest rates bounded at zero, central bankers have turned to quantitative easing (“QE”), central banks purchase securities, primarily government bonds, to inject liquidity into the financial system.  The balance sheets of major central banks have expanded from around $5-6 trillion prior to 2007/2008 to over $18 trillion. In many developed countries, central bank assets now constitute between 20% and 30% of Gross Domestic Product (“GDP”). In Japan, following the Bank of Japan’s latest round of QE, the central bank’s balance is slated to reach over 70% of GDP and new purchases of government bonds are running at around 15% of GDP.
The policies target higher growth and inflation. The premise is that lower interest rates will prompt increased borrowing and expenditure driving economic activity and employment. Bank lending will increase with lower mortgage rates encouraging re-financing and boosting the housing sector.

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China’s Incompatible Goals

March 22, 2016

CAMBRIDGE – As Chinese policymakers attempt to address what ails their country’s economy, they are pursuing two goals that will almost certainly turn out to be incompatible. Very seldom have central banks been able to maintain a fixed exchange rate over an extended period of time while providing liquidity to troubled banks and an ailing economy. Indeed, the task becomes especially difficult as the monetary stringency needed to prop up the currency intensifies strains on domestic banks and the real economy.
Those looking for a rough outline of the Chinese economy’s future would be wise to revisit what happened in Thailand in 1997, when the collapse of the baht precipitated the Asian financial crisis. Of course, China in 2016 is different in many ways from Thailand in 1997; but there are key similarities in their responses to ongoing capital outflows.

After a prolonged credit boom, commercial banks typically face a mounting volume of nonperforming loans. The natural monetary-policy response is to increase liquidity, lower interest rates, and, in many cases, provide direct assistance in the form of loans from the central bank. This was exactly what was done, for example, in advanced economies after the 2008 financial crisis.

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Brexit’s Questions for Europe

March 21, 2016

MADRID – In three months, British citizens will have to decide whether or not to remain in the European Union. But they are not the only ones who must consider their political future. The upcoming referendum also poses two important questions for the rest of Europe.
The first question is which outcome Europeans would and should prefer. Some have already written off the United Kingdom, claiming that a partner that would consider leaving is not the kind of partner they want, anyway. Whether or not one shares this opinion, the point is worth studying. Indeed, it would be naive not to ask whether retaining a member that is challenging the very principle of European integration would really be in the EU’s best interests.

The reality is that the British public debate on sovereignty will not end when the votes are counted. After all, even if the majority says “yes” to the EU, a share of the population – a substantial one, according to the polls – will remain convinced that Brexit would have been much better for the UK.
Given this, debates and negotiations involving the UK and its European partners will continue to feature deep disagreements over the restrictions and conditions that accompany membership in the EU. For years to come, the British will demand a constant drumbeat of reaffirmation that they made the right choice.

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Part 1: Fiscal Failure

March 21, 2016

Photo: Nicolas Raymond
The stubborn refusal of the global economy to respond to policy initiatives is reminiscent of an obstreperous teenager. There is now renewed focus on using government spending on infrastructure to stimulate the global economy. It is not clear whether such a policy will work.
Efficacy of stimulatory fiscal policy depends on a number of factors. If additional spending finances consumption, it needs to be ongoing to remain effective.
If it finances investment such as infrastructure, then the long run effect depends on the project. If the investments produce low investment returns then the effect on the economy can be negative with capital tied up in poorly performing assets. Ghost cities, empty buildings and airports, roads and bridges to nowhere in Japan, China and Europe highlight this problem. Once completed investment projects also require ongoing maintenance which absorbs scarce financial resources, compounding the problem of low returning investments.
In globally integrated economies, demand from stimulus spending can ‘leak’ into imports in the absence of co-ordinated national policies. The boost to domestic economic activity is reduced, creating or exacerbating trade imbalances.
Misallocation of capital, motivated by political and ideological factors, can also diminish the benefits of stimulatory government policy.

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Open Structure to Influence Ohio Primary Outcome?

March 15, 2016

The political chatter class is abuzz about today’s two Republican winner take all primaries — Florida and Ohio — that will pit Republican front runner Donald Trump against those two states’ hometown candidates, Marco Rubio and John Kasich, respectively.
Florida’s primary is closed, meaning only registered Republicans are allowed to cast a ballot for a Republican candidate; Ohio’s primary, on the other hand,  is open to registered Republicans and independents, but not to registered Democrats.
Last week, Ash wrote about the correlation between which candidate emerged from the contest as victor and whether a primary or caucus was open or closed.
What he found was this: As of the time publication, March 7th, Donald Trump had won a dozen state primaries or caucuses. Of those twelve contests, nine were open and only three were closed. Ted Cruz, on the other hand, as of March 7th, had won a half dozen state primaries or caucuses. Of those six, all but one was closed. (The one open contest that Cruz won, Texas, is his home state.)
The outcomes are summarized in the two tables below:

What — if anything — does this mean for today’s two true winner take all state primaries in Florida and Ohio?
We did a back of the envelope calculation, carrying through Donald Trump’s past performance, in both open and closed contests, in an attempt to evaluate whether primary structure (open v.

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Ending the Syrian War

February 29, 2016

NEW YORK – Syria is currently the world’s greatest humanitarian catastrophe and most dangerous geopolitical hotspot. The Syrian people are caught in a bloodbath, with more than 400,000 dead and ten million displaced.
Violent jihadist groups backed by outside patrons mercilessly ravage the country and prey on the population. All parties to the conflict – President Bashar al-Assad’s regime, the anti-Assad forces supported by the United States and its allies, and the Islamic State – have committed, and continue to commit, serious war crimes.

It is time for a solution. But such a solution must be based on a transparent and realistic account of what caused the war in the first place.
The chronology is as follows. In February 2011, peaceful protests were staged in Syria’s major cities, amid the region-wide phenomenon dubbed the “Arab Spring.” The Assad regime reacted with a shifting mix of violent repression (shooting at demonstrators) and offers of reform. Soon, the violence escalated. Assad’s opponents accused the regime of using force against civilians without restraint, while the government pointed to the deaths of soldiers and policeman as evidence of violent jihadists among the protestors.
It seems likely that as early as March or April 2011, Sunni anti-regime fighters and arms started to enter Syria from neighboring countries.

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The US Election and the Global Economy

February 25, 2016

STANFORD – Big changes are underway in the United States, as the country gears up to elect a new president, one-third of the Senate, and the entire House of Representatives this November. The outcome will have profound consequences for US economic policy, and thus for the global economy.
As it stands, Hillary Clinton remains the frontrunner for the Democratic nomination, though she has not yet pulled away from her socialist opponent, Senator Bernie Sanders. The bombastic billionaire Donald Trump is leading the Republican field, followed by firebrand Senator Ted Cruz of Texas, Senator Marco Rubio, a talented mainstream conservative from Florida, and, further back, popular Ohio Governor John Kasich and neurosurgeon Ben Carson.

It is impossible to know whether these early trends will hold through the rest of the primaries, now turning to the South and Midwest. America’s media and political junkies are consumed by the various possibilities. Can Rubio rally a broad coalition, or will Trump win the Republican nomination? Would a Trump nomination help Clinton win the general election?
In fact, many Republicans fear a contest pitting Trump against Clinton.

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South Korea’s Rude Awakening

February 23, 2016

DENVER – On February 10, South Korean President Park Geun-hye announced that she would respond to North Korea’s recent nuclear test and rocket launch by closing the Kaesong Industrial Region, the last major effort at inter-Korean cooperation. In response, North Korean leader Kim Jong-un seized all South Korean assets in the region, giving the 248 managers living there only a few hours to pack their personal belongings and leave.
Shortly afterward, a member of South Korea’s National Assembly explained Park’s decision to me. “There is a new paradigm here,” he said. “No one believes anymore that the North will ever give up its nuclear weapons.”

It will take some time before the full meaning of this new paradigm comes into focus. In the meantime, one thing is clear: South Korea is headed into uncharted waters, where it will require the support of the international community.
For years, South Koreans have hoped that North Korea could be made to understand that a nuclear deal is in its own interest. After all, in exchange for abandoning its nuclear weapons program, the North would gain economic and energy assistance, a peace treaty with the United States, diplomatic recognition, the opportunity to join the international community, and even – eventually – the world’s blessing to pursue a civil nuclear program.

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Central Banking Goes Negative

February 18, 2016

NEW HAVEN – In what could well be a final act of desperation, central banks are abdicating effective control of the economies they have been entrusted to manage. First came zero interest rates, then quantitative easing, and now negative interest rates – one futile attempt begetting another. Just as the first two gambits failed to gain meaningful economic traction in chronically weak recoveries, the shift to negative rates will only compound the risks of financial instability and set the stage for the next crisis.
The adoption of negative interest rates – initially launched in Europe in 2014 and now embraced in Japan – represents a major turning point for central banking. Previously, emphasis had been placed on boosting aggregate demand – primarily by lowering the cost of borrowing, but also by spurring wealth effects from appreciating financial assets. But now, by imposing penalties on excess reserves left on deposit with central banks, negative interest rates drive stimulus through the supply side of the credit equation – in effect, urging banks to make new loans regardless of the demand for such funds.

This misses the essence of what is ailing a post-crisis world.

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What Beats Corruption?

February 16, 2016

LONDON – Corruption is a global scourge, sometimes becoming so deeply ingrained in countries that combating it seems impossible. In January, Transparency International released its annual Corruption Perceptions Index, noting that the problem “remains a blight around the world.”
The International Monetary Fund, for example, has just warned Ukraine that its $40 billion financial bailout could be cut off, owing to fears that corrupt officials will steal or squander the funds. And, during his recent visit to Mexico, Pope Francis called on the country’s leaders – several of whom (including the president and his wife) are embroiled in conflict-of-interest scandals – to fight endemic corruption.

But change is possible, as we have seen in the world of corporate governance in the last couple of years. Not even a decade ago, companies were run from “black box” rooms controlled by a few people whose authority seemed untouchable. Shareholder activists who thought otherwise were regarded as a nuisance – so many dreamy do-gooders who would never change anything. The only thing that would ever matter, “realists” argued, was return on investment, regardless of the cost to people, the planet, or economies.
The realists were wrong.

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Brexit and the Special Relationship

February 15, 2016

NEW YORK – The decision whether to remain part of the European Union is obviously one for the British people and their elected representatives to make. But more than British and European interests will be affected by the outcome, so it is both legitimate and appropriate for other parties to weigh in.
So let me exercise my right as an outsider with a stake in what happens to express a clear opinion: From my perspective (and that of many other Americans), a decision by the United Kingdom to exit the EU would be undesirable – indeed, highly undesirable.

I am aware of the irony some are sure to note in this, given that the United States’ own independence came about when the American colonies exited Great Britain. But that was then, and this is now, and the UK’s exit from Europe would be greeted with equal parts regret and concern by its closest ally.
There are several reasons for this. One reason why the US values its ties to the UK as much as it does is the UK’s role in Europe. Britain is important not just as a bilateral partner, but because more often than not it can be counted on to argue for and support positions in Brussels consistent with, or at least not far from, those of the US.

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Putin, the Pope, and the Patriarch

February 12, 2016

NEW YORK – Russian President Vladimir Putin’s years as a KGB officer taught him how to take advantage of others. In Steven Lee Myers’ excellent new biography, The New Tsar, the former New York Times Moscow bureau chief describes how, when Putin was posted in East Germany in the waning years of communism, he used his opponent’s weaknesses to advance the Soviet cause.
Today’s historic meeting between Pope Francis and Russian Orthodox Patriarch Kirill in Cuba is another occasion that Putin will seek to turn to his advantage. The meeting will be the first between a Roman Pontiff and a Russian Patriarch since Christianity’s Great Schism in 1054, when theological differences split the faith into its Western and Eastern branches. Since then, the Orthodox Church (in Russian, Pravoslavie, literally the “right worship”) has been considered the only correct form of Christianity in Russia, with other denominations dismissed for their support of individualism and insufficient reverence of the human soul.

For nearly a millennium, the animosity has seemed insurmountable. In modern times, it took the threat of nuclear war to spark efforts to mend ties between East and West – and even then the rapprochement was spearheaded primarily by Russia’s secular authorities.

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Five Truths about Terrorism

February 4, 2016

SAO PAULO – American politics has been captured by terrorists. In December 2015, polls showed that one in six Americans, some 16% of the population, now identify terrorism as the most important national problem, up from just 3% in the previous month. This is the highest percentage of Americans to mention terrorism in a decade, although it is still lower than the 46% measured after the terrorist attacks of September 11, 2001.
The effect of this change in public opinion has been particularly strong in the Republican presidential primary. It certainly boosted the candidacy of Donald Trump, whose anti-Muslim rhetoric has been particularly tough (if not incendiary). Some politicians are starting to call the battle against terrorism “World War III.”

Terrorism is a problem for the United States, as the attack in San Bernardino, California in December showed. But it has been blown out of proportion, both by the presidential candidates and by a news media that adheres to the old adage, “If it bleeds, it leads.” To put terrorism in proper perspective, Americans – and others – should bear in mind the following considerations.
Terrorism is a form of theater. Terrorists are more interested in capturing attention and putting their issue at the forefront of the agenda than in the number of deaths they cause per se. The Islamic State (ISIS) pays careful attention to stagecraft.

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The End of the New Normal?

February 2, 2016

WASHINGTON, DC – Just when the notion that Western economies are settling into a “new normal” of low growth gained mainstream acceptance, doubts about its continued relevance have begun to emerge. Instead, the world may be headed toward an economic and financial crossroads, with the direction taken depending on key policy decisions.
In the early days of 2009, the “new normal” was on virtually no one’s radar. Of course, the global financial crisis that had erupted a few months earlier threw the world economy into turmoil, causing output to contract, unemployment to surge, and trade to collapse. Dysfunction was evident in even the most stable and sophisticated segments of financial markets.

Yet most people’s instinct was to characterize the shock as temporary and reversible – a V-shape disruption, featuring a sharp downturn and a rapid recovery. After all, the crisis had originated in the advanced economies, which are accustomed to managing business cycles, rather than in the emerging-market countries, where structural and secular forces dominate.
But some observers already saw signs that this shock would prove more consequential, with the advanced economies finding themselves locked into a frustrating and unusual long-term low-growth trajectory. In May 2009, my PIMCO colleagues and I went public with this hypothesis, calling it the “new normal.

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The Elephant in the Boardroom

February 1, 2016

LONDON – Business and government leaders worry about a multitude of issues these days. Climate change, weapons of mass destruction, water scarcity, migration, and energy are the greatest threats we face, according to the 750 experts surveyed for the World Economic Forum’s Global Risk Report 2016. And at the WEF’s annual meeting in Davos this year, the sheer number of unsettled issues – the Middle East meltdown, the European Union’s future (particularly given the possibility of a British exit), America’s presidential election, the refugee crisis, China’s economic slowdown, oil prices, and more – was itself unsettling.
But consider this: None of the risks highlighted in the WEF report caused the recent spike in debt crises or the wave of scandals that engulfed – just in the last year – Volkswagen, Toshiba, Valeant, and FIFA. These developments (and many more) are rooted in a more pedestrian – and perennial – problem: the inability or refusal to recognize the need for course correction (including new management).

As anti-establishment parties and candidates gain ground with voters throughout Europe and in the United States, political leaders who continue to pursue a business-as-usual approach could find themselves looking for new jobs.

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