Posted: 31 Jul 2011 12:06 AM PDT
The great divergence, the other way around, by Dani Dodrik: As rich economies' prospects dim under their crushing debt burdens and political paralyses, the world's hope for economic dynamism rests with developing nations. These countries had an exceptionally good decade before the global financial crisis struck. And most among them have recovered quickly.
Check out this picture, which I find quite interesting:
For the first time ever, developing countries as a group grew have been growing faster than industrial countries. Not only that, as the figure makes clear, the growth differential between the two groups has been widening in favor of the poor countries.
And it isn't just China, India, and a few countries that have been doing well. For a change, Africa and Latin America actually experienced some convergence with rich countries over the last decade.
Many analysts have projected these trends forward and predict rapid global growth, largely off the back of emerging and developing nations. In the words of a Citigroup report, "this time will be different."
I am not sure that it will. Growth in Latin America and Africa is fragile; much of it is making up for lost time rather than real convergence. Asia, I am more optimistic about. But growth in Asia has required unconventional policies (undervalued currencies, industrial policies) that will be difficult to rely on in a world where rich countries are facing economic crises.
More on these points later...
Here's the follow-up: Will the divergence in growth result in eventual convergence in incomes?
Posted: 30 Jul 2011 11:01 PM PDT
Posted: 30 Jul 2011 09:45 AM PDT
The negotiations over the debt ceiling and the deficit appear to be stuck on the issue of triggers. Specifically:
Look closely at the Reid and Boehner bills. The first round of cuts are pretty much the same. The joint congressional committee charged with recommending further deficit reduction is pretty much the same. The difference is that Boehner's bill forces them to act. He ties a future increase in the debt-ceiling to the successful passage of their proposal. Reid's bill has no such trigger. ...
Most think the likely compromise is a trigger that would impose automatic, across-the-board cuts in spending if the committee fails in its mission. But Senate Democratic leadership isn't so sure. They worry that a spending-cuts only trigger is heads, Republicans win; tails, Democrats lose. ...
The White House proposed a balanced trigger in April: It would have automatically raised taxes and cut spending if America wasn't on a path to balanced budgets by 2014. ...
But at this point there's no way to be sure that the White House will hold firm on their insistence that any trigger be balanced:
But privately, they're less concerned about a spending-only trigger, which was seriously considered during their negotiations with Boehner.
If the Democrats want any claim whatsoever that this deal was not completely one-sided, there has to be at least has some weight on the other side of the scale. That is, tax increases must to be part of the agreement. (Using the word balance when the weight on the scale is so uneven, perhaps even piled entirely on one side, doesn't seem correct. The final deal won't be balanced in any case).
It's pretty discouraging to see Democrats trying to sell such a large defeat as a victory (we only lost half the farm!).
[I'm about to head to the land of no internet connections for awhile today, and it will be good to get away from the frustrating news for a few hours.]
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