July 27, 2010

Economists dispute effect of US stimulus By Robin Harding in Washington

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Published: July 26 2010 17:21 | Last updated: July 26 2010 17:21

Thomas Jefferson, no fan of deficit spending, has a clearer view of the US fiscal stimulus than any living politician. From his memorial by the Tidal Basin in Washington he can watch a $12.4m stimulus project to fix a seawall and stop him sinking into the water.

The site is cluttered with machinery and rolls of steel mesh. It employs about 20 workers. That makes it hard to deny that the stimulus is doing something – but Republican critics point to a 9.5 per cent unemployment rate to argue that it has failed. Democratic prospects in elections this autumn and any push for more spending rest on proving otherwise.
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That is difficult. At one Congressional hearing, Mark Zandi, chief economist at Moody’s Analytics, said each dollar spent on infrastructure was creating $1.57 in gross domestic product within a year, and that without the stimulus there would be 2m fewer jobs today.

He was followed by John Taylor, an economist at Stanford University, who said government spending “had little to do with the turnaround in economic activity”. Mr Taylor estimated the effect of the stimulus at about 70 cents of GDP per dollar spent.

The trouble is that economists cannot try the recession again – this time without government-built seawalls – to see what would happen. Instead, they must rely on models and historic data to judge how bad the recession would have been without a fiscal boost. In some models, stimulus works well, while in others it cannot work at all, which is why economists get such different results.

The highest estimates of stimulus effects – as much as $2 of GDP per dollar spent – come from large macroeconomic models run by the Federal Reserve and firms such as Moody’s Analytics. These models describe every sector of the economy and are where the Obama administration gets its stimulus numbers.

Some academic economists criticise large macro models for relying on ad hoc number-crunching rather than theory. Robert Barro of Harvard University argues that they find big effects for stimulus because they assume that higher government spending causes higher output, whereas it might be the other way around. Gus Faucher, director of macroeconomics for, responds that the assumption is reasonable if the spending comes before the output rise.

Mr Barro’s own work finds that an extra dollar of defence spending increases GDP by only 40-50 cents in the short term. But critics say that estimate is not relevant because it relies on numbers from the second world war, when rationing kept private spending down.

Mr Taylor says large macro models have “less emphasis on expectations” than the “New Keynesian” models he uses. Many of these models, which are common in academia, assume that people anticipate future taxes to pay for the stimulus. That limits any rise in their spending.

New Keynesian models have also come in for criticism because most of them do not include a financial sector and so struggle to explain the recession at all.

“Until folks like Taylor can explain how we got into the recession then it is hard to be convinced by their conclusions on stimulus,” says Mr Faucher.

Many New Keynesian modellers estimate the effect of stimulus at between 50 cents and $1 per dollar spent in normal times. But the same researchers find numbers as high as $3.90 when interest rates are zero, as in 2009 and today, and the central bank cannot cut them to stimulate the economy.

“In an economy with an output multiplier for government purchases of just under 1 in normal times, the multiplier rises to 1.7 when monetary policy becomes passive with a zero nominal interest rate,” wrote Robert Hall, president of the American Economic Association, in a paper.

That is something close to a consensus among economists – albeit with high-profile dissenters such as Mr Barro and Mr Taylor – and suggests that the stimulus did have a large influence. Without more direct evidence, however, proponents of more spending will struggle to overcome fears about adding to the national debt.


Wage freezes, staff cuts and expanding class sizes

In the academic year that finished last month, introductory courses in psychology at the University of Illinois at Chicago had 300 students per lecture. When the new semester begins next month, the same class will have 450 students, writes Hal Weitzman.

The congested psychology classes are a striking example of how Illinois’ budget woes are having a tangible effect on the state’s residents. Gary Raney, head of UIC’s psychology department, said the school had to offer two rather than three classes as part of efforts to bridge the lack of funding from the cash-strapped state.

As a public institution, the university depends on the state for its funding. However, not only did education account for a large share of the $1.4bn (€1bn, £900m) in cuts that the state made in its last financial year, but Illinois is also behind on paying its bills: it still owes the University of Illinois $279m of the $743m it was due to have handed over for the financial year that ended last month, on top of the $45m it owes for the current year.

Students are suffering, says Prof Raney. Salary freezes mean he is losing academic staff to other institutions, while he cannot replace those who retire. As well as expanding class sizes, he has been forced to cancel three courses for next semester.

“We have about 55 students for every member of faculty, compared to 25 in the broader college of liberal arts and sciences,” he says. “How much attention can we actually give to individual students?”

Prof Raney says UIC receives a lot of money from external grants but, as staff numbers dwindle and teaching workloads increase, the university’s research status is suffering, putting outside funding at risk. “We’re trapped in a vicious cycle,” he says.

Prof Raney has little confidence the state will get to grips with its financial situation, and he worries about how UIC will handle the pressure. “We physically can’t increase class sizes any further,” he says. “Our classes are now as big as the largest teaching space in the university.”

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July 9, 2010

China’s push to develop its west hasn’t closed income gap with east, critics say

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BEIJING — Ten years ago, China’s leadership launched its “Go West” campaign, an ambitious plan to develop and modernize the country’s poor western hinterlands. The aim was simple: to close the region’s yawning income gap with the more prosperous east and assuage restive minority populations, particularly in Xinjiang and Tibet.

China’s economic boom had largely left the west behind. Spreading the wealth was as important politically as economically — it was a way of increasing domestic stability and cementing the government’s control.

Chinese officials rattle off all the statistical measures of the program’s success: Highways were constructed. Houses were built. Nomads were resettled in “model” villages. Millions of people have electricity and clean drinking water. A rail line links Beijing in the east to Lhasa on the Tibetan plateau. And annual economic growth in the west is about 12 percent, higher than the national average.

But beneath the barrage of official statistics lies another reality. China’s west — defined as the dozen provinces and “autonomous regions” stretching from Inner Mongolia to Xinjiang and Tibet — remains the poorest, least-developed and least-educated part of the country.

The massive investment, critics say, has mainly benefited state-owned companies that build the roads and railways and mine the minerals. There is little indigenous industry and scant foreign investment. Hundreds of thousands of people have been displaced from their homes, and nomads have been resettled into villages where they have no livelihood. Locals complain that China is primarily interested in extracting minerals to keep the factories back east running.

The decade of development spending still has not bought the loyalty of China’s ethnic minorities. Muslim Uighurs in Xinjiang rioted last year, and Tibetans rose up in March 2008. Beijing has responded by severely tightening control in both places.

“The government has talked for years about this and that benefit they have brought to Tibetans,” said Tsering Woeser, an outspoken Tibetan poet and blogger in Beijing. “But they never explained why, if the people are so happy, such a big riot happened.”
Woeser added: “In recent years, there have been improvements in housing, electricity and water supplies. But these improvements cannot compare with the price Tibetans pay.”

The sentiment is not confined to Tibet. Most agree that China’s decade-long building spree has led to tangible improvements. “The economic development of the western region has made huge strides,” Premier Wen Jiabao said late last year, announcing China’s plans to continue the Go West campaign “unswervingly” for another decade.

Who actually benefits?

But the question is: At what cost to indigenous populations and the environment? “Nobody disputes that there are now many miles of roads and many airports and people coming in on planes,” said Robert Barnett, a Tibet expert at Columbia University. “It’s misleading to just ask if there’s been economic progress. Who benefits from it? What is the cost locally, culturally and politically?”

Nicholas Bequelin, a China expert with the Asian division of Human Rights Watch, said: “It’s not a people-centered modernization program. It’s a top-down program that has mostly benefited state enterprises and the party-controlled institutions.”

Xinjiang is China’s largest region, making up one-sixth of its landmass, and Tibet is the second-largest, twice the size of Texas and accounting for one-eighth the area of the country.
The west, as China defines it, includes coal mining areas such as Shanxi; tiny, dirt-poor Ningxia; and relatively better-off provinces such as Sichuan. The west borders 14 countries, makes up 70 percent of China’s landmass and is home to 27 percent of the population.

Timothy Oakes, a geography professor at the University of Colorado at Boulder, has worked regularly in Guizhou, in southwestern China, for more than 20 years. “The basic infrastructure improvements have actually been quite stunning,” he said, adding that new highways have “changed the whole way of life in a whole lot of places.”

But Oakes also said the development has been uneven and has failed to help Guizhou catch up with more prosperous areas: “The numbers mask the fact that you probably have the same degree of inequality in those regions as before, and probably worse. I still see large amounts of the countryside that are not being affected.”

Small-scale business

Chinese officials mention handicrafts and pharmaceuticals as two growing local industries. But economists said those are extremely small-scale. “They can’t be the local economy’s backbone,” said Yi Peng, a finance and economics commentator in Beijing.

The reasons include economics and geography. In China’s export-driven economy, factories need to be close to the ports, and that means on the east coast or in the southeast. “Inland areas are bound to fall behind,” Yi said.

The bulk of the economic activity in the western provinces is in mining. But local areas get little economic benefit. The biggest impacts, many critics say, are that people are relocated and that fragile ecosystems are threatened.

Tibet was recently discovered to be a treasure trove of mineral deposits — iron ore, copper, lead and zinc that could reduce China’s reliance on minerals from abroad. But activists, academics and others are worried that Tibet’s delicate ecology will come under assault from an influx of Chinese mining concerns.

“Is it really necessary to develop the west?” Yi asked. “In my opinion, the living environment and the people’s feeling are the most important.”

Staff researcher Liu Liu contributed to this report.

Quantcast In Vietnam, a sign of the times

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Reporting from Ho Chi Minh City, Vietnam —

Literature lovers who come looking for Rue Catinat in this city once known as Saigon better hope they happen upon a Francophile octogenarian.

The street, made famous in Graham Greene’s “The Quiet American,” hasn’t been called that in more than half a century. These days, it’s called Dong Khoi (Uprising) Street. (And before that, it was called Freedom Street. But more about that later.)

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The story of Catinat-Freedom-Uprising Street is the story of Vietnam itself: The last half a century has seen French, pro-American and communist regimes, along with an economic opening, each inspiring new names.

“I’ve experienced three name changes involving the same street,” said Nguyen Thanh Minh, 56, a restaurant worker in this city, which has had its own name change. “It’s all a bit confusing and can take five or six years to get used to the new one. Sometimes when you mail a letter, you have to write both addresses so it gets delivered.”

Take Rue Catinat, which in “The Quiet American” was portrayed as the epitome of rundown, opium-soaked Saigon under French rule.

Given the baggage associated with this particular street, named after a warship that in 1856 helped cement France’s imperial grip on the country, it’s hardly surprising that the newly independent Vietnamese renamed it as quickly as you can say “au revoir.”

After independence in 1954, as people celebrated a parade of French derrieres returning to Paris, anti-communist dictator Ngo Dinh Diem renamed it Tu Do (Freedom) Street, part of a reassertion of Vietnamese names throughout the country.

Although the new name may have helped Diem cozy up to the Americans in the run-up to the Vietnam War, it didn’t bring the freedom from vice that the Catholic moralist dictator sought.

A flood of American GIs in the 1960s brought more drugs and sex to Freedom Street, along with rock ‘n’ roll and traffic jams. A Vietnamese joke at the time, after city planners routed all vehicles in a single direction, held that freedom was a one-way street reserved for Americans.

With U.S. spending soaring and more shops adopting English names, a worried Saigon government ordered that all stores feature Vietnamese names three times larger than foreign names on their signs. In one noted example, the ” Texas” bar was reborn as the “Te-xa” bar in a larger font.

With the fall of Saigon in 1975, triumphant Viet Cong went on a sign-painting spree, especially in newly renamed Ho Chi Minh City, replacing street names honoring anti-communist heroes with those of communist luminaries.

“First they’d announce a street’s new name on TV or radio,” recalled Nguyen Quang Vinh, a pharmacist and Viet Cong soldier in Saigon when it fell. “Then a couple of days later you’d see them putting up the new signs. There were a lot, so it took some getting used to.”

The street known as Freedom became Uprising Street, after a revolutionary Viet Cong movement in nearby Ben Tre province.

Recently, as more affluent Vietnamese bridle under Communist Party restrictions, that has prompted a joke that everything may be on the rise, but freedom is gone.

Communist revolutionary Nguyen Kim Bach, 70, who helped plan the 1968 Tet offensive, likes the latest crop of street names.

“It’s often good to see a shift, especially when you don’t like what the old names represent,” he said.

Marie Nguyen, 59, who fled Vietnam in the 1970s with her husband, a paratrooper in the anti-communist south, and who now splits her time between Vietnam and Australia, feels differently: “The old names are part of our history. I much prefer them.”

The Communist Party’s efforts to imprint its revolutionary stamp on the citizenry have been helped by Vietnam’s demographics, with one of the youngest populations in the world.

“Youngsters have no memory of what came before, like youngsters everywhere,” Nguyen said.

“I haven’t noticed any real switch,” agreed Le Thi My Hanh, 24, a native of the coastal city of Nha Trang who spent three years in Ho Chi Minh City attending a university before heading overseas for graduate school. “It’s rather hard to relate to older people on the street with all the change.”

In recent years, Vietnam has seen another generation of names as the government reshapes provinces, districts and towns to streamline administration and, some insiders say, bolster the careers of particular party secretaries, a Vietnamese version of gerrymandering.

“These efforts to get manageable units with the population change have become very complicated, with some older names from history reasserting themselves,” said Carlyle A. Thayer, a professor at the Australian Defense Force Academy. “It’s been a bit like putting a straitjacket on a mental patient: It hasn’t always fit.”

The few French street names that have survived in Ho Chi Minh City, down from 60 in colonial times, honor scientists who presumably remain above the ideological fray, including Louis Pasteur (1822-95) and Nobel laureate Marie Curie (1867-1934).

“If the name changes, but the street looks the same, it’s not a problem,” said Nguyen Thanh Minh, the restaurant worker. “But if the whole appearance changes, it gets confusing. Fortunately the numbers stay the same.”

One change that hasn’t really stuck, even after 35 years, is Ho Chi Minh City, which most locals still refer to as Saigon.

“Most Vietnamese prefer the old name,” said Nguyen Kim Bach, the revolutionary. “Saigon is only two syllables. When you have to say ‘the City of Ho Chi Minh,’ it can be a bit of a mouthful.”

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