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Article Artículo

Latin America and the Caribbean

Venezuela

World

How Venezuela Ended Up Becoming an “Extraordinary Security Threat” and Got Sanctioned For It

In 2015, the Obama administration announced that Venezuela had thrown the United States into a “national emergency” because Venezuela constituted “an unusual and extraordinary threat to the national security and foreign policy of the United States.” On August 25, the Trump administration cited this ongoing emergency to justify financial sanctions against Venezuela that are likely to deepen the economic crisis there and generate greater human suffering.

How does a country with a fraction of the US’s military budget and a government with no history of international aggression cause a national emergency in the most powerful state in the world? Sure, the short answer is always “politics.” But in this case, there’s a forty-year history of presidential overreach and unaccountability that calls for a closer look.

In 1976, the House and Senate, with Democratic supermajorities in both, were looking to curb executive power in the wake of the Vietnam War. On trial was the concept of the “national emergency,” a term derived from an amendment to the 1917 Trading with the Enemy Act (TWEA). This World War I law gave the president authority to impose unilateral sanctions and restrict trade with warring enemy countries. Initially, it said nothing about national emergencies. But in 1933, President Roosevelt amended Trading with the Enemy to include executive authority over “any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President” during a time of national emergency. Roosevelt declared the first of the US’s newly defined national emergencies, and promptly froze a majority of bank assets to prevent bank runs during the heart of the Great Depression.

CEPR and Jacob Wilson / September 15, 2017

Article Artículo

United States

Workers

The Wage Dividend from Low Unemployment

While the benefit from lower unemployment in terms of more people having jobs is pretty straightforward, there is also a benefit to workers in the form of higher wages. The basic story is that lower unemployment means a tighter labor market and therefore more rapid wage growth.

The relationship between low unemployment and more rapid wage growth shows up most clearly for more disadvantaged workers. When the economy goes into a slump, it is more likely that a retail clerk or person on the factory floor will lose their job, than a manager or a highly educated professional, like a doctor or dentist.

This means that when the unemployment rate soars, as it did in the Great Recession, it is the workers at the bottom of the ladder who are at greatest risk of losing their jobs. They are also the ones who see the largest loss in pay, as their bargaining power diminishes with their employment opportunities.

Dean Baker and Daniella Zessoules / September 14, 2017

Article Artículo

Fighting Bubbles: High Interest Rates Are Not the Best Route

Ruchir Sharma, the chief global strategist at Morgan Stanley Investment Management, used his NYT column to argue that central banks have to include fighting asset bubbles on their agenda, in addition to promoting high employment and low inflation. As someone who has argued this for two decades, I am sympathetic to the point; however, Sharma gets a couple of big things wrong.

First, the big issue with bubbles is whether they are moving the economy. This is something that is easy to determine for folks familiar with introductory economics. The issue here is whether some component of demand is out of line with its long-term trend.

That was easy to see in the late 1990s as the wealth created by the stock bubble led to a consumption boom, pushing the saving rate to a then-record low. The investment share of GDP also became unusually high, with investment concentrated in the tech sector where stock prices were most out of line with corporate profits. 

The same was true of the housing bubble in the last decade. Residential construction hit a record 6.5 percent share of GDP, a level that clearly did not make sense given the underlying demographics of the country. The wealth effect from the bubble created housing wealth led to an even larger consumption boom than the 1990s stock bubble, as savings rates fell even lower than they had in the late 1990s. It is difficult to understand how the Fed could have missed the impact of the bubble or think that these sources of demand could be easily replaced when the bubble burst.

CEPR / September 14, 2017

Article Artículo

Haiti

Latin America and the Caribbean

World

Haiti, Irma, Climate Change, and Priorities

At least one person died, one remains missing, and more than a dozen were injured by the passage of Hurricane Irma off the northern coast of Haiti last week. As of September 11, nearly 6,500 Haitians remain in emergency shelters, according to the United Nations. Preliminary figures suggest that flooding impacted 22 communes, completely destroying 466 houses and badly damaging more than 2,000 more. As veteran AFP correspondent Amelie Baron noted on Twitter, “These are the damages of a hurricane passing hundreds of kilometers away from [the] Haitian coast.”

Compared to some other Caribbean nations, the damage to Haiti’s infrastructure pales. But as Jacqueline Charles reported for the Miami Herald, looks can be deceiving:

Though Haiti was spared a direct hit from Irma and the fallout is nowhere near the magnitude of Matthew’s 546 dead and $2.8 billion in washed-out roads, collapsed bridges and destroyed crops, the frustration and fears for some in its path are no less.

“We didn’t have people who died, but homes and farms were destroyed,” Esperance said. “Just because you don’t see a lot of damages, it doesn’t mean that we haven’t been left deeper in misery.”

Charles reported that “entire banana fields lay in ruin” across Haiti’s northern coast. “It took everything,” one local farmer said. As Charles points out, even before Hurricane Irma, Haiti was facing an extreme situation of food insecurity. Last October Hurricane Matthew swept across the southern peninsula, devastating crops and livelihoods and leaving some 800,000 in need of emergency food assistance. Even before Matthew, the World Food Program reported that Haiti was facing its worst food security situation in 15 years. Charles writes:

As recently as February, the food insecurity unit classified the northwest as being in an economic and food security crisis. As a result, [Action Against Hunger’s country director Mathieu] Nabot said, the focus has to be not just on the emergency response but on supporting farmers over the long term, to help strengthen their economic security and ability to cope with shocks.

Unfortunately, it appears as though little donor ? or Haitian government ? money went to supporting long-term agricultural development after last year’s storm. Less than 50 percent of the UN’s $56 million appeal for food security and agricultural support was ever provided by donors ? and the overwhelming majority of that was short-term emergency food assistance.

Of course, it’s not just the donor community that must do more to support Haitian farmers. Elected on a platform of agrarian development, Haitian president Jovenel Moïse has done little to address the problem since taking office nine months ago. Rumors of the commercial demise of Moïse’s banana plantation, Agritrans ? which was used to bolster his agricultural credentials during election season ? hasn’t helped, nor did putting scarce resources into a caravan across the country. And last week, just hours before Irma’s outer bands began lashing the coast, the Haitian parliament began discussion on this year’s budget. Peasant organizations held a press conference to denounce the fact that just 6.9 percent is allocated to agriculture.

With the increasing likelihood of extreme weather events ? and Haiti’s obvious vulnerability to such events ? many began advocating for donors and the government to take seriously the threat of climate change. According to the 2017 Climate Change Vulnerability Index, Haiti is the third-most vulnerable country in the world. As Mark Schuller and Jessica Hsu note, it’s time to start talking about climate justice ? not just climate change:

Climate justice explicitly confronts basic inequalities: the world’s biggest polluters are not those directly affected by climate change. The big polluters are also the biggest “winners” in this economic system. It is no coincidence that higher climate vulnerability communities are largely communities of color and disenfranchised communities within the Global South.

To achieve climate justice requires making sure that communities most directly affected are directly involved in discussions, as well as solutions.

…

Like in many places in the world, peasant communities in Haiti have waged an ongoing struggle against corporate/private interests which seek to maintain control over natural resources, exploit cheap labor, and increase profit. These peasant communities are on the frontlines which may offer approaches to cool the planet, rather than the proposed solutions that bar those most affected by climate change from the discussions.           

Jake Johnston / September 12, 2017