Mark Weisbrot
O Cafezinho, 13 de abril, 2016

Mark WeisbrotFolha de São Paulo, 14 de abril, 2016

Interim President Jocelerme Privert has announced his intention to move forward with the creation of an electoral verification commission. But the commission faces significant pushback from both international actors who provide the bulk of the funding for Haiti’s elections and Haitian politicians connected to former president Michel Martelly.

Responding to the “unanimous expression” of civil society and political leaders, Privert declared on Monday that a new round of consultations would be held this week, aimed at establishing common terms of reference and identifying potential members for a verification commission. The body, which has yet to be formally organized, would be tasked with reviewing previous election results and electoral court decisions before moving forward with the as-yet-unfinished electoral process. A verification process is necessary, Privert said, to establish confidence and encourage “players to trust the [electoral council] and to participate in the upcoming elections.”

Political and civil society leaders have long demanded a verification commission, after earlier elections in 2015 were marred by violence and widespread reports of fraud. Official results from the first round of voting put then-President Martelly’s handpicked successor, Jovenel Moise, in first place, followed by Jude Celestin in second place. Celestin joined with other opposition candidates, demanding a verification and other changes to the electoral system before agreeing to participate in a runoff. On April 6, the coordinator of Celestin’s party LAPEH told the Haitian press that they would not participate in any second-round election without a verification commission first being established.

In response to Privert’s announcement of the commission, supporters of Moise have taken to the streets to denounce the move. They argue that the process will be used as a smokescreen to remove their candidate from the race. Moise’s hostility to a verification is shared by the U.S., the European Union and United Nations, all of which have come out against the verification commission and have urged Haitian authorities to complete the electoral process as soon as possible. “That’s one reason why the U.S. did not want to hear about verification … they know it will create fears” among Martelly’s supporters, an international official involved in the electoral process told me last week. Last week, some 60 leaders and organizations in the Haitian diaspora wrote to Secretary of State John Kerry, urging the U.S. to support a verification.

“We believe … a new assessment, or even verification, is not necessary,” U.S. Ambassador Peter F. Mulrean told the Haitian daily Le Nouvelliste last week, adding that additional financing for Haiti’s electoral process would be reassessed after seeing how the question of a verification commission was answered. “The last card to avoid a verification: no money,” said the international official. International donors have also withheld budget support from financial institutions like the Inter-American Development Bank and World Bank.

The stance of the international powers leaves many in Haiti puzzled. Pierre Esperance, the director of a prominent human rights organization and head of a local electoral observation mission team, wondered, “how can Haiti go to the second round without a verification?” Trying to push forward without a verification is likely to lead to a repeat of the street protests that rocked the capital almost daily in late 2015 and early 2016, and that contributed to the election’s cancellation in the first place.

“The verification process must take place. There is an awful lot of suspicions that there was fraud in that election process, and it would not suit any government that is elected without a verification process because there would always be that suspicion,” Sir Ronald Sanders, an Antiguan diplomat, told the Miami Herald last week.

Mark Weisbrot
Folha de São Paulo, 14 de abril, 2016

April 2016, David Rosnick

There has been a flurry of recent articles touting recent work by Stanford Business School Professor Joshua Rauh, arguing that state and local pension fund liabilities are far larger than generally reported. Rauh puts the unfunded liabilities of state and local pension funds at $3.4 trillion, more than three times the figures that the pensions themselves calculate. He predicts looming crises with many local governments driven into bankruptcy.

The reason for the difference between Rauh’s $3.4 trillion number and the shortfall of roughly $1 trillion using the pension fund’s methodology is the rate of discount used to evaluate pensions’ liability. Pension funds calculate their liability using their expected rate of return as the rate of discount. This currently averages just over 7.0 percent on their assets. In contrast, Rauh uses the risk-free rate of interest for discounting, using the current 2.5 percent yield on 30-year Treasury bonds. The lower interest rate puts a much higher value on projected funding shortfalls 20-30 years in the future.

While many would like the public to be scared by Rauh’s calculations, there are a few points worth keeping in mind. First, the return numbers that pension funds use are not pulled out of the air. They reflect projections of investment returns based on actual experience and a range of standard economic projections. They will of course not be exactly right, but they are also unlikely to be hugely wrong.

As a recent report from Pew Research Center points out, the main reason that some pension funds are in serious trouble is not that they were overly optimistic about investment returns, the pensions that are into serious trouble were the ones that failed to make their required contributions. In states like New Jersey and Illinois, not making pension contributions became almost a sport among politicians. The same was true for the city of Chicago under Mayor Richard M. Daley. If governments don’t contribute to their pensions, they will be underfunded regardless of what returns are assumed.

Mark Weisbrot
The Huffington Post, April 13, 2016

Olivier Blanchard is one of the world’s leading macroeconomists. In addition to a long and distinguished academic career, in his tenure as the chief economist at the I.M.F. he turned its research department into a major producer of cutting edge research. In particular, the research department was instrumental in producing work that undermined the case for austerity that was being widely pushed across the globe. Unfortunately, politics was able to overcome the research, and austerity won.

But that is the past. In an interview with the Telegraph, Blanchard warned that Japan will soon switch from combating deflation to a struggle to contain inflation. The core problem is its debt burden, which now stands at almost 250 percent of GDP.

This concern seems more than a bit bizarre, especially coming from an economist as knowledgeable as Blanchard. The first point is that, in spite of the high ratio of debt to GDP, Japan actually has a low interest burden. According to the OECD, Japan’s net interest payments on its debt were 1.0 percent of GDP in 2015. By contrast, U.S. payments were well over 3.0 percent of GDP in the 1990s.

This matters, not only because the interest payments represent the actual drain on resources, but also because the value of the debt is largely arbitrary. If that sounds strange, it’s worth thinking about what happens to the value of debt when interest rates rise. The current interest rate on a 10-year Japanese government bond is -0.09 percent. On a 30-year bond it’s 0.41 percent. Suppose that the interest rate on a 10-year bond rose to a still historically low 4.0 percent and the 30-year bond to 5.0 percent.

According to my bond calculator, the market price of a newly issued 10-year bond would drop by almost one-third and the price of a newly issued 30-year bond would fall by more than 75 percent. Of course not all Japanese debt is long-term, nor is it all newly issued, but the point is that the market value of its outstanding debt would drop sharply if interest rates rose to even modest levels. If the 30-year rate got as high as 7.0 percent (lower than the U.S. rate in much of the 1990s), then the market price of the newly issued 30-year bond would drop by more than 85 percent from its current level.

The way governments typically keep their books, this plunge in the market price would not affect Japan’s debt to GDP ratio. But if the markets were actually troubled by the high ratio of debt to GDP, Japan could simply issue new debt to buy up old debt at a fraction of its face value. This would quickly send its debt to GDP ratio plunging. (This is why the Reinhart-Rogoff 90 percent cliff story never should have passed the laugh test even before the exposure of the famous Excel spreadsheet error.)

April 13, 2016

April 13, 2016

The figure above compares the average 2015 rental vacancy rate with the percent increase in owner’s equivalent rent for 30 metropolitan areas. Although the relationship is imperfect, there is a clear trend to the data: higher vacancy rates are associated with lower inflation. The concept here is relatively simple: when a large number of rentals are vacant, rentiers must set prices relatively low in order to compete for potential renters.

This becomes clear when you look at specific metropolitan areas. The three areas with the highest vacancy rates also happened to have the three lowest inflation rates. Two areas in Ohio — Akron and Cincinnati — had 12.1 and 10.2 percent vacancy rates, respectively. Increases in rents were just 1.5 and 1.1 percent in those two areas, compared to the sample median of 3.4 percent. St. Louis, Missouri had a 9.7 percent vacancy rate — 3 percentage points above the median vacancy rate of 6.7 percent — and saw just a 2.0 percent increase in rental prices.

A popular theme in the media in recent days is that the world’s poor would face disaster if Bernie Sanders ended up in the White House.[1] The story is that Sanders would try to protect jobs for manufacturing workers in the United States. The loss of these jobs has been a major source of downward pressure on the wages and living standards of a large portion of the working class over the last four decades.

While saving manufacturing jobs here may be good for U.S. workers, the media line is that by trying to block imports from the developing world, Sanders would be denying hundreds of millions of people their route out of poverty. This story may be comforting for elites in the U.S. and Senator Sanders’ political opponents, but it defies basic economics and common sense.

To see the problem in the logic, note that the essence of the Sanders as an enemy of the world’s poor story is that manufacturing workers in the developing world need people in the United States to buy their stuff. If people in the United States didn’t buy their stuff, these workers would be out on the street and growth in the developing world would grind to a halt.

In this story, the problem is that we don’t have enough people in the world to buy stuff — there is a shortage of demand. But is it really true that no one else in the world would buy the stuff produced by people in the developing world if they couldn’t sell it to consumers in the United States? Suppose people in the developing world bought the stuff they produced, you know, raising their living standards by raising their consumption.

That is actually the way the economics is supposed to work. In the standard theory, general shortages of demand are not a problem. Economists have traditionally assumed that economies tended toward full employment. The economic constraint was a lack of supply. The problem was that we couldn’t produce enough goods and services, not that we were producing too much and couldn’t find anyone to buy them.

Over the past three decades, the top 1 percent’s share of national income has more than doubled. In 1978, the richest 1 percent of income earners made less than 9 percent of total income; by 2014, their share was over 21 percent.

The growth of the financial sector has been one of the primary drivers of this increase. During the 1940s to 1970s, finance typically accounted for about 3 to 4 percent of GDP; by 2005 and 2006, just before the financial crisis, finance claimed 7.6 percent of GDP. While the industry’s share of national income fell during the recession, it is back above 7 percent today.