[OPE] Ken Rogoff wins the funnies prize

Patrick,

I've got the 'flu still and cannot write at length. Ken Rogoff was not
disrespecting Joe Stiglitz as a person or questioning his integrity, but
attacking Stiglitz's intellectual claims and policy recommendations. Well
actually, in retrospect, it looks to me like Stiglitz has the truth on his
side more, but anyway if you start to make these ad hominem attacks, rather
than focus on what ideas are being mooted or what is done about them, then
you cut yourself out of the conversation, that is all. At least Ken Rogoff
does real research on economic history and is interested in the big
questions of the age. You can disagree with people but it doesn't mean you
have to write them off altogether or engage in character asassinations.

What Mandel really meant, his forecast if you like, is that there is
unlikely to be any new "long wave" of economic growth of the type there was
in 1947-73, but just a lengthy era of relative stagnation with an steadily
intensifying conflict about the rewards of human work. In this respect, GDP
measures are increasingly no longer an adequate indicator, insofar as a lot
of the so-called "output" qua content consists only of revenue streams
related to activities shifting assets from A to B, and because GDP excludes
"property income" from the (domestic and international) transfer of already
existing assets, including realised and unrealised capital gains. When a
billion people are malnourished, you can of course moot the need for a
"happiness indicator" or "wellbeing indicator" but that's not really what it
is about. What it is about is, that a lot of extra income is nowadays being
generated, not by new additional production of tangibles, but by credit
manipulations and trade in already existing assets, with the general effect
that the distribution of incomes becomes increasingly unequal across the
whole world.

The USD exchange rates could in principle drop by 40% or so without this
removing "dollar hegemony", other things remaining equal. Even if the USD
depreciates considerably, the quantity of foreign dollar reserves (in
currency and debt securities) remains enormously large, and this itself acts
against very radical changes in the currency regimes. But nations could in
principle stop using USD in part of, or all of, their foreign trade, and
gradually diversify out of USD. Yet the refusal to trade in USD could also
lead to "counterattacks" aimed at hindering their foreign trade, or to
divestment.

A lot obviously depends on how fast and how far the USD would actually
depreciate, but it doesn't look to me as though a very dramatic fall is in
prospect. Probably in response to events the Fed will try to plot a midway
policy path to avoid the twin evils of supremely high interest rates and
runaway inflation. The US Federal govt is actually quite rich, and unlikely
to go bankrupt in a hell of a hurry. Since interest rates are low, they have
considerable room for maneouvre. The main effect I think is just that you're
going to have, durably, roughly double the unemployment rates that you had
before, and also relatively low output growth. These days we are no longer
really talking about an "equilibrium theory of money", but more a "monetary
regime" or a "price regime".

I know of only a few Marxian economists who have tackled the whole
problematic of dollar hegemony seriously, maybe I'm ignorant about this, I
don't know, but I don't find the stuff I read all that convincing. You have
to explain specifically e.g. why the Chinese and Japanese would continue to
invest so heavily in US Treasuries, the power relations involved.

The primary problem I think is not about currency or monetary policy per se,
but rather with the ruling theories about what actually promotes
job-creating economic growth - the main economic conflict being effectively
between governments seeking to make their countries prosper, and
international speculators who add nothing much to economic growth, and
create problems for it. At the same time, governments face the problem of
having to contain the social problems arising from the fact that a large
chunk of the workforce has become permanently locked into poverty.

As regards Africa, "The Banker" magazine has a quite revealing recent
article, excerpts of which I append below. The whole thing is framed
primarily in terms of financial "risk". How to integrate African farmers in
the world market, when there isn't much of a market infrastructure to start
off with?

Jurriaan

Funding Africa's agrarian revolution
By Charlie Corbett
The Banker, 2 September, 2009

(...) One of the biggest problems with transforming Africa's agricultural
sector, according to Mr [Sean] De Cleene [vice-president of public affairs
at Yara International, a Norwegian-based agricultural development firm that
has had operations in Africa for 25 years], is that it is a highly complex
value chain. Whereas with mining it is possible to concentrate investment
around one particular mine or project and therefore create a public-private
partnership relatively simply using one company, in agriculture there is a
much greater number of players in the value chain. "These players need
somehow to be aggregated to a level of scale that makes agriculture
competitively viable for Africa," he says.

In many ways it is a 'chicken and egg' dilemma. African smallholder farmers
need financing in order to buy the necessary seeds and fertiliser to produce
higher yields and compete internationally, but at the same time potential
investors need proven steady incomes and collateral before they can lend.
Given the seasonal nature of farming, combined with the innumerable
potential natural disasters that threaten smallholders across the continent,
it has in the past been almost impossible to fund African farmers without
taking huge risks. This financing dilemma lies at the heart of why African
farming has remained practically in the dark ages for most of the past five
decades. (...)

The ultimate aim is to encourage subsistence farmers to become commercial
farmers. "The moment the farmer is able to produce more than he can eat,
then we've reached our goal," says Mr [Zhann Meyer, a director of Standard
Chartered Bank's agricultural division]. Much emphasis is placed upon
encouraging so-called 'precision farming', which makes use of the latest
agricultural practices. "This is not just about giving a guy a bag of seed
and a bag of fertiliser and praying for him," says Mr Meyer. As it stands,
however, the ability of a farmer in Africa to increase his yields is
rendered purely academic because access to international markets is almost
non-existent. It is unlikely that the average farmer would know what a
commodity exchange was, let alone realise whether he or she was getting a
fair price for their grain. "Their only link [to international markets] is
usually a guy with a suitcase full of cash arriving in a bashed-up land
cruiser at harvest time," says Mr Meyer. "That creates a huge opportunity
for exploitation. A farmer needs to know what he is going to get if he
produces the crop he is contracted to grow."
http://www.thebanker.com/news/fullstory.php/aid/6849/Funding_Africa_s_agrarian_revolution.html?current_page=NO_PAGE

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Received on Sun Oct 11 19:11:01 2009