September 25th, 2021

Dionysus, Silver and Red

REAL ESTATE The possible collapse of Evergrande, China's second largest property developer, has reverberated through global financial markets. With over $300 billion in outstanding debt, 3.8 million jobs on the line, and investments across consumer …
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September 18th, 2021

Lead the Horse


This week, millions in California voted in support of Governor Gavin Newsom in a recall election. California is one of 19 states that grants power to voters to recall a sitting governor, a law which was passed in 1911 as part of a wider swath of Progressive-era reforms meant to bolster direct participation in government.

A 2013 article by Glen Gendzel examines the political context of California's early 20th century reforms, finding that the laws led to unexpected results for progressive politicians.

From the article:

"In October 1911, California voters approved the initiative, referendum, and recall amendments by a three-to-one margin. They also approved women’s suffrage, railroad regulation, workmen’s compensation, and a raft of other progressive reforms in the same election. No less than twenty-two amendments to the state constitution passed all at once. Conservatives predicted that disaster would ensue from the passage of “freak legislation” in California. Business was expected to flee the state, investors to pull out their funds, and home-seekers to look elsewhere. In fact, however, the progressive revolution of 1911 ushered in two decades of rapid growth and prosperity such as the state had not seen since the Gold Rush.

Nonetheless, there were some early indications that direct democracy might not serve the ends that Governor Johnson and the progressives originally had in mind. For example, the first successful state recall elections in 1913 and 1914, using this tool of progressive politics, removed two progressive legislators from office. In 1915, the first statewide referendum, using another progressive electoral tool, repealed a key progressive law, backed by Governor Johnson, which would have made all state elections non-partisan. The progressive legislature then passed an open primary law, which would at least encourage non-partisanship, but state party leaders forced another referendum on this law in 1916, and the voters rejected it, too. These early uses of the recall and the referendum – to expel progressive legislators and to repeal progressive electoral reforms – did not bode well for progressive hopes for direct democracy."

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September 11th, 2021

Brassieres of Atlantis


Long held to be essential for development, capital flows have come under increasing scrutiny for their impact on the financial stability and autonomy of low and middle income countries.

A recent paper by Karsten Müller and Emil Verner fuels the debate. Using a novel database of private credit in 116 countries since 1940, and drawing on more than 600 sources, it analyzes how the sectoral allocation of credit impacts financial stability in recipient countries. The findings suggest that credit to the non-tradeable sector (where goods cannot be sold internationally, such as construction, repairs, food services, and real estate) predicts lower medium-run growth, while tradable sector credit leads to higher growth in the medium-run.

From the text:

"Why does credit to households and non-tradable sectors, but not to the tradable sector, foreshadow lower future economic growth? First, credit growth to non-tradables and households may reflect that credit finances a demand boom, which may sow the seeds of a future bust. Consistent with this prediction, we find that household and non-tradable credit expansions are associated with a relative expansion in consumption relative to GDP, increasing shares of the non-tradable sector in output and employment, an appreciation of the real exchange rate, and an increase in house prices.

Second, lending to non-tradables and households can increase financial fragility if these sectors face tighter (ex-ante) financing constraints or are more sensitive to changes in credit supply. We document that non-tradable sector firms are, on average, smaller and more reliant on loans collateralized by real estate compared to tradable sector firms. Credit expansions to the non-tradable sector are associated with a considerably higher likelihood of future systemic banking crises. In contrast, lending to the tradable sector has essentially no relationship with banking crises and also falls less after the onset of crises. Third, credit booms may lead to a misallocation of resources away from more productive sectors. Because the level and growth rate of productivity is generally higher in tradable industries, a reallocation away from tradables can cause lower aggregate productivity growth in the medium run. Taken together, the patterns we document suggest that credit expansions are not created equal. They highlight that “good” and “bad” booms can be differentiated based on what the borrowed money is used for along dimensions emphasized by economic theory."

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September 4th, 2021

Red Coyote


Haiti won independence from France in 1804, but in return for recognizing its formerly enslaved colony, France later forced Haiti to pay an indemnity of 150 million francs and give preferential treatment to French exports. The debt was equivalent to 270 percent of GDP—Haiti only paid off its debt in 1950.

Considering the absence of Haiti in larger conversations around sovereign debt, a new paper by Kim Oosterlinck, Ugo Panizza, Mark C. Weidemaier, and Mitu Gulati argues that Haiti’s debt should be seen as odious. The authors make the case that Haiti paid an exorbitant cost on an illegitimate debt, and that the nation is entitled to reparations.

From the paper:

"By any reasonable definition, the Haitian Independence Debt would seem to be odious. The circumstances suggest coercion, as does the fact that the agreement obliged Haitians to pay compensation for the freedom they had already won. The amount has been reported at around 300% of Haitian GDP (270% in our estimates), and it was understood that Haiti could pay only by borrowing vast sums from French banks, thus transforming the indemnity into a debt burden that would persist for generations. The debt cannot reasonably be characterized as in the best interest of the Haitian people. Yet we see little mention of it in the literature on odious debt or, indeed, in the larger literatures on sovereign debt or debt and development. To be sure, authors writing in French examine the intertwined history of Haiti and France and often discuss the Haitian Independence Debt. Likewise, articles in the popular press occasionally ask whether France owes compensation to Haiti for the episode. But these discussions have not yet made their way to the general sovereign debt literature or into the sub-field examining the doctrine of odious sovereign debt. Nor have they prompted a deeper examination of whether that doctrine should extend to debts imposed by former imperial powers in the context of independence and decolonization.

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August 28th, 2021

Circus Act


Earlier this year, global carbon markets were valued at a record breaking $277 billion. The number contrasts strikingly with this summer's wave of devastating fires, many of which proliferated precisely in protected forests designed to offset carbon emissions from other industries.

In a 2019 book, GARETH BRYANT traces the history of carbon offset markets, considering how their institutionalization has altered climate-related political contestation.

From the text:

"The policy predecessor to carbon markets was sulphur dioxide trading in the United States. From the 1970s, the Environmental Protection Authority began to introduce elements of emissions trading in its regulation of pollution. Growing support for the market-based approach vis-à-vis ‘command and control’ measures among sections of government, business and non-government environmental organisations resulted in amendments to the Clean Air Act in 1990 that established a nation-wide sulphur dioxide trading scheme. The scheme's key innovation was that, within the overall cap, emissions allowances allocated or auctioned to certain power plants could be traded to cover the pollution of other power plants.

US negotiators extolled the cost-efficiency of tradeable permits in advancing their goal of ‘binding but flexible’commitments in the Kyoto Protocol. The US overcame opposition from the EU by making the inclusion of carbon trading instruments a condition for agreement on key European demands for binding emissions reduction targets. It also successfully overturned opposition from developing countries through the transformation of Brazil's clean development fund into a mechanism where emissions reductions from clean development projects in developing countries could be sold to developed countries and count towards their targets. The Clean Development Mechanism (CDM) was thus born."

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August 21st, 2021

13 Hour Cymbal Spiderclock


Observers in the past decades have commented on increased urbanization in India, which has led to new challenges for development, housing, and labor. But the majority of India's population, and thus electoral power, remains in rural regions.

In a 2018 article, SAI BALAKRISHNAN examines how agrarian political power manifests in urban spaces, looking to real estate markets in Mumbai.

From the paper:

"The electoral power of the agrarian countryside is evident in the relationship of Mumbai to its hinterland. India is the second largest exporter of sugar in the world and more than 40% of India’s sugar exports come from the western Maharashtra region. Sugar production in the region is organised in the form of cooperatives. These sugar cooperatives have been heavily subsidised by the state: 90% of sugar cooperative finances came from state-guaranteed cooperative bank debt; over three quarters of the equity was a direct handout from the state budget. It was Mumbai’s thriving industrial economy that was the source of sugar subsidies. Mumbai’s industrial classes tolerated the diversion of capital from the city to the countryside, as they understood that the state government legislators relied on the peasants for their votes, and that capital diversion was the price to be paid for the political stability from subsidised agrarian prosperity.

In a market-oriented urbanising economy, these elites continue to influence the making of urban real estate markets by flexing their regulatory muscle. The price of a plot of land increases when it is well connected to roads and transport networks, when it has uninterrupted water supply, when it can rise high in the air and thus maximise development rights. Politicians control these road, water and air resources, and in a context where local governments are not yet fully empowered as decisionmakers, state-level politicians wield immense control over resources that get capitalised into the price of land."

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August 14th, 2021

Shifting States


75 percent of US firms currently make use of non-disclosure agreements. Originally developed to protect trade secrets, today's agreements have expanded to include information on salaries, skills, client lists, and employment practices.

In a 2019 research paper, legal scholar ORLY LOBEL considers the impact of restrictive clauses on worker mobility, diversity, and inequality.

From the paper:

"In his seminal work Exit, Voice, and Loyalty, political economist Albert Hirschman proposed an interplay between the three concepts. When an organization breaks down, individuals can effect change by either leaving or by working from within to right the wrongs. Loyalty, Hirschman argued, moderates the choice between exit and voice. In corporate settings, employees regularly experience discontent and must decide what form of action to take. But what happens when both exit and voice are restricted?

In today's labor markets, non-disclosure agreements (NDAs), non-compete agreements, innovation assignment clauses, non-disparagement agreements, mandatory arbitration, and secrecy policies all create exit and voice constraints. Recently, a steep rise in these clauses has shaped human capital in ways that are harmful to all workers as well as to industries at large. Regardless of enforceability, NDAs are routinely expansive and used to signal to employees that a range of knowledge, information, and speech is off-limits. In particular, salary as proprietary information shows the connections between market competition, secrecy, and inequality: if women and minorities are in the dark about their undervalued talent, they are less likely to seek exit or to speak up to be equally compensated for their performance. Another such example is information pertaining to diversity. In recent years, major companies have claimed that their diversity information is a trade secret—in 2018 Microsoft filed a lawsuit against its Chief Diversity Officer, claiming that the employee had knowledge on how to achieve more inclusion. In another case, IBM alleged that the executive held trade secrets which include diversity data and strategies. When corporate contracts, practices, and culture limit employees’ ability to advocate organizational change, the many shades of inequality and status quo are sustained."

Link to the piece.

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August 7th, 2021

Blast Off


This week, the Mexican government sued eleven major US arms manufacturers, alleging that they facilitated the illegal flow of guns into the country. The proliferation of US-manufactured guns in Mexico during recent years has been well-documented, but their presence precedes the twentieth century.

In a 2013 text, BRIAN DELAY investigates how the newly-independent Mexican state navigated wars while lacking capital to purchase arms, leading to a reliance on US creditors.

From the piece:

"During the 1850s and 1860s, in response to demand created by several coups and regional rebellions, more than a decade of civil war, and a foreign occupation, ammunition would pour into Mexico by the tons and firearms by the many tens of thousands. Most of this material came from the United States, most of it came on credit, and mostly the terms were ruinous. During the French Intervention of 1862–1867, Mexico’s conservatives conspired with Napoleon III to install Archduke Maximilian as Mexico’s king. Mexico’s president-in-exile, Benito Juárez, dispatched scores of agents to US cities in search of capital and weapons with which to retake control. Existential desperation encouraged them to make fantastical promises, and to sell more than thirty million dollars in bonds at steep discounts.

Historian John Hart has sleuthed out the list of buyers, and it reads like a who’s who of America’s incipient Gilded Age. These men were not so naïve as to expect prompt repayment on the bonds. They expected the bonds to give them not scheduled returns so much as leverage to secure land deals, mining concessions, commercial privileges, and, above all, railroad projects. The creditors clamored for repayment as soon as the liberals retook the capital. Finally in 1876, despairing of ever recouping their investments, these bondholders conspired with colleagues in the railroad business to fund and arm a coup by Mexican General Porfirio Díaz."

Link to the text.

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July 31st, 2021

Burning Bridge


Accounts of major historical shifts tend to treat states as unified actors responding to external incentives. In a new article, INGA RADEMACHER complicates this assumption. Drawing on archival documents from the German Federal Cabinet and Bundesbank Council from 1960-1981, she argues that competition among state actors is a crucial, but often overlooked, factor in shaping policy trajectories.

From the piece:

"The globalisation literature argues that capital mobility, and capital flight in particular, are critical drivers of austerity. However, during the 1970s, capital outflows were not a problem in the German economy. Rather, capital inflows caused problems for monetary actors—triggering conflicts between Bundesbank and administration. In the 1970s, when the expansion of Eurodollar markets peaked, the Bundesbank’s autonomy became increasingly curtailed as so-called ‘hot money’ flooded the German capital market. But the enforcement capacity of the central bank increased with the breakdown of the Bretton Woods system.

Initially, central bank officials were not convinced of monetarist ideas. Instead, during the debates over solutions to the crisis—capital controls or the float of the Deustchmark—in January 1973, the central bank reviewed two rival approaches to resolve inflation: a ‘dirigiste’ approach and monetarism. Since the dirigiste proposal found considerable support among a large group of central bankers, including the president of the Bundesbank, Karl Klasen, it seems unlikely that ideational changes drove the shift to new policy instruments in the central bank. Instead, monetarist policy settings and instruments were suddenly endorsed on the basis of strategic considerations on how to enhance the power position of the central bank in the overall macroeconomic system. This micro-level analysis shows that institutional instruments are only one way that central bankers gain power within the larger macroeconomic framework. They also actively utilise opportunities in the political and economic context to bargain with the government."

Link to the text.

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July 24th, 2021



Structures of unfree labor have always been at the edge of current and historical discourse on labor, mobility and caste in South Asia. This has been in focus during the COVID-led migrant crisis in India, where around 11.4 million migrant workers were forced into an exodus from urban to rural areas.

In a recent book, RADHIKA SINGHA unpacks the category of ‘menial’ labor as one structured by caste, class and race. She focuses on the massive role of Indian labor—involving 563,369 followers or non-combatants in the British Indian Army—in Mesopotamia and France during World War I.

From the book:

"In colonial civil offices, ‘menial establishment’ was the formal categorisation for the lowest rung of employees, from peons (messengers) down to file-suppliers, bhistis and sweepers. The label ‘menial’ was often used in discussion of their service conditions. In exploring this condition of ‘menial’ status, we have the benefit of a valuable body of writing which has shown how caste norms tended to hem powerless communities into the hardest and most stigmatised sectors of work regimes—even in those which were being refashioned under the drives of colonialism and capitalism. ‘Untouchability’ was thereby recast in new contexts, and low pay, degrading conditions of work, and corporal discipline were ‘naturalised.’ The attached followers found it particularly difficult to challenge their consignment to menial status because of the presence in their ranks of ‘untouchable’ castes who swept, cleaned latrines, washed clothes, and crafted leather. This was work characterised both as a ‘trade’—that is, as a caste structured specialisation—and as ‘polluting.’ Regimental followers, public and private, were, in the manner of domestic servants, expected to be constantly at hand to tend to the physical needs of their institutional superiors, who felt they had a personal right to chastise followers for inadequate service, evasion, or questioning of demands. The fact that regiments found themselves having to supplement the income of public followers and employ ‘private’ followers blurred the line between public employee and domestic servant."

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