Much Ado About Rice: Thailand’s Rice Market Exploitation Wildly Backfires

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On August 25, former Thai Prime Minister Yingluck Shinawatra was due to appear in court to hear the verdict on her trial over involvement in a rice subsidy scandal. If she is found guilty of negligence, she could face up to ten years in prison. Yet Ms. Shinawatra never showed up in court, and many officials believe she may have fled the country.

The rice subsidy program, which led to Ms. Shinawatra’s impeachment in January of 2015 as well as her subsequent trial, started off as a well-intentioned plan to help Thailand’s agricultural sector. It was one of the main selling points for her populist party, Pheu Thai, during the 2011 campaign cycle, and helped to win the party a landslide victory. Approximately 23 percent of the Thai population are farmers, and the subsidy program was intended to help Thailand’s rice farmers earn more for their crop.

The program worked like this: the government would buy rice from farmers at up to double the market price. Then, the rice would be stockpiled and withheld from the global market in order to drive global rice prices up. Once global rice prices rose, the Thai government would sell the rice and make a profit in the process.

At the time the program was implemented, Thailand was the world’s largest exporter of rice. In addition to having a warm, damp climate, Thailand has an abundance of fresh water sources, making it an ideal location for rice production. Furthermore, the Thai people have plenty of experience producing rice–it has been their staple crop for over 5,000 years. (“In the water there are fish, in the field there is rice” is a proverbial Thai saying). All of these factors combine to give Thailand an overall advantage in rice production vis-a-vis many other countries, which have neither the climate nor the experience in such a line of production.

When a country has this comparative advantage in the production of a good, it means that that country can produce that good more efficiently than other countries can. For example, Thailand can produce rice more efficiently than Norway can because its climate and topography are better suited for rice production. Therefore, Thailand will gain the most economically if it can focus its resources on rice production, thereby producing more rice at a lower cost.  Thailand can then purchase the goods and services it does not produce as efficiently from countries that do have comparative advantages in those lines of production. If we consider the Thailand and Norway example, we notice that Thailand can sell its rice to Norway and in turn buy oil, a good that Norway has a comparative advantage in. If two countries can play to their comparative advantages and focus on what they can produce most efficiently, they can produce more, sell more, and purchase other goods at lower prices. Thus, two trading partners can actually gain from trade.

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Former Thai PM Yingluck Shinawatra has come under fire for the rice debacle

It is important to remember, however, that a comparative advantage in a certain line of production does not guarantee that a country will dominate a given market. In designing the rice subsidy program, this was the Thai government’s — and Ms. Shinawatra’s — critical mistake. There is no such thing as a patent on rice production; anyone who lives in an area with ideal conditions for growing rice can do so. Thailand is not the only country with ideal conditions for growing rice. When Thailand withdrew rice from the global market, countries such as India and Vietnam jumped in to fill the gap. The presence of these competitors meant that the global price of rice did not rise as the Thai government had hoped. Instead, rice prices plummeted, going from a peak of $1,000 per ton in 2008 to around $390 per ton in 2014. Thai farmers were edged out of the global rice market, rice exports fell by a third, and the Thai government was forced to stockpile 18 million tons of rice in the first year of the program alone. In the end, the rice subsidy fiasco cost Thailand around $15 billion. Given that GDP per capita in Thailand hovers around $6,000, this is a gargantuan sum.

Despite the heavy losses that the Thai government sustained, then Prime Minister Shinawatra refused to end or reform the program. As the program lost more and more money, government scandals and social unrest ensued. In February of 2014, a group of rice farmers threatened to park 100 tractors at Bangkok’s airport as they had not been paid for their rice. In May of 2014, Ms. Shinawatra was removed from office by the Thai Constitutional Court after six months of anti-government protests, riots, and occupations of government buildings. In July of this year, the military junta now in control in Thailand froze some of Ms. Shinawatra’s bank accounts and ordered her to pay $1 billion in civil damages. And on August 25, the same day Ms. Shinawatra failed to appear in court, her former commerce minister, Boonsong Teriyapirom, was sentenced to 42 years in prison for falsifying government-to-government rice deals with China in an attempt to cover up losses on the rice subsidy scheme.

Ms. Shinawatra’s rice subsidy program, which started off as a well-intentioned plan to help Thai farmers, ended in losses and Ms. Shinawatra’s removal from office. Interestingly, much of the instability that stemmed from the program and the government’s response to its failure is rooted in economics, or rather, faulty economic assumptions. It is true that Thailand has a comparative advantage in rice production. Yet the benefits of a comparative advantage can only be reaped if a country sells the goods it produces well and maintains its market share. Pulling out of the market is very dangerous, for a competitor may be ready and willing to take your place.

 

Making capitalism in rural New England

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Since the 50s economic historians have gone back and forth over how to break down the puzzle of this shift in growth. Much of the debate has centered on figuring out why farms were so slow to produce food for such a long time. Some argued it was about a lack of access to markets for selling goods, so there was no incentive for producing more than what one family could consume. But then figures like James T. Lemon gathered data on output and family consumption (based on yield and family size estimates) revealing the presence of farm surpluses above and beyond what a family would need to sustain itself, which he believed proved the existence of early markets for agricultural output in the 1700s.

Others took a more anthropological approach, arguing that it wasn’t about market access at all, but a sociocultural “mentality” that was divorced from the idea of maximizing profit. These “moral economy” historians, borrowing from the anthropologist Clifford Geertz’s accounts of non-entrepreneurial Indonesian peasant villages saw early New England as a pre-capitalist, community-oriented system of exchange where norms, gifts and tradition mattered much more than efficient management and production to advance crop or meat output. In the words of historian Marc Bloch, “The society was certainly not unacquainted with either buying or selling. But it did not, like our own, live by buying and selling.”

This position is partly ideological. Marxist-minded historians like to think of peasant societies as having a non-capitalist ethics grounded in communal ideals. But there’s also some interesting evidence in its favor. Vickers, in his paper, “The culture of credit in rural New England, 1750-1800” describes farming communities as immersed in non-monetary exchanges– neighborly solidarity networks that helped families manage risk and allocate resources. Vickers provides some useful data based on farmer’s accounting books that offer a glimpse of how these informal networks of sharing, reciprocal gift-giving and mutual aid may have operated in rural American communities.

Some of the reports describe swapping casual labor or lending out farming equipment. One interesting data point comes from the diary of the midwife Martha Ballard. Nearly 78 percent of the transactions recorded in her journal account are purely non-monetary, with no mention of money or price value. In many cases, Martha provided lodgings and meals to travelers, or offered her abilities as a nurse. In exchange, members of the community would bring her foods or agree to watch her children, but in total Martha remained a major creditor to the community:

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Vickers argues that Martha never expected to be paid back in full, but rather believed that, “the final unit of accountability in non-monetary exchanges was not the individual but the community.” It was only in the monetary world, in her work as a midwife, where she expected to be paid a regular fee. Similar results are found for male farmers who loan out labor and equipment without expecting exact monetary compensation. In his conclusions, Vickers notes that while these non-monetary exchanges were not explicitly quantified, exchanges did reflect a sort of balance based on ethical beliefs such as duty to kin, respect for the elderly, and pity for the disadvantaged.

So if we take the “moral economy” historians at their word, the American capitalist transformation was largely about a change in values and attitudes, whereby farmers were suddenly inspired to begin thinking like entrepreneurs, to efficiently allocate resources and produce goods for a market. As for what exactly created that change, no clear mechanism is presented besides a few vague references to “energies” generated in the American Revolution.

Winifred Rothenberg, first in a paper and then in her book From Market-Places to a Market Economy, made one of the most compelling cases for why the moral economy position is unrealistic, or at least not the best explanation for how we moved from low to high productivity on our family farms. For her, development occurred when a lot isolated farming networks began to connect together to form cohesive markets for goods and labor. Instead of looking at changing attitudes, Rothenberg considers a series of indicators of a gradual cohesion and consolidation of markets, including convergences in wage rates and farm prices, the extension of credit networks to further and further partners, and the proliferation of market towns. For Rothenberg, the Revolution did play a role, but it was in the form of catalyzing the emergence of commodity, labor and capital markets as established entities. In one analysis, Rothenberg charts how prices for staple crops began to converge and fluctuate in unison; an indicator of increased market connectivity. Price data was gathered from 54 manuscripts for the price of corn, potatoes, rye oats, hay, beef, pork and cider:

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Her results showed a clear convergence of prices moving towards the 1800s in several commodities including corn and rye. Rothenberg writes, “The people who settled this land came from a tradition of Market Crosses, Market Days, Corn Markets, cattle, wool, cheese, silk and produce markets, stalls, shops, fairs, itinerant peddlers, and cattle drovers.” In other words, the farming families were never non-trading ethical peasants, but were instead just slow to develop the extensive networks needed to facilitate their entrepreneurial, labor productive spirit. The cultural changes that did occur (sons stopped spending their whole life on the family farm, the neighborly networks of mutual aid began to diminish in importance) were the result of market changes, not the other way around.

That’s not to say that we should completely discount culture-centric theories of capitalist transition. Jan De Vries has done important work documenting how changing aspirations for leisure products helped drive the consumption and productivity boom in the Netherlands. Vickers favors a view of America’s transition as an interplay between changing cultural values and impersonal market convergences. For him, people “engaged widely in marketplace dealings but conducted them on credit based on evaluations of personal character, which were inevitably cultural constructions…the concern over neighbourly reputation was actually a product of market growth, not its victim.” So mutual aid networks and moral economies actually helped facilitate the growth and expansion of interregional markets.

Following Vickers, we might conceive of America’s transition to capitalism as a case of New England farmers who for years relied on kinship and community norms to survive in a harsh, spartan climate, slowly and deliberately making way for market forces that incentivized productivity and wealth accumulation. The Revolution shook up labor and capital, and farmer’s sons began moving into the city looking for profitable work off the farm; technical improvements to roads and storage solidified generalized commodity prices, paving the way for railroads and new migrant workers to expand the manufacturing base, and the rest is history. It’s probably not a coincidence that during this period Adam Smith’s two major works on the entrepreneurial and sympathetic spirits of man, The Wealth of Nations and The Theory of Moral Sentiments were making the intellectual rounds. In his great paper “The Two Faces of Adam Smith,” Nobel laureate Vernon Smith argues that the two books come together to produce, “one behavioral axiom, ‘the propensity to truck, barter, and exchange one thing for another,’ where the objects of trade I will interpret to include not only goods, but also gifts, assistance, and favors out of sympathy … whether it is goods or favors that are exchanged, they bestow gains from trade that humans seek relentlessly in all social transactions…It explains why human nature appears to be simultaneously self-regarding and other-regarding.”

The EU’s currency conundrum: Macron hits a nerve

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Following Emmanuel Macron’s victory in the recent French presidential election, a wave of relief washed over many supporters of the European Union. Macron’s pro-EU stance won out against his right-wing opponent, Marine Le Pen, a sign that the recent populist surge may be subsiding. With the release of exit poll results, the euro hit a six-month high, buoyed by increased confidence that the EU would remain intact under a Macron presidency.

However, celebration of the EU’s preservation may be premature. As France’s newest president, Macron hopes to reform the EU and its currency to reduce the financial strains of EU policies on poorer members. These changes would come at the detriment of Germany and other EU countries with stronger economies, who have benefitted in recent years from a euro weakened by underperforming members. Challenging this currency advantage as the gap in member states’ economic performances widens, France’s new president may only have granted the EU a stay of execution if it continues to resist reform.    

On the surface, Macron’s proposals seem more likely to draw the ire of the French workers rather than other countries in the EU. Aimed at reinvigorating the struggling French economy, his labor reforms seek to improve the competitiveness of French business by reducing labor unions’ power and cutting corporate taxes. Macron’s sees free-market policies as the path to success for the French economy, currently held back by restrictive policies that restrict the workweek to just 35 hours and make firing workers a costly process. French laborers, currently some of the most expensive workers in the EU, would become more competitive, easing France’s economic troubles in the process. Macron hopes these domestic policies will assuage the current discontent and fight the appeal of anti-EU sentiment among a French labor force struggling under scarce job opportunities and a 10 percent unemployment rate.

Critical of the EU’s use of austerity in previous years, he has also called for reforms to the EU, including a common Eurozone budget designed to promote investment in member states whose economies remain stagnant. Since his inauguration, though, Macron has taken a less aggressive stance on these proposals, no longer competing for the presidency against his populist opponent, Marine Le Pen. He announced that he will focus on domestic reforms and will not demand EU members to take on any of the debt of their weaker members. But while his EU policies may be not be a priority for now, the underlying issues with the Eurozone will not be going away anytime soon, nor will the populist elements throughout Europe let the EU’s problems be quietly swept under the rug.

After all, Macron’s EU reforms take aim at economic issues inexorably linked to a defining characteristic of the European Union: the euro. To enhance economic integration within the EU, most member states adopted the euro as their currency but lost a great deal of control over monetary policy in the process. The shortcomings of this shared currency became highly apparent in the wake of the Great Recession and Eurozone debt crisis as some EU members recovered quickly while others like Greece and Spain struggled to return to pre-crisis output levels.

Member states’ divergence in economic performance led to an unintended consequence for Eurozone countries. During the recovery of stronger economies like that of Germany, economic growth typically leads to currency appreciation, which hurts exports and tempers continued economic growth. However, the presence of weaker economies under the same currency reduces currency appreciation, helping German exports. On the flip side, this also means that the weaker economies will suffer from weaker exports, as their currency is not able to depreciate as much due to the growth of other, faster-recovering economies like Germany under the same currency. Thus, the Eurozone’s shared currency provides an extra boost to already-growing members, while weaker states find it increasingly difficult to expand exports and improve their stagnant economies.

Opposition to reforms of this currency problem unsurprisingly comes mostly from Germany, a result of its vested interest in maintaining the current EU’s currency policies to safeguard its record-high trade surplus of $270 billion. With the largest economy of any EU member, Germany also possesses significant economic and political influence to protect this position. German Chancellor Angela Merkel has reflected these realities in her meetings with Macron, agreeing only to small changes in trade policy and defense but resisting more substantial changes to the EU. Opponents to Macron’s reforms argue his proposals would require changes to the EU treaty, but the unspoken objection is still Germany’s potential loss of its currency advantage.         

Though the populist surge may have settled for now, Germany cannot maintain this unfair situation for much longer, unless it offers some form of compensation to the weaker Eurozone members. If Germany continues to fight even Macron’s modest reforms, it runs the risk of galvanizing anti-EU sentiment across the struggling member states. Europeans may have been more understanding of EU intransigence in the response to earlier, radical populist movements. However, now faced with Macron’s moderate proposals to help weaker members, the EU can no longer escape blame for its failure to address the economic malaise of many of its states. Unless changes are made, the EU’s struggling member states will continue to resent the implicit subsidies they give to stronger economies like Germany through their linked currencies. If reform does not take place soon, this resentment may well give way to renewed, widespread calls for exits in numerous member states. Should this occur, Germany may not be able to salvage the EU again, but this time it will only have itself to blame.

Triggering by Trump and the emergence of economics of escapism

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A recent survey conducted by the online therapy company Talkspace found that, as of Inauguration Day, over 60 percent of respondents reported feeling some degree of post-election stress. In a 2016 Gallup poll, only 32 percent of Americans said they trusted conventional media “to report the news fully, accurately and fairly,” an eight percent drop from 2015 and the lowest level ever polled by Gallup. To cope with growing discontent, many Americans are turning away from their usual news outlets or their increasingly political Facebook newsfeeds in search of distractions. However, the thirst for distraction is not uncommon in American history, and escapism has become a staple during rough economic and political times.

Defined by the Merriam-Webster as “habitual diversion of the mind to purely imaginative activity or entertainment as an escape from reality or routine,” escapism may seem like a purely psychological issue, but there are very real economic ramifications when companies capitalize on this desperation by filling the demand for a break from reality.

During the Great Depression, Americans flocked to movie theaters. For 27 cents a ticket, about 4 USD in contemporary terms, people could escape the harsh reality of an economic depression for a stretch of time. Films like Dumbo, Fantasia and Arabian Nights, which were released during World War II, transported moviegoers into magical, exotic lands. The 1973-75 economic recession, which also marked the end of the Watergate scandal, the United States’ defeat in the Vietnam War, and two near assassinations of President Gerald Ford, shows a similar trend. In that time frame, directors like George Lucas and Steven Spielberg started releasing fantasy movies like Star Wars, Close Encounters of the Third Kind, The Exorcist and Jaws, all of which were among the top 10 highest grossing movies of the 1970s. Escapist cinema is key during economic and political hard times, as it is one of the easiest and most direct ways to find relief from the real world.

The Walt Disney Company, arguably the biggest player in escapist entertainment, had record breaking inflation-adjusted domestic gross ticket sales of over $2.93 billion in 2016, thanks to popular films like Captain America: Civil War, Finding Dory and Zootopia. From early November to late April, Disney’s stock increased over 26 percent. 21st Century Fox, another box office competitor, saw its stock rise by 37 percent from early September to late March. Even Netflix, which is not a direct competitor but another key player in escapist cinema, saw its stock increase by over 38 percent since the election, compared to a nine percent increase in the S&P 500 Index over the same period. Moreover, half of the top 10 highest grossing movies in 2016 were comic book adaptations, and all of the top 10 movies had a high degree of fantasy, meaning moviegoers actively seek fictional entertainment, and companies provide it.

The demand for escapist fiction extends over many markets, including the literature market. Orbit Books, a fantasy and science-fiction imprint, doubled its annual output last year. With the buzz of a likely science-fiction “golden age,” several other publishing companies launched their own science-fiction imprints. Is there a better way to hide from current unrest than to immerse oneself in a completely different universe? Along with science-fiction, the young adult (YA) genre – fiction published for readers in their teens – plays a key role in literature escapism. Seventy percent of YA novels are not purchased by teenagers, but rather by adults for their own reading enjoyment. YA literature provides not only a means of escapism, but also instant gratification and a sense of nostalgia.

Similarly, adult coloring books bring back nostalgia and reminiscence of childhood for the adult “readers.” In 2015, 12 million coloring books were sold in the United States, a huge increase from the one million sold in 2014. Millennials are 29 percent more likely to purchase an adult coloring book than all other buyers. Since coloring has the potential to reduce anxiety and increase mindfulness, it makes sense that the newfound popularity of coloring books would be directly related to the escalating need for escapism.

The rise of virtual reality (VR) and augmented reality (AR), evidenced by the boom of Pokémon GO, represents a new mode of escapist entertainment. Launched in July 2016 and known as the first use of AR to go “viral,” Pokémon GO has been downloaded globally by over 650 million people. By navigating around their physical surroundings, players are introduced to a parallel world on their phone screens, where a vast array of creatures and Pokémon supplies await discovery. The increase in popularity of AR and VR will be paved with exploitation by marketers, as already seen through the sponsorship deal between Pokémon GO and McDonald’s to entice players into the restaurant chain. Global revenue for the AR and VR markets are projected to reach almost $14 billion in 2017 and $143 billion by 2020. Clearly, this emerging market has the potential not only to provide a new means for escapism, but also to reap massive profits for those companies that utilize AR and VR.

From playing video games to trying new restaurants to visiting amusement parks, escapism is a natural way to de-stress when reality becomes overwhelming. Companies that already provide escapist entertainment are reaping the rewards of widespread unease, and if the U.S. political environment remains volatile, expect new entrants and innovations to satisfy a growing demand for escapism.

Small change, huge impact: How remittances assist development in impoverished regions of the world

 

remittancesIn 2016, Mexicans living abroad sent home $27 billion in remittances home to Mexico, the largest remittance influx that Mexico has ever received. Remittance inflows now surpass crude oil and tourism as major sources of income for Mexico, and much of these inflows go to Mexico’s most rural, impoverished areas, where they are a lifeline. Most of the remittances sent to Mexico came from the United States due to a strong U.S. labor market, a weakening Mexican peso, and fears that the Trump administration may tax remittances in order to pay for a border wall.

Often, due to poor economic prospects and a lack of opportunity at home, migrants will seek work abroad and send back a portion of their earnings to help friends and family. These funds that are sent back are called remittances. Between 1960 and 2010, the number of migrants increased from 90 million to 215 million worldwide, and migration to western Europe and the United States accounts for around two thirds of this growth. In 2015, more than $431 billion in remittances were sent to developing countries, with each remittance (also referred to as a transaction) averaging around $200. In many developing countries, remittances constitute a huge source of cash inflow; in 2013, remittance inflows globally were three times larger than inflows from official foreign aid, and remittances regularly exceed foreign direct investment in developing countries. When considering a nation’s development, it is common for policymakers and others to only consider foreign aid and largely disregard remittances as a source for development funds. It is important to remember, however, that the remittances that migrants send home have powerful impacts on encouraging development and reducing poverty in the developing world.

In developing regions around the world, remittances are a lifeline, bringing much needed funds to people who are barely scraping by. India was the biggest destination for remittances in 2015, followed by China, the Philippines, and then Mexico. Some countries could not function without substantial funds from abroad–remittances make up 29 percent of Nepal’s GDP, and in Tajikistan, that number is 42 percent. For countries that were formerly part of the Soviet Union, such as Tajikistan, remittances are especially vital.

In impoverished parts of Mexico, remittances constitute around 19.5 percent of income, which is an even higher percentage than the contributions to income from government welfare programs. The remittances that families receive are put to use covering basic needs first, with the rest going towards investments and paying back debts, allowing those who receive enough in remittances to begin to focus on getting out of poverty. A report published by the Inter-American Development Bank found that in rural Mexico, 74 percent of remittance monies are used to cover basic costs of living, with 16 percent used to pay debts and 5 percent used towards investing in the home. Furthermore, remittances have a tendency to act like insurance for recipients. Remittances tend to be  countercyclical–during an economic downturn or after a natural disaster in migrants’ home countries, remittance flows actually increase, allowing some of the poorest members of the global population to better weather financial crises.

In many cases, recipients of remittances use those funds to enroll their children in school, which allows them to achieve higher levels of education that can lead to higher-paying jobs. Data from the World Bank show that in many countries in Latin America, children in families that receive remittances are more likely to stay in school and have higher educational attainment. Thus, remittances provide a means for families to invest in the skills of their children, giving them tools that can help them break the cycle of poverty in later life.

There is also evidence that increases in remittance flows received by people in Mexico correspond directly to a decrease in crime. A study by the Inter-American Development Bank found that for every percentage point increase in remittances, street robberies in Mexico declined by 0.19 percent and homicides decreased by 0.4 percent. This decline can be attributed to several factors. First, as mentioned above, remittance flows give families the opportunity to send their children to school, reducing the incentive for these children to commit crimes. Not only does being in school prevent children from engaging in criminal activity, but the extra years of education allow students to eventually get higher-paying jobs that allow them to make ends meet without having to resort to crime. Second, remittances increase income and therefore decrease the benefits derived from committing crimes, and studies conducted in Brazil and in Colombia confirm this. Finally, 5 percent of remittance funds in Mexico are used towards home expenses, which stimulates the construction sector leading to the creation of construction jobs. These jobs offer people, particularly those with little education, the chance to earn a living without having to turn to crime.

In January of 2017, Mexican immigrants in the United States sent $2 billion back to Mexico, up 6.3 percent from this time last year. While a weaker peso did play a role in this jump, much of the increase stems from fears about a potential tax on remittances being sent from America. It is true that large sums of money flow from the United States into Mexico each year. However, this money is put to good use in impoverished regions where it is needed most. It allows children to stay in school longer and makes them less likely to commit crimes. It enables families to make ends meet and lays the groundwork for recipients to lift themselves out of poverty. Given the important role that remittances play in assisting in the development of impoverished regions of Mexico, such a tax would significantly hurt the people who rely heavily on those remittances to make ends meet.

Debunking the Model Minority Myth

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Why is it that Asians and Asian Americans must score 140 points higher than their white counterparts to be accepted by the same university? In fact, because of this disadvantage, students from the Asian-Pacific American (APA) community are left with the option of working even harder to counter the forces that hold them to a different standard. Unfortunately, this vicious cycle only seems to reinforce the Model Minority Myth (MMM) by affirming the stereotype of the “hard-working” and “dedicated” Asian or Asian American.

Moreover, even if an APA student manages to defeat the odds and attend her dream college, the already uphill battle seems to only get steeper, as seen in the existence of the bamboo ceiling. Similar to the glass ceiling that many women face, the bamboo ceiling is a barrier that many Asian and Asian Pacific Americans face as professionals who want to advance in their respective fields. Coined by business adviser and writer Jane Hyun, the bamboo ceiling works by taking the form of the lack of presence in leadership positions, as seen in the 2.6 percent board represented in Fortune 500 companies. Despite the stereotype of the successful ‘model minority,’ many of these highly educated individuals will never get to experience the promotions and wage raises as do their white counterparts for the same achievements.

18090749_1909909095692680_814742580_oThough many claim to not see race in their supposed “color blindness,” prevalent expectations of certain racial groups persist. Stereotypical generalizations in the workplace promote the establishment of collective identities of entire racial groups, for example, in the case of the model minority myth. The Model Minority Myth is the belief that a minority group, typically East Asian-Americans, is made up of members who can achieve higher socioeconomic success than the average population. Culturally problematic implications aside, the Model Minority Myth has minimal basis in economic fact, as demonstrated by their average incomes, unemployment rates, and education levels.

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Though the Model Minority Myth, in essence, is a myth, and it has brought about harmful results that have no place in a progressive society, such as the belief in The Asian Advantage. The Asian Advantage is the belief that Asians and Asian Americans have an advantage in schools and work due to their hard work and ‘positive’ stereotype as the model minority. Moreover, it states Asians and Asian Americans are likely to be perceived as more competent than their white counterparts, which helps them achieve great success. Despite the circumstantial belief called the Asian Advantage, this idea is harmful in that is renders white privilege obsolete and falsely skews favor of one group over another. 

Additionally, the implications of An Asian Invasion, in which Asian Americans “take over” through their high levels of education, are damaging due to their oversimplified nature. The belief of an Asian Invasion has been prominent throughout history but has come up more often during political turmoil where scapegoating is a useful, strategic tool i.e. after the Japanese invasion of Pearl Harbor, many Japanese Americans were perceived as scheming with ulterior agendas for a Western downfall. Though the same racist remarks are not as widely vocalized as once before, the contemporary iteration of the Asian Invasion subverts itself in the fear that Asians and Asian Americans will crowd out colleges and workspaces.

The logical oversimplifications are evident- The grouping in “Asian American” itself consists of more than 20 ethnicities, raising questions about the risks of sweeping generalization in the Model Minority Myth. Moreover, income between Asian Americans and Whites might publically be perceived to be similar. However, the overall distribution of wealth is definitely skewed, as seen in Asian Americans’ larger debts, lack of homeownership and wealth inequality within the Asian American community. Moreover, the average per capita income for whites is $31,000 while Asian Americans are at $24,000, which further contrasts the external perception of Asian Americans with the economic realities they truly face.Screen Shot 2017-04-20 at 6.49.35 PM

As calculated by the Economic Policy Institute, Asian Americans repeatedly make less than do white individuals of the same level of education. Moreover, this is especially puzzling considering roughly 80% of Asian Americans reside in more expensive, metropolitan areas such as Los Angeles and San Francisco. With less income on average and larger expenses on average, Asian Americans clearly are not a racial group with the clear advantage, and the economic inequalities cast doubt on the reasoning behind the Model Minority Myth.

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In 2010, the US Census Bureau reveals that Asian American men had a significantly lower income than their white counterparts, despite the same level of education.

While it is true that many Asian Americans have completed higher degrees, they face higher unemployment rates in comparison to their white counterparts as well. Though the unemployment disparity in 2008-2009 is a difference of a few percentage points, the chasm has widened in the next two years, as seen in the 33.7% Asian American college graduate unemployment rate compared to the 24.7% white college graduate unemployment rate in 2010.

In 2015, the overall employment rate was 14.3%. White people had an average unemployment rate of about 11.6% whiles Asian Americans were ar 11.7%. Even though Asian Americans faced a slightly larger unemployment rate than did their white counterparts, they could not shed the ‘model minority’ stereotyped persona.

Unemployment rates, by race and education, 2010 (age 25+)

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As measured by the US Census, 18.5 percent of whites have a bachelor’s degree (roughly 45.7 million people) while 30 percent of Asians have a bachelor’s degree (roughly 5.1 million people). Asians and Asian Americans have a higher ratio of college graduates, largely due to the brain drain of countries like China and India. In 2012, Chinese and Indian individuals made up 71.6% of America’s brain drain, meaning they received numerous HB-1 visas to come to the US. These individuals definitely influence the statistics, considering they are two of the largest Asian ethnic groups in the US.

Although many Asian Americans wear MMM designation as an insignia, the implied generalizations within the myth have failed subset Asian communities by signaling to those in power that the misperceived communities do not need economic restructuring. The Model Minority Myth seems to be a complement of greater “Asian Invasion” concerns. Moreover, it lacks cohesive data that can factually support its implications, as we’ve seen in the measurement of income and unemployment rates.

In actuality, Asians and Asian Americans are not economically better off than their white counterparts. The misperception that these communities are predatory and legitimate economic threats is likely inspired by xenophobic politics, particularly politics motivated by changes to the demographics and aesthetic of the American workforce over the past few decades. Asian Americans are a deeply diverse group that on average receive lower incomes and have higher unemployment rates than whites at the same level of education, suggesting that racial discrimination in the job market may be a relevant force in employment and promotions thereon. 

United Airlines catastrophe demonstrates the human and fiscal costs of both the airline industry and regulatory agencies’ failure to embrace market forces

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On Monday, the internet woke up in outrage after multiple videos surfaced of a 69 year old physician, later identified as David Dao, being forcibly dragged by Chicago police off of a Sunday evening United Airlines flight departing for Louisville, Kentucky. Immediately, everyone in the Twittersphere broke out their respective hot takes. Many blamed United Airlines directly, while others, such as Slate columnist Helaine Olen, blamed “political anger” for the general failing of “customer service.” By noon, the outrage cycle had come full circle, with Timothy Lee at Vox echoing hundreds of others calling for greater federal regulation of the airline industry. Calling for more mitigation of market forces completely misses the point.

The Department of Transportation currently regulates the process through which an airline can overbook and subsequently “bump” a traveller who has already paid for a ticket. An airline will usually announce that it has an overbooked flight, and some passengers who can afford to take a later flight — potentially with financial incentives — will volunteer to get off the flight. If not enough people take the bait, then the incredibly regulated involuntary bumping process begins.

This involuntary bumping process employs four tiers of compensation for cancelling someone’s flight. For the case of United flight 3411, the DOT maximum compensation rate would have been $1,350 because UA did not supply Dao with alternative travel plans. However, United’s bid did not hit $1,350, let alone $1,000. It only offered $800 to cancel travel to return to a city for the beginning of a work week, hence initiating the involuntary bumping process.

The Courier Journal reports that after involuntarily bumping a couple off the plane, United staff came to Dao, the physician from the video, who refused to leave because he claimed to have patients that he had to see on Monday. After Dao refused to leave, United called on the Chicago police to forcefully drag Dao from the plane, leaving his face bloodied and evidently traumatized.

Fewer than 48 hours later, United has lost well over half a billion dollars and become the source of seemingly universal disdain and disgust on the internet. All of these catastrophic ramifications beg the questions: what happened here? And who is to blame?

First, it seems as though United violated its own policy. Its contract of carriage notes that oversold flights may deny entry for certain passengers after asking for volunteers, but nowhere does it say that the police or other government law enforcement can forcefully and violently remove a passenger from a plane.

In addition, both United’s pathetic $800 offer as well as the arbitrary $1,350 federal maximum reflect a total rejection of the reality of market forces and consumer choice. On a flight as coveted and strategic as a Sunday evening one, presumably where a majority of travelers intend on making it to work on Monday morning, the market value of their flight can be multiple times the value of the federal maximum, let alone a measly $800.

If anything, United ought to have booted one of its own employees from the plane rather than a paying customer, although union contracts may have prevented that, which presents another problem entirely. Furthermore, the government was explicitly complicit in the assault of a paying customer through Dao’s removal by the police, who laughably claimed that officers “attempted to carry [Dao] off of the flight when he fell.” Not surprisingly, the officer at hand has been put on leave.

It simply doesn’t have to be this way. Given the high opportunity cost of empty seats on flights, overbooking will remain a valuable practice for airlines, as everyone shows up for a given flight the vast minority of the time. However, by using market forces and a capitalist approach, United can find a balance between high producer surplus and maximizing customer satisfaction as a whole.

As Max Nesterak of PBS Newshour notes, Delta surveys all of its passengers to list their perceived value of its flights so that using perfect price discrimination, it can target specific individuals with low offers to get them to volunteer to take a voucher or a later flight. And on the public sector end, removing totally arbitrary maximums from federal regulatory agencies would reassert that the power of a transaction rests in the hands of the consumer, not the state.

The image of David Dao’s ruined face, murmuring “please kill me,” over and over again has been seared in the minds of millions of Americans. While the human cost of Dao’s suffering cannot and should not be exploited, perhaps the very real fiscal ramifications of United’s actions will serve as a reminder to the airline industry as a whole that the forces of the market are much more efficient, fair and effective than those of violence and forceful regulation.

Filling the breach: Exploring China’s role in post-TPP Asia

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This month, U.S. Secretary of State Rex Tillerson met with top Chinese officials to pave the way for talks between the two countries’ leaders. Chinese economic policies in the Pacific will surely be discussed, especially as China exploits the demise of the Trans-Pacific Partnership (TPP) to assert itself as a powerful influence on trade policy in Asia. As the talks near, China’s new trade agreements with other Asian countries will offer valuable insight into how China has sought to expand its economic influence and upset Asia’s political landscape in the process. Amid rising tensions in Asia, the leaders of the United States and China must both recognize the futility of their attempts to use trade agreements as tools to dominate political developments in the Pacific region. Furthermore, while these two superpowers compete unsuccessfully for regional power, it will be the economic prosperity of other Pacific nations that suffers.

Discussions of Asia without the TPP may come as a surprise to some, especially considering the Obama administration’s strong support for the agreement. However, carried into office by the surging tide of populism, President Donald Trump has quickly acted to reverse any pro-globalization policies promoted by the previous administration. Without ratification from the United States, the TPP cannot go into effect, removing any possibility of the trade deal further integrating the economies of Asia and the United States. When President Trump put an end to the agreement, critics speculated that in response to U.S. actions, China would step in as the new economic leader in the Pacific region through trade deals excluding the United States. At the time of Trump’s withdrawal from the TPP, China had not yet enacted any such agreements, leaving its future role in the region unclear.

However, it did not take long for China to adjust to the United States’ withdrawal from the TPP and champion new international trade policy in the Pacific. After the TPP’s demise, many countries in Asia turned to the Regional Comprehensive Economic Partnership (RCEP) as the primary trade agreement, intended to promote freer trade between the many Pacific nations involved. Glaring differences between the RCEP and the TPP include the RCEP’s inclusion of China, as well as the absence of the United States despite its position as a major trading partner with many of the nations involved in the RCEP. Although negotiations among the 16 participating countries are ongoing, the RCEP agreement primarily focuses on lower tariffs, without any rules on environmental and labor protections. The trade deal will further integrate the economies of the participating countries, allowing for supply chains unhindered by expensive tariffs.

Cast in the role of outside observer to the RCEP because of its own political motivations, the United States loses out on a powerful tool for exerting its economic power to influence political and social issues in Asia. Under President Obama, the United States offered the economic benefits of lower tariffs to encourage developing nations in Asia to adopt stronger environmental and labor standards. Under the RCEP, it is unlikely that such protections would be enacted on the scale that the TPP proposed. After all, for many manufacturing-based economies in Asia, the lack of these safeguards allows their firms to produce at lower prices than many competitors can. Through the RCEP, China seeks to provide the Pacific region with the benefits of lower tariffs, without taking away the low-cost manufacturing advantage of these nations. In doing so, it hopes to assert itself as a powerful influence in the region and improve ties with other Asian countries, even as it pursues aggressive, expansionist policies in the South China Sea.

If China wishes to continue as the dominant economic force in Asia, however, it must also accept the detrimental economic effects of its politically motivated exclusion of the United States from the RCEP. Exports to the United States make up 18 percent of China’s total exports. As such, China would gain a great deal from free trade with the United States, though China would have to weigh this against regional influence lost to the United States. Furthermore, if China continues to exclude the United States from its trade agreements in the Pacific, increased tensions between the two countries could drive Trump to pursue protectionist policies. This would prove highly detrimental to the Chinese economy, threatening its ability to sell products abroad at lower prices than U.S. competitors can.

Most significantly, though, the politicized absence of the United States from Pacific trade agreements endangers the economic well-being of other Asian countries. Manufacturing-dependent economies like Malaysia and Vietnam looked to the TPP to provide access to U.S. markets like textiles, where these countries could sell their products at low prices. However, Chinese markets already have access to cheap manufactured goods produced domestically. Thus, trade deals with China would be unlikely to benefit other Asian economies to the degree that free access to U.S. markets would. Because of this, China would be less able to exert its economic leverage in pursuit of political influence in Asia, and developing economies in the region would suffer.

As talks between the leaders of the United States and China draw near, both countries must recognize the unintended consequences of trade policy as a tool for political influence. The allure of unfettered access to American markets will continue to divide the loyalties of Asian nations, even as China entices them with promises of freer trade within the region. As issues with the TPP and RCEP demonstrate, neither nation will secure uncontested political influence in the Pacific region through heavily politicized trade agreements. Instead, both the United States and China should focus on creating trade agreements to optimize economic growth in the numerous developing nations of the Pacific region through freer trade. If the United States and China cooperate on trade policy to achieve this goal, both they and many others in the Pacific region will benefit. Neither country should allow political machinations to stand in the way of economic progress.

Solving U.S. health care woes: a nonpartisan approach

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Earlier this month, Sens. Bernie Sanders and Ted Cruz engaged in a televised debate over the state of health care in the United States. While both politicians agreed with the assessment that health care as it stands now requires great reform, their solutions, not unexpectedly, fell along party lines. Americans were offered two, predictably partisan, options: Sanders called for more government involvement, while Cruz suggested cutting regulations as the key to reducing the burden of the costly system now in place. Implementing lasting reform in our broken health care system, however, will require a different approach—one guided by proper incentives and economic evidence rather than restrained by ideology.  

Both sides of the debate took an important first step when Sanders and Cruz rightly noted the shortcomings of the current system. Health care costs make up 17.1% of U.S. GDP, the highest in the world by a significant margin. Health outcomes, unfortunately, do not reflect this reality. Average life expectancy in the U.S. is only 78.7 years, ranking 26th relative to other countries in the world. Effectively, the United States is paying more for health care that does not deliver any significant improvement in health indicators. Americans are rightfully unhappy about this situation, but significant strides can be made to solve this problem in a manner that is largely nonpolitical.

In fact, many of the problems Sanders and Cruz recognized with the current system have solutions that do not fall squarely into any political ideology. Proposals like mandatory health savings accounts (HSAs) provide one instance of such policy fixes.

By ensuring citizens save money specifically for health care expenses, HSAs help eliminate financial roadblocks to health care access without limiting the ability of consumers to choose the health care provider and plan that best suits their needs. At the heart of nonpartisan improvements like this is the desired goal of a more effective, less expensive health care system, driven by the establishment of proper incentives guiding both corporations and consumers.

During the debate, for example, both politicians lamented the tragic results of unaffordable deductibles for patients with severe illnesses. However, ideologically polarized health care overhauls are not the only ways to solve this issue. One need only look at the structure of health care in a country like Singapore for a potential solution. On its face, Singapore’s policy to address the problem of unaffordable deductibles appears counterintuitive. Government funding for health care requires that no health service be provided for free.

In practice, this raises the cost of basic, day-to-day treatments like doctor visits for a mild illness, discouraging unnecessary use of medical care. This policy frees up medical resources to treat more life-threatening cases in a time-efficient and affordable manner.

Singapore also requires citizens to put money into tax-exempt health savings accounts in a program called Medisave, which has the result of discouraging spending on unnecessary medical procedures. The proper alignment of incentives for consumers in Singapore ensures that medical resources can be allocated to the most severe cases, rather than wasted on frivolous or overly expensive medical procedures.

The American health care system could also benefit from incentivising companies that provide medical services and insurance to cut unnecessary costs, without the need for heavy-handed government control. Again, the U.S. can look to the transparent system of Singapore, in which private health care providers are required to publish the prices of their policies.

By providing more information to consumers, this policy creates an environment that encourages health care providers to pursue more cost-effective policies without compromising health outcomes. This relatively light regulation of the industry can have outsized benefits, motivating cutbacks on expensive but ineffective medical procedures that contribute to the United States’ excessive spending on health care.

Another point of agreement between Sanders and Cruz was what they deemed to be the excessive costs of pharmaceuticals, a reality that prevents many Americans from receiving life-saving medicines. Sanders prescribed a greater use of the federal government’s market power as a large purchaser of drugs, while Cruz targeted excessive FDA regulation as the culprit behind high drug prices.

Rather than demonizing corporations as greedy evildoers or decrying safety regulations for drug approval as unnecessary, both parties should once again look to the establishment of proper incentives to craft policies that protect consumers without denying them affordable access to important drugs.

The Swiss system of approving pharmaceutical drugs provides one possible method to properly align incentives to benefit consumers, while still allowing companies to operate without excessive government control. In Switzerland, drug approval is contingent not only on meeting safety standards, but also on satisfying an objective calculation of cost-effectiveness for the new drug when eligible for reimbursement under health insurance plans. A system like this would discourage companies from creating overly expensive drugs, without requiring rigid price controls enacted by the government.

Out of current partisan stonewalling emerges a third, pragmatic path for health care reform in the United States: a focus on properly aligned incentives. Policies like the ones proposed here are driven not by ideology, but by economic evidence. Adopting these measures would be the first step toward the pursuit of a health care system that delivers better results at lower costs—an outcome that would be amenable to politicians and constituents across the political spectrum.

Quantitative easing, explained

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“The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

-Federal Reserve Act Section 2A

            Maximum employment, stable prices and moderate long-term interest rates are the responsibilities of the Federal Reserve (the Fed) often known as its “dual mandate.” Achieving these goals is no minor feat. The economy is a complex and unpredictable structure, dependent not only on the performance of businesses, but also slave to human behavior. As Nassim Nicholas Taleb famously wrote, “Think of the economy as being more like a cat than a washing machine.”

So how is the Fed expected to tame this dynamic and volatile system? American monetary policy until late 2008 consisted of adjusting the monetary supply through the sale and purchasing of short term treasury bills, affecting interest rates by setting their overnight risk-free rates and attempting to control public expectations and actions through public statements.

The post-great recession global economy, however, has not been as responsive to these conventional forms of monetary policy. The Fed has maintained a historically large monetary supply, and risk free interest rates close to 0% since the great recession, yet the economy is still resisting maximum employment and healthy inflation rates.

To supplement these insufficient strategies, central banks have turned to Quantitative Easing. Quantative Easing (QE) has become somewhat of a buzzword used to describe a range of policies. It is therefore difficult to construct a concrete definition. A good starting place, however, is thinking of it as any non-traditional monetary strategy consisting of purchasing long-term assets, particularly when short-term risk-free interest rates are close to 0%.

QE1, the first round of American quantitative easing, was essentially a bailout where the Fed acquired mortgage-backed securities (MBS) and funded government sponsored enterprises (GSE). By purchasing mortgage backed securities—a risky long term asset held by many banks at the time of the great recession—they provided relief to banks who were in danger of turning illiquid. Housing oriented GSEs were financed in order to create credit for investments in real estate.

Notice that QE1 resembles fiscal policy more than monetary policy. Without passing an official stimulus through congress, the Fed managed to inject money into the economy and provide incentives for investment. Our definition of Quantitative Easing can thus be updated to reflect this function.

The second and third rounds of Quantitative Easing were extensions to QE1 with one addition. The Fed purchased longer-term treasury bills. These auxiliary rounds of QE had the effect of continuing to increase the monetary base and lowering long-term interest rates, thereby incentivizing even further investment.

Quantitative Easing is any non-traditional monetary policy, which stimulates the economy through the purchase of long-term assets, particularly when traditional monetary policy has failed. The purchase of long-term assets stimulates the economy by lowering long-term interest rates and increasing the money supply, which in turn incentivize lending and investing.

Recently, QE has been used by central banks all over the world, most notably, the Bank of England, Bank of Japan, and the Fed. However, this strategy is not without its critics. Detractors argue that QE weakens the effects of traditional monetary policy and puts central banks in danger of run-away inflation. While these dangers do exist, it is clear that traditional monetary policy is no longer sufficient to reach desired interest rates. While QE may not be the final solution, it has so far seemed effective.

Traditional monetary policy has not been enough to lift us from our global recession. It is clear that central banks need an additional tool to stimulate a healthy economy. QE will be around at least until a new alternative is found. Whether it actually stimulates the economy or simply inflates the prices of assets remains to be seen.