Cargo Cults: not just in the South Pacific?

Smithsonian magazine just ran a piece on a cargo cult in Vanatu

These cults started during WWII as the US air-dropped material all over the South Pacific. Well after the war ended, Islanders would create “runways” and build wooden planes and conduct ceremonies to induce the air-dropped riches to re-appear.


Daniel Ellerman claims that the World Bank has systematically encouraged developing countries to practice a similar cargo cult religion, by encouraging them to adopt the outer trappings of rich countries and assuring them that wealth would follow.

Get the institutions right, increase your school enrollments, get a stock market going, privatize, get the prices right, create a competition authority, enforce intellectual property rights.

In practice, are these injunctions (which by and large poor countries have followed without the promised success) so different from the hollow planes and ceremonies of the South Pacific culters?

I don’t think they are.

Isn’t the WB guilty of practicing cargo cult science?

I think they are.

What do you think?

News round-up from Latin America

1.  Do Latin American Presidents like Twitter too much?  For instance, President Cristina Fernandez of Argentina “sent 61 tweets in a nine-hour period – prolific even by the standards of Latin America”

2.  The Caribbean: A darkening debt storm

3.  More on Brazil and Mexico’s competition for the top job at the WTO, by the excellent Boz.

4. U.S. role at a crossroads in Mexico’s intelligence war on the cartels

5. Boom Times in Paraguay Leave Many Behind


Peer Review: it still matters

By now, the whole sad Rogoff & Reinhart story is well-known and well-hashed. But there’s one important point that I don’t see many people making.

There are three RR papers on debt and growth. Their NBER working paper, their American Economic Review Papers & Proceedings paper of the same name, and their Journal of Economic Perspectives paper that adds Vince Reinhart as a third author.

What do all these have in common that has been neglected?


I am not making this up.

While the American Economic Review is the flagship journal of our profession, the annual papers and proceedings issue, is made up of very short pieces that do not undergo peer review. Rogoff has this piece listed on his webpage simply as AER, which is very un-needed bit of resume padding.

Similarly, the Journal of Economic Perspectives, is a publication designed to provide popular presentations of research questions. On its webpage it states, “Articles appearing in the journal are normally solicited by the editors and associate editors.”

And, NBER working papers are not peer reviewed at all.

Everyone inside the economics profession knows this. Either R&R did not seek to publish their results in a peer reviewed journal, or no peer reviewed journal would accept them.

The latter case would not surprise me in the least as the papers utter fail to deal with the causality issue and the statistical methods employed are fairly primitive.

Peer review, people. It still matters.

Is Most Favored Nation Status obsolete?

The top two contenders for the director-generalship of the WTO are from Mexico and Brazil.  Given that the Doha Round has been stalled for decades, it will be interesting to see if the end of Pascal Lamy’s leadership will bring any real progress in trade talks.

Herminio_BlancoI’m not sure whatto make of Mexico’s candidate, Herminio Blanco.  Blanco is an well-respected economist that has worked for many years in the Mexican government.  The issues that give me pause are:

(1) He was crucial in Mexico’s signing 32 Free Trade Agreements, the most of any country in the world.  All of these agreements are of course “outside of the WTO.”

(2) Along the same lines, he argues that the WTO “can break a deadlock in global trade talks if it adapts to a flurry of bilateral trade initiatives and overhauls itself.”

(3) Possible conflict of interest issues.  For instance, a Reuters article notes that he has advised the Mexican government on its participation in the Trans Pacific Partnership, another agreement outside of the WTO.  When asked, Blanco says he “sees no conflict of interest.”

I don’t necessarily have a problem with bilateral or regional trade agreements, I just think it is curious that the man running for the top job at the WTO is doing so on a campaign to increase participation in these agreements, which run counter to the MFN idea and the WTO in general.

For a great “fly on the wall” analysis of the breakdown of the Doha Round, I’d highly recommend Paul Blustein’s excellent (and excellently titled) Misadventures of the Most Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trade System.  He presents a strong argument that the increasing number of trade agreements outside of the WTO undermine the organization and make it less likely that multilateral talks will be successful.  

A Singaporean strategy for increasing the fertility rate

In my Global Economic Relations course, we are currently discussing the economic benefits of free labor mobility.   One of the students mentioned that a lot of rich countries have low birth rates (often under the replacement level) and used Singapore as an example.

I explained to my students the creative (and often racist) ways in which the Singaporean government has encouraged people to have more babies. As noted in this 2006 article, Prime Minister Lee set up an institution in 1984 called the Social Development Unit (a perfect year to create such  an Orwellian sounding agency), which would find innovative ways to get young people to procreate.  He was worried that the well-educated women (who typically were of Chinese heritage) were not having babies, while the lesser educated women of Malay descent were procreating much more rapidly.

So what did the SDU try?

1. “Increased financial incentives to encourage bigger families, amounting to cash gifts of S$3000 (US$1889) for the first child and savings of up to S$18,000 each for the third and fourth child.”

2. Tax rebates

3. Tax cuts on maids plus more childcare and maternity benefits.

4. “Offer graduate women with three children priority in securing places at the top nursery schools, an advantage in helping children get ahead at school, university and in the workplace.”

5. Set up “love cruises” for singles!

6. “Speed-dating and online dating services, along with an agony aunt called Dr Love.”

Somehow all of those awesome ideas didn’t make Singaporean couples want to procreate.  So now the government has paired up with Mentos (huh?) to urge citizens to do their patriotic duty and make babies on “National Night.”  You truly cannot make this stuff up.

Here is the article on this awesome new campaign, but even better is the video itself.  Check it out in all its glory.  Wow.

I guess just allowing more young people to immigrate there is out of the question?

More Latin American lessons for Europe

In the second half of the 1990s, Argentina, Brazil & the US were in a weird disfunctional currency union of sorts. Brazil was soft-pegging to the dollar, Argentina was in the midst of their “convertibility” monetary regime, so the three countries had a common exchange rate and no central fiscal authority. Also, the central bank for the “union” i.e. the Fed, was setting a US-centric policy.

Does any of this sound familiar?

So what happened? Between dollar appreciation and higher inflation in Brazil and Argentina, both the Real and the Peso became more overvalued. Brazil was the first to crack in 1998, devaluing the Real and breaking the peg. Their trade balance with Argentina (who was their main trading partner) improved and they obviously had gained a competitive advantage over Argentina in any third market export competition.

Argentina, with the incredibly arrogant finance minister Cavallo and his enablers at the IMF, hung on for a couple more years, just long enough to sink the Argentine banking system, but the Brazilian devaluation was the real death blow to convertibility (in my view). The IMF just made it worse by repeatedly refusing to cut Argentina loose.

The moral of the of story?

I think if one of the eurozone countries exits, others will as well. The departer / devaluer will gain a big export edge. further hurting the remaining marginal countries and putting more pressure on them to follow suit. This pressure will be even stronger in Europe than in Latin America because the Euro countries are far more open that were Argentina / Brazil.

With no central fiscal authority and a monetary policy that is completely inappropriate for them, following the first mover to the exit would likely be their only real option.’re doing it wrong!

I think all development economists and practitioners would agree that transparency is crucial in the distribution and spending of funds.  After reading this article about President Museveni in Uganda, though, I question whether everyone is using the same definition of transparency.

Yoweri Museveni, Ronald Kibuule

Here is the now infamous photo of Museveni giving $100,000 worth of cash in a white garbage bag to a youth group.  Note that he also gave out a minibus, a truck and 15 motorcycles at the same gathering.  The photo has stirred outrage in Uganda, as it is an obvious tactic to buy the youth vote in an area of the country where the president is weak.  The government, however, declares that the bag of cash was done in the name of transparency:

“Minister for the Presidency Frank Tumwebaze defended the donation, ‘Quite a few times people have requested the president for money and have stolen it. Giving it in broad day light means that the youth can see who has their money,’ he said. ‘The president is not taking the money to Las Vegas, he’s supporting income-generating schemes.'”

Unfortunately, Museveni has never shown a lot of respect for transparency.  For instance, he typically runs out of money halfway through the year and asks for supplemental funds.  The article notes that “Lawmakers approved $23 million for the president’s official household in the last budget, but at least $74 million has already been spent and more will be needed before the year is up, according to lawmakers handling the presidency’s latest budget proposal.”

The critics, making some sound counterpoints, note that:

a. “It sets a bad example in a country that depends on foreign donors to finance about 25 percent of its budget.”

b.  “There should have been a system to make sure the youth spend the money properly.”

c.  “There’s no system of accountability to make sure we get it back if these youth mismanage it.”

Indeed, it’s one thing to show the donation in public, it’s another to just hand over bags of cash with no accountability, no bureaucratic system of fund distribution, and no follow-up.

The Lost Decade of the 1980s and the current Eurozone crisis

In August, 1982, Mexico stunned the financial world by announcing it could no longer pay back its debt. Dozens of countries followed suit. The 1980s is often referred to as the “lost decade” for Latin American countries because of the harsh economic repercussions of the debt crisis and the austerity measures taken from the various governments.   It took most of the next decade before lenders and borrowers were able to negotiate a solution (called Brady Bonds after then-Treasury Secretary Nicholas Brady) that reduced debt and lengthened the time to maturity.  There was a fundamental disagreement about whether countries were suffering from a liquidity or solvency crisis.  Banks, international institutions, and rich country governments were desperate to label it as a liquidity crisis and demanded that bankrupt countries enact strict austerity measures and pay back all of the debt.  It wasn’t until later, when banks were able get on a more solid financial footing and a secondary market had opened up for discounted Latin American debt, that banks would even broach the idea that this was a solvency issue and that debt reduction was the only way to move forward.

Yesterday, one of my bright undergraduate students asked whether European governments and banks had not reached this stage as well.  The Eurozone crisis has surely been going on for long enough that it seems like a reasonable question.  It reminded me of a recent article by Eduardo Porter in the NY Times, who asks that question specifically.  He writes,

“But the most relevant parallel is one that European leaders refuse to see. If there is one overwhelming lesson from the debt crisis that struck Mexico and other Latin American countries so hard three decades ago, it is that countries that cannot grow will not pay. It is up to creditors, too, to allow them to grow. It took Mexico and its lenders seven years to figure that out. The European crisis is in its fifth year. You would think they might have learned something by now, but no.”

There are obviously large differences between the Latin American situation and the Eurozone crisis, so at first I was pretty skeptical of the analogy.  But the more I’ve thought about it, the more I think we might be getting closer to what happened in the late 80s with Mexico.  I see increasing discontent with austerity measures amongst Eurocrats and European officials, which leads me to wonder whether the analogy isn’t closer than I originally thought.

By the way, if you want to learn more about the Latin American debt crisis, and Mexico’s experience in particular, check out my videos on the topic here at Marginal Revolution University.

breaking the fourth wall

This isn’t development, growth or macro, but I have to tell you about the new Waxahatchee album called Cerulean Salt. It’s my favorite record so far this year. Both the electric and acoustic songs are great and Katie’s voice really gets me.

If you want a comparison I’d say a mix of the Breeders and the Spinanes, but it’s really quite original and good.

Here’s a professional review.


That didn’t take long

Ah, Mexico, so far from god, so far from a decent political system. The new and heralded reform-minded “Pacto por Mexico” is on hold as opposition parties rage about the political corruption of the PRI.

Hard to imagine why they are surprised. To paraphrase Chris Rock, the PRI didn’t go crazy, the PRI went PRI.

Anyway, recordings of PRI officials in Veracruz brainstorming about how to use a social program to capture votes has the government cancelling Pacto events, delaying new legislation, and backpedaling on the viability of the relevant cabinet officer.

And the finance minister / Svengali / brains of the operation is on TV saying it will all blow over in a few days.

And maybe it will for now, but Mexico will never get where it wants to go while the PRI exists as a major political force.