Prof. Daron Acemoglu of MIT is considered one of the three most important, prominent and quoted economists today – and there is no prize, title or summit that he has not conquered, with the exception of one, the Nobel Prize for Economics, which is likely to be awarded to him in the coming weeks, according to estimates.
It is worth listening to what he has to say because today there is no academic or researcher with a reputation like that of Acemoglu – a Turkish-American of Armenian origin – who is an expert in the main issues of international political economy, including the influence of political and economic institutions on the main macroeconomic variables: growth, economic development and inequality.
Since bursting onto the scene in his early 30s with his book “The Colonial Origins of Comparative Development”, Acemoglu has tried and quite succeeded to answer a question that has occupied economists from the beginning of time: What are the factors that explain the existing differences in the wealth of countries.
In 2012 he published another book, “Why Nations Fail?”, in which he reached a similar conclusion: political institutions – not culture, natural resources or geography – explain why some countries have become rich while others have remained poor. This is the reason why Acemoglu is considered one of the prominent representatives of institutional economics – a segment in the science of economics that emphasizes the importance of social and political institutions in economic developments. In recent years, he has spent most of his time analyzing the technological changes and the effect of automation on employment and growth, and teaching and raising new generations of economists.
Acemoglu answers the question of whether he now recognizes the beginning of a “new era” with an absolute no. This comes on the back the words of the famous economist Nouriel Roubini, the “prophet of rage” of the global economy, who wrote about two months ago that we are moving from a “great moderation” – a period that began in the 1980s and was characterized by a sharp decrease in macroeconomic volatility – to a “great stagflation”.
“I never believed in the theory of the great moderation. In my eyes, what is called the great moderation was a period of building huge financial risks, including in the global supply chain,” he says. “There were more obvious risks and there were some more hidden from view. What’s more, I’m not optimistic about the future of the global economy and I don’t expect the next ten years to be particularly good.”
What do you mean?
“There are many problems – a crisis in democracy, a crisis in globalization, and a crisis in inequality – and they are of course the result of the current political path we are on. These problems are the result of ongoing trends from the past and they continue to erode the existing institutions. So if you want to call it a ‘new era’’ – you are welcome. But I would not extend it to 2019, nor to 2020. I am of course very disturbed by those dangerous trends, both political and economic, which are becoming even more dangerous now. By the way, I would not count inflation as one of them.”
We will talk about inflation, but from your angle: as one of the prominent economists, does its dramatic jump not constitute an important opportunity to bring about a revision in the powers of one of the most important economic institutions today – the central banks?
“I am divided within myself because the current inflation makes me think about two things that conflict with each other. On the one hand, curbing inflation is important because given the market mechanisms, it is a huge ‘trust breaker’. When inflation is high, the public begins to lose trust in the system, in money and in the market mechanism. For some it’s a conscious and rational process, and for many it’s not. When does it happen? Is it when inflation is 2%? I don’t think so. When it’s 4%? Maybe, but I don’t think so either. If it crosses 10%? Probably yes.”
Acemoglu, who is Turkish and was in Turkey at the time of the interview, emphasizes that “the Turks lived for two decades with almost 100% inflation. The danger is that trust in the system could be destroyed. This is a real threat and it is a much more significant threat to democracy and the fight against populism than it is to the cost of living itself. That is why the anti-inflation fight is essential. On the other hand, I am always suspicious of technocrats who take over something and there is no balancing democratic mechanism.”
According to him, “central banks in democratic regimes are the ultimate example of this. It is clear to all of us that people without knowledge or economic background cannot make decisions, design policies or establish monetary regulation. However, the complete absence of democratic inputs on a critical issue, which is what to do with the money and how much of it should there be – is a problematic thing. Not only because sometimes it succeeds and sometimes it doesn’t – but because sometimes they may serve certain groups at the expense of other groups, without even admitting it or noticing it.”
How do you resolve these issues?
“It’s complex and this complexity receives a lot of attention in these historical moments. I don’t have the answer.”
You mentioned inflation, inequality, financial risks, a crisis in globalization – these are all a proven recipe for the strengthening and rise of “populism”.
“Absolutely. This is one of my biggest concerns. I would only frame the phenomenon under a larger heading: the deterioration of democracy. This is reflected in the deterioration in every parameter that is examined and in every index that indicates the health and robustness of democracy. We are already in a sequence of about 16 years in which the existing democracies are weakening, More countries are abandoning the democratic regime, trust in democratic institutions is declining and it is already at a low level. In addition, political polarization is high, there is a wider place for extreme opinions, and the public’s ability to analyze political facts is lower. Populists, mainly on the right, offer a new ‘guide to the perplexed’ after learning from one another. In addition, inequality has been rising for a long time in the U.S., the UK and Israel, and has reached levels that fuel frustration and dissatisfaction. All these things are warning lights for democracy. That’s why I said earlier that I don’t think inflation is the ultimate challenge now, but that it is another straw. It is not clear which of all the difficulties I mentioned will finally break the camel’s back.”
The populists use this inflation as a political tool for personal gain and for the purpose of crushing trust in many institutions. Benjamin Netanyahu is building his entire election campaign on the cost of living and the temporarily high inflation – even though he was in power for 12 years and under his reign the cost of living skyrocketed.
“Bibi is the founding father of right-wing populism. He, along with Italy’s Silvio Berlusconi, began concocting the methods upon which many others were later built, such as Marine Le Pen, Donald Trump and even Boris Johnson, to a certain extent. Therefore, I am not at all surprised that’s how he works. It is clear that he will pull the discourse in these directions because it is much easier to sell ‘negative’ than ‘positive’. It is much easier to say ‘I am against’ instead of offering what you are in favor of. It is much more difficult to carry out reforms that mean creating ‘winners and losers’ who tomorrow may oppose you. It is clear that Israel too – similar to the USA and the UK – stands at a critical point where it must strengthen its institutions and decide on the direction of its policy. Not only its foreign policy, but especially its domestic policy, including its economic policy.”
One of the amazing and sad things now is that in preparation for the upcoming elections in Israel there is no real, deep, meaningful economic discourse. There is no ideological debate. Everything is quite hollow, emotional and above all personal.
“This is an extremely disturbing development because one of the strongest impressions I got the last time I was in Israel, and that was not long ago, is that this is a population that is very involved in the discourse and in shaping the policy. And I am talking about a very high level of intervention and participation in the democratic process, even more than in a large number of European countries. I really hope you don’t lose this value within one generation.”
The political processes you describe have an effect on the economy. How does the rise of populism affect long-term economic growth for example?
“There is definitely an effect and it is very bad. Limiting inequality creates a kind of prosperity that is more spread over more groups, and this is more possible when the institutions are democratic. All the regimes that emerged from the populist right have been a very bad combination of corruption, inefficiency and inaction. It is very difficult for me to see such regimes bringing any kind of benefit or good news in terms of growth, infrastructure, innovation, education, science. Bolsonaro, the president of Brazil, has set Brazil back environmentally but also institutionally. So did Trump in the USA. Netanyahu in Israel has also caused quite a lot of damage to Israeli institutions as it appears from the outside. And so too with Marine Le Pen, Johnson, and Duterte in the Philippines.”
Another phenomenon that is now accelerating and disturbing is the rapid retreat of globalization. How does this affect long-term economic growth?
“I am an expert in the consequences of technological changes and automation on inequality, and there are three common denominators between these issues and globalization that are relevant to our conversation. First, both globalization and technology were presented as ‘gifts’ to humanity that would free everyone from the cycle of poverty, improve everyone’s standard of living and empower us. We know this is not true. Second, both have been presented as ‘neutral’ phenomena whose trajectory is determined by economic science or other existing knowledge. We know that there was ‘selection’ in the trajectory and there were many alternative promotion trajectories. For example, you may decide that you will indeed use Israeli technology as a tool for monitoring your citizens and you can decide otherwise. In the same way you can decide that globalization does not have to be a tool for prioritizing capital at the expense of labor and employees. The route or type of globalization that happened in the end was one that allowed the international corporations to arbitrage between the tax systems of the countries, and just as importantly, between differences in employment regulation and differences in workers’ rights between different countries.”
According to Esmoglu, the third common element between technology and automation and globalization is that the path chosen for their implementation served the powerful players in the system and fueled inequality, and therefore they also clashed head-on with all the ambitions and expectations they aroused at the beginning. “The developments on these two levels only intensify the current populist momentum. On the other hand, I do not think that there is an inherent characteristic – neither in globalization nor in technology and automation – that necessarily causes inequality. You can choose other paths of automation that benefit the working public to the same extent that you can choose other paths of globalization that produce different risks than those that exist today. The current economic reality was supposed to be an opportunity to ‘do a different globalization’, but I doubt that will happen due to the increase in geopolitical tension, the weakening of democratic institutions and the strengthening of regimes – such as in China and Russia – and their increasing influence in the international arena.”
Speaking of China and Russia, many are already talking about the “Balkanization of the world” – splitting into several geopolitical blocs with separate trade, technology and currency systems. Do you think this is the end of the era of “hyper-globalization”?
“That’s not what bothers me and that’s not the real problem. At the end of the day, the interdependence between us is big enough and our problems are global enough, so that if the world becomes bipolar, tripolar or multipolar – our problems will be shared: the climate problems are shared, technologies will transfer from country to country, so are pandemics, as we have seen in the age of the Coronavirus. What is happening now, and this is a real problem, is that the current situation increases a double risk that works in the same direction: more likelihood of a real military conflict, and we see this in Ukraine and Taiwan. At the same time, a lower effectiveness among the international institutions to coordinate joint activity, to agree and settle conflicts and disagreements. This is the real problem.”
Acemoglu emphasizes in this context that “we must admit that even in their good old days, the international institutions never enjoyed sufficient legitimacy and were not strong enough. Some of those international institutions were excessively lenient towards China, in the negative sense of the word, and some of them were too committed, sometimes in appearance and sometimes in practice, to U.S. interests and were not independent enough. All of this contributes to their current complex and dangerous situation.”
Finally, what are your thoughts about “the great resignation”. Is there really such a phenomenon, or is it a natural and permanent dropout of more and more unskilled workers who remain irrelevant and are forced to leave the labor market?
“Indeed, it’s an important question. This is a time of great confusion on this issue. The data shows a rapid increase in the wages of those unskilled, low-wage workers at the bottom of the income distribution in the U.S.. That’s a really great thing because that hasn’t happened in many, many decades in the U.S.. If that’s the case, it may indicate a combination of increased demand for workers along with employment safety nets that protect those workers who will no longer be completely at the mercy of their employers. It’s no longer ‘Work at McDonald’s for $6 an hour or starve to death’. Therefore, the conclusion is that wages at the bottom can indeed recover and this will be a great inspiration. On the other hand, we have seen how real wages lag behind inflation, so it is already less worth it if wages run but inflation runs faster.”
Securing good jobs, clean air, and a strong economy – Prime Minister of Canada
Autoworkers have been a keystone of the Canadian economy for generations. By investing in the future of the auto industry, we are not only securing good middle-class jobs, we are fighting climate change, and building an economy that works for generations to come.
Since January alone, Canada has secured several historic manufacturing deals for electric vehicles (EVs), hybrids, and batteries – deals that will create and secure thousands of good, middle-class jobs and provide the world with clean vehicles. Today, we are seeing the results of one of those deals start to roll off the line.
The Prime Minister, Justin Trudeau, was joined today by Premier of Ontario, Doug Ford, to open Canada’s first full-scale EV manufacturing plant, General Motors of Canada Company’s (GM) CAMI assembly plant in Ingersoll, Ontario. Starting today and going forward, the plant will build fully electric delivery vans – the BrightDrop Zevo 600 – which will help cut pollution and keep our communities healthy for our children and grandchildren.
Thanks in part to a $259 million investment from the Government of Canada, GM’s CAMI assembly plant was able to retool its operations to build these electric vans. By 2025, the plant plans to manufacture 50,000 EVs per year. This investment has helped secure thousands of well-paying, high-quality jobs across GM facilities, and is helping advance the electrification of Canada’s automotive sector.
The Government of Canada will continue to work to attract investment from companies around the world as we build our EV supply chain – from mining critical minerals to manufacturing batteries, and vehicles. By taking action today, we are positioning Canada as a global leader in EVs, fighting climate change, securing good jobs, and building an economy that works for all Canadians – now and into the future.
“When we invested in GM’s project to build Canada’s first full-scale electric vehicle manufacturing plant in Ingersoll, we knew it would deliver results. Today, as the first BrightDrop van rolls off the line, that’s exactly what we’re seeing. This plant has secured good jobs for workers, it is positioning Canada as a leader on EVs, and will help cut pollution. Good jobs, clean air, and a strong economy – together, that’s the future we can build.”
“Today is proof that our historic investments in EV manufacturing are paying off. With the first BrightDrop vans coming off the assembly line, we’re seeing the skill of Canadian workers making a huge difference as the world moves to EVs. Our government, in partnership with GM, is cementing Canada’s leadership in the EV supply chain.”
“This milestone represents GM at our best – fast, flexible and first in the industry. The BrightDrop Zevo is a prime example of GM’s flexible Ultium EV architecture, which is allowing us to quickly launch a full range of electric vehicles for our customers. And, as of today, I am proud to call the CAMI EV Assembly team the first full-scale all-electric manufacturing team in Canada.”
“This is a very exciting moment – a revolution in the way we transport people and goods. Today marks a huge day for BrightDrop, as we expand our footprint and begin producing the Zevo electric vans at scale, and a huge milestone for Canada on the road to a brighter future. Opening the CAMI plant is a major step in providing EVs at scale and delivering real results to the world’s biggest brands, like DHL Express, who will be our first Canadian customer.”
- The Government of Canada’s $259 million investment supports GM’s more than $2 billion project to reignite production at its Oshawa assembly plant, after operations stopped in 2019, and transform its CAMI assembly plant in Ingersoll.
- The investment is being made through both the Strategic Innovation Fund and its Net Zero Accelerator Initiative.
- The Government of Ontario made a matching contribution of up to $259 million toward the project.
- Founded in 1918, General Motors of Canada Company (GM) is one of the largest automotive manufacturers worldwide. It is headquartered in Oshawa, Ontario, and is one of Canada’s largest automotive manufacturers.
- GM is planning to introduce 30 new electric vehicles by 2025, eliminate tailpipe emissions from new light-duty vehicles by 2035, and become carbon neutral in its global products and operations by 2040.
- The automotive sector contributes $16 billion to Canada’s gross domestic product and is one of the country’s largest export industries.
- The automotive sector supports the employment of nearly 500,000 Canadians.
- The 2030 Emissions Reductions Plan, released in March, puts Canada on track to achieving our goal of cutting emissions by 40 to 45 per cent below 2005 levels by 2030 while continuing to build a strong economy.
- To make zero-emission vehicles more affordable and accessible, the Government of Canada offers incentives of up to $5,000 off the purchase or lease of a light-duty zero-emission vehicle through the Incentives for Zero-Emission Vehicles (iZEV) Program. Since May 2019, close to 176,000 Canadians have taken advantage of this program.
- Since 2015, the Government of Canada has invested $400 million in building approximately 35,000 zero-emission vehicle charging stations across the country.
UK's Economy To Dip Into Recession This Winter – OilPrice.com
The UK’s recession will officially begin this winter and is likely to last for most of next year, a closely watched survey out today suggests.
S&P Global and the Chartered Institute of Procurement and Supply’s (CIPS) final purchasing managers’ index (PMI) measuring private sector activity in November was unchanged at 48.2, the lowest number since January 2021 when the UK was in the constrained by tough pandemic lockdowns.
The reading was below analysts’ expectations but held steady from an earlier estimate. The services PMI was unchanged at 48.8. Services firms generate about two thirds of UK GDP.
The figure prompted experts to predict the forewarned recession will start during the final weeks of this year.
A recession is typically defined as two consecutive quarters of contraction. The UK economy shrank 0.2 percent over the summer.
PMI has slid this year
Source: S&P Global
Britain’s PMI has now been below the 50 point threshold that separates growth and contraction for four months now, indicating consumers and businesses started cutting spending during the summer when the cost of living crisis gathered pace.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said Britain is now in the teeth of the worst economic slowdown outside the Covid-19 pandemic since the financial crisis in 2008.
The economy is being spiked by the worst inflation crunch in 41 years, with prices rising 11.1 percent over the year to October.
Pay is failing to keep pace with inflation, putting households on track for the biggest living standards shock on record. The Office for Budget Responsibility reckons real incomes will fall 7.1 percent over the next two years.
That living standards squeeze is expected to drive a spending slowdown, keeping the UK in recession for at least a year. However, experts think the amount of GDP lost during the slump will be small compared to past recessions.
Businesses are being squeezed by soaring energy costs, forcing them to scale back unprofitable activity.
Gabriella Dickens, senior UK economist at consultancy Pantheon Macroeconomics, thinks businesses will have to shed workers to offset weaker spending.
“Firms will move decisively to reduce employment next year, as they are forced to consolidate costs in the face of higher financing costs and weaker demand,” she said.
The pound slumped 0.34 percent against the US dollar on the news. The FTSE 100 climbed 0.24 percent.
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B.C.’s economy forecast to remain steady, despite slower near-term economic growth | BC Gov News – BC Gov News
Like other jurisdictions, B.C. is expected to see slower economic growth through 2023 because of global inflation and higher interest rates, before steady growth resumes in the medium term, according to projections from private-sector forecasters.
Each year, B.C.’s finance minister meets with the Economic Forecast Council (EFC), a 13-member council of private-sector forecasters from throughout Canada, in preparation for the next year’s budget. This is the second year that an additional set of discussions was added, providing an opportunity to consult with an Environmental, Social and Governance (ESG) Advisory Council to explore how the provincial government can continue to build a more inclusive, sustainable economy and support well-being in British Columbia.
The EFC anticipates the province’s economy will grow by 2.9% in 2022 and 0.4% in 2023; slower than their January 2022 forecasts of 4.2% and 2.7%, respectively. The updated figures are similar to what was presented in the Province’s Second Quarterly Report. Real gross domestic product (GDP) growth is then expected to pick up, with an increase of 1.6% in 2024, followed by gains of 2.3%, 2.3% and 2.1% in 2025, 2026 and 2027, respectively. The reduction in the near-term outlook is consistent with other jurisdictions and reflects persistent global inflation and interest rates rising higher and more rapidly than expected throughout Canada.
“We’re entering this period of slower growth and challenging global economic times in a strong position to continue supporting people, because B.C.’s economy grew more than most last year,” said Selina Robinson, Minister of Finance. “We’ll use the resources we have to address the issues that matter most to people, including housing, health care and building a sustainable economy that works for everyone – but no matter what is on the horizon and no matter what the numbers show, this government will continue to be here to support people.”
Discussions with the EFC and the ESG Advisory Council focused on current events, issues affecting B.C.’s economy and the environmental, social and governance opportunities and challenges facing the province. Topics at the meetings included:
- global inflation and monetary policy impacts;
- government policies to stimulate investment and ensure shared prosperity;
- socioeconomic factors in B.C., such as inequality, Indigenous partnerships, and well-being;
- environment, climate change and the transition to a lower carbon economy;
- housing affordability and supply;
- labour market dynamics and immigration; and
- opportunities for businesses to build on B.C.’s strong ESG profile.
“We are committed to building an inclusive economy, where environmental and social sustainability is the basis for future growth,” said Robinson. “A strong social, cultural and economic foundation is key to successful and resilient communities. We know this, and we know generations will benefit from the decisions we make right now.”
Forecasts and feedback from the two councils will be used to inform the next provincial budget, which will be released on Feb. 28, 2023. EFC members will also have an opportunity to submit revised forecasts in early January.
- In the Province’s Second Quarterly Report, B.C. projected a revised operating surplus of $5.7 billion in the 2022-23 fiscal year.
- Since the summer, B.C. has rolled out approximately $2 billion in affordability measures.
- Environmental, Social and Governance are three main categories often discussed when evaluating sustainability performance, risk-mitigation planning and societal well-being.
To read B.C.’s Second Quarterly Report, visit: https://www2.gov.bc.ca/gov/content/governments/finances/reports/quarterly-reports
For information about new and existing support measures for B.C. residents, visit: https://strongerbc.gov.bc.ca/cost-of-living/
For more about the StrongerBC Economic Plan, visit: https://strongerbc.gov.bc.ca/plan/
To learn about the ways B.C. is committed to environmental, social and governance principles, read the ESG summary report here: https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/government-finances/debt-management/bc-esg-report.pdf
Most B.C. residents under 60 have been infected with COVID-19 or vaccinated: study – Prince Rupert Northern View – The Northern View
Bedard, Fantilli headline Canada’s selection camp roster for 2023 World Juniors – Sportsnet.ca
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