America’s Broken System

BERKELEY – The tax bill that US Republicans have doggedly pushed through Congress is not as big a deal as many are portraying it to be. It is medium-size news. The big news – the much more weighty and ominous news – lies elsewhere.

Of course, medium-size is not nothing. If the tax bill does clear its final hurdle – a conference committee must reconcile the Senate-approved bill with that of the House of Representatives – and become law, it will complicate the tax system considerably, as it opens many loopholes. It won’t have any impact on economic growth – positive or negative – but it would have an impact on the government’s finances, causing revenues to decline by the equivalent of about 1% of national income.

The missing resources would most likely be transferred to the top 1% of earners, raising their share of total income from 22% to 23%. The top 0.01% would probably gain the most, with their share of income rising from 5.1% to 5.5%. In this sense, the tax plan would be another brick – not a huge brick, but a medium-size brick – in the increasingly impregnable fortress of American plutocracy.

But the bill may well not become law at all. Consider the Republicans’ efforts earlier this year to repeal and replace the Affordable Care Act (“Obamacare”) – an effort that, it now seems clear, was pure Dingbat Kabuki.

The Republicans didn’t actually want to take responsibility for changing the health-care financing system, much less strip their own constituents of health care. But the party’s propaganda arm had worked so hard to convince its base that Obamacare represented a clear and present danger to the country that its leaders had to act as if they were making a serious effort to fulfill their promise to repeal and replace it.

So a majority of Republicans in the House of Representatives voted for the bill, expecting, with reasonable confidence, that it would be blocked in the 100-member Senate, where fewer than 40 of the 52 Republicans actually wanted it to pass. Had any of the three Republican senators who voted against the bill – John McCain of Arizona, Susan Collins of Maine, or Lisa Murkowski of Alaska – made a different choice, there were probably about five more who would have stepped in to nix it.

The same thing may be happening with the tax reform. It depends on whether at least three of the ten Republican senators who have raised objections are serious, or are playing a different game of Dingbat Kabuki: seeking to trick their constituents into thinking that they went the extra mile to try to help them, and are not puppets of Senate Majority Leader Mitch McConnell.

But, regardless of whether the tax bill survives the reconciliation process and becomes law, the big news won’t change: the Anglo-Saxon model of representative government is in serious trouble. And there is no solution in sight.

For some 400 years, the Anglo-Saxon governance model – exemplified by the republican semi-principality of the Netherlands, the constitutional monarchy of the United Kingdom, and the constitutional republic of the United States of America – was widely regarded as having hit the sweet spot of liberty, security, and prosperity. The greater the divergence from that model, historical experience seemed to confirm, the higher the likelihood of repression, insecurity, and poverty. So countries were frequently and strongly advised to emulate those institutions.

Nobody would dare offer that same advice today. The UK, having been thrown into devastating austerity by Conservative and Liberal leaders after the global economic crisis, is now being led by the Conservatives toward a messy and damaging Brexit. And, in the US, the election of President Donald Trump heralded the age of “alternative facts” and “governance by tweet,” overseen by an erratic and ignorant leader who is clearly in over his head.

When Trump was first elected, some argued that it did not have to be a disaster. After all, the optimists pointed out, President Ronald Reagan had been more a “chief of state” than a “chief executive,” as had George W. Bush.

As divisive as Chief of State Trump would be, according to this view, he wouldn’t derail policy, because electing a Republican president is more like electing the Republican Party establishment. And that bench was very deep and very competent, despite its weakening in recent years.

The optimists were wrong. After nearly a year in control of both houses of Congress and the White House, the Republicans haven’t achieved any of their four policy goals: repeal and replacement of Obamacare, infrastructure development, trade-policy reform, or even tax reform. This points to a broken system of politics and governance, one that Americans seem to have no idea how to fix.

The US remains the world’s preeminent superpower. But doubts are intensifying over whether it’s still up to the job. In this context, the Republicans’ tax reform, however economically indefensible and blatantly unfair it is, is far from America’s biggest concern.

J. Bradford DeLong, a former deputy assistant US Treasury secretary, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.

By J. Bradford DeLong

How Can the Arab World Avoid the Abyss?

CAIRO – A series of startling events in November revealed the abysmal state of affairs in the Arab world. The Lebanese prime minister announced his resignation abroad, but reversed the statement later. A missile was launched from Yemen toward Saudi Arabia’s capital, Riyadh. Saudi Arabia’s leadership carried out a major anti-corruption campaign that affected dozens of high-profile personalities. Egypt, meanwhile, experienced its worst terrorist attack in living memory, with more than 300 civilians killed and injured. Video footage of alleged slave auctions in Libya underscored the continuing chaos there amid the complete breakdown of the Libyan state.

Military victories against the Islamic State and a rapprochement between Palestinian factions in Gaza and the West Bank have done little to ease a collective sense of anxiety in the region. Nor have these positive developments inspired much confidence that the Arab world will somehow pull itself back from the edge of the abyss. Foreign interference has become routine in Syria, Lebanon, Iraq, and Yemen. And ongoing debates over identity politics and borders in the Levant are a prelude to the grave, fundamental challenges ahead.

In fact, the situation in the Middle East is not surprising, given that in recent years no Arab country has led attempts to resolve the ongoing conflicts in Libya, Syria, and Yemen, let alone address the Palestine-Israel issue. In many of these conflicts, foreigners have had far more influence than Arabs.

Historically, the Middle East has been the target of numerous foreign invasions, from the Crusades to European colonialism. Its natural resources have been greedily usurped, and it was a theater for proxy wars during the Cold War. Even today, Arab territories remain under occupation.

But while there are many reasons to blame foreign powers for the region’s parlous state of affairs, blaming others – or even one another – will solve nothing. After all, the Arab world has many homegrown problems, too, including inefficient and ineffective governance, unholy alliances, and undeveloped national capacities.

Disaster awaits any region that is helpless to shape its own future, in which a majority of citizens feel disenfranchised. Though the Arab world is traditionally conservative, almost 70% of its citizens are below the age of 35, and young people suffer from the highest rates of unemployment in most countries. This constitutes not only a tremendous waste of resources, but also a serious long-term sociopolitical problem. And yet it is just one of the many domestic challenges facing the region.

Arabs must take charge of their own agenda, and become the primary force defining their future and that of their countries. They should, of course, continue to engage with the outside world and strengthen their strategic relationships and alliances. But they also must become less dependent on others.

For starters, the region’s governments need to develop their own national-security capacities, to defend against non-existential threats and hegemonic expansionism. This, in turn, will enhance their political influence, and give them more diplomatic tools for addressing regional problems and preventing military conflicts.

Moreover, Arabs must defend their national identities. The Middle East’s nation-state system is not perfect, but it is far better than religious or ethnic sectarianism, which threaten to destabilize the region even further. To avoid that outcome, the region’s existing nation-states will need strong institutions to provide for efficient governance and social inclusion. Unfortunately, most Arab countries’ institutions are nowhere near being able to meet this imperative.

Looking ahead, Arabs should recognize that domestic reform is the best way to prevent foreign interference and defend national interests. The Arab awakenings over the last few years revealed a centrist middle-class yearning for change. Opportunistic parties tried to benefit from the turbulent environment created by sudden change. But this does not negate the fact that these movements were a response to perpetually bad governance and a failure on the part of Arab leaders to pursue gradual reforms.

Arabs also need to give themselves a larger variety of economic, political, and security options, so that they can adapt to changing circumstances. The world is no longer bipolar or Eurocentric. In fact, it is the Westphalian state system itself, not just the postwar geopolitical paradigm, which is being tested by rapid technological, economic, and social changes.

Lastly, the Arab world needs to confront regional hegemonic attitudes and the illegitimate occupation of Arab lands. Solutions to current problems must respect people’s aspirations for statehood and sovereignty, while going beyond tactical or transactional approaches that provide only short-term relief. Ultimately, any policy that fails to protect basic rights will not succeed.

Arab countries, individually and collectively, will need a fully formed strategy to confront existential foreign and domestic threats to their sovereignty and security in the coming years. It is high time for Arab leaders to outline a vision for the future of inter-Arab relations, and a plan for engaging with their non-Arab neighbors on regional opportunities and challenges. Last but not least, Arab leaders must also explain how they will provide better domestic governance for their people.

If the Arab world wants to have a say in shaping its own future, it cannot remain complacent in the present. Its leaders and people must start planning now.

Nabil Fahmy is a former foreign minister of Egypt.

By Nabil Fahmy

God’s Middle East Playground

PARIS – In his classic study of Polish history, Norman Davies describes Poland in the late eighteenth century as “God’s Playground.” That description could be applied to Lebanon today. Like Poland back then, Lebanon suffers from a combination of domestic institutions that are too weak and neighbors that are too strong.

In recent months, Lebanon, more than any other country except Syria, has found itself caught in the crossfire between Iran and Saudi Arabia. Iran has gained increased influence in Iraq and Syria, owing to the effective military defeat of the Islamic State (ISIS) – from which it has benefited even more than Russia. At the same time, Iran’s great rival, Saudi Arabia, is experiencing a domestic power struggle unlike anything seen in decades, even as it tries to lead the Sunni Muslim world in its confrontation with Shia Islam.

In recent weeks, Saudi Arabia’s young, ambitious crown prince, Mohammed bin Salman (known as MBS), has been politically, socially, diplomatically, and militarily hyperactive, perhaps in response to perceived interference from Iran. For MBS, the deep structural reforms that he has been pursuing are a matter of life or death for his long-immobile country.

In Lebanon over the past two decades, the Iranian-backed political party and militia Hezbollah has carved out a state within a state. And last year, it entered into a power-sharing relationship with Lebanese Prime Minister Saad Hariri and President Michel Aoun. Against that backdrop, Saudi Arabia earlier this month seems to have used Iran’s growing ambition as a pretext to summon Hariri to Riyadh as if he were a misbehaved pupil. While there, Hariri accused Hezbollah of taking over his country, and then announced his resignation – a decision he has since reversed.

For many analysts, Hezbollah has become too powerful not just in Lebanon, but also in Yemen, where it is said to be helping Iranian-supported Houthi rebels in a proxy war against the Saudis. An escalation of the war in Yemen, then, may have been the starting point for Lebanon’s latest crisis.

With the war against ISIS winding down, a new round of violence in Lebanon – between pro-Saudi and pro-Iranian forces, or even between Hezbollah and Israel – cannot be ruled out. While Iran has been emboldened by recent victories, MBS’s reform program has made it impossible for him show any sign of weakness. “Reforms, made in time,” the Italian independence leader Camillo Benso, Count of Cavour, once observed, “instead of increasing the strength of the revolutionary spirit, reduce it to impotence.” And yet, to appreciate MBS’s position, those following events in Saudi Arabia should recall Alexis de Tocqueville famous warning: “The most dangerous moment for a bad government is when it begins to reform.”

What, then, should be the top priority in the Middle East after the defeat of ISIS? Some observers are calling for social and economic reforms to dry up the sources of extremism. But while one can hardly disagree, a reform agenda will take a long time to bear fruit.

For others, a much more immediate priority is to contain Iran, which, in digesting its recent successes, is developing a larger appetite. In September, Iran conducted tests of a new ballistic missile. And, according to the Israelis, Iran is building a military base in Syria, not far from the Golan Heights, which Israel has controlled since 1967. For those in this second camp, it is time to re-impose sanctions against the Iranian regime.

A third school of thought places stability – the need to prevent absolute chaos in the region – above all else. With the Middle East already consumed by a maelstrom of sectarian conflict, the last thing the region needs is another war centered around Lebanon.

French President Emmanuel Macron tried to defuse tensions on a short trip to Riyadh earlier this month. But appeals to reason are unlikely to work at a time when emotions are running high. Can the Iranians be convinced that if they push too far, they might lose the advantages they have gained? Much will depend on whether there is an “Iranian Bismarck” on the horizon who can convince his country to accept a policy of limits.

And can the Saudis be convinced that they, too, are pushing too far? Given that the Saudis’ embargo against Qatar and war in Yemen have been ineffective, if not counterproductive, they are unlikely to do much better in Lebanon. Raising one’s voice to hide weakness is a dangerous strategy that can have catastrophic results.

As for France, direct involvement in attempting to reduce tensions in the Middle East seems indispensable in the era of Donald Trump. Having put his administration squarely on the side of Saudi Arabia, the United States has no chance of being seen as a disinterested mediator.

To be sure, France cannot substitute for America. But geopolitics, like nature, abhors a vacuum, and France does have unique historical and cultural cards to play in Lebanon. Moreover, its position toward Saudi Arabia and Iran is more balanced than that of the US. If the Saudis and the Iranians both recognize that it is in their interest to reduce tensions, they might just listen to a European interlocutor. Sadly, both sides seem determined to keep their blinders firmly in place, Lebanon be damned.

Dominique Moisi is Senior Counselor at the Institut Montaigne in Paris.

By Dominique Moisi

The Right to Health Is Universal

GENEVA – On this year’s World AIDS Day, on December 1, we should remember the 35 million people who have died of AIDS-related illnesses, and the 76 million who have been infected with HIV since reporting began. And we can celebrate the fact that nearly 21 million people living with HIV now have access to life-saving treatment.

But we also must not lose sight of the fact that more than 15.8 million people are still awaiting treatment, while an estimated 11 million people do not even know they have the virus. In the time it takes to read this commentary, three more young women will have contracted HIV. These figures represent an indefensible injustice: millions of people are being denied their right to health.

The third United Nations Sustainable Development Goal (SDG3) addresses health. It aims to reduce road accidents; tackle non-communicable diseases; end AIDS, tuberculosis, malaria, and neglected tropical diseases; guarantee universal health coverage and access to sexual and reproductive health-care services; and substantially reduce deaths from environmental pollution – all by 2030.

Although countries around the world have committed to this goal, countless people still inhale dangerous levels of toxic particles, and lack access to safe water and adequate sanitation. Too many governments consistently fail to act on environmental and other regulatory issues, turn a blind eye to companies that profit from selling unhealthy and addictive products, and thus fail those whom they are supposed to protect and serve.

Health is neither a gift nor an act of charity. It is a fundamental human right, encompassing both freedoms and entitlements. Everyone is free to make decisions about their health, regardless of who they are, where they live, what they believe, or how they earn a living. And everyone is entitled to affordable, quality health services and freedom from discrimination and coercion. Enjoying the right to health means having one’s physical and mental integrity respected, and having the ability to participate and contribute to one’s community.

Today, we call on world leaders to confront health injustices wherever they see them, and to take action to respect, protect, and uphold the right to health for all people. The ambitious SDG agenda for 2030 has afforded all of us the opportunity to shape policies aimed at creating and empowering the “global health citizen.”

Who is this citizen? She is an individual who knows her rights and can voice her concerns, challenge injustices, and hold decision-makers accountable. He is an individual who does not just ask for but demands access to doctors, treatments, or preventive care. The global health citizen is one who becomes a part of the solution.

Empowering global health citizens will require progress in at least three policy areas: popularizing participation, democratizing data, and eliminating discrimination. As to the first, we must open up health programs and policies to meaningful public engagement. In the 1990s, the disability-rights movement coined the phrase, “Nothing about us without us.” All global health citizens, and particularly health-care leaders, should adopt this mantra.

To be sure, public and private corruption remains a significant obstacle to ensuring the right to health for all people. In many countries, health care is one of the most corrupt sectors. To address this, global health citizens will need both institutional support and better tools for demanding that their right to health be respected. They should start demanding more measures to ensure good governance and transparency, improve “legal” literacy, fund civil-society organizations, and reinforce legal mechanisms for holding governments accountable.

The second policy area where progress is needed is access to data for every community. At UNAIDS, we follow the adage, “What gets measured gets done.” Data analysis has proven to be one of the most potent tools in the fight against the HIV epidemic, because it enables us to raise awareness, identify people being left behind, guide investment, and coordinate action.

We in the global health field have always been good at estimating mortality and morbidity rates. But it is now time to look beyond epidemiological facts. Guaranteeing the right to health will require us also to monitor the effects of discrimination and stigmatization, as well as laws and environmental factors that threaten people’s health and wellbeing. Likewise, conducting thorough assessments of the health impact of key policies and investments must become the norm, rather than the exception. The global health sector needs far more independent advocacy and accountability, which the UN and civil-society groups, in particular, are in a strong position to provide.

The third policy area – eliminating discrimination in health-care settings – must become an international priority. The central promise of the SDG agenda is to leave no one behind. Discrimination creates de facto barriers to universal health coverage, and prevents many people from accessing health services of any kind. For example, one in eight people responding to the HIV Stigma Index say they have been denied health care as a result of prejudice.

It is clear that ending AIDS will require social – not just medical – breakthroughs. Governments must redouble their efforts to protect individuals against discrimination, and create effective mechanisms for people to seek redress when private or state actors violate their right to health. We call on all health-care practitioners and institutions to resist discriminatory laws, policies, or practices.

Safeguarding the right to health provides the foundation needed to enable everyone to realize their potential and their dreams. We should demand nothing less.

Michel Sidibé is Executive Director of UNAIDS. Dainius Puras is United Nations Special Rapporteur on the right to physical and mental health.

By Michel Sidibé and Dainius Puras

Evidence-Based Policy Mistakes

Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

TURIN – After years of stressing the importance of evidence-based policymaking, economists have clearly had some influence on politicians. What economists now need to do is to impress upon those same politicians that citing any evidence before adopting any policy is not evidence-based policymaking at all.

Turkish President Recep Tayyip Erdoğan has thrown around numbers to defend his decision to flood the Turkish economy with state-guaranteed credit. But the truth is that the policy was a politically motivated effort to win public support by engineering short-term growth (at the cost of driving inflation to a nine-year high of 12%).

Likewise, US President Donald Trump cites simplistic trade-deficit figures to justify protectionist policies that win him support among a certain segment of the US population. In reality, the evidence suggests that such policies will hurt the very people Trump claims to be protecting.

Now, the chair of Trump’s Council of Economic Advisers, Kevin Hassett, is attempting to defend Congressional Republicans’ effort to slash corporate taxes by claiming that, when developed countries have done so in the past, workers gained “well north of” $4,000 per year. Yet there is ample evidence that the benefits of such tax cuts accrue disproportionately to the rich, largely via companies buying back stock and shareholders earning higher dividends.

It is not clear whence Hassett is getting his data. But chances are that, at the very least, he is misinterpreting it. And he is far from alone in failing to reach accurate conclusions when assessing a given set of data.

Consider the oft-repeated refrain that, because there is evidence that virtually all jobs over the last decade were created by the private sector, the private sector must be the most effective job creator. At first glance, the logic might seem sound. But, on closer examination, the statement begs the question. Imagine a Soviet economist claiming that, because the government created virtually all jobs in the Soviet Union, the government must be the most effective job creator. To find the truth, one would need, at a minimum, data on who else tried to create jobs, and how.

Moreover, it is important to recognize that data alone are not enough to determine future expectations or policies. While there is certainly value in collecting data (via, for example, randomized control trials), there is also a need for deductive and inductive reasoning, guided by common sense – and not just on the part of experts. By dismissing the views and opinions of ordinary people, economists may miss out on crucial insights.

People’s everyday experiences provide huge amounts of potentially useful information. While a common-sense approach based on individual experience is not the most “scientific,” it should not be dismissed out of hand. A meteorologist might detect a coming storm by plugging data from myriad sources – atmospheric sensors, weather balloons, radar, and satellites – into complex computer models. But that doesn’t mean that the sight of gathering clouds in the sky is not also a legitimate sign that one might need an umbrella – even if the weather forecast promises sunshine.

Intuition and common sense have been critical to our evolution. After all, had humans not been able to draw reasonably accurate conclusions about the world through experience or observation, we wouldn’t have survived as a species.

The development of more systematic approaches to scientific inquiry has not diminished the need for such intuitive reasoning. In fact, there are important and not obvious truths that are best deduced using pure reason.

Consider the Pythagorean Theorem, which establishes the relation among the three sides of a right triangle. If all conclusions had to be reached by combing through large data sets, Pythagoras, who is believed to have devised the theorem’s first proof, would have had to measure a huge number of right triangles. In any case, critics would likely argue that he had looked at a biased sample, because all of the triangles examined were collected from the Mediterranean region.

Inductive reasoning, too, is vital to reach certain kinds of knowledge. We “know” that an apple will not remain suspended in mid-air, because we have seen so many objects fall. But such reasoning is not foolproof. As Bertrand Russell pointed out, “The man who has fed the chicken every day throughout its life at last wrings its neck instead, showing that more refined views as to the uniformity of nature would have been useful to the chicken.”

Of course, many policymakers – not just the likes of Erdoğan and Trump – make bad decisions not because of a misunderstanding of the evidence, but because they prefer to pursue politically expedient measures that benefit their benefactors or themselves. In such cases, exposing the inappropriateness of their supposed evidence may be the only option.

But, for the rest, the imperative must be to advocate for a more comprehensive approach, in which leaders use “reasoned intuition” to draw effective conclusions based on hard data. Only then will the age of effective evidence-based policymaking really begin.

Kaushik Basu, former Chief Economist of the World Bank, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.

- Kaushik Basu

Today’s Rational Exuberance

LONDON – With share prices around the world setting new records almost daily, it is tempting to ask whether markets have entered a period of “irrational exuberance” and are heading for a fall. The answer is probably no.

What many analysts still see as a temporary bubble, pumped up by artificial and unsustainable monetary stimulus, is maturing into a structural expansion of economic activity, profits, and employment that probably has many more years to run. There are at least four reasons for such optimism.

First and foremost, the world economy is firing on all cylinders, with the United States, Europe, and China simultaneously experiencing robust economic growth for the first time since 2008. Eventually, these simultaneous expansions will face the challenge of inflation and higher interest rates. But, given high unemployment in Europe and spare capacity in China, plus the persistent deflationary pressures from technology and global competition, the dangers of overheating are years away.

Without hard evidence of rapid inflation, central bankers will prefer to risk over-stimulating their economies rather than prematurely tightening money. There is thus almost no chance of a quick return to what used to be considered “normal” monetary conditions – for example, of US short-term interest rates rising to their pre-crisis average of inflation plus roughly 2%.

Instead, very low interest rates will likely persist at least until the end of the decade. And that means that current stock-market valuations, which imply prospective returns of 4% or 5% above inflation, are still attractive.

A second reason for confidence is that the financial impact of zero interest rates and the vast expansion of central bank money known as “quantitative easing” (QE) are now much better understood than they were when introduced following the 2008 crisis. In the first few years of these unprecedented monetary-policy experiments, investors reasonably feared that they would fail or cause even greater financial instability. Monetary stimulus was often compared to an illegal performance drug, which would produce a brief rebound in economic activity and asset prices, inevitably followed by a slump once the artificial stimulus was withdrawn or even just reduced.

Many investors still believe the post-crisis recovery is doomed, because it was triggered by unsustainable monetary policies. But this is no longer a reasonable view. The fact is that experimental monetary policy has produced positive results. The US Federal Reserve, which pioneered the post-crisis experiments with zero interest rates and QE, began to reduce its purchases of long-term securities at the beginning of 2014, stopped QE completely later that year, and started raising interest rates in 2015 – all without producing the “cold turkey” effects predicted by skeptics.

Instead of falling back into recession or secular stagnation, the US economy continued growing and creating jobs as the stimulus was reduced and then stopped. And asset prices, far from collapsing, hit new highs and accelerated upward from early 2013 onwards – exactly when the Fed started talking about “tapering” QE.

The Fed’s policy experimentation points to a third reason for optimism. By demonstrating the success of monetary stimulus, the US has provided a roadmap that other countries have followed, but with long and variable lags. Japan started full-scale monetary stimulus in 2013, five years after the Fed. Europe lagged by seven years, starting QE in March 2015. And in many emerging economies, monetary stimulus and economic recovery only began this year. As a result, business cycles and monetary policy are less synchronized than in any previous global expansion.

That is good news for investors. While the Fed is raising interest rates, Europe and Japan are planning to keep theirs near zero at least until the end of the decade, which will moderate the negative effects of US monetary tightening on asset markets around the world, while European unemployment and Asian overcapacity will delay the upward pressure on prices normally created by a coordinated global expansion.

This suggests the fourth reason why the global bull market will continue. While US corporate profits, which have been rising for seven years, have probably hit a ceiling, the cyclical upswing in profits outside the US has only recently started and will create new investment opportunities. So, even if US investment conditions become less favorable, Europe, Japan, and many emerging markets are now entering the sweet spot of their investment cycles: profits are rising strongly, but interest rates remain very low.

All of these cyclical reasons for optimism are, of course, challenged by long-term structural anxieties. Can low interest rates really compensate for rising debt burdens? Is productivity really falling, as implied by most economic statics, or accelerating, as technological breakthroughs suggest? Are nationalism and protectionism poised to overwhelm globalization and competition? Will inequality be narrowed by job creation or widen further, causing political upheaval?

The list could go on and on. But these structural questions all have something in common: We will not know the true answers for many years. One thing we can say with confidence, however, is that market expectations about what may happen in the long term are strongly influenced by short-term cyclical conditions that are visible today.

During recessions, investor opinion is dominated by long-term anxieties about debt burdens, aging, and weak productivity growth, as has been true in the period since 2008. In economic upswings, psychology shifts toward the benefits of low interest rates, leverage, and technological progress.

When this optimistic shift goes too far, asset valuations rise exponentially and the bull market reaches a dangerous climax. Some speculative assets, such as cyber currencies, have already reached this point, and shares in even the best public companies are bound to experience temporary setbacks if they run up too fast. But for stock markets generally, valuations are not yet excessive, and investors are far from euphoric. So long as such cautiousness continues, asset prices are more likely to rise than fall.

Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy.

By Anatole Kaletsky

Feeding Myanmar’s Refugees

COX’S BAZAR – The Rohingya refugee camp in the Bangladeshi port city of Cox’s Bazar is a sea of metal roofs as far as the eye can see, shimmering under an unrelenting sun. Mohammed, a 60-year-old resident, greets me outside his new home and thanks me in breathless rasps for our support. He suffers from a larynx disease, one that could easily be treated with a surgery that he cannot afford. But he is simply grateful to be alive, and far away from the torture and misery he left behind in Myanmar.

Like many of those fleeing Myanmar, Mohammed walked for five days to reach Bangladesh. Sadly, his hardship is only beginning. Like the tens of thousands who huddle here for safety, he ekes out a life for his children and grandchildren on a muddy and infertile slope. What his family eats depends on others, including the sustenance provided by my colleagues at the World Food Programme.

The WFP is meeting emergency food needs for nearly 700,000 Rohingya, supplying nutrient-rich biscuits to new arrivals and feeding registered residents with regular distributions of rice, vegetable oil, and lentils. We are also providing hot meals through community kitchens and delivering supplemental nutrition to pregnant women, breastfeeding mothers, and young children.

The Rohingya here are safe from persecution, but the threat of illness and malnutrition pursues them. We are reminded of this every day as we comb the camp to check on families receiving WFP support. The sight of young children playing barefoot in filthy water, or wading in streams flowing with human waste, is ubiquitous. Toilet-building campaigns are underway, but much more is needed to reduce the risk of waterborne-disease outbreaks.

As the number of refugees grows daily, cases of malnutrition, especially among mothers and young children, are rising. Preliminary findings from a joint nutrition assessment show that one in four children is malnourished, and refugees are desperate when they cross the border. Malnutrition rates were already high in northern Rakhine State before the Rohingya fled. Regrettably, the health of the displaced has deteriorated further, owing to the hardship of their journey and the conditions in which they are now living.

To prevent malnutrition from taking hold, the international community needs more resources and more funding across many sectors. In early October, the WFP called for an immediate $77 million in emergency aid. That plea still stands, and with the depth of the suffering increasing, the need for resources grows by the day.

But food assistance alone is not enough to overcome this crisis. Poor sanitation and unsafe drinking water can just as easily undermine health. Today, more than half of new arrivals tell us that their children are already suffering from diarrhea. When conditions are as dire as they are here, emergency rations are just the first step. Once the immediate pangs of hunger are addressed, refugees need help reinventing diets with diverse, locally sourced fresh foods.

To that end, WFP is seeking to expand our electronic voucher program, a cash card that allows families to choose from 19 food items on the local market, including garlic, greens, onions, and chilies. We are also planning to roll out an e-voucher program for new refugees by early 2018. These initiatives will empower refugees to make their own choices and shop for nutritious food on a regular basis, while supporting local businesses.

Fighting malnutrition also means navigating the social realities of camp life. It is often easier to measure malnutrition among women and children by visiting them in their shelters. This is especially true for women without extended families, or those whose husbands may not approve of them visiting the health center alone. Walking in the muddy, dimly lit camps can also be dangerous. But while our staff go hut to hut to help people locate food-distribution and nutrition-support centers, we struggle to reach everyone.

When people started arriving in Cox’s Bazar in late August, during the Muslim Eid holiday, residents showed immense generosity. Our staff heard countless stories of locals sharing the special food they had prepared for the festivities with the hungry new arrivals. Locals here are no strangers to visitors. The magical 120 kilometers of natural beach attracts thousands of holidaymakers every year. Refugees have also been arriving for decades, fleeing previous bouts of violence in Myanmar.

Unfortunately, Eid and any surplus food are now distant memories. Many locals are fishermen or rice farmers, and their resources are stretched from sharing their land, markets, and roads with the massive influx of refugees.

To reduce the potential for tension between refugees and their hosts, international aid efforts must target both communities. In addition to meeting refugees’ most fundamental needs, WFP is expanding its school feeding, nutrition, and livelihood activities to the host communities.

Despite the dire circumstances, the people I have met in the camps are extraordinarily resilient. Children make toys from whatever they find. Women deftly weave bamboo poles into walls for their shelters. And everywhere I look, men, women, and children – despite being weighed down by their daily loads, carrying food and firewood – are taking small steps to improve their lives.

The dogged determination to make tomorrow better than yesterday is humbling. The role of the WFP and the international community supporting the Bangladeshi authorities is to ease the Rohingya’s hardship today, and push for solutions that help them realize their aspirations tomorrow.

Michael Dunford is the World Food Program’s Emergency Coordinator at Cox’s Bazar, Bangladesh.

By Michael Dunford

Poverty Is Also a Psychosocial Problem

BRIGHTON – Being poor is a highly shameful experience, degrading one’s dignity and sense of self-worth. While the manifestations and causes of poverty differ, the humiliation that accompanies it is universal. Recent research conducted at the University of Oxford found that from China to the United Kingdom, people facing economic hardship – even children – experience a nearly identical assault on their pride and self-esteem.

Yet, despite the clear evidence linking poverty to psychological distress, policies tacking poverty do not typically take shame into account. Rather, poverty reduction efforts tend to focus on tangible manifestations of deprivation such as lack of income or education. As a result, solutions to poverty often implicitly assume that more material wealth or improved living conditions will automatically translate into non-tangible benefits, including improved mental wellbeing.

This lack of focus on the “psychosocial” side of poverty – the interaction between social forces and individual attitude or behavior – is misguided. If we are to alleviate human suffering and achieve the UN’s premier Sustainable Development Goal of ending poverty “in all its forms” by 2030, addressing the intrinsic and instrumental roles that shame plays in poverty must be front and center in our efforts.

The crippling sense of dishonor that accompanies poverty, and impedes people from taking positive action to improve their situation, has been seen around the world. In India, the shame associated with crop losses and financial stress has pushed farmers to substance abuse and, in extreme cases, suicide. In Tanzania, researchers studying bilingual education have found that a fear of being mocked can prevent students with weaker English skills from participating in class. And in Uganda, poor high school students say the inability to pay fees, purchase uniforms, or obtain school supplies is a constant source of humiliation.

To address poverty-related shame, and adequately account for the role shame plays in perpetuating poverty, a number of steps must be taken.

For starters, policymakers should recognize the problem. Rather than seeing shame as an unfortunate byproduct of living in poverty, human development planners should consider how poverty undermines human dignity. The Nobel economics laureate Amartya Sen, one of the most influential voices on poverty reduction, has long argued that shame is a driver of “absolute” poverty. Taking shame seriously must be part of any poverty-reduction strategy.

Moreover, shame, a lack of self-confidence, and low self-esteem can negatively impact how people view their ability to affect change, sustaining a perception of inadequacy that can be debilitating and trap them in poverty. To help people escape, human development strategies must consider how to bolster personal agency, aspiration, and self-efficacy – the belief in one’s ability to influence events that affect one’s life.

Finally, policymakers must be aware that programs aimed at reducing poverty, if not properly implemented, can actually increase feelings of shame. For example, researchers working in India in 2005 found that Indian women stopped going to health clinics in order to avoid debasing treatment by health workers – to the detriment of their own wellbeing and that of their children. Women in South Africa applying for child support grants have reported similar experiences, as have food bank users in the UK. In fact, many respondents in Britain said the stigma of receiving free food was so severe that “fear” and “embarrassment” were common emotions.

The issue of shame, and the need to take it more seriously in poverty-reduction policies, is slowly gaining traction. Academics who research human suffering have recognized that “recipient dignity” is a crucial component of successful poverty alleviation. For example, a 2016 review of cash transfer programs in Africa found that the absence of stress and shame enhanced confidence in recipients, leading to improved decision-making and productivity. Building on such evidence, the University of Oxford is extending its research on the “shame-poverty nexus,” to study how the international development sector can “shame-proof” anti-poverty policies.

Programs aimed at reducing poverty are moving in the right direction, but much work remains to be done to integrate the psychosocial component of poverty into policy and planning. Only when policymakers truly grasp that dignity and self-respect are unavoidable prerequisites in the struggle against deprivation – rather than outcomes of its alleviation – will the world have a fighting chance of eradicating poverty in all its forms.

Keetie Roelen is a research fellow and co-director of the Center for Social Protection at the Institute of Development Studies.

By Keetie Roelen

The Moral Urgency of Mental Health

PRINCETON – If we can prevent great suffering at no cost to ourselves, we ought to do so. That principle is widely accepted and difficult to dispute. Yet Western governments are neglecting an opportunity to reduce the great misery caused by mental illness, even though the net cost would be nil.

The evidence for this claim comes from recent research by a team of economists at the London School of Economics. The team, directed by Richard Layard, drew on data from four major developed countries (Australia, Britain, Germany, and the United States) in which people were asked to indicate, on a 0-10 scale, how satisfied they were with their life.

The researchers refer to those in the bottom 10% of the population in terms of life satisfaction as being in “misery.” Respondents also answered other questions designed to indicate factors affecting life satisfaction.

When Layard’s team analyzed the results, they found that the biggest factors affecting misery were all non-economic: mental health, physical health, and whether someone had a partner. Mental health was the biggest predictor of all; it explained twice as much of the difference between people in terms of life satisfaction as physical health or income inequality did. (This was also true for those in the non-miserable 90% of the population).

Overall, the researchers claim, eliminating depression and anxiety would reduce misery by 20%, whereas eliminating poverty would reduce it by just 5%. If we want to reduce misery in the developed world, then mental health is the biggest challenge we need to overcome.

Many people will find this result surprising. After all, most of us expect that we would become happier if we were richer. So why is mental health, not poverty, the biggest cause of misery?

The answer is that people adapt to higher levels of income over time – a phenomenon known as “hedonic adaptation” – and they compare their income to that of their peers. This gives rise to the so-called Easterlin Paradox, the finding that although richer people are more satisfied with their lives than poorer people, economic growth has often not increased overall life satisfaction in the developed world. If your neighbor becomes richer, you feel poorer. If both of you become richer, neither of you is likely to be significantly happier. In contrast, people do not adapt to poor mental health; nor does your neighbor’s misery make you feel better.

Given that mental health has the greatest impact on life satisfaction, we still need to ask if addressing it is the most cost-effective way for governments to reduce misery. Layard and his colleagues asked how much the British government would have to spend to tackle mental health, physical health, unemployment, or poverty. They concluded that mental health would be the cheapest of the four options: around 18 times more cost-effective in reducing misery and promoting happiness than targeting poverty.

In the United Kingdom, it costs about £650 per patient to provide psychotherapy, which is effective for about 50% of patients. That figure indicates how much governments would need to spend, but does not take into account what they might get back.

Reducing mental illness enables many people to return to work, thereby reducing the cost of unemployment benefits while increasing tax receipts. Hence Layard and his colleagues hypothesized that treating mental health would pay for itself. In effect, the UK government would be able to reduce misery at no cost.

Further economic research, this time by Paul Frijters and his colleagues, also of the LSE, has now assessed the impact of the UK’s Improving Access to Psychological Therapies program, a scheme conceived by Layard and the psychologist David Clark, which was launched in 2008. They conclude that the increase in tax receipts and the reduction in unemployment benefits pay back only about 20% of the cost of treating mental illness. However, they argue that mental health treatment still funds itself because those who receive psychotherapy demand far fewer physical health services.

In reality, the UK didn’t shrink its health budget. The effect of treating mental health therefore was to free up other resources that were used for other patients. But this effect was so substantial that Frijters claims we could expand treatment to all 12% of the UK population who have mild to moderate anxiety or depression and expect the investment to pay for itself in savings in no more than two or three years.

Attitudes toward mental health have changed dramatically in the last few years; even princes and athletes now feel able to open up about it. In the UK, a study showed that mental illness affects one in four people in any year, while research carried out in 30 European countries found that 38% of the population suffered from some kind of mental or neurological illness. What has not been grasped is that this suffering is largely avoidable.

Governments are starting to regard mental health as seriously as they do physical health. But they could do much more. Increasing their spending on mental health could reduce an immense amount of misery – and at no cost in the long run.

Of course, some mental illnesses are more difficult to treat than moderate depression or anxiety, and at some point higher spending may not pay for itself. But until that point has been reached we should all agree on the moral urgency of a radical expansion in funding for mental health.

Michael Plant is a Ph.D. student in philosophy at the University of Oxford. His research centers on finding the best ways to improve worldwide happiness. Peter Singer is Professor of Bioethics at Princeton University and Laureate Professor at the University of Melbourne. His books include Practical Ethics, The Most Good You Can Do, One World Now, and Ethics in the Real World.

By Michael Plant and Peter Singer

A Youthful Remedy for Africa’s Youth Unemployment

TORONTO – Across Africa, young people are on the move. This large-scale migration, which is putting economic and social pressure on host countries across the continent, is driven largely by factors like poverty, instability, and natural disasters. But the biggest cause of displacement is a concern shared by many around the world: the inability to find work close to home.

Many African countries have recorded significant GDP growth over the last decade. But the additional wealth has not translated into formal employment. In fact, 70% of workers in Sub-Saharan Africa remain in the informal sector, such as smallholder farming, street vending, and domestic tasks, rather than salaried jobs.

Africa’s youth are the hardest hit by these unemployment and underemployment trends. But young people also hold the keys to the engine of Africa’s struggling job market.

By 2030, over 120 million young people will enter the workforce across the continent. To create enough stable jobs, Africa will need to improve education, expand access to financial services, encourage civic participation, and provide social safety nets. But one of the biggest impacts will come when young people are fully empowered to pursue entrepreneurship. With the right support, the continent’s youngest job seekers can lead Africa’s employment growth forward.

In many ways, Africa’s youth are already confronting the challenge. This generation is more educated than their parents, and they live in countries that have benefited from rapid and broad development, including growing access to information, financial products, and other business-related services. African young people have high aspirations to shape the future of their countries.

Yet entrepreneurship is often considered a path of last resort. Young Africans sell goods or produce in marketplaces, not because they want to, but because they have no other choice. Self-employment is often combined with other sources of seasonal, temporary, or part-time work. The goal is to make ends meet, not to launch a career.

But times are changing. And today, young African business leaders are emerging to tackle complex problems, and in the process, putting many of their peers to work. There are countless success stories. In Kenya, Munyutu Waigi and Ivan Mbowa co-founded Umati Capital, a digital finance hub that helps agricultural processors, traders, and cooperatives access funds needed to expand their businesses. For their efforts, Waigi and Mbowa won the 2015 Zambezi Prize, which recognizes innovative approaches to promoting financial inclusion.

In Ghana, Mabel Suglo co-founded Eco-Shoes, a company that helps artists with disabilities create fashionable, comfortable footwear and accessories from old tires and recycled fabric.
In 2015, the Anzisha Prize, a joint initiative of the African Leadership Academy in South Africa and the Mastercard Foundation, honored Suglo for her innovative business strategy. Suglo provides mentoring in product development and financial literacy to five employees, and today, her business is growing.

And in South Africa, Marlon Parker, founder of the social innovation academy and incubator RLabs, created a virtual currency called Zlato to encourage active participation in skills-training workshops. When young people attend courses, access laptops, or book rooms at RLabs cafes, they earn Zlato credit that can be exchanged for food, medical care, and basic necessities. Since its inception in 2008, RLabs has created tens of thousands of jobs and is now active in 24 countries.

Africa’s youngest entrepreneurs are not only finding ways to support themselves and contribute to their communities; they are solving the main cause of migration on – and off – the continent. Entrepreneurs supported through the Anzisha Prize, for example, have created more than 300 jobs and generated more than $850,000 in capital. Fellows funded by Ashoka , another organization supported by the Mastercard Foundation, have created a staggering 200,000 jobs.

The skill with which young people are creating jobs through such enterprises gives great hope for the future. These bright, talented Africans are demonstrating the tenacity needed to overcome existing barriers and contribute to the wellbeing of their families, communities, and countries.

This should not come as a surprise. Young people everywhere are closest to the challenges their generation faces, and they often have the solutions to those that most affect them. We should offer our support. As many more young Africans prepare to enter the workforce, adequate job creation will require continued expansion of entrepreneurship. After all, these are the jobs that will keep Africa’s young people on the continent for generations to come.

Meredith Lee is Deputy Director of Youth Livelihoods at the Mastercard Foundation.

By Meredith Lee

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