The stunning election of Donald Trump as president throws the future of urban policy into doubt. During the campaign he promised to bring new jobs and improved infrastructure to the inner cities, but so far he has furnished no details. Some of the strategies carried out by cities and states in the past may offer the incoming administration some guidance.
The New Normal II: Economic Developers, Export, and the Global Finance System
Written by The Economic Development CurmudgeonWe want to flesh out the complexities and perils that accompany that simplistic, child-like label "globalism" that we peddle to our firms and in our presentations. Accordingly, in this month's issue we present Raghuram G. Rajan's, Fault Lines (Princeton, Princeton University Press, 2010). Who is Rajan? He was the Chief Economist for the International Monetary Fund (2003-2006). He is now Distinguished Professor of Finance at the University of Chicago. One of his claims to fame is that in 2005 he was asked to serve on a panel at the Jackson Hole, Wyoming elite economist conference. His comments reflected on Greenspan's policies as Federal Reserve Chair (Greenspan was in attendance) and Rajan's presentation, "Have Financial Developments Made the World Riskier?", essentially predicted the financial collapse which began in 2006. He was almost ostracized from the economics profession, and was seriously attacked by several who now are making money publishing best seller books. In 2010, Fault Lines was awarded the Financial Times Business Book of the Year. By way of a quick and dirty summary: Rajan sees three major fault lines. The first, and probably most important, stems from domestic political stresses in each member nation. There would literally be a hundred or more individual domestic problems capable of affecting the international finance system. Each nation can have several ongoing at any point in time. He deals, virtually exclusively, on the domestic stress in the United States. The second fault line arises from trade imbalances between developing and developed nations. The was a key point in El-Erian's New Normal. In essence, he argues that unbalanced growth models which the different nations pursue create instability and potential disruption. The third fault line occurs when different kinds of financial systems (capitalist (several varieties), socialist, state-capitalist, communist, and dictatorial) try to finance these trade imbalances. Different financial systems operate on different principles, using different economic structures, accounting systems and can easily involve different types of government intervention. When the different financial systems come into close contact they can cause internal distortions and "bad" failure-prone financial arrangements as the various features do not operate normally and create unintended behaviors and effects. The Curmudgeon uses these fault lines to make the point that global finance and trade is fragile and beset with natural internal contradictions. His concern is that economic developers do not appreciate the risks they push upon technology and manufacturing firms when they urge them to export. The Curmudgeon argues that export, despite what one often sees in the professional literature and Think Tank reports is much more risky and complex and is, in the real world, not for every firm. There need to be some thought, evaluation, an outright realistic assessment--not to mention constructing a team of support before a firm should venture abroad. We also confess to a second purpose in writing this review. In an earlier, much earlier, review we argued in favor of something called the New Normal by Mohamed El-Erian. The New Normal could also be labeled the "New Globalism" if we cared to make the effort. The thrust of the New Normal is that global transformations lay at the root of our current economic malaise and jobless recovery. Rajan offers a very interesting explanation of why America accumulated so much debt--the prime cause of our financial collapse. It was in large measure the consequence of the three faults within the global finance and trade system. Continue Reading...