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Haiti

Latin America and the Caribbean

World

Despite Flawed Electoral Process, International Community Support Continues Unabated

While Haitian President Michel Martelly has unilaterally scheduled long-delayed elections for October 26, 2014, the composition of the electoral council continues to cause controversy in Haiti. The current problems stem from the deeply flawed electoral process in 2010 that saw Martelly emerge victorious after the intervention of the international community. There have yet to be elections since then, with one-third of the 30 member Senate having their terms expire in 2011 while some 130 local mayors have been replaced by Martelly appointments. Another one-third of the Senate and the entire lower house will see their terms expire in January 2015 if elections are not held. In a “frequently asked questions” document released last week, the Institute for Justice and Democracy in Haiti (IJDH) provides a legal analysis of the reasons behind the delays and why the current electoral council is unconstitutional. In an accompanying press release, IJDH notes:

According to Mario Joseph, managing lawyer for the Bureau des Avocats Internationaux, “Prompt elections are much needed, but elections will only remedy Haiti’s political crisis if they are run fairly by a constitutionally-mandated electoral council. President Michel Martelly has delayed elections for three years because he does not want to lose the political control he has enjoyed without full parliamentary oversight.”

Joseph explains that “The current Provisional Electoral Council (CEP) put into place by President Martelly per the El Rancho Accord is unconstitutional.” The El Rancho Accord, which rules the government’s plan for elections, has not been approved by Parliament and the procedure for selecting a CEP conflicts with the Haitian Constitution. The CEP only has seven of the required nine members due to these legitimacy concerns. Parliamentarians and political opposition call the El Rancho Accord a political coup d’état.


Despite the problems associated with the “El Rancho Accord,” the international community has been supportive of the process. After praising the accord in March, the U.N. issued a statement in early May, co-signed with the “Friends of Haiti” grouping of countries, warning “that certain important decisions to advance toward the holding of the elections have yet to be made.” Days later Martelly announced the formation of the electoral council, unilaterally. In early June, the date of October 26 was announced by the government, even though the electoral body is tasked with scheduling elections. Last week, after meeting with Martelly, the Secretary General of the OAS committed “to back the holding of free and fair elections, in a process planned for October.” The OAS also said they would send an electoral observation mission.

Jake Johnston / July 09, 2014

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House Republicans Ignore Unemployment to Keep Inflation Low

Remember when Treasury Secretary Hank Paulson, Fed Chair Ben Bernanke, and Timothy Geithner, then President of the N.Y. Fed, were running around yelling that the world was about to end? Yeah, that was back in the fall of 2008 when Lehman went under and this trio demanded that Congress immediately cough up $700 billion to bail out the banks or the economy would collapse.

CEPR / July 09, 2014

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High Asset Prices, the Savings Glut, Secular Stagnation, and Unemployment

Neil Irwin has an interesting piece in the NYT noting how high prices for a wide variety of assets have driven returns down to historical low levels. He notes that this is a predictable outcome, and in fact an intended result, of the low interest rate policy being pursued by the Fed and other central banks.

The idea is that high asset prices make it cheap for firms to borrow to finance new investment. They also make it easier to buy a home and allow many people who had higher interest rate mortgages to refinance into lower cost ones, thereby freeing up money for other types of consumption. There is also a wealth effect whereby higher stock and house prices will translate into increased consumption. Through these channels central banks hope to provide some boost to growth.

However the flip side of this policy is that investors can anticipate lower returns on their savings, unless they want to hold exceptionally risky assets. This is the idea of there being a savings glut, or as Irwin suggests today, a shortage of adequate investment opportunities.

The idea of a savings glut is not new, Ben Bernanke first mentioned it back in 2004 when he was a member of the Board of Governors. However the implications were not fully drawn out by Bernanke at the time or by Irwin in today's piece. A savings glut implies an economy that is not producing at its capacity.

To cut through the nonsense, savings in an economic sense means not spending. From the standpoint of the economy, it is just as much savings if you put $1,000 in the stock market, a checking account in your bank, stuff it under your mattress, or burn it in your fireplace. Anything that does not involve the purchase of a newly produced good or service means saving. Saying that we have a saving glut means we have an economy that does not generate enough demand to keep the economy at full employment. This is of course the story of secular stagnation that folks like Larry Summers have recently discovered and the problem that some of us pre-mature secular stagnationists have raised for years.    

The idea that the economy could be subject to an ongoing problem of inadequate demand used to be grounds for eviction from the realm of serious economists. But anyone who is willing to look at the evidence with a straight face really can't escape this conclusion.

Dean Baker / July 08, 2014

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Impact of Cutting Unemployment Benefits: North Carolina Dreaming (see Addendum)

Last year North Carolina's conservative Republican legislature got tough. It sharply reduced the duration of unemployment benefits and made them much more difficult to collect. The changes took effect at the start of July, 2013. Their story was that unemployment insurance and other benefits discourage workers from seriously looking for jobs. If we take away this crutch of unemployment benefits, then workers will figure out how to find jobs. This both saves the government money and is better for the workers themselves since they will actually be making a living on their own.

We now have data for 10 months into the experiment (through May) and John Hood, the chairman and president of the John Locke Foundation, a North Carolina think tank, has a piece in the Wall Street Journal telling us that it is a resounding success. Hood tells readers:

"According to the U.S. Bureau of Labor Statistics, the number of payroll jobs in North Carolina rose by 1.5% in the second half of 2013, compared with a 0.8% rise for the nation as a whole. Total unemployment in the state dropped by 17%, compared with the national average drop of 12%. The state's official unemployment rate fell to 6.9% in December 2013 from 8.3% in June, while the nationwide rate fell by eight-tenths of a point to 6.7%."

Okay, let's take these in turn. North Carolina did have more rapid job growth than the rest of the nation in the period since it cut benefits, but it also has had more rapid job growth than the rest of the nation for the last four decades, before many of the benefit cutters were even born. This because it is in the South, which has been growing more rapidly than the Northeast and Midwest for quite some time. (My explanation is air-conditioning, but you're welcome to throw in other items.)

If we look at North Carolina's labor market over the last year (May 2013 to May 2014) we find that the number of jobs, as measured by the Labor Department's establishment survey, grew at 1.92 percent rate. This beats the 1.86 percent rate for the rest of the South Atlantic region, but the difference certainly is not enough to employ all the people who were cut off from the unemployment rolls. (The South Atlantic region is a grouping of states from Florida to Maryland. It has been used by government agencies for many decades.) If the argument is that the ending of benefits put the fear of God in the unemployed and made them finally get serious about working, these numbers don't do much to support the case.

The situation gets even worse if we pull out the Charlotte-Gastonia-Rock Hill area. The reason for pulling out this relatively fast growing region is that it straddles the border with South Carolina. Many of the workers who have gotten jobs with companies in North Carolina actually live in South Carolina. If unemployed workers' past employment experience had been in South Carolina, they will not have any additional motivation to find work as a result of North Carolina cutting benefits.

We can't know how many of the new workers the Charlotte metropolitan area are from South Carolina, but it is striking that if we pull out this area, North Carolina's job growth slightly lags the rest of the South Atlantic region. Excluding the Charlotte area, job growth in the state was 1.76 percent over the last year, roughly a tenth of a percentage point less than the average for the rest of the region. This means that outside of the Charlotte area, it doesn't seem that the cut in benefits did anything to increase incentives to work. As a practical matter, the differences in both directions are small, but the point is that there is no evidence that cutting benefits did anything to increase employment growth in North Carolina compared with comparable states. 

Dean Baker / July 08, 2014

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GDP and the Public Sector

Lew Daly has an interesting, but unfortunately misdirected, critique of the measurement of the public sector's contribution to GDP. He notes several areas, such as infrastructure and education spending, where the government contributes to our well-being, but which are not directly picked up in GDP as contributions from the government. While the point is true, the piece fundamentally mistakes what GDP is and also grossly understates the government's role in the economy.

First, GDP is a measure of economic activity. It is not a comprehensive measure of societal well-being and anyone who tries to use it as such is showing off their ignorance. GDP can be thought as being comparable to weight. It is difficult to imagine a doctor doing a medical exam and not wanting to know the patient's weight. It is useful and important information. If a person is 50 percent above or below their ideal weight, it likely means they have a serious health issue. On the other hand, someone could be right at the ideal weight for their body type and still be dying of cancer. Any doctor who ended their check-up with writing down what the scale shows has done some serious malpractice.

Similarly, GDP is telling us the value of goods and services the economy produced. It is not telling us whether the pollution that results is killing us, whether it all went to produce weapons and prisons, or whether Bill Gates and his kids pocket it all. We need other measures to evaluate such things, and we have them, but they are not GDP.

On the other point, the problem of assessing the government's role in the economy goes much deeper than Daly suggests. A huge amount of economic activity is undertaken through the incentives of patent, copyright, and trademark monopolies. Pharmaceuticals alone account for more than $380 billion a year in sales (2.2 percent of GDP). The bulk of these expenditures are higher prices that drug companies can charge because the government will arrest any competitors.

Dean Baker / July 07, 2014

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Wild and Crazy Times at the Low End of the Housing Market

Floyd Norris had an interesting piece on the impact of investor purchased homes on prices at the lower end of the housing market. His takeaway is that investor purchased homes have made housing less affordable for many low and moderate income households.

While this is partly true, by focusing only on the last couple of years the piece misses much of the picture. While investor purchases have pushed prices to unusual levels in many markets, in some cases they essentially put a floor on the market, helping to stabilize prices at levels that are consistent with longer term trends. The chart below shows house prices in the Case-Shiller indices for the bottom third of the market for five cities. (This is the same series used for the charts in the article.) 

btp-2014-07-06

There are several features of this chart worth noting. First, it is possible to see a rise in house prices (most pronounced in Minneapolis) in the middle of 2009. This was the result of the first-time homebuyers tax credit. This policy currently ranks #1 as most boneheaded policy of the century. It encouraged millions of people to buy into a market that was still inflated by the housing bubble.

Dean Baker / July 06, 2014