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Article Artículo

Haiti Reconstruction Fund: Building Back …When?

The Haiti Reconstruction Fund (HRF) was a center piece of the international community’s pledge to “build back better”, yet its latest financial report reveals that despite receiving a significant share of donor disbursements, very little has thus far been spent on the ground. Additionally, without the Interim Haiti Recovery Commission (IHRC), unallocated resources from the HRF remain unutilized, collecting interest in bank accounts.

The HRF, established in March 2010, aims to coordinate and fund priority projects for Haiti’s reconstruction. The Fund has received 18 percent of all donor disbursements as of December 2011 and describes itself as the “largest source of unprogrammed funding for the reconstruction of Haiti”. The HRF allocates funding to projects that have been approved by the now defunct IHRC.

According to its February 2012 financial report, the HRF has received $377 million from donors, allocating $274 million (73 percent) to 16 projects. When the HRF allocates money for a project, the funds are transferred to a “partner entity”; either the UN, World Bank or Inter-American Development Bank, which then carries out the project. The financial report shows that while the Fund has transferred a large amount of resources, the partner entities have disbursed very little of it on the ground.

Figure 1 (click to enlarge)

haiti-recon-fund-4-2012

Jake Johnston / April 12, 2012

Article Artículo

Government

Inequality

College Aid Not Keeping Pace with College Costs

People who haven’t gone through the financial aid process (recently or at all) might think of financial aid as mostly about grants or scholarships. Financial aid, however, comes largely in the form of federal loans, which a student must pay regardless of whether they complete their degree or not. Grants and scholarships are awarded, but they have not kept pace with the rising costs of education. The average Pell Grant, for example, has increased from $929 in 1979 to $3,706 in 2009 -- a near 300% increase. This may sound like a lot but not when compared to the 548%, 807% and 620% increases in average annual tuition for (respectively) a 2-year, 4-year public and 4-year private college.

There is evidence to suggest that there has been a significant shift away from the ‘need-based’ philosophy of Pell Grants: the much more rapid growth of non-need-based aid like student loans, as shown in the graph, or the expansion of tax credits, which tend to disproportionately benefit middle- and upper-income families. As a result, according to the Federal Reserve Bank of New York, the average outstanding student loan balance per borrower is $23,300.

college-aid-4-2012

Source: Avery, C. and Turner, S. Student Loans: Do College Students Borrow Too Much - Or Not Enough?; Journal of Economic Perspectives, Volume 26, No. 1, Winter 2012, Pg. 165- 192

This means students from low-income families are not getting the help they need with funding their educations. (CEPR recently looked at the increase in the financial burden facing minimum-wage workers paying for college.) In fact, unmet need (i.e. expenses after expected family contribution and grant aid) of enrolled students averages 72% of family income (2007 dollars) for families in the lowest income quintile, versus 14% for those in the top quintile. In a recent report by the Education Trust of 1,186 four year colleges and universities, some 275 institutions required low-income students to pay more than 100% of family income.

CEPR and Marie-Eve Augier / April 12, 2012

Article Artículo

The Moment of Truth: Post Tell Readers We Should Only Care About Business Concerns

There have been many people who have suggested that the Washington Post has a pro-business bias. The Post seemed to confirm that view in a piece on Mitt Romney's agenda for his first day as president.

It noted that Romney said he would demand that China raise the value of its currency as one of his day one items. It then told readers:

"But some China experts say Romney would nevertheless be risking a backlash from the Chinese — over an issue that is not a top priority.

"In a recent survey of the concerns of American businesses working in China, currency ma­nipu­la­tion was only the 26th-biggest worry.

"'You can’t go to the Chinese and say, "I demand eight fundamental changes!"' said Derek Scissors, a China expert at the conservative Heritage Foundation. 'You’ve got to pick your thing.'"

Of course Scissors' assessment is exactly right. The United States cannot simply make a set of demands on China and expect the Chinese government to accept them. It must prioritize its demands and be prepared to make concessions on issues of concern to China.

The Post implied that because the over-valuation of the dollar against the Chinese currency is not a major concern of business it should not be a concern to the United States. This only makes sense to someone who believes that the concerns of business should be given a priority over the concerns of the rest of the country. In fact, there is a clear opposition between the interests of many, if not most, businesses and the rest of the country on dealings with China.

According to mainstream economics, the main mechanism for adjusting a trade deficit is reducing the value of a currency. In other words, anyone who wants to see the United States move towards more balanced trade should want the dollar to fall.

(The Post should be in this camp, since it has endless tirades about the budget deficit. By definition, a trade deficit means that a country has negative national savings. Negative national savings means that either the public sector has a deficit or the private sector does, as we did in the housing-bubble years because of huge over-building and a bubble-driven consumption boom. Anyone who views those options as unattractive would want to see the trade deficit come down, if they understood economics.)

Dean Baker / April 12, 2012

Article Artículo

Government

More Musings on Modern Monetary Theory

I had several people ask me in comments or e-mails whether I agreed with Modern Monetary Theory (MMT) that the government doesn't need to raise taxes to pay for spending or whether I agreed with Paul Krugman that it does. I won’t claim to know exactly Paul Krugman’s view on the topic, but let me reframe the issue somewhat in a way that may cause people to see differently what is in dispute.

I think that all MMTers believe that the government cannot literally spend without limits. In other words, we can push the economy to the point where inflation is a real problem. The MMT answer is to raise taxes to prevent inflation from getting out of control.

Now suppose we are in the world where we have pushed the economy to the point where inflation is a problem and we decide we want the government to spend more money on some great project. At that point, it would seem that MMTers would have to agree that we need tax increases to offset the impact of government spending in boosting the economy.

We don’t literally need the tax increases to pay for the spending. The Fed could simply create more money to finance the spending. However if we don’t want the spending to be inflationary, then it must be offset by a tax increase.

I think the difference between the MMTers and Krugman is largely on the frequency with which they believe that the economy is up against its capacity constraints so that inflation is a real issue. I don’t want to put words in Krugman’s blog, but my guess is that he believes that the U.S. economy is typically operating near its capacity, so that the story of needing tax increases to offset spending would in general apply.

CEPR / April 09, 2012