Electoral outcomes can lead to quick changes in social norms
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Social norms can change very quickly through mechanisms such as election results, which act as aggregators of information on social attitudes of individuals. A recent US National Bureau of Economic Research (NBER) working paper, jointly authored by Leonardo Bursztyn from the University of Chicago and others, argues that the fear of being seen as an outlier may force many people to not reveal their conservative views explicitly. This can change quickly if an election result shows wider acceptability for such views. The paper’s authors conducted a social experiment in which respondents were asked to authorize payments to an anti-immigrant fund in the US. Those who expected their donations to be anonymous were more likely to make the commitment, showing the public stigma associated with xenophobia. However, the gap reduced as Donald Trump—whose campaign had a major anti-immigrant plank—gained in popularity. The paper attributes this to increased confidence among such belief-holders that they would not be judged harshly.
How does a nation make sure that it wins wars? A recent NBER working paper, jointly authored by Alberto Alesina at Harvard University and others, argues that a nation state may have to do more than build modern armies and acquire weaponry to win wars. This is because monetary payments or the threat of being persecuted for defection is not enough to motivate soldiers to fight wars. The paper argues that a state can complement it in two ways: better provision of peaceful public goods, which increase the cost of losing a war for citizens, and indoctrinating citizens to ensure that they appreciate victory and dislike foreign occupation.
Also read: Nation-Building, Nationalism and Wars
In a lecture, former Reserve Bank of India (RBI) governor Y.V. Reddy spoke about the evolution of the fiscal and monetary interface in India. The pre-reform period was characterized by high fiscal dominance and financial repression with automatic monetization of government deficits and nationalized banks giving the government absolute control on allocation of credit. This underwent a paradigm shift after economic reforms, which put restrictions on fiscal deficits and aligned interest rates to market levels. Reddy has described the difference of opinion between RBI and the government on withdrawal of fiscal stimulus after the global economic crisis as a result of difficulties in coordination under extraordinary circumstances, which also raised questions on the monetary policy framework in place. The eventual adoption of inflation-targeting and transparently releasing forward looking communication in the form of Monetary Policy Reports is termed as “double convergence” of India’s monetary policy with current global consensus on the issue. Reddy also highlighted the need to overcome the structural problems which do not incentivise public sector banks (such as a high cash reserve ratio and priority sector lending) to respond well to market signals.
Also read: Fiscal and Monetary Interface in India
Oil’s dominance as the chief fuel of transportation may be over sooner than expected, according to a new International Monetary Fund paper by Reda Cherif and co-authors. Using historical examples, the authors point out that it takes roughly 50-70 years for one fuel to replace another. For instance, coal replaced wood as the main fuel in the US between 1850 and 1895. Later, oil and gas replaced coal around 1910-1955. Since 2008, technological changes have almost halved the cost of photovoltaic devices (devices that directly generate electricity from sunlight), wind power and battery production. Alongside the rise of renewable power, electric vehicles could replace motor vehicles over the next 10-25 years, and oil prices could fall to the level of coal prices as early as the 2040s.
In his blog ‘Global Inequality’, economist Branko Milanovic has written about the debate between the classical Marxist understanding of colonialism being a brutal but progressive engine of change in backward colonies and the latter position—first championed by Lenin—which saw imperialism as a moribund form of capitalism leading to wars and widespread misery and advocated disengagement from the globalized capitalist system. Milanovic cites the export-led success of Asian countries, especially China, which is leading the globalization agenda through initiatives such as One Belt One Road, to argue that these debates may be extremely relevant for the contemporary phase of capitalism.
Economics Digest runs weekly, and features interesting reads from the world of economics.