IMF Lending During the Pandemic and Beyond

By Robert Gregory, Huidan Lin, and Martin Mühleisen In the face of unprecedented uncertainty and the severe economic impact triggered by COVID-19, the Fund continues to adapt its lending. At the same time, it aims to ensure realistic targets, uphold the credibility of programs, and foster national ownership. To date, the Fund has provided financial […]

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Charting a Path for a Resilient Recovery in Sub Saharan Africa

By Kristalina Georgieva and Abebe Aemro Selassie Perhaps first among the many lessons of 2020 is that the notion of so‑called black swan events is not some remote worry. These purportedly once‑in‑a‑generation events are occurring with increasing frequency. Take climate‑related shocks, especially in sub‑Saharan Africa. More than any other region, it is vulnerable to these […]

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Chart of the WeekTrade as a Tool for an Efficient Recovery

By Jesus Gonzalez-Garcia and Yuanchen Yang As economies now look for paths to recovery from the COVID-19 crisis, new evidence reaffirms that policies for more open and trade-integrated economies could significantly benefit domestic competition and ultimately may help lower costs for consumers in emerging and developing economies. A recent Working Paper, building on the Regional […]

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Misinformation and foreign policy

A few weeks back I did a post that discussed the first of Philippe Lemoine’s four essays on China’s response to the Covid-19 epidemic. Now I’ve had a chance to read all four of what will likely become the definitive account of China’s role in the pandemic. I cannot recommend them highly enough.  Over at MoneyIllusion I discuss the second essay, and here I’d like to discuss the concluding paragraphs of the fourth essay:

I have examined in detail the accusations made against China in connection with the COVID-19 pandemic. I have concluded that there is a grain of truth to some of them—mistakes were certainly made in the early days of the crisis and the Chinese authorities have not always been forthcoming with information about the epidemic. Nevertheless, a careful review of the evidence suggests that most of the allegations are either exaggerated, unsubstantiated, or nonsensical, and sometimes they are all three. In particular, the claim that China is somehow responsible for the botched response to the pandemic in most Western countries doesn’t withstand even cursory scrutiny. Yet this claim continues to be made—not only by government officials eager to scapegoat China for their own lamentable failures, but also by journalists and citizens who ought to be more concerned about how badly their own countries have been misgoverned during this public health emergency.

I have highlighted several instances in which Western officials and journalists have misrepresented or distorted evidence. This may be a consequence of confirmation bias, fear of being accused of helping China or a tacit assumption that, since the Chinese regime is evil and hated, there’s nothing particularly wrong with dissembling to make it look bad. But, whatever the reason, this disregard for accuracy is dangerous, particularly on the part of journalists, who ought to at least strive to pursue truth irrespective of their personal ideological leanings. And it has contributed to a feedback loop I have observed over the past few months—people blame China for the pandemic because they adopt low evidentiary standards when it comes to accusations against China, which makes them hysterical about China, which in turn leads them to further lower their evidentiary standards, which makes them believe even more nonsensical accusations against China, etc. If people would only pause to consider whether or not the accusations against China make sense, they might realise that many of them do not.

As I wrote in the introduction to this series, there are many reasons to dislike and distrust the Chinese regime. But when dislike and distrust disable the ability to parse evidence and think clearly, they disfigure our understanding of reality. Hatred of the Chinese regime has become so strong and pervasive in the West—especially in the US, where China is seen as its main geopolitical foe—that it creates incentives that allow unsubstantiated allegations to spread largely unchecked. Indeed, not only does this prejudice mean that people adopt a lower evidentiary standard to examine such allegations, but anyone who points out they are unsubstantiated risks being accused of being China’s dupe. As the rivalry between the US and China grows, we should expect disinformation about China to become increasingly common. This is especially true since, as we have seen repeatedly in these essays, China hawks in the US administration are clearly trying to influence public opinion about China by leaking misleading information. China’s regime is appalling in many ways, and it’s understandable that people feel no sympathy toward it, but this fact should not make us accept dubious claims just because they fit our preconceptions. On the contrary, knowing that we feel that way and that it will unconsciously make us less cautious when evaluating claims that cast China in a dark light, we should be extra careful before we accept such claims.

When we look back at history, there are numerous examples of a sort of spiral of misinformation, where actual flaws in a foreign regime lead us to become too credulous about further accusations made against that regime.  For instance, if Saddam Hussein is known to have tortured people and to have repeatedly lied about his military activities, who wants to go out on a limb and defend him from the specific accusation that he is developing WMDs?  A few people (including some of my fellow Econlog bloggers) might have the courage to ask for proof of charges made against highly unpopular regimes, but not many.  History shows that if we base our foreign policy decisions on false accusations against unpopular governments, it usually does not end well.

Here’s The Economist:

Thanks to its high quality and low prices, Huawei’s telecoms gear is popular around the world. Not in America, where the Chinese giant is banished over (unsubstantiated) fears that it could be used by spies in Beijing to eavesdrop on Americans. But expelling Huawei from the United States—and pressing allies like Australia and Britain to do the same—was not enough for the Trump administration. It seems to want Huawei dead.

It’s certainly possible that Huawei is spying on the US, but given Lemoine’s documentation of how the US government has repeatedly lied about China’s role in the Covid-19 pandemic, promoting completely unsubstantiated rumors that the virus escaped from a Chinese lab, why should we accept on faith that Huawei is a national security threat to the US?

And what are we to make of the fact that the US government has seemed willing to use Huawei as a stick to achieve its trade negotiation demands?  What does it suggest if the US government is willing to do something that they claim would hurt our national security in exchange for a few more soybean exports?

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Supporting Migrants and Remittances as COVID-19 Rages On

By Saad Noor Quayyum and Roland Kangni Kpodar Just as COVID-19 has disproportionately impacted some communities more than others, globally, the virus has had an oversized negative impact on migrant workers. Perhaps surprisingly, despite the bleak experience for foreign overseas workers during the pandemic, the effect on remittances—the flow of money they send back home—has, […]

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Guilt, Gender, and an Inclusive Recovery: A Lesson from Japan

By Chie Aoyagi Japan’s voluntary month-and-a-half shutdown of the economy in April due to COVID-19 has had a higher cost for women than men. A key reason: a “guilt gap” between women and men, where women often feel compelled to take on more professional sacrifices. Close to one million women—the majority of whom worked in […]

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The Failure of Government Command-and-Control

If another example was necessary to confirm that government command-and-control allocation of resources is far inferior to market allocation by prices, the continuing shortage of Covid-19 tests could be one. Yesterday’s Wall Street Journal (Scott Patterson and John Simons, “Labs Struggled With Surge in Covid-Testing Demand; How One Made it Through,” September 6) reports:

Labs have competed for limited supplies of plastics and chemicals used to run tests, struggled to understand how federal supplies were allocated, and scrambled to come up with workarounds.

“Scrambled to come up with workarounds” instead of just paying the market price as free enterprises do on a free market.

Not only are private companies dependent on approvals from the FDA or the CDC, but their supplies are, since March, subject to price control and allocation, or threat thereof, both under presidential orders and under the states’ “price gouging” laws. (I had a number of Econlog posts on that—for example, “When Free-Market Prices Are Banned,” April 1, 2020.)

The government-as-it-is always shows this disorder. Only the government-as-it-should-be is rational and orderly, until it becomes the new government. The lesson to draw from this repeated experience has to do with poor incentives to satisfy consumer demand compared with strong incentives to cajole special political clientèles.

One objection to these conclusions is that, during the current crisis, at least as far as the availability of Covid-19 testing is concerned, other national states have done better than the US state despite a similar sort of mixed (capitalist-socialist) economy. More reflection on this objection is warranted but the explanation may simply lie in different mixes of ingredients in the interventionism. For example, Americans have very powerful and often arbitrary central agencies but an otherwise decentralized political structure, and the benefits of the latter don’t always compensate for the costs of the former; emergency price controls and allocation rules are especially vague and confusing in America; and Americans live under a particularly ignorant and naïve political establishment, which (if this mention is necessary) has not improved during the past four years. A simpler hypothesis: if the lider maximo believes in both A and non-A (in the sense that something can be true or false if he says so), pretty much anything can happen.

The Wall Street Journal article also includes an illustration of increasing short-run marginal cost (which explains why increasing quantity supplied requires higher prices) if only because coordination costs increase and running the equipment over usual capacity costs more. On the last point:

The machines’ efficiency requires close examination, said Geoff Monk, the company’s president and head of operations, mainly because “they were never meant to run 24-7.” Sometimes they break down, he said. Occasionally, they get clogged with mucus and need to be taken offline.

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How Strong Infrastructure Governance Can End Waste in Public Investment

By Gerd Schwartz, Manal Fouad, Torben Hansen, and Geneviève Verdier COVID-19 has had a profound impact on people, firms, and economies all over the world. While countries have ramped up public lifelines to individuals and firms they will face enormous challenges to recover from the pandemic, amidst low economic activity and unprecedented levels of debt. […]

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Sweden and Taiwan revisited

On April 15, I did a post arguing that Sweden is not the right Covid-19 model for libertarians, rather Taiwan is the model. Now that we are in September, it’s time to revisit some of the arguments.

One argument is that countries trying to control Covid-19 were merely delaying the inevitable. You hear people saying “we’re all going to get it eventually”.

But are we? Russia and China are already beginning to roll out vaccines, and Western countries are expected to begin doing so relatively soon. Back in mid-April, Taiwan had suffered 6 deaths in a population of 24 million—today its death toll is 7. Sweden has suffered 5813 deaths in a country of only 10 million. It’s not obvious to me that everyone in Taiwan will get Covid-19 before vaccines are available.

Sweden’s GDP has fallen by 7.7% over the past year, which is better than the European average but worse than the average performance of its Nordic neighbors (as I predicted). Taiwan’s GDP is only down about 0.1% over the past 12 months.  (Down 2.4% over the past 6 months, but even there it does much better than Sweden.) Thus while both countries refused to shut down schools and restaurants; Taiwan did far better in terms of both health outcomes and GDP growth.

The so-called “sophisticated” argument against my Taiwan/Sweden comparison focuses on structural differences between the two countries. And indeed there are many cultural, political and technological differences that do help to explain the differing outcomes. So (it’s claimed) perhaps there was no chance that the Swedes would undertake the Taiwanese approach in early 2020.  I agree.

But I’d actually call that a “pseudo-sophisticated” argument, as on close examination it’s not very helpful. I do have a deterministic view of how history plays out, so I don’t disagree with the claim that Sweden was unlikely to adopt the Taiwanese model in early 2020. But that misses the whole point of analysis and criticism. The point is not to rerun history—that cannot be done—rather the point is to learn lessons so that we are better prepared next time around.

Let’s suppose that in 10 years another dangerous virus emerges in China. I am confident that people will recall that the Taiwanese approach worked far better than the Swedish approach. Thus a key “pre-existing condition” that led to the Swedish failure in 2020 will no longer be operative. The public and politicians will understand that with an aggressive system of mask wearing plus test/trace/isolate it will be possible to prevent the disease from becoming widespread in any country with reasonable state capacity and civic virtue (which describes Sweden.) People will know that Taiwan was able to keep its schools and restaurants open, its economy running, and also avoid thousands of pointless deaths. That’s a powerful example.

Or at least they’ll understand that mask wearing plus test/trace/isolate work if I have any say in the matter, which is why I continue to post on this issue.

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Healing the Fractures of the Global Economy

Gita Bhatt As the world seeks to comprehend the new normal, we face many unknowns. Will jobs come back? How will we travel again? What will recovery look like? Much is still a question mark. In fact, we are living in the most “unmeasurable of times,” writes the IMF’s Geoffrey Okamoto, making it hard to […]

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