Economics & Marginalia: April 8, 2022

Hi all,

I remember confidently predicting in early 2016 (or was it some time in 2015?) that Donald Trump could not possibly win the Republican primaries, quite possibly the worst prediction I’ve ever made (another being, in early 2003, that LeBron James would be a disappointment because who could possibly stand the pressure he was under?). I was reminded of it this week because the French Presidential elections are coming up, and around a decade ago, a French friend of mine confidently told me that Le Pen—whose party was then literally the National Front—could not possibly ever become the French President because of the run-off system: even if a quarter of the country voted for her, the rest would be so horrified that the run off would see an end to it. Well, Trump won, Brexit happened, and the Lakers didn’t make the playoffs this year, so all bets are off. Or rather, they’re on, and FiveThirtyEight and the FT both think it could well happen. I’d normally ask if there’s a German word for what I’m feeling, but the English one is just right: foreboding.

1. I’ve talked a lot about the sanctions on Russia recently, but one striking thing about them is—despite their apparent severity—that the Ruble has not only managed to recover, it’s done so at a spectacular rate: it was the world’s top performing currency in March. Sure, this is partly an artefact of just how far it plummeted first, but that’s not all that’s going on, and it’s prompted at least some economists to speculate that the sanctions are having less of an effect than commonly supposed. But as this Planet Money explainer demonstrates, that’s not necessarily the case. Sanctions can have short term, immediate effects that hurt, a bit like pulling a muscle while running. But they can also cause deeper, structural problems exacerbated by the workarounds put in place to respond to or minimise the immediate pain—a bit like the secondary injuries caused by limping to protect the pulled muscle. What Russia is doing to restrict currency conversions, whacking interest rates up to 20% and renegotiating gas contracts to require payment in Rubles may all eventually cause more damage than the pain they’re seeking to mask. Related: Branko Milanovic thread which touches on how the Russia’s economic model brought growth, but also gave the sanctions bite.  

2. While the UK is deservedly taking an absolute kicking for our pathetic effort in “welcoming” Ukrainian refugees (much like our worse-than-pathetic efforts with refugees from anywhere else, too), The Economist point out that there has been a genuine shift in the UK’s approach to immigration since leaving the European Union, with the number of skilled, educated migrants from non-European countries being issued visas increasing tremendously. This is a genuinely good thing (other migrants should be more welcome, too, of course); though the article ends on a flat note for us: given the trajectory of our economy, we can expect to become less and less attractive to these skilled migrants over time.

3. While we’re talking about UK policy, I really enjoyed this piece from Owen Barder about what his policies reveal about what vision of economic progress Rishi Sunak holds, and how they contrast to Nigel Lawson, who Owen worked under. One commonality that stands out: an utter disregard for the distributional consequences of their policies, and a failure to consider the impact of what they do on the poor (in Sunak’s case, extending to the poor who benefit from the foreign aid budget).

4. I thought this VoxDev write-up of Julia Fonseca and Adrien Matray’s new paper on the effect of the extension of banking services to under-served areas in Brazil was superb. It’s structured wonderfully: they show the overall impact of the programme, provide evidence on why it works the way it does, and then present really compelling evidence on the distribution of the benefits. A policymaker could read this blog and understand nearly everything they need to about the policy. Really impressive.

5. Markus Goldstein has a write-up of another really cool paper, here, on a totally different topic: mental health during Covid-19. I’m not going to surprise anyone when I say that the pandemic has been… tough. And if it was tough for me, an objectively extremely lucky person, it must have been incredibly tough for people in more difficult circumstances. Vlassopolous and co-authors run an intervention offering 25 minutes of counselling on the phone in rural Bangladesh, and the results are extraordinary: reduced stress and lower depression, which in turn translate into improved outcomes on a range of measures. The treated women have lower food insecurity, higher rates of vaccination and spend more time with their kids working on school work. As Markus says: “I haven’t seen so many stars since my youngest beaned me with a wooden ball.”

6. CGD Europe is slowly returning to our offices in the shadow of Westminster Cathedral on one side and the Houses of Parliament on the other (equidistant to the sacred and profane, you might say). Office spaces matter rather a lot. When DFID moved from Palace Street to Whitehall (the remnants have since been swept under a carpet in King Charles Street), we were told we were no longer allowed any decorations of any sort on the walls. Gone were the world map and noticeboard full of ideas from my previous office, both crucial for a person like me, with my tenuous grasp of geography and pinball machine brain. Tim Harford writes about how this policy was likely counterproductive: with control taken away from them, even over minor elements of their environment, workers tend to be much less productive. Even Le Corbusier, never the most people-centred man, understood that.

7. Those of you who have followed these links for a long time know I have a few niche interests: cricket, birdwatching and Veronica Mars to name a few. This week, all three are in the news: the Indian Premier League is back on, and there have been some jaw-droppingly close matches so far (this one is down to the last ball as I type); the British science establishment have outraged ornithologists of all stripes by declaring British birds ‘boring’ (they meant not colourful, which any birdwatcher worth their salt would point out tells you nothing about how interesting a bird is); and in a rare confluence of two of my random obsessions, Kareem Abdul-Jabbar, Lakers legend and recipient of a rhyming couplet from the Red Hot Chilli Peppers, has written an episode of Veronica Mars, the greatest TV detective since Lieutenant Columbo, for the forthcoming season, thereby guaranteeing that I buy yet another streaming service this summer.

No links next week, as we’re off for Easter. Have a great weekend, everyone!