Economics
As a journalist of economics, I have been very interested in the field and have written on this topic for as long as I can remember. Since my first essay about economics in the early 90s, I’ve focused mainly on the theory side of economics with more time and space to explore the connections between various economic theories and real-world data. It has been exhilarating to see how economics is being applied to address important topics such as terrorism, inequality, global governance and environmental issues. The following essay will provide an overview of some of my recent work on the subject and a few suggestions on what other economists might be exploring!
In particular, the current paper will focus on three areas:
Terrorism: Terrorism, which was one of the top 10 most disruptive technologies within the last 2 years by the Economist, is arguably among the biggest threats ever to humanity. In a year marked by numerous terror attacks, it seems that even a small uptick in terrorist violence could be responsible for over $100 billion worth of damage. By combining the quantitative and qualitative evidence around terror-related incidents with policy and regulatory frameworks that could help in tackling the challenge, we can ensure that public safety is enhanced throughout society. To date there are relatively little efforts to mitigate the phenomenon. What is certain is that if nothing is done from now until 2025, terrorists could affect at least 20 million people per month through their attacks and influence millions more who live across the globe. This threat requires solutions at two levels — in terms of enhancing security and also addressing the root causes that encourage terroristic behaviour in the first place. Economic models tend to demonstrate that terrorism is not only possible but has a higher chance of triggering economic crises all over the world, especially when it comes to countering the financial sector. With the current increase in extremist political action taking place in both government and private sectors, many nations are already experiencing high levels of anti terrorism legislation in an attempt to curb extremist violence. As a result, there is concern amongst economists that terrorism could eventually lead to a significant rise in violent events. If something like this did occur, economic models would likely show that the impact on employment is generally negative because of the possibility that those affected are going to become unemployed or may need to find new jobs while others reallocate resources away from security. Furthermore, if it does not happen soon, the consequences are likely to become far worse than any state or group can comprehend. Given the opportunity, financial experts have been urging governments to take action to prevent radical Islamist terrorism; in particular they have proposed measures from limiting media coverage of hate speech through banning certain words and phrases (e.g., “Islamist”), restricting social media outlets to limit extremists access, restricting immigration and providing incentives to the refugees (e.g., “refugees”). But given the increasing involvement of the United States in the conflict, including military presence in Syria and Afghanistan, the effectiveness of these policies will depend heavily on the success of the U.S. government. How well these policies interact with other countries and regions in order to meet global goals that include combating terrorism and creating sustainable economies (e.g., in countering climate change) depends on multiple factors of each country and region’s history. Based on historical trends of terrorism and extremism we can determine that if other parts of the world can effectively deal with the threat before it becomes too large, it will reduce the chances of it becoming nearly uncontrollable. Thus, economic models will have a greater impact in supporting policies to counter terrorist activity compared to any individual nation. A second area of interest for us is governance. Global governance has risen considerably in the past couple of centuries and has increasingly gone beyond simply focusing on human rights, freedom of information and civil liberties and into engaging in international trade. There is growing agreement that governance must be part of our national strategy if we want to create a healthy, open and prosperous society. When considering global governance one key component is the role of the international financial system as a vehicle for promoting domestic growth. With the looming crises in the energy and agriculture sectors, it makes sense the importance of implementing reforms in energy markets, transportation, healthcare and education. These changes would require a shift of national economic policy towards a diversified economy that helps support domestic industries and companies and promotes stronger domestic industries and businesses. One particularly interesting aspect of international market structures is the way the flow of money flows to and from countries, which often reflects historical developments in foreign policy. As states and other nations seek to protect local industries that are struggling in times of turmoil, a strong push for institutional frameworks for mitigating geopolitical risk could mean lessened pressures, more time and investment for development and lower debt levels. Ultimately, the goal of maintaining these processes would drive future investments in domestic industries and allow for sustained growth. Conversely, if instability continues to escalate, a weakening of institutional frameworks that promote resilience may have devastating impacts on economic growth. While countries are seeking new ways to finance themselves, it may well be in their best interests to strengthen the institutions and governance frameworks that create resilience, and this can be done using financial instruments, for example, the International Monetary Fund.
The fourth field to consider is the fight against environmental degradation. Although there is broad consensus in science that the planet’s health is deteriorating due to increased pollution and climate breakdown, the problem is not confined to just the developed nations and regions alone. As countries grapple with environmental issues, economic models demonstrate that economic crises are likely to arise from a broader mix of reasons, namely, deteriorating natural environments, excessive use of fossil fuels, rising energy costs, inadequate capital flows and increasing population. Increasing environmental uncertainty is currently a common theme and, according to economists, climate scientists believe that warming trends would worsen under the worst case scenarios. In addition to worsening the impact of climate change on economic growth, another potential path to catastrophic growth involves the removal of carbon sinks. Through increased emissions, the removal of carbon sinks could increase temperatures by approximately 15–20C by 2100. Without the right strategies in place, the impact on economic growth from climatic changes could be worse than any imagined. Thus, economists are increasingly concerned about the impact on economic growth from climate policy and the associated implications for developing nations. While the direct and immediate effects of climate policy initiatives on economic growth are extremely complex and difficult to quantify, the consequences of failing to act are significantly worse. According to economists, the key drivers of this trend are increasing energy prices (the so-called “resource curse”), declining population and shifting patterns of consumption within economies. Economic models that incorporate climate considerations suggest that if the average temperature goes up between now and 2050, there is a significant increase in poverty around the world. Yet, despite considerable progress that has resulted in reduced greenhouse gas emissions, the rate of growth is estimated to be slower than expected, implying that there are important obstacles ahead. Much further down the road, climate models also show that in the absence of effective economic policies, the pace of change could worsen in unprecedented ways. For instance, without appropriate safeguards, climate scientists claim that even one additional degree of warming during the next twenty years could produce nearly 3M displaced people, resulting in a loss of 1.3M million lives each year. This scenario, which models predict, also has consequences for economic crises. Given that these results are based on assumptions that are difficult to verify and prove, they do not present an accurate picture of the relationship between economic growth and environmental impact. However, the analysis demonstrates why it makes sense we should prepare ourselves and prepare in advance for the realities that lie ahead in dealing with the crises presented for us by the coming century. More importantly, economic models also demonstrate why the failure to plan and respond to crises is often the greatest source of economic disruption and tragedy.
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