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Political Economy

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The Art of Policymaking in India

In December 2009, the economist Kaushik Basu left the rarefied world of academic research for the nuts and bolts of policymaking. Appointed by the then Prime Minister of India, Manmohan Singh, to be chief economic adviser (CEA) to the Government of India, Basu—a theorist, with special interest in development economics, and a professor of economics at Cornell University—discovered the complexity of applying economic models to the real world. Effective policymaking, Basu learned, integrates technical knowledge with political awareness.

Over the last fifty years, environmentalism has emerged as a clear counterforce to the environmental destruction caused by industrialization, colonialism, and globalization. Activists and policymakers have fought hard to make the earth a better place to live. But has the environmental movement actually brought about meaningful progress toward global sustainability? Signs of global “unsustainability” are everywhere, from decreasing biodiversity to scarcity of fresh water to steadily rising greenhouse gas emissions.

Macroeconomic Policy after the Crisis

Since 2008, economic policymakers and researchers have occupied a brave new economic world. Previous consensuses have been upended, former assumptions have been cast into doubt, and new approaches have yet to stand the test of time. Policymakers have been forced to improvise and researchers to rethink basic theory. George Akerlof, Nobel Laureate and one of this volume’s editors, compares the crisis to a cat stuck in a tree, afraid to move.

The Dance of Ideology and Unequal Riches

The idea of America as politically polarized—that there is an unbridgeable divide between right and left, red and blue states—has become a cliché. What commentators miss, however, is that increasing polarization has been closely accompanied by fundamental social and economic changes—most notably, a parallel rise in income inequality. In this second edition of Polarized America, Nolan McCarty, Keith Poole, and Howard Rosenthal use the latest data to examine the relationships of polarization, wealth disparity, immigration, and other forces.

Economists argue that such market-based policy instruments as environmental taxes and emission trading systems are the best way to target the negative effects of pollution. Yet there is no agreement about whether the use of these instruments is sufficient, whether they are deployed efficiently, and which factors influence their effectiveness. Nor is it clear if such policies have had any significant effect on the urgent matter of climate change mitigation.

Evaluation and Prospects

Emissions trading schemes figure prominently among policy instruments used to tackle the problem of climate change, and the European Union Emissions Trading Scheme (EU ETS), begun in 2005, is the largest cap-and-trade market so far established. In the EU ETS, firms regulated by the scheme are provided with emissions allowances (each a one-time right to emit one ton of greenhouse gases) and can sell their unused allowances to firms that have higher rates of emissions.

Eight Long-Range Scenarios

This book presents eight varied scenarios of possible global futures, emphasizing the interconnectedness of three drivers of change: energy prices, economic growth, and geopolitics. Other published global future scenarios focus on only one of these factors, viewing, for example, economic growth as unaffected by energy prices or energy prices in isolation from geopolitical conditions.

Experts, pundits, and politicians agree: public debt is hindering growth and increasing unemployment. Governments must reduce debt at all cost if they want to restore confidence and get back on a path to prosperity. Maurizio Lazzarato’s diagnosis, however, is completely different: under capitalism, debt is not primarily a question of budget and economic concerns but a political relation of subjection and enslavement. Debt has become infinite and unpayable.

Leading Economists Reassess Economic Policy

In 2011, the International Monetary Fund invited prominent economists and economic policymakers to consider the brave new world of the post-crisis global economy. The result is a book that captures the state of macroeconomic thinking at a transformational moment.

Fiscal policy makers have faced an extraordinarily challenging environment over the last few years. At the outset of the global financial crisis, the International Monetary Fund (IMF) for the first time advocated a fiscal expansion across all countries able to afford it, a seeming departure from the long-held consensus among economists that monetary policy rather than fiscal policy was the appropriate response to fluctuations in economic activity. Since then, the IMF has emphasized that the speed of fiscal adjustment should be determined by the specific circumstances in each country.

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