The Inaugural BCAM Policy Talk: “Fiscal Buffers, Private Debt and Stagnation: The Good, the Bad and the Ugly” by Giovanni Melina

This post was written by Veronika Akhmadieva,  an MPhil/Phd Economics student at Birkbeck

One group is targeted for marketing outreach with a bulls-eye under the figures

In 2015, global debt hit a record high of $152 trillion (225% of world GDP), raising the possibility of a new global financial crisis striking the economy in the near future. That prompted the International Monetary Fund (IMF) to conduct an in-depth analysis of global debt and economic growth. The results of this research formed the basis of the inaugural BCAM (Birkbeck Centre for Applied Macroeconomics) policy talk at Birkbeck, given by Dr Giovanni Melina (IMF).

Dr Melina presented an academic paper, a result of his joint work with Nicoletta Batini (IMF) and Stefanie Villa (KU Leuven), that focuses on fiscal buffers, debt and stagnation, and has strong policy implications. In the period from 2002 to 2008, the bulk of the increase in debt of large advanced economies was due to borrowing by the private sector. Then, as some might recall, the Great Recession happened, and the picture changed dramatically; the increase in private debt was rather modest while government debt increased drastically.

A curious mind might wonder why government debt went up during the financial crisis 2007-2008. Dr Melina proposed two possible reasons. The first explanation is based on the denominator effect and on the mechanism of government automatic stabilisers. Government spending, in nominal terms, increased during the financial crisis, partially because more people applied for unemployment benefits, and this in turn boosted government debt. The second explanation derives from the fact that many governments attempted to cover part of private debt – through the recapitalisation of banks, for instance – and that led to the fall in government revenues and the rise in public debt.

“Deleveraging”

The deleveraging is a well-known concept in economics that refers to the process of economic entities reducing their debt to income ratio. The deleveraging of the economy often follows global economic catastrophes, and the financial crisis of 2007-2008 was no exception. Deleveraging can yield important real effects in the economy. Advanced economies can resort to public debt to a very large extent in order to cushion the effects of the negative shocks. For emerging markets raising government debt can be tricky. In some of them deleveraging is still to take place. So what are the best ways for governments to tackle potential deleveraging?

Dr Melina might just have the answer. But first two preliminary questions must be considered – do the levels of private and public debt have tangible effects on output growth? And should government extend financial assistance to credit-constrained agents and firms at times of financial distress?

The paper addresses these questions by first revisiting the literature on the effects of public and private debt on economic growth. Then the authors build a theoretical framework that reproduces the leverage cycle. The authors examine links between private and public debt, in order to capture the mechanisms through which private debt may become public. Finally, the model is used to analyse the effects of government interventions targeted towards financially constrained agents.

Private debt proved to have a negative effect on output. As for public debt, when authors differentiated between high (greater than 95% of GDP) and low public debt countries, they found that when the public debt is low, the government has more room for manoeuvre (more fiscal buffers) and can help to support economic activities in the deleveraging phase. However, if the level of public debt is high to begin with, the further increase is detrimental to the economic growth.

On the question of government financial assistance to credit-constrained agents, it appears that intervention mitigates the extent of the deleveraging and reduces the deflationary effect of the negative house price shocks. Another somewhat counterintuitive finding is that the peak increase in government debt is decreased by government intervention; if government intervenes, it sustains the economic activity and by doing so it reduces its debt. If the level of inefficiency of government spending is high or the level of intervention is excessive, the above may not be true. According to Dr Melina – with about 10% inefficiency costs, the optimal size of intervention is about 7-8% of GDP.

Targeted Intervention

One step further, the authors compare the policy of targeted intervention with other types of fiscal stimuli, such as government investment and government consumption. They found that targeted intervention is more effective in the deleveraging phase, as it is aimed at financially constrained individuals that have high marginal propensity to consume. Hence, most of the funds that are channelled towards these individuals are consumed and that translates into a stronger output effect. Some economies, such as Southern European countries, have limited fiscal space to begin with and can only intervene to a very small extent. These countries may benefit from using limited government funds for targeted intervention rather than increasing the general level of government spending, which might be a less efficient option.

Targeted intervention works best if adequately planned and complemented by appropriate monetary and fiscal policies. In addition, it can be direct, meaning targeted at firms and private sector, or indirect, through banks, recapitalization, asset purchases and guarantees. When banks are in distress, direct targeted intervention might be preferable, because banks may use the funds provided by the government to repair their balance sheets, instead of increasing lending to the private sector.

In practice, targeted intervention might not be the easiest task for governments, as they have to find a way to discriminate between agents, to provide funds to specific firms or industries. Targeted intervention naturally raises moral hazards and competition issues, too. Dr Melina emphasised that targeted intervention is not something to be practised by the government on a regular basis, but should be reserved for disastrous times, when the economy is in distress and in urgent need of stabilisation policies. Could it be that now is just the right time?

Further information:

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El Encanto: artist Freddy Dewe Mathews explores spectral histories of the rubber industry in Colombia

El Encanto will be showing from 6 April – 4 May 2017 at the Peltz Gallery at 43 Gordon Square.

Dr Luciana Martins from Birkbeck’s Department of Cultures and Languages introduces this interview with artist Freddy Dewe Mathews

blog-el-encantoOur modern world owes a lot to a product native to Amazonia: natural rubber. As well as its contribution to the automobile and aviation industries in the form of the tyre, natural rubber is employed in a range of other products: from hoses and industrial belts to gloves, syringes, telegraph cables and condoms. However,a history of forced labour and brutality lurks behind rubber production.

In his project El Encanto, which borrows its name from one of the sites where Casa Arana (a Peruvian rubber company) operated, London-based artist Freddy Dewe Mathews documents traces of the industry that linger still in the Putumayo region in Colombia. As this is a remote region with a dark history, we asked Freddy to explain why he’s dedicated so much time and energy to work on this project.

What drew you to this project in the first place?

I remember being first drawn to the subject from having a vague understanding of the process of tapping a rubber tree; being somehow indirectly aware of how a tree produces this rather spectral white material – and that was something that made me curious. While it’s never been something I have consciously developed, an identifiable thread in my work is whiteness and the aesthetics of whiteness in nature.

In 2013, I was on a residency in Bolivia and I used the opportunity to start talking to an NGO in Santa Cruz, where I was based, about whether there were still producers of rubber in Bolivia. I made a rather eventful journey out to search for some of these small-scale producers in the Bolivian Amazon towards the border with Brazil. It turned out these producers didn’t actually exist where I had been told, but the trees still did and a local man, whose uncle had tapped rubber some 40 years earlier, guided me to them and with the same tool his uncle would have used, opened one of them up. Seeing that process in the flesh really drew me in – especially the idea that the tree still held the scars from when industry existed.

But this was really before I began to read about the history of the industry and became familiar with what happened not only in the Amazon but on to the plantations in Asia, even in the Congo with King Leopold and more recently with Firestone in Liberia. My particular interest in the Putumayo came when I read Micheal Taussig’s book, Shamanism, Colonialism and the Wild Man. It was then that I decided that if I wanted to make a project on this material it would need to focus on that particular site, so I began to work out how I would make my way there.

Tell us a little about Sir Roger Casement and how he fits into your interests.

Casement’s part in this story is that he was sent to investigate the Peruvian Amazon Company, a rubber collecting company run by Julio Arana, that was accused of abusing indigenous populations in the Putumayo. Casement arrives there in 1910. While in the Putumayo, he wrote various diaries which would become a key element of his trial when he was arrested some six years later smuggling arms to topple the same government that was his employer in Peru. There is a huge amount of context that is needed to understand his story, something Jordan [Goodman] or Lesley [Wylie] would far better explain than I can when they are here for the ‘Landscapes of Abandonment’ roundtable, 6 April 2017.

But what really interested me in his story were certain aesthetic aspects of it –in the context of the rubber industry and those processes I had first seen in Bolivia. Casement was a gay man and was having intimate relations with men during his trip to the Putumayo as we learn from his diaries. These revelations at the time changed the public impression of him and still, to this day, complicate how we remember him. This sexual element of the story appeals to the visual nature of the tree being tapped, which is itself an intimate relationship between the tapper and the tree, where the body of that tree is manipulated to produce a white substance, something that happens deep in the forest away from the gaze of others. While these parallels may seem crass, having seen that process first-hand they were extremely striking. I was further drawn to make these parallels when I was in the Putumayo and I heard about the mythology – common throughout Amazonia – of the pink dolphin, a river dolphin common in the Amazon that has a widespread belief associated with it: it can transform itself into a man dressed in a white linen suit that tempts youngsters into the water, never to be seen again. The debt these ideas and the images connected to them have to the rubber industry is very strong.

You had a long period of fieldwork in Colombia. How did this influence your work?

It was a great privilege to be able to spend nine months in Bogotá on a residency (British Council Residency Programme at FLORA – 2016). It gave me access to a lot of materials I would not have come across in London and the chance to meet anthropologists based there. And it also allowed me to travel further into the areas I was interested in.

It also gave me the opportunity to see the story from a different perspective. Somehow the way the history is written from the UK seems to focus on the British as a kind of saviours and their involvement in the investigation and trial of Casa Arana is given a greater significance that it might deserve. Whereas in Colombia you are told that if the Casa Arana hadn’t been able to register in London and receive British investment it would never have been able to expand in the way that it did, to reach the areas it did and exploit the communities it profited from. Profits that were enjoyed by the Britons who had financed it.

And while the trial may have been a noble effort it had very little actual effect in the Putumayo, where the company continued to exist for some years until the price of rubber was driven so low by plantations in Asia.

These stories are far more complicated than the reductive terms I am using to explain them but it was interesting to see it nevertheless from two contrasting perspectives.

Re-assessing the past seems to be a recurring theme in your work. Why does it appeal to you?

I am attracted to the idea that history is malleable and deeply subjective and I feel that the histories that I have tended to look at, which are of remote subjects, represent this particularly succinctly. To the extent that the explorers that were drawn there and even someone like Casement who was tasked with being objective are actually fairly un-reliable and consequently make for interesting reading. Especially when you can see the narratives created as they develop, becoming ever more difficult to separate from the reality.

I want my work to create a space where these stories can be looked at in a very conscious way, examining how we regard these histories once we are aware of how our sense of them shifts with the perspective of time.

You use different media in your work. How do you decide which one is more adequate to express your art? Could you let us know, for example, why are you using 16mm in this show?

There is no specific rationale for why one subject may end up expressed in a certain way. It’s more that techniques and processes are developed alongside the research and journeys that I make. Sometimes, in fact, the same ideas may be expressed in various different media in the same exhibition, almost as a way to make an example of something.

I always want to create a world that can be inhabited in my work and want that world to have many facets and materials, and that is why I have always been drawn to using different media.

16mm specifically is something I was looking at when I started to think about video loops. I wanted these to be made manifest and tangible in the exhibitions I was making and really the materiality of film was the best way to do that. The idea with these works is to make the audience aware of the way their perception of something that is essentially unchanging, a loop of film, evolves the longer they look at it.

Here, in this work specifically, using 16mm creates an exciting tension in the work, referencing the material that was used to first relay images of these remote areas by explorers and anthropologists. Often people will see the images without being certain whether the footage is archival or not. This is something that plays with the idea of the distance we have from these subjects.

Associated events:

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Cyber Security professionals offer students advice and insights at Birkbeck Careers event

This post was written by Jenna Davies from Birkbeck Careers

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Students were exposed to plenty of practical advice, industry insights and networking opportunities this week as professionals from the world of cyber security shared their experiences as well as their thoughts on getting into the sector at a panel discussion organised by Birkbeck Careers.

The fundamental message was extremely positive, with every panellist indicating that there is a route for anyone to get into the industry; it’s a case of finding the right one for you.

Nigel Jones, CEO of IAAC (Information Assurance Advisory Council) highlighted that companies are often looking for bothnon techie’ as well as techie people. He revealed his outlook that there’s always a way to map your route into cyber and no matter what your background, there’s a career in cyber if you want to go down this path.

The ever growing skills shortage was a hot topic of conversation and Nick Wilding, General Manager of Cyber Resilience at AXELOS Global Best Practice (a joint venture between the UK Government and Capita plc) highlighted the demand for the skills today’s students have. Being a geography graduate, Nick emphasised that the skills required are multi-faceted and the growth of the industry demonstrates the need for those in the audience to put their skills to use in this arena.

Fellow panellist Erin Jones – Senior Associate at PwC UK cyber security practice – took her teaching role developing computer science and IT schemes and turned it into a career within cyber. Erin spoke of her own education at an all-girls school, indicating that tech was never advertised as a career option, which is controversial given the low number of women currently working within technology. The barrier for Erin isn’t the lack of women in the industry; it’s the lack of awareness as cyber is often seen as the ‘dark art’.

Nick reiterated Erin’s description and the need to change its perception with organisations, who are often tired of hearing about the threats they face and need holistic approaches from those who can support them.

Daryl Flack, CIO of Blockphish facilitated the event and touched on the vast range of roles available within cyber security; management alone provides lots of opportunities such as working as a consultant, within sales, as a creative addition to the team, an entrepreneur or within the ethical side of the industry. He advised the audience to start getting into something remotely cyber to kick off their path, or checking out new websites that need something more secure and finding your route in this way.

Like the majority of successful professionals it starts with passion and commitment, and regardless of your chosen course of study it seems very plausible to get into this ever growing industry.  Erin pointed out that one of her current colleagues does threat intelligence and studied geography at university while another studied Spanish and now works in their technical response team. Anything applies as long as you have that passion.

The conversation continued over networking and undoubtedly left some attendees with the motivation and belief that they can very effectively contribute to this field of work. So more of us can now step forward to stop the hackers, fight the phishing emails and join this exciting and valuable sector that impacts just about everyone in this day and age.

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Is morality relative?

This article was written by Dr Michael Garnett, from Birkbeck’s Department of Philosophy. The article is taken from the introduction to a study guide on moral relativism, written by Dr Garnett and Professor Lillehammer, ahead of the conference and essay competition on the question ‘Is morality relative?’, which will take place on 28 June 2017.

platoI used to be a moral relativist—I used to think that moral judgements could be true or false only relative to a culture. Not just that: I used to think that moral relativism was obviously true. I struggled to understand how anyone could not be a moral relativist. Denying moral relativism, I thought, meant thinking that you were in possession of the one, true, universal, objective morality—and who could be so arrogant as to think they had that? I mean, maybe if you were religious you might think you had that. But even then, there are many different religions, and religious teachings require interpretation; and so who could be so arrogant as to think that they, out of everyone in the world, had hit on the one true interpretation of the one true religion?

My mother is a social anthropologist, someone whose job it is to study different cultures, and growing up I was keenly aware of the huge differences in moral ideas and outlooks between different human societies. As a kid I’d sit through dinner parties listening to my mum and her anthropology friends swapping stories about the distant peoples with whom they’d lived: the things they’d had to eat (live grasshoppers and stewed goat’s placenta were particular standouts), the different kinds of family structures they’d been welcomed into, and the different ideas about ethics and the cosmos that they’d learned about. For as long as I can remember, then, I’ve known that the ideas I happen to have about things like property, marriage, suicide, homicide, incest, cannibalism, the natural world, and so on, are mostly just local to me and to my little corner of the world.

So how could I not have been a relativist? Perhaps I could have believed in a universal, objective morality if I’d been ignorant of the extent of these cultural differences—if I’d somehow thought that everyone in the world shared more or less the same moral ideas as me and the other white, middle-class Londoners in my neighbourhood. But I wasn’t ignorant: I had a front row seat at the theatre of human cultural diversity. So to believe in a single true morality I would have had to believe, arrogantly, that somehow I (along with the rest of my ‘tribe’) had some special access to the moral truth, a special access denied to everyone else on the face of the planet. What could possibly justify this? After all, it’s simply an accident of birth that I grew up to have the moral ideas that I have. Had I instead grown up on a Fijian island, or deep in the Amazon basin, or in rural China, I would have had an utterly different moral outlook. Clearly, I had no better claim to the moral truth than anyone else. And that’s why I thought moral relativism was obviously true.

But I’m not a moral relativist anymore. So what happened? What happened is I studied philosophy. Philosophy showed me that I was muddled about what exactly did and didn’t follow from these facts about cultural diversity and disagreement, and it helped me to see everything more clearly. I eventually came to understand that, of the various things I thought about this topic, some of them were correct, but weren’t moral relativism; and some of them were moral relativism, but weren’t correct.

It took me a few years to get this all straightened out in my head. I’ve written a short Study Guide to pass some of this on; this is the essay that I wish I’d been able to read after sitting through those anthropology dinners, my head spinning vertiginously at exotic tales of cultural difference. You can download it here. And at our conference on 28 June, some of my esteemed colleagues will share their own perspectives on the topic of relativism. We very much hope to see you there.

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