Digest: 21 April 2013


This weeks’ Digest consists of a variety of articles from the Washington D.C. think-tank, the Brookings Institution:

Several factors give grounds for optimism regarding the future position of the US economy; How the Federal tax code affects small businesses; Increased bank funding through equity is necessary, but must not overshoot; China’s promotion of its currency, the renmibi, internationalisation or domestic financial liberalisation; Recurring natural disasters remind us that we must be diligent on mitigation; How to balance immigration interests for STEM graduates; Federal crackdowns on marijuana legalisation are counterproductive even to the interests of drug hawks; Credit should be given for the US care in use of drones; Use of common finals in postsecondary education to help improve instructional quality; Book discusses how to increase the scale of small development projects; Book discusses data on use of arts and culture in economic development.


In An American Future Filled with Promise, Michael E. O’Hanlon and General David Petraeus discuss a relatively optimistic view of the position of the US.  They point out that the US has several factors to its credit which hopefully will position it very favorably in the coming years – these are energy, manufacturing, life sciences, and information technology.  In each of these areas O’Hanlon and Petraeus point out the competitive advantage that the US currently holds and they argue that if played well, these advantages could spell a period of remarkable future progress for the US.  They also point out that this will only result if other factors are handled with care, specifically the nation’s debt to gross domestic product ratio. Both political parties will have to make cuts if this will be effectively managed.  That issue being addressed, they argue that definitive action must be taken on energy, infrastructure, human capital, and finance.  Finally, they propose optimism.

In Small Business, Innovation and Tax Policy, William Gale and Samuel Brown discuss how the federal tax code affects small businesses.  As a groundwork they discuss arguments related to whether and how the public policies should subsidise small businesses, then they discuss the small business sector itself, then evidence that suggests that it is not so much small businesses as new businesses that hold the most innovative potential, they then discuss the tax policies relevant to these businesses, and how those policies affect different stages of the business growth cycle.

In Excessive Bank Equity Rules Would Slow the Economy, Douglas J. Elliott discusses the effect of rules that would require banks to fund themselves to a greater extent through equity, decreasing the proportion of their funding that comes from debt.  He points out that although it will benefit the safety of the system to raise equity levels to the extent mandated by, for example, the Basel III requirements, we must be careful not to require the raising of them too high.  He notes that although Nobel-winning research has apparently shown that there will be no economic cost to raising equity levels, the research is misleading in that it fails to take certain factors into account – tax advantages for debt, deposit guarantees and other backstops, issuance costs, investor skepticism, shadow banking, and transition issues.  He concludes that equity levels should be raised, but carefully.  If we overshoot, then the economy will slow.

In China’s Global Currency: Lever for Financial Reform, Arthur R. Kroeber discusses the post-2008 internationalisation of the Chinese currency, the renmibi.  In light of moves made by China to promote the use of the renmibi in international trade, discussions have arisen regarding whether China is positioning it as an alternative to the US dollar as a trading and reserve currency.  Kroeber does not believe that this is the case, and argues to the contrary that the moves China has made are related to more to domestic development policy.  He addresses various topics in the process of developing a better understanding the renmibi internationalisation program – these include historical currency internationalisation programs in the US and Europe, analysis of the specific steps China has made, relationships between currency internationalisation and domestic financial liberalisation, and the potential of the renmibi as an international trading and reserve currency.


In Recurring Disasters: Are We Learning Lessons?, Elizabeth Ferris discusses Brookings annual review of natural disasters.  2012 was notable for its recurring disasters – those that strike communities before those communities have recovered from previous disasters.  When this occurs, the effect of the subsequent event is magnified and can be particularly devastating.  In its 2012 Review, Brookings also focuses on regional organisations involved in disaster risk management, wildfires, and gender dimensions of natural disasters.  With the increasing intensity, frequency, and unpredictability of natural disasters, it is becoming all the more important to make efforts to mitigate disaster risk, rather than merely respond to the manifestation of it.


In America’s Foreign Students and Immigration Reform, Neil G. Ruiz discusses the problem of retaining advanced science, technology, engineering, and mathematics (STEM) graduates.  Currently a variety of immigration programs exist to help them to remain in the US, but there are hurdles.  Difficulties arise when the repercussions of removing those hurdles are considered – it would mean an influx of tens of thousands of highly skilled immigrants, which would put considerable pressure on the American workforce already in place.  The article provides statistical information necessary to an intelligent consideration of the issue.

In Marijuana Policy and Presidential Leadership: How to Avoid a Federal-State Train Wreck, Stuart S. Taylor, Jr. discusses the relationship between state and federal interests in the legalisation of marijuana debate, specifically the legal challenges surrounding the question of legalisation.  Taylor argues that “the best way to serve the federal interest in protecting public health and safety is not for the federal government to seek an end to state legalization.  To the contrary, … a federal crackdown would backfire by producing an atomized, anarchic, state-legalized but unregulated marijuana market that federal drug enforcers could neither contain nor force the states to contain.”

Similarly, in Let’s Go Down the Aisle Toward Legalized Pot, Jonathan Rauch argues that “Squashing the states’ [efforts to legalize marijuana] is easier said than done”, and that to attempt to do so would potentially create chaos that would be “counterproductive even (or especially) for drug hawks.”  Rauch has expertise in the area of same-sex marriage – he likens efforts to legalise marijuana with efforts to legalise same-sex marriage, but also points out some differences such as that laws regarding family have traditionally been handled by states whereas laws on drugs have traditionally been handled by the federal government.  In both cases young people are driving the debates, which is an important factor where development of future policy is concerned.  Regardless of what anyone thinks of the efforts on either front, the status quo is unacceptable – a cooperative path must be found and will require creativity and energy from both state and federal government.

In America’s Care in the Use of Force (and Use of Drones), Michael E. O’Hanlon argues against a too dire view of the use of drones in the implementation of US foreign policy.  In responding to a book by American University Professor Akbar Ahmed, The Thistle and the Drone,  he decries approaches that highlight the risks inherent in the use of drones without adequate consideration of the care that is being taken to reduce collateral damage to a minimum.  He argues that to do otherwise will only fuel animosity and resentment – he arguably fails however to adequately account for the fact that it is the use of drones that fuels animosity and resentment, not the discussion of the effects of the use of drones.  But he is is no doubt right to point out that part of this discussion must be consideration of the objective of care.  Unfortunately in the very specific context of the supremely repressive nature of drone warfare, consideration of the care taken doesn’t (arguably) add up to much.


In Common Sense: Using Common Finals to Measure Postsecondary Student Learning, Matthew M. Chingos discusses a new approach to assessing student performance through common final exams being implemented in two developmental algebra courses at Glendale Community College in California.  Chingos argues that without adequate tools of measurement it is nearly impossible to improve instructional quality.  Common final exams in core university courses can alleviate this problem.  He makes four policy recommendations: the development and adoption of common final exams in large, multi section, introductory courses; the encouragement by college administrators of these efforts; the acknowledgement of and attendance to faculty concerns that common finals will be used to evaluate faculty; and the establishment of efforts to continuously improve the design of common finals.

In Getting to Scale: How to Bring Development Solutions to Millions of Poor People, Editors Laurence Chandy, Akio Hosono, and Homi Kharas, have provided essays on how individual small-scale development solutions can be scaled up into solutions that can be applied to a much larger target communities.  It focuses on two challenges to the growth, from small to large-scale, of development solutions: financing interventions at scale, and managing delivery to large numbers of beneficiaries.  It argues that partnerships between government and private enterprise play a key role in the success of these endeavours.

In Creative Communities: Art Works in Economic Development, Editors Michael Rushton and Rocco Landesman have provided extensive data pertaining to the use of culture and art as tools of economic development and the transformation of communities.  ”This important sector must be considered not only as a source of amenities or pleasant diversions, but also as a wholly integrated part of local economies.”