Views of a Nepali Economist

This fear is misplaced. At the outset, we have to distinguish between “need” and “demand.” Yes, many African countries need skills. But they are unable to absorb them, owing to several factors associated with economic backwardness.

[...]Moreover, keeping people at home is easier said than done. In many poor countries, except those like India and South Korea, which have now developed superb educational institutions, the brightest citizens receive their education abroad. The challenge, then, is to prevent them from staying there and settling down.[...]

The proper response to the outflow of skilled manpower from poor countries, especially those in Africa, is to be found in a different direction.....This means adopting a “diaspora” model, which implies four policy proposals....First, stop crying over the fact that the diaspora is not returning home. Instead, nurture the loyalty of professionals settling abroad, so that they assist their home countries in a variety of ways....Second, while the diaspora should be integrated through more rights, its members also ought to accept obligations that put them on an equal footing with those who remain behind....Third, because skills are necessary for nearly all activities in most of Africa, here and now, we need to organize ways to supply such skills to these countries......Finally, foreign aid should be used to expand training massively for Africans in all the essential fields in rich countries like the US, the United Kingdom, France, and the Netherlands.

[...] The central banks of the leading developed countries failed spectacularly in the lead-up to GFC. Their failure was centred on what most central bankers still regard as the great achievement of the 1990s, the shift to a system of ‘inflation targeting’, in which the sole objective of monetary policy was to keep the rate of inflation in a target range, typically close to 2 per cent.[...]

[...] in the post-crisis environment, achievement of inflation targets has no longer promoted stable economic growth. Rather, low  inflation has been a drag on growth. But with inflation clearly under control, central bankers like former European Central Bank President Jean-Claude Trichet have been able to describe their own performance as ‘impeccable’, even as the economies and currencies they manage appear headed for collapse....This system is clearly unsustainable. But what is the alternative?[...]

The most popular idea begins with a change of target, from the rate of inflation, to the level of nominal GDP (the most commonly used measure of national output, valued at current prices).... The idea would be to combine a target rate of inflation (say 2-3 per cent) with an estimate of the medium-term rate of real economic growth required to maintain full employment (again 2-3 per cent is a plausible estimate). The aim would then be to keep the value of GDP, expressed in current dollars, on a growth path consistent with these targets (that is, at an average annual rate somewhere between 4 and 6 per cent).

...First, it would restore the balance that used to prevail in monetary policy before the 1990s, when central banks were explicitly required to pursue full employment as well as price stability...Second, because the target would apply to the level of nominal GDP, its adoption would require central banks to catch up the ground lost over the last few years of depressed growth and generally low inflation...Third, the adoption of a nominal GDP target, by committing central banks to an expansionary policy would have self-fulfilling effects on expectations....Last but not least, a nominal GDP target would create room for fiscal policy as well as monetary policy.

# posted by Mukesh Khanal @ 4:56 PM