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1. Power and Financial Interdependence

Author:
Brad Setser
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Institut français des relations internationales (IFRI)
Abstract:
The link between financial self-reliance and geopolitical power has long been debated. The unbalanced Sino-American trade relationship has created asymmetric financial ties which generate potential sources of leverage for both parties and will not quickly disappear. Absent a clarifying major crisis, it will be difficult to definitively determine which party has greater leverage. Many in the United States (US) are concerned about indebtedness to its primary strategic rival, and the risks posed by a sudden Chinese withdrawal from US financial markets. US policymakers actively sought to encourage China’s top leadership not to withdraw financing from the market for US Agency securities in the run-up to the global financial crisis. Yet China also sees risks in this unbalanced financial relationship. Chinese policymakers have expressed concern about the domestic political consequences of losses on either their Treasury or Agency holdings and actively have sought to diversify China’s reserves – including by substituting the risk of lending to developing economies for the visibility associated with large holdings of Treasuries in US custodians. China increasingly worries that its dollar holdings and the dollar’s global role increase its vulnerability to potential financial sanctions. Both parties thus worry about the possibility that financial interdependence can be weaponized yet find it hard to extricate themselves from the inevitability of financial interdependence absent a clean break from an entrenched pattern of trade imbalances.
Topic:
International Trade and Finance, Bilateral Relations, Finance, and Interdependence
Political Geography:
China, Asia, North America, and United States of America

2. Private Finance and the Quest to Remake Modern Warfare

Author:
Michael Brenes and William D. Hartung
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Quincy Institute for Responsible Statecraft
Abstract:
Official Washington is all in on promoting a new type of warfare based on military applications of AI and other emerging technologies. This determination was on full display last year when the Biden administration unveiled the “Replicator” initiative, an attempt to develop swarms of high-tech weapons systems at relatively low cost, and in numbers capable of overwhelming any potential adversary. But the history of so-called miracle weapons offers ample reasons to doubt Replicator’s supposedly transformative potential. Previous innovations, from the “electronic battlefield” in Vietnam to drone warfare in the Global War on Terrorism, did not, in fact, revolutionize war as we know it. Cutting-edge technology is no substitute for sound strategy or a realistic assessment of what military force can achieve. Unfortunately, so far, at least, these lessons from history have been no match for the boosterism of venture capital (VC) firms that pride themselves on disrupting industries and overturning conventional wisdom. While estimates of total VC funding of emerging military technology vary widely, it is clear that private investments in emerging weapons technologies are large and growing, driven by a handful of major Silicon Valley players, including Peter Thiel’s Founders Fund and Andreessen-Horowitz. Companies backed by these firms, including Palantir, Anduril, and SpaceX, have already landed major contracts for weapons systems that incorporate next-generation technology. These firms and their allies in the Pentagon and Congress are determined to move full speed ahead on the development and deployment of weapons based on AI and other technological innovations, despite many unanswered questions about the costs and risks involved. While the bulk of Pentagon funding still goes to the “big five” contractors — Lockheed Martin, RTX (formerly Raytheon), Boeing, General Dynamics, and Northrop Grumman — VC-backed startups aspire to become the future of military contracting, and they hope that AI and other emerging technologies will be their ticket. These startups may prove to be more nimble and innovative than the bloated, top-heavy firms that currently dominate the arms industry, but they should not be allowed to operate with impunity. Congress must establish ground rules that prevent military startups from exploiting the procurement process in ways that pad their bottom lines while providing flawed systems — outcomes that we have seen all too often from their traditional rivals. What is most important, the rush to profit from emerging military tech cannot be allowed to short-circuit the careful scrutiny and wide-ranging public debate that must precede any move toward a brave new world of autonomous warfare in which human intervention in the kill chain is significantly reduced, if not eliminated. This brief offers policymakers a framework for ensuring that unsupported promises to “reinvent” warfare don’t exacerbate the cycle of corruption and waste that has all too often plagued the Pentagon’s procurement process, to the detriment of our safety and security.
Topic:
Foreign Policy, Diplomacy, Finance, Grand Strategy, and Warfare
Political Geography:
North America, Global Focus, and United States of America

3. Mapping Fragility – Functions of Wealth and Social Classes in US Household Finance

Author:
Orsola Costantini and Carlo D'Ippoliti
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Which households are more exposed to financial risk and to what extent is their debt systemically relevant? To provide an answer, we advance a new classification of the population, adapted from Fessler and Schürz (2017), based on the type of wealth families own and their sources of income. Then, we investigate data from eleven waves of the Survey of Consumer Finances (SCF), a triennial survey run by the U.S. Federal Reserve, to explore the association of different debt configurations and motives to get into debt with our class distinctions. Our new approach allows us to assess competing hypotheses about debt and financial vulnerability that have so far been analyzed separately in disconnected strands of literature. The results of our study reinforce and qualify the controversial hypothesis that relative poverty and inequality of income and access to services have been important factors explaining household indebtedness and its relationship with economic growth over time.
Topic:
Debt, Poverty, Inequality, Finance, Fragility, and Income Distribution
Political Geography:
North America and United States of America

4. Setting Pharmaceutical Drug Prices: What the Medicare Negotiators Need to Know About Innovation and Financialization

Author:
Öner Tulum and William Lazonick
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Mandated by the Inflation Reduction Act of 2022, the U.S. government through the Centers for Medicare and Medicaid Services (CMS) is negotiating with pharmaceutical companies over the “maximum fair price” of ten drugs in wide use by Medicare patients. Over the next few years, the number of drugs whose prices are subject to negotiations will increase. The pharmaceutical companies contend that a “fair” price would be a “value-based price” that enables the companies’ shareholders to capture the value that the drug creates for society. Invoking the dominant “maximizing shareholder value” ideology, the argument for value-based pricing assumes that it is only a pharmaceutical company’s shareholders who make the risky investments that fund drug innovation. Pharmaceutical executives and their lobbyists warn that a lowering of drug prices will reduce investments in new drugs. The purpose of this paper is to enable CMS negotiators to respond to these arguments by showing a) why drug-price regulation is required, given the relation between scale economies in supplying drugs and price inelasticity of drug demand; b) how the pharmaceutical companies with which they are negotiating prices are, in general, not using their profits from unregulated drug prices to fund drug innovation but rather to fund distributions to shareholders in the form of cash dividends and stock buybacks; c) that publicly listed pharmaceutical companies do not typically rely upon investment by shareholders to fund drug innovation; and d) that investment in drug innovation entails “collective and cumulative learning” in foundational and translational research that is both antecedent and external to the investments in clinical research that a pharmaceutical company may make to bring a safe and effective drug to market.
Topic:
Economics, Health, Finance, Innovation, Pharmaceuticals, and Medicare
Political Geography:
North America and United States of America

5. Economic Performance in US Fossil Fuel Communities

Author:
Noah Kaufman, Ariane Desrosiers, and Sarah Doctor
Publication Date:
12-2024
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Rapidly reducing greenhouse gas emissions from fossil fuels to address the severe threats of climate change requires economic transformations that pose challenges for regions heavily dependent on coal, oil, natural gas, or other carbon-intensive industries. The United States is the world’s largest producer of oil and natural gas and the fourth-largest producer of coal, and communities across the country depend heavily on fossil fuel industries for jobs, investments, and public revenues that fund schools and other critical services. These communities will need considerable support to successfully navigate a global transition away from fossil fuels, and a better understanding of their local economies will help policymakers design and implement pragmatic support. However, scant evidence exists for such use today. This report, part of the Resilient Energy Economies initiative co-led by the Center on Global Energy Policy at Columbia University SIPA, uses a novel dataset and case studies to establish a baseline of local economic performance in fossil fuel–dependent communities between 2004 and 2019. This period captures the peak and first decade of decline of the US coal industry as well as the shale revolution that boosted US oil and gas production.
Topic:
Climate Change, Energy Policy, Finance, Fossil Fuels, and Carbon Emissions
Political Geography:
North America and United States of America

6. Central Bank Digital Currency: The Risks and the Myths

Author:
Nicholas Anthony and Norbert Michel
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Central bank digital currencies (CBDCs) have the potential to radically transform the American financial system—ultimately usurping the private sector and endangering Americans’ core freedoms. Although CBDCs have gained the attention of politicians, central bankers, and the tech industry, this experiment should be left on the drawing board. This paper provides a summary of why Congress should explicitly prohibit the Federal Reserve and the Department of the Treasury from issuing a CBDC.
Topic:
Finance, Economy, Fiscal Policy, Banking, and Digital Currency
Political Geography:
North America and United States of America

7. U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes

Author:
Munira Z. Gunja, Evan D. Gumas, and Reginald D. Williams II
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Commonwealth Fund
Abstract:
In the previous edition of U.S. Health Care from a Global Perspective, we reported that people in the United States experience the worst health outcomes overall of any high-income nation.1 Americans are more likely to die younger, and from avoidable causes, than residents of peer countries. Between January 2020 and December 2021, life expectancy dropped in the U.S. and other countries.2 With the pandemic a continuing threat to global health and well-being, we have updated our 2019 cross-national comparison of health care systems to assess U.S. health spending, outcomes, status, and service use relative to Australia, Canada, France, Germany, Japan, the Netherlands, New Zealand, Norway, South Korea, Sweden, Switzerland, and the United Kingdom. We also compare U.S. health system performance to the OECD average for the 38 high-income countries for which data are available. The data for our analysis come from the Organisation for Economic Co-operation and Development (OECD) and other international sources (see “How We Conducted This Study” for details). For every metric we examine, we used the latest data available. This means that results for certain countries may reflect the height of the COVID-19 pandemic, when mental health conditions were surging, essential health services were disrupted, and patients may not have received the same level of care
Topic:
Health, Health Care Policy, Inequality, and Finance
Political Geography:
North America and United States of America

8. Healthier Firms for a Stronger Recovery: Policies to Support Business and Jobs in Latin America and the Caribbean

Author:
Andrew Powell and Liliana Rojas-Suarez
Publication Date:
08-2022
Content Type:
Special Report
Institution:
Center for Global Development (CGD)
Abstract:
This report—the product of a joint working group convened by the Center for Global Development and the Inter-American Development Bank—focuses on firms and labor markets in Latin America and the Caribbean during the COVID-19 crisis and the highly uncertain recovery phase now underway. The ongoing Russian war in Ukraine, volatility in international financial markets, and fears of global stagflation (low growth and high inflation) combine with the impacts of the pandemic to make the economic environment particularly challenging. Through a balance sheet analysis, the report describes how larger firms have navigated the crisis by cutting back on vari­able costs and investment. It also focuses on small and medi­um-size enterprises (SMEs), which appear to have suffered more in terms of closures and restrictions on credit access. The impacts on labor markets were unprecedented, with steep falls in employment and participation rates. A key question is whether the reallocation of resources, favor­ing firms in sectors that were hit less hard and able to take advantage of digital technologies, will persist. Key dangers are that informality is higher than ever, that productive resources remain trapped in small and less productive or ultimately unviable enterprises, and that firms are not rebuilding their capital stocks quickly. Drawing on an analysis of firms and labor markets, the report provides a set of recommendations for policymakers in the region and suggestions for international financial institutions to assist productive firms to invest, support the growth of new firms, and enhance labor market performance.
Topic:
Development, Economics, Finance, and Banking
Political Geography:
South America, Latin America, Caribbean, and North America

9. Greening the US Sovereign Bond Guarantee Program: A Proposal to Boost Climate-Directed Sovereign Finance in Developing Countries

Author:
Scott Morris, Rowan Rockafellow, and Alan Cameron
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
Sovereign bond guarantees (SBGs) are an effective but underutilized instrument available to the US government in support of developing country partners. By protecting bond purchasers in the event of a foreign issuer country’s default, SBGs substantially reduce borrowing costs for developing country governments. In this CGD policy paper, we estimate the costs and benefits of historical US sovereign bond guarantees in order to model the use of SBGs for climate finance purposes. We demonstrate that the US government-provided SBG has the effect of conferring the US government’s cost of borrowing on the partner government. On that basis, it represents substantial savings for these countries. Based on this analysis, we propose a $20 billion “Green” SBG program aimed at financing climate change mitigation efforts in 28 emerging market economies. We estimate that the US government could support $20 billion in bond issuances through a subsidy outlay of $2 billion, resulting in a 22 percent reduction in borrowing cost of the target countries, which represents $4 billion in budgetary saving for their governments. We propose that the subsidy appropriations in support of the guarantees be retained and recycled within the Green SBG program, which would substantially improve the financial leverage of the program over time. We also suggest that the program could be used for climate adaptation purposes by targeting a different group of developing countries
Topic:
Climate Change, Development, Finance, Sustainability, and Green Transition
Political Geography:
North America and United States of America

10. Are Financial Barriers Affecting the Health Care Habits of American Men?

Author:
Munira Z. Gunja, Evan D. Gumas, and Reginald D. Williams II
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Commonwealth Fund
Abstract:
Whether it’s stubbornness, an aversion to appearing weak or vulnerable, or other reasons, men go to the doctor far less than women do.1 While behavioral and cultural norms may have a lot to do with the care-seeking habits of American men, the fact remains that the United States is the only high-income country that does not ensure all its residents have access to affordable health care. Roughly 16 million U.S. men are without health insurance, and affordability is the reason that people most often cite for why they do not enroll in a health plan.2 Do income level and financial stress help explain why men do not get needed care and experience worse health outcomes? Using data from the Commonwealth Fund’s 2020 International Health Policy Survey and the Organisation for Economic Co-operation and Development (OECD), we compare health care accessibility, affordability, and health status for adult men in 11 high-income countries. We also examine measures of income and income-related stress, where the data allow, to understand the role income insecurity might play in American men’s relatively low use of health care.
Topic:
Health, Finance, Medicine, and Gender
Political Geography:
North America and United States of America