Towards a Solution to the Humanitarian Crises in Sudan

On Thursday, February 13 at 6 pm, Edward Abedian, Charlotte Kelly, Jacob Lypp and Mohamed Osman are presenting their paper on the ongoing humanitarian crises in Sudan, edited by Gabriel Lambert. The venue of the event is Emmanuel College’s Harrods Room.

Guest speakers include: Dr Abdelwahhab El-Affendi (Reader in Politics at the Centre for the Study of Democracy, University of Westminster and coordinator of the Centre’s Democracy and Islam Programme), Dr Sarah Nouwen (Lecturer in Law at the University of Cambridge and former consultant for various NGOs, Ministries of Foreign Affairs and the Department for International Development (DfID) on rule-of-law building and transitional justice), and Dr Laura James (Independent Consultant and Former Economic Adviser to African Union High-Level Implementation Panel for Sudan). 

Below, the authors blog about their work:

Ever since its independence in 1956, the Republic of the Sudan has been bedevilled by multiple humanitarian crises and armed conflicts that have claimed millions of lives. Even after the preliminary closure of the country’s longest running high-profile conflict – the civil war between the North and the South – with a peace agreement in 2005 and Southern secession in 2011, humanitarian disaster continues to loom large. The ‘Northern’ Sudan, on which the paper’s attention is focussed, continues to face a multiplicity of conflict arenas ranging from ongoing violence in Darfur in the West to continuing ethnic unrest in the Beja areas of the East; from full-scale war in the Nuba Mountains and Blue Nile State in the South, to simmering popular discontent in the North. All of these conflicts have given rise to and continue to exacerbate a range of humanitarian crises.

While focussing on material drawn from the two best-covered cases, namely Darfur and the Nuba Mountains, the paper argues that there is a common structural dynamic underlying all of these humanitarian emergencies the Sudan is facing. Sudanese politics of pre- as well as post-independence times has been characterised by imbalances in wealth and power between the central government in Khartoum and local factions and groups. This has led to tremendous regional inequalities within the country, with the narrow elites from the Nile Valley of the North benefiting greatly, economically as well as politically, from being in a position to dominate the state apparatus. Hence, political contestation in the Sudan has turned into a zero-sum game, with control of the state and its resources as its prize. In such a climate, any form of compromise has been hard (if not impossible) to achieve, and political actors and movements of all shades have been quick to resort to armed violence in order to push their demands.

The Republic of the Sudan’s humanitarian crises are thus of a distinctly political origin: The skewed and dysfunctional nature of the Sudanese polity per se has led to the neglect of whole provinces and the outbreak of armed conflicts; subsequently, violent strife has exacerbated patterns of developmental failure and devastation, leaving substantial swathes of the population vulnerable. Convinced that any serious proposal seeking to resolve the humanitarian disasters unfolding in the Sudan has to take these structural dynamics of Sudanese politics into account, the paper sets out to provide a model for a pre-eminently political solution strategy that moves beyond simple ‘humanitarianism’.

Such a political strategy needs to fulfil five benchmark conditions:

1. Accommodation of the ruling NCP regime

As unsavoury as this aspect of the proposal might be – most notably with its implications for the ongoing proceedings against leading regime figures by the International Criminal Court – it is crucial so as to bind the current ruling elite to the political process, thereby breaking the vicious cycle of ‘zero-sum politics’.

2. Bring all relevant Sudanese actors to the table

It is only by means of an inclusive approach that the development of a new political framework for the Sudan stands a chance of being recognised as legitimate by all necessary Sudanese players.

3. Develop a bold, federal constitutional arrangement

It is within such an arrangement that the structural drivers of conflict and humanitarian crises in the Sudan can be adequately addressed. Hence, the paper sets out a clear demarcation of powers between the national and the state levels, and lays out mechanisms that can alleviate regional disparities via instruments of wealth- and power-sharing.

4. Address local sources of grievances

In Sudan, local factors have been caught up and exacerbated incessantly in large-scale conflicts; and for many people on the ground, these local issues remain of the utmost importance. The paper demonstrates this at the example of the question of land and seeks to address problems pertaining to land by developing political and environmental tools to alleviate them.

5. Engage neighbouring states and regional players

The way towards the development of such a new political framework for the Sudan lies in the engagement of Sudan’s neighbouring states. To this end, the paper propounds the idea of a panel of international guarantor states; i.e. a group of states which – due to their historical ties, economic interests, or political leverage – can influence the relevant domestic Sudanese actors, inducing them to participate in the negotiation process, as well as enticing them to stay at the table and abide by their commitments.

Due to current circumstances, all parties – including the Bashir regime and the NCP – may be more willing to engage in a process of change than it perhaps appears. Against this backdrop, the aim of the paper is less to provide a meticulous description of potential political reform than to advance a bold model of a solution strategy that addresses some of the most crucial sources of conflict in the Sudan.

So do come along, hear our proposals, and join a hopefully lively discussion on Thursday evening, 6 pm, at the Harrods Room in Emmanuel College.

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Cambridge Global Health Policy Conference

TWS is running Cambridge’s first Global Health Policy Conference. Gabriel Lambert writes about what it hopes to achieve, and why you should get involved. 

In May 2013 a group of policy authors responsible for the Wilberforce Society paper on using a marketing approach to prevent Non-Communicable Diseases in the developing world presented their work to the All Party Parliamentary Group for Global Health at the House of Lords. It was very well received, to the extent that both Lord Kakkar and Lord Crisp contributed a Forward to the paper for its publication. It served as a simple but powerful reminder that a group of motivated and intelligent students can create a meaningful contribution to public policy.

This episode was one of the motivating factors behind wanting to organise the Global Health Policy Conference. Its primary aim is to follow in the footsteps of previous Wilberforce Society authors and create a whole body of well-researched policy papers that we hope will have an impact on some of the central global health debates of recent years. By working with Medsin Cambridge, it is hoped that some of these papers will form the basis for future campaigning work.

It will seek to reinforce the idea that students can and should be providing fresh ideas for policy-makers – it is rare for politicians to have either the extended length of time in which to engage with a single issue or the ideological freedom to come up with novel approaches to old problems. This is where groups like the Wilberforce Society can excel. Finally, it should demonstrate to students that as well as traditional engagement with the ‘Third Sector’ involving fundraising and awareness-raising, they should be critically engaging with the issues they are campaigning about to come up with practical policy solutions themselves.

We have a wide range of positions available for the conference – we need a committee to handle the logistics leading up to and on the day of the conference itself as well as a large group of authors and editors to work on our policy papers. Absolutely no experience in policy-writing is necessary – almost all of the Wilberforce Society’s authors have never written a policy paper before. All we look for is  enthusiasm about the subject of global health policy.

We expect the conference authors, as well as the satisfaction of pitching and publishing their policy ideas, will gain a good understanding of what makes a persuasive paper.This valuable experience would assist in any future job offers to the development, public health or charitable sectors in particular. As for the conference committee, you will be instrumental in securing the success of the conference whether it be by selecting and managing the right venue, fundraising, or creating our promotional materials. The process of helping to manage such a large project should again, provide useful experience whatever future work one wanted to pursue.

You can find out more about the roles available, some provisional themes we may explore, and how to apply on our Facebook page:

BLOG WARS!!!!; or, T-Simps Smackdown Watch

Jonathon Hazell

‘T-Simps’, the nom de plume of a Cambridge undergraduate called Thomas Simpson, has a go at the paper Felix Nugee and I wrote and presented the day before yesterday on what we call ‘helicopter money’. I encourage you to skim over it if you haven’t already, before returning to luxuriate participate in its demolition discussion. Snark aside, it’s a great piece, and raises a lot of salient and controversial points. Highly recommended reading, and no doubt the start of an excellent blog. It’s just quite nice to have some conflict in the Cambridge blogosphere – or indeed to have a Cambridge blogosphere at all.

Without further ado, let’s take a look at Thomas’s arguments.  From the top ….

(1) Negative interest rates can be a thing

Well, duh. Central banks can cut interest rates to negative infinity and beyond if they so choose. They have not and never will, because it would be pointless. This is because when interest rates are negative on any given security (say the bank balances which UK banks hold with the Bank of England), there’s almost no reason not to just withdraw its value into physical cash, which has a strictly better interest rate of zero. I say almost because there are costs to storing all that cash – think Fort Knox, bank vaults etc. Thomas rightly points out that Sweden has introduced negative interest rates. And the ECB might do the same. But no one – or almost no one – seems to think this would be more than marginally effective. Because once the cost of holding bank balances with the BoE at negative interest rates exceeds the costs of holding all that money in physical form, banks will withdraw it all. It’s that simple. In fact this is why when we are at the zero lower bound we call it a ‘liquidity trap’. Central banks are trapped by the fact that they can provide unlimited liquidity (i.e. money) without changing interest rates at all. Outsourcing to Barry Ritholtz on Sweden:

“Governor Stefan Ingves was quick to point out that benefits from negative interest rates did not seem to be observable. He did not get into the costs associated with negative interest rates, but he did affirm that it was unlikely that Sweden would use them again.”

The zero lower bound on interest rates is most definitely a problem.[1] And this is why we need to reform. Or as Gotham City’s Caped Crusader once put it:

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2)        It’s not about the state of financial intermediaries. It’s about expectations of future nominal income

I’m confused about this point on a number of levels. Firstly, we have absolutely no problem with nominal GDP level targeting (NGDPLT). In fact, I think (and Felix agrees) that NGDPLT would be a wonderful initiative. It is, however, a different argument – one that we’d fully support, but well outside the scope of our proposal (I seem to remember Felix making this point in our seminar). Most of the people who support NGDPLT (e.g. Michael WoodfordDavid Beckworth [2]) are very keen on seeing the two policies as complements, as are we.

But that notwithstanding, it is simply not true to claim that you could fix a broken financial system solely by stabilising future expectations of nominal income, which is I think the main line of Thomas’ and others’ arguments. It requires a world that is fundamentally at odds with what happened during the financial crisis. It is a world in which banks were willing to borrow from other banks, because they were not afraid that whatever collateral they received might be worthless in a few days time. It is a world in which banks were willing to lend to other banks because they were not worried about the prospect of them going bust. It is a world in which hot money didn’t take flight from the banking system and leave them without funds to lend at all. It is not the world we’ve been living in for the last five years. Instead, it is a world with a financial system that chose to stop lending because of future expectations, and was not forced to stop lending because of current financial panic. When Northern Rock had depositors queuing outside its cash machines in 2007, when RBS was scrabbling around to fund itself after buying the basket case that was ABN Amro in 2008, whatever the Bank of England might have done to the future economy was irrelevant – they simply did not have the balance sheets in place to lend out to the real economy. And so Felix and I remain sure that the financial system was sufficiently bust over the crisis that, we need other ways to target the real economy, which don’t rely on merely stabilising nominal income expectations and trusting to the health of the banking sector.

3)        Can QE or forward guidance cause bubbles?

Admittedly I’m not entirely convinced of this point myself, and lots of evidence points against the UK currently being in a bubble. But I’m certainly concerned about the possibility – and who wouldn’t be? We know from the last five years that the small tail risk chance of a bubble is worth weighing, because the consequences are so catastrophic. But Thomas claims to be confused about it, so I’ll try and point him in the right direction. The gist of the battleground here is this: when QE and forward guidance happens, what happens to long-term interest rates? And if long-term interest rates fall, why would that cause a bubble?

This next bit is quite tedious, but it’s Thomas’ argument as best I can make it. There’s supposedly an effect that says interest rates should go down. Some people call this the ‘liquidity effect’. The idea here is that QE or forward guidance lowers the path of future short-term interest rates, and this makes long rates fall. There are also a couple of effects that putatively act in the opposite direction. These are called the ‘inflation’ and ‘income’ effects. These reflect the fact that in the long run, if the economy picks up because of the stimulus, inflation and growth should rise, so the central bank will eventually raise interest rates.

Now I have no idea which of these effects dominate. I have no idea whether any of them are correct. They could both all be powerful or all be weak. We could have totally the wrong model of the economy and financial markets and how monetary policy works (and the evidence seems to be pretty clear that we do). This Scott Sumner bloke who Thomas brings up doesn’t have a clue either. And armchair theorising won’t get you there. You have to actually look at interest rates to figure out what’s going on. I took the precaution of actually doing this:

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So the bulk of QE took place in the October 2011 to July 2012 phase – right next to that nice big cliff in the middle. We had a bit in November 2009, just before the slightly smaller valley to the left. The rest took place in the flattish 2009-2010 phase. But you might say that just eyeballing interest rates isn’t particularly persuasive. Fortunately some very smart people have already done much more careful analysis. Paul Tucker, BoE deputy governor is probably the best the UK has on this front. And he like others finds that unconventional monetary policy has acted to lower long-term interest rates. Which, you know, accords well with just about every piece of serious econometric work on the subject.

So why is this a problem? The issue is that when long term interest rates fall, financial intermediaries who need to make some kind of fixed return on their investments (think pension funds who need to provide steady returns to people drawing down pensions) take on riskier propositions that pay a higher yield. In the parlance, they ‘reach for yield’. And this could create problems further down the road when either (a) these risks all blow up in their face or (b) they all unwind the risky investments when interest rates normalise. In fact there’s a very good case to be made (and Jeremy Stein of the Fed makes it) that this was in large part a reason behind the erratic movements in interest rates over the summer. Now I hasten to add that we don’t have a very good idea of whether or not this ‘reach for yield’ thing matters at all. But one lesson we’ve learnt about finance over the last five years is that trying to poke institutions into overleveraging themselves is something that we should do our best to avoid if we can.

For the record, Thomas’ point about targeting foreign currency is an excellent one. But I digress ….

3) Income inequality

Not even sure how to argue this point. We have a choice between (a) a way of stimulating the recovery by raising the incomes of the few and hoping they trickle down; or (b) raising the incomes of the many. The latter is preferable on this basis. Period. Sure, QE may have raised asset prices because it raises current and future profits. But this is basically the point Felix and I made – poor people don’t own assets so they don’t benefit from this.

Whew. Almost there. I need to sleep.

4) Will helicopter money work at all?

This is a very important point – and one we communicated very badly in the paper and also when we presented it, as Thomas rightly points out. The point made is this; we hope that by design helicopter money would function like a temporary tax cut. So what if consumers simply saved the money or paid down debts, instead of using it to boost spending? We have two answers to that. Firstly, recoveries after financial crises are generally slow because consumers are paying down debts – or ‘repairing balance sheets’ in the jargon. One of the better aspects of helicopter money is that if consumers chose to use it to get rid of these debts, it would accelerate the process of balance sheet repair, and speed the UK along the path towards recovery. That aside, though, if consumers are busy saving or paying down debts with their helicopter-dropped money, the idiot-proof solution is to simply give them even more money. Which is the crux of our explanation.

I guess that’s pretty much everything. A series of very important criticisms from Thomas, but ones which Felix and I think our policy is broadly robust to. People who have made it this far in either of our posts may have also realised that the debate is something of a proxy argument over what Thomas calls ‘market monetarism’. I happen to take a much glummer view of that particular school of thought than he does (having once been a devout myself), but this is an argument for future blogging wars.


[1] There are some racier proposals to introduce negative interest rates on money itself, especially by Miles Kimball and Willem Buiter. This is a different thing entirely.

[2] Respectively, the man famous for working out all of the interesting ideas of the obscure school of thought known as ‘market monetarism’ about a decade before it existed; and the most financially literate and arguably most incisive of the aforementioned market monetarists.

Helicopter Money – a Proposal for Macroeconomic Reform

On Monday at 6PM, Felix Nugee and Jonathon Hazell are presenting their paper on ‘helicopter money’, proposing to reform macroeconomic policy. We have discussants Ryan Avent of the Economist and their Free Exchange blog, and Martin Weale of the Monetary Policy Committee. Felix and Jonathon blog about why we need their proposal, below. 

Update: The draft copy of the paper can now be found here https://wilberforcesocietyblog.files.wordpress.com/2014/01/helicopter-money.pdf

In 2008, we saw a massive financial crisis in the UK, and then a steep fall in spending across the economy. The result was a deep recession and a sluggish recovery at best. The combined action of the Bank of England and the Treasury wasn’t enough to change this. We put together a paper for TWS to try and answer two questions – what prevented the government response from being stronger; and, bearing in mind these issues, what an optimal stimulus policy would look like. The UK economy is finally growing again, and maybe further stimulus is finally no longer needed.  But beyond this we want to look at how to prevent Britain’s worst economic performance in a century from happening again:

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It’s not all that unlikely that we could face the same problems in the future. Therefore we need a set of institutional reforms, to put in a framework to deal with any repeat of the last five years. This is ultimately the goal of our paper, designing a proposal called ‘helicopter money’. We propose to give the Bank of England the power to make lump sum cash payments to British households during a slump, so that consumers would go out and spend the money, boosting demand and ending recessions. The Bank would figuratively drop bundles of cash from a helicopter, so that people would use them to buy goods and services.

Our proposal is not quite new. In one form or another, top commentators at the Financial Times, the Daily Telegraph and the Economist have all mooted the idea. A few leading policymakers, in particular Lord Adair Turner are enthusiastic. However, to our knowledge there is not yet a piece of work that takes the wealth of important, rapidly-evolving academic ideas relating to helicopter money, and brings them together into an accessible proposal which more people can understand. Nor, we feel, is there a work that fully sketches out the political economy of helicopter money – only in this way can we understand what the optimal institutional design is, an issue which many discussants puzzle over or pass by. If we want a genuinely forward-looking reform to deal with future crises, this last step is necessary.

Failure of the alternatives

Of course to figure out why we need reform, the first step must be to discover why the status quo isn’t working. Before 2007, central banks steered the aggregate economy through varying the short-term interest rate, thereby affecting consumption, investment, and future growth and inflation expectations. The Bank of England was a “Flexible Inflation Targeter”, a role it performed very successfully – growth was high, unemployment and inflation low, from the 1990s to the eve of the financial crisis. However, when interest rates reach their zero lower bound (ZLB), theory and common sense indicate that the power of monetary policy to stimulate is constrained. This is because central banks cannot cut interest rates below zero, stopping their ability to add stimulus through that channel. This is the famous ‘liquidity trap’ phenomenon, where interest rate policy is powerless, like ‘pushing on a string’. A good demonstration of how problematic this is comes from recent work by economists Cynthia Wu and Dora Xia. They try to calculate what the MPC would have cut rates to, had the ZLB on interest rates not been an issue. The results aren’t pretty:

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The ‘shadow rate’ estimates the level of rate cuts then would be preferred by the MPC in the absence of the ZLB 

Clearly, then, the ZLB is a major problem – and stops standard monetary policy from eliminating the kinds of problems we’ve seen in recent years. So where do we turn when trying to fight recessions? Fiscal policy – cutting taxes or raising government expenditure to boost spending – is the other obvious option. But it is also quite problematic. We cover several reasons in the paper, but above all the problem is politicisation. Ideologically driven decisions to alter the size of the state can be flown under the flag of fiscal policy. Take the Bush era tax cuts – passed after the collapsing of the dotcom bubble ostensibly as a recession-fighting measure and pilloried by economists, they have now mostly been made permanent and totally restructured the American tax burden. Closer to home, the obvious example is austerity. This is not the place to retread the argument, but to our minds (and that of the OBR), austerity has been a total disaster for growth.  And David Cameron himself admits to using austerity to shape the British state for the long run:

“We are sticking to the task [of austerity]. But that doesn’t just mean making difficult decisions on public spending. It also means something more profound. It means building a leaner, more efficient state. We need to do more with less. Not just now, but permanently.”

Obviously when these sorts of explicitly political decisions have such a high cost, we can’t rely on politicians and fiscal policy to dig us out of any future economic mess.

What about unconventional monetary policy? The response by the Bank of England to the ZLB was to develop Quantitative Easing (QE) and forward guidance. The jury is out on how effective these have been – we try to take a look the costs and benefits in our paper. All we would say in this post is that the impact has almost certainty been small, and the costs far from trivial. But tellingly, almost no one argues that the sort unconventional monetary policy used by the Bank constitutes an ideal framework for the long run.

Helicopter Money

So clearly we need some new macroeconomic tools. Enter our proposal, helicopter money. Abstractly, a sum of money, chosen by the Bank to provide the right amount of stimulus, is dropped by helicopter to every household in the country.  In reality, of course, the Bank would simply credit every household with the given amount. In very simple terms, helicopter money is like a big lump sum tax cut by the government, financed by money instead of bonds – in each case, the policy move is a cash rebate to households. Clearly, then, it would be a powerful way of boosting overall spending in the economy, and stopping recessions. The post is running long, and we don’t want to give away exactly why we like it so much as a policy. But in our paper and seminar, we defend the idea that this is a roughly optimal way to prevent recessions. Come along to find out why!