Recommended Weekend Reads

September 1 - 3, 2023

Here are our recommended reads from reports and articles we read in the last week. We hope you find these useful and that you have a wonderful and very relaxing Labor Day weekend.   And let us know if you or someone you know wants to be added to our distribution list.

Americas

• “Mexico’s Microchip Advantage”  Foreign Affairs

  Since Congress passed the CHIPS and Science Act one year ago, there has been much talk about how to shift electronics and computing supply chains away from China.  In addition to the rapid buildup of domestic manufacturing spurred by the CHIPS Act tax credits and incentives, the intensification of U.S.–China tension and the imposition of export controls are encouraging many multinational technology companies to relocate production outside of China.  The focus on diversification within Asia, however, has meant that Mexico – the U.S.’ top trading partner and arguably its most important manufacturing partner – is being largely overlooked.  Building regional capacity offers a way to limit Asia-focused supply risks, and in the event of a major U.S.–China conflict, an intra-hemispheric supply chain would be much less susceptible to interference.  Mexico would be the key place to start.

Africa

• “Whose tune will an expanded BRICS dance to?”   Institute for Security Studies (South Africa)

  On the face of it, South African President Cyril Ramaphosa was the big winner of the 15th BRICS Summit in Johannesburg last week. Ramaphosa presided over a summit where the five BRICS leaders agreed to invite six new members to join the bloc: Saudi Arabia, United Arab Emirates, Iran, Ethiopia, Egypt, and Argentina. An expanded BRICS that now accounts for 36% of global gross domestic product (GDP) in purchasing power parity (PPP) terms and 46% of the world’s population. But if the expansion was a success for Ramaphosa, it was arguably an even greater success for Chinese President Xi Jinping, who campaigned energetically for enlarging the alliance. Prime Minister Narendra Modi of India was apparently reluctant because he suspected this would increase Xi’s global power.  Modi is likely to be proven correct.

• “The Niger Coup’s Outsized Global Impact”   Carnegie Endowment for International Peace

  This latest coup in West Africa is a major blow to Niger, the Sahel region, and West Africa as a whole. The junta has publicly accused France, which has some 1,500 troops in Niger, of trying to destabilize the country. The crisis has also been closely monitored in Washington, given the presence of U.S. military bases and political engagement in the landlocked country at the heart of the Sahel. While Niger’s economic and social indicators place it at the bottom of global development indices, these metrics also understate the country’s strategic importance of this vast country. Its geographical position at the crossroads of North, West, and Central Africa, its mineral and oil resources, its potential for the development of renewable energies, and its strong demographic growth help explain the seemingly outsize interest of medium and large powers in the current crisis. This report is an exploration of the major ways the crisis has rippled through the country, the region, and the world.

Indo-Pacific

• “What Kind of World does Xi Jinping Want?”   Harvard Kennedy School

  When Chinese President Xi Jinping agreed to a “Joint Statement” with President Putin, claiming there would be “no limits” to the relationship, some wondered whether this heralded the creation of a new world order. The statement does reference the trend toward the “redistribution of power in the world.” So, what kind of a world does Xi want to see? Two major principles drive his view. First, security and sovereignty issues must all be aligned to ensure the continued rule of the Chinese Communist Party. Second, he insists that China be seen as at least an equal player in the world, making it a key participant in defining the rules of the road.

Political Economy

• “Protests”  National Bureau of Economic Research Working Paper

  Abstract: Citizens have long taken to the streets to demand change, expressing political views that may otherwise be suppressed. Protests have produced change at local, national, and international scales, including spectacular moments of political and social transformation. We document five new empirical patterns describing 1.2 million protest events across 218 countries between 1980 and 2020. First, autocracies and weak democracies experienced a trend break in protests during the Arab Spring. Second, protest movements also rose in importance following the Arab Spring. Third, protest movements geographically diffuse over time, spiking to their peak before falling off. Fourth, a country’s year-to-year economic performance is not strongly correlated with protests; individual values are predictive of protest participation. Fifth, the US, China, and Russia are the most over-represented countries by their share of academic studies. We discuss each pattern’s connections to the existing literature and anticipate paths for future work.

• “The FMOC versus the Staff: Do Policymakers Add Value in Their Tales?”  Federal Reserve Bank of Cleveland

  Using close to 40 years of textual data from FOMC transcripts and the Federal Reserve staff's Greenbook/Tealbook, we extend Romer and Romer (2008) to test if the FOMC adds information relative to its staff forecasts not via its own quantitative forecasts but via its words. We use methods from natural language processing to extract from both types of document text-based forecasts that capture attentiveness to and sentiment about the macroeconomy. We test whether these text-based forecasts provide value-added in explaining the distribution of outcomes for GDP growth, the unemployment rate, and inflation. We find that FOMC tales about macroeconomic risks do add value in the tails, especially for GDP growth and the unemployment rate. For inflation, we find value-added in both FOMC point forecasts and narrative once we extract from the text a broader set of measures of macroeconomic sentiment and risk attentiveness.

Chart of the Week

The End of the Temporary Student Loan Payment Reprieve:

So, Where Are You Going to Cut Your Spending to Pay Back Your Debt? 

In late June, the U.S. Supreme Court struck down as unconstitutional President Biden’s student loan forgiveness program.  On Friday, September 1st, student loans accruing interest will begin again, and borrowers will have to start making payments again in October. The Financial Times took a deep dive and asked: So, now that you have to start paying back your debt again, where are you planning to cut your spending? It looks like restaurants, grocery stores, and the travel industry are going to be the big losers.