Anne O. Krueger for PS Say More

The PS Say More Newsletter | [View this message in a web browser]( [PS Say More]( Welcome to Say More, a weekly newsletter that brings Project Syndicate’s renowned contributors closer to readers. In each issue, a contributor is invited to expand on topics covered in their commentaries, address new issues, and share recommendations, offering readers exclusive insights into the ideas, interests, and personalities of some of the world’s leading thinkers. This week, Project Syndicate catches up with [Anne O. Krueger]( a senior research professor at Johns Hopkins University and an emeritus professor and senior fellow at Stanford University's Center for International Development. She is a former World Bank chief economist and a former first deputy managing director of the International Monetary Fund. In [last week’s edition]( of Say More, [Diane Coyle]( Professor of Public Policy at the University of Cambridge, made the case for advanced-country industrial strategies, suggested how to rein in Big Tech without breaking it, and highlighted how to avoid making racist or misogynist machines. Anne O. Krueger Says More… Project Syndicate[Anne Krueger]( You’ve [called]( for a “constructive overhaul” of the United States immigration system, including “shifting the money for a useless border wall toward improving the entire immigration application and sorting process.” Which measures should be at the top of such an agenda? Anne O. Krueger: The simplest and most urgent measure would be to appoint more immigration judges to reduce the massive backlog, which now [exceeds]( a million cases, compared to about 220,000 a decade ago. This would cost money, but that money could be redirected from the wall, which experts agree will not be effective. Investing in ensuring that immigrants have decent places to stay on arrival is also important. But it is a short-term fix. Clearing the backlog of immigration cases would have a lasting impact, and should be the US government’s first priority. Still, that is just a first step. In the longer term, the US needs to overhaul its immigration laws, with an eye toward tapping immigrants’ economic potential. The country should admit more immigrants overall, and especially more skilled immigrants. At the same time, it should lower, at least somewhat, the priority given to relatives of those who are already in the US. PS: A prime example of abuse of discretionary power by US President Donald Trump’s administration, you recently [pointed out]( is the waiver system for steel-tariff exemptions, which has given some firms an unfair advantage over others. To what extent are these distortions likely to become entrenched, persisting even after tariffs are rolled back, and what might be done to counter them? The good news is that the distortions will largely be undone when the tariffs are rolled back, and the waiver system becomes defunct. Such a move would be good for all steel-using industries and workers, with the notable exception of South Korea. When the Trump administration introduced new tariffs on steel, South Korea secured an exemption, by accepting a quota to limit steel exports to the US to 70% of its previous level. (More recently, South Korea also agreed to quotas for importing US rice.) It was a bad decision, not least because the quota system – and the distortions it has created – will outlast the tariffs. PS: Over a year ago, you [urged]( the international community to “stand up to Trump and reaffirm the principles of an open multilateral system – before it’s too late.” With Trump still steadily chipping away at the World Trade Organization, including by blocking appointments to its Appellate Body, what steps can other countries take to save it, and who should take the lead? Unless something changes, on December 10, the Appellate Body will no longer have enough members to function. Fortunately, many proposals are already on the table from different countries. The best hope is that the US will accept one of them, or quickly negotiate some other deal that results in it allowing new appointments. That said, as a recent Wall Street Journal article [explained]( the Trump administration is taking a hard line, objecting to any limits whatsoever on a country’s ability to claim it is taking an action in the name of national security. In any case, it is true that the Appellate Body is imperfect, and negotiations on how to improve it are worth pursuing. But, first, it must be made operable again. PS: Economists, including [you]( frequently emphasize the need for structural adjustment in distressed or crisis-prone countries. Argentina and Greece come to mind, as do France and China. But, given the short-term pain such adjustment typically entails, the reforms that economists favor are frequently postponed, reversed, or both. What, in your view, is the best example of a well-managed structural adjustment, and how can its lessons be applied elsewhere? There are lots of good examples of well-managed structural adjustments, from Eastern Europe to Latin America. Which examples leaders should take lessons from depends on the initial situation. Perhaps the best example of a successful structural adjustment in a country where structure was the main problem is New Zealand in the 1980s and early 1990s. Despite years of highly interventionist economic management (including currency devaluation and strong border protections) and a relatively favorable external environment (with much of the world growing at a strong pace), New Zealand’s economy was struggling. The situation deteriorated further when the United Kingdom entered the European Union, causing New Zealand to lose its preferential trade status. With major balance-of-payments difficulties on the horizon, New Zealand committed to structural reform. Trade restrictions were removed; many constraints on farmers were lifted; the Reserve Bank was made independent; the civil service was comprehensively reformed; and much more. The fact that reforms were so wide-ranging is a major reason why they worked. Another structural-reform success story is Chile. In the 1970s, Chile faced myriad economic challenges, including high inflation (a macro issue) and very low growth (both a structural and macro issue). But, thanks to structural and macroeconomic reforms reforms carried out by General Augusto Pinochet’s government – an authoritarian regime, to be sure – the economy began to [recover](. Chile ended up securing decades of consistent growth, and became a model of economic dynamism for much of the rest of Latin America. When Pinochet stepped down and an election was held, all parties committed to continuing the economic reforms – a testament to their popularity. A third example is German Chancellor Gerhard Schröder’s reforms in the early 2000s, which caused unemployment to plummet, and growth to accelerate. By the Way... PS: Back in 1974, you coined the term “[rent-seeking]( to describe behavior that skims an economy’s wealth without contributing to it. What are the most effective ways to curb such behavior? Rent-seeking reduces not only wealth, but also – and even more so – income. A “rent-seeking” activity produces a reward (usually monetary) for its perpetrator, without adding to total income. The party paying the rent does so because they have deemed whatever they are buying to be worth more than the (regulated) price. This process need not be illegal: if there are price controls on meat, standing in a long line to buy some is rent-seeking. In developing countries, import-licensing has often made it so that people are willing to pay more, monetarily or otherwise, for limited imports than the government was charging. Many of their methods qualify as rent-seeking. A strategy for reducing rent-seeking must account for the type of rent in question, and the means being used to obtain it. In the import-licensing example, the simplest and most effective way to stop rent-seeking is to shift to tariffs, so that anyone who wants a good can buy it, as long as they can afford the import price. If the tariff is about as high as the price paid by the rent-seeker, rent-seeking should disappear. The same goes for rent-seeking arising from price controls: allowing prices to rise could eliminate the rent (and, in the case of meat, spur farmers to raise more livestock). PS: You have also served as First Deputy Managing Director of the International Monetary Fund. What advice would you give to the Fund’s new leadership? I would advise the IMF’s new leadership to try to strengthen Article IV consultations – its regular comprehensive consultations with individual members – and redouble its efforts to identify macroeconomic and, especially, structural vulnerabilities as early as possible. If a country is confronting incipient or immediate macroeconomic difficulties, structural reforms cannot wait; once macroeconomic stability returns, the window of opportunity to implement them will be closed. PS: If you were starting a PhD in economics today, what topic would you choose? I would not choose a topic at all yet. Students who are just beginning their graduate study in economics haven’t yet learned enough about what we already know to determine where they are best equipped – and most interested – to contribute. So they should spend the first two years acquiring existing knowledge – which is always being added to and updated – in various subfields; finding where their interests lie; and considering how they might move research and knowledge forward. Krueger Recommends We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Krueger's picks: [Schism]( China, America, and the Fracturing of the Global Trading System By Paul Blustein This book describes the contentious process leading up to China’s accession to the WTO, and the reforms that followed, showing how these developments transformed the global trading system – and led to the US-China trade war. [Free Trade Under Fire]( Trade under Fire]( Fourth Edition By Douglas Irwin At a time when free trade is under attack, this book clears up common misconceptions that are muddying the discussion. [Agricultural Policy in Disarray]( Policy in Disarray]( By Vincent Smith and Barry Goodwin This two-volume work shows how rent-seeking by small, well-organized interest groups in the US has resulted in agricultural policies that do much more harm than good. From the PS Archive From 2018 Krueger examined the seemingly endless contradictions of the Trump administration’s protectionist trade policies. Read the [Long View](. From 2015 Krueger blamed Puerto Rico’s crisis on both the US and the island’s government. Read the [commentary](. [International Trade: What Everyone Needs to Know]( From Oxford University Press [International Trade]( What Everyone Needs to Know By Anne O. Krueger Krueger analyses the costs and benefits of international trade for the US and the world economy. Around the Web In case you missed it, here are some other places around the web where Krueger's work or ideas have appeared recently. In 2017, Krueger participated in a panel discussion on how efforts to reduce the US trade deficit could affect foreign partners and the global economy. Watch the [video](. While serving as the IMF’s first deputy managing director, Krueger answered questions about the issues that occupied her during her first year on the job, from currency boards to moral hazard. Read the [interview](. [Compelling. Concise. Curated.]( Project Syndicate publishes and provides, on a not-for-profit basis, original commentary by the world's leading thinkers to more than 500 media outlets in over 150 countries. This newsletter is a service of [project-syndicate.org](. © Project Syndicate, all rights reserved. [Unsubscribe from this list](