Policy Punchline

Kruskaia Sierra-Escalante is a Senior Manager of Blended Finance at the International Finance Corporation (IFC), which is the private arm of the World Bank. The blended finance unit manages more than $1 billion in donor-contributions for climate-smart co-investments in IFC projects.

In this interview, we talk about what blended finance is, and how it generally supports high-impact projects in fragile and conflict-affected states that cannot attract financing on strictly commercial terms. By balancing the risky investments with concessional co-financing from donors or third parties, the IFC can tailor lending packages to address the needs of private sector firms in fragile areas.

What makes these loans more attractive to borrowers include pricing (i.e. below-market interest rates or a longer grace period), volume, and a local currency structure. On the creditor side, IFC’s role as a co-lender also mitigates some of the risk that private investors face. Blended finance, Kruskaia noted, is key to delivering on the IFC’s new strategy, which targets climate initiatives, women-led enterprises, and investment in fragile areas.

Rachel Glennerster is the Chief Economist for the UK Department for International Development (DFID), which is the UK's ministry for international development cooperation. Previously, she was the Executive Director of J-PAL (the Jameel Poverty Action Lab) at MIT.

This March, Prof. Glennerster gave the closing keynote remarks at the 2020 annual conference at Julis-Rabinowitz Center for Public Policy and Finance, where she touched on challenges of working in fragile states and the linkages between the macro- and micro-levels. The economic policy tools used in advanced economies either do not exist or are ineffective in poor, conflict-afflicted areas. Shifts in macro-level policies can have devastating effects at the household level, leading to hyperinflation, parallel exchange rates, or major debt crises.

In this interview, we discuss some of the innovative policy and research tools in fragile states, especially RCT (randomized controlled trials). And we touch on various debates on foreign aid, non-profits, and what it’s like to work in Africa.

Some of our questions include:

- RCT is a new way of studying impacts of social programs or medicines through randomizing individuals into control groups so that we can assess the actual causality. What is the difference between RCT specifically and other methods that help us conduct careful policy impact evaluations? Is there still a tension between those who accept and not accept RCTs? What are some of the reasonable arguments against the further adoption of RCTs?

What are some of the main advantages and disadvantages to the system of "community-driven development?" Is it better to hand control over development to locals even if this may not be the best way to motivate more systemic change that may have to come from outside communities? Or is this question posing a “straw man” to a non-existent dilemma?

What is it like to advise the distribution of the U.K’s international aid? What is the philosophy behind how nations should give and receive aid? Should it be viewed as a moral obligation, or something that is in the national security or economic interests of the U.K., or both?

Scott Morris is a Senior fellow at the Center for Global Development, where he directs the US Development Policy Program and co-directs the Sustainable Development Finance Program. He previously served as deputy assistant secretary for development finance and debt at the Treasury Department under the Obama Administration. In that capacity, he led US engagement with the multilateral development banks, as well as US participation in the Paris Club of official creditors.

In this interview, Mr. Morris explains how development finance institutions like the World Bank interact with the U.S. Congress and adapt to the ever more complex situations in international economics.

As the World Bank’s largest shareholder, the U.S. maintains a unique influence in shaping its agenda, and Congress has an important role both in funding U.S. contributions to the World Bank and in overseeing U.S. participation in the institution. Has the U.S. involvement been beneficial to the growth and credibility of the organization? Why not let it become more independent from U.S. influence?

What role will international financial institutions play in the future of development economics? Will their roles be further diminished or become more dominant as more focus is being put on “localization” and “decentralization?”

We also touch on his March presentation at Julis-Rabinowitz Center annual conference, where he started with a look at debt in low-income countries. 44% percent of low income countries are now either at high risk of debt distress or in debt distress, up from 21% just five years ago. During this time, China has emerged as the dominant creditor to the riskiest low-income countries, while the amount of low-income country debt held by development finance institutions and Paris Club lenders has decreased dramatically.

Matt Arnold is the Global Head of ESG at J.P. Morgan Chase and has been a pivotal figurehead in integrating sustainable energy practices into large corporations. One important topic in light of the Covid-19 crisis and the recent Black Lives Matter protests is ESG – environmental, social, and corporate governance. ESG has been a discussion topic in the corporate world for a long time, but the topic has suddenly risen to an ever more important status in the past few months. On the environmental side, there is the call for corporations to move away from fossil fuel and be carbon neutral; on the social side, you have the call for diversity, equity, and inclusion (DEI), which is about promoting a more diverse workforce.

Two additional noteworthy aspects related to ESG in light of the recent social turmoil are: one, the demand for more inclusive stakeholding calls to an end to the former principle of “shareholder value maximization.” And two, in terms of economic policy, the “misvaluing” of essential workers during Covid-19 exposes the naïveté of free-marketeer Capitalism underpinned by UChicago-styled economists from the 1980s.

When you think of J.P. Morgan Chase, the first word that comes to mind is likely not “ESG” or “sustainable,” yet one man inside of the JPM headquarter is trying to change that: Matt Arnold. A longtime insider of the environmentalist movement, Mr. Arnold works to help pivot the powerful firm's strategy towards a more environmentally friendly and socially conscientious one.

In this interview, Mr. Arnold takes Tiger and Owen to explore the new consumer drive to hold companies “accountable” to higher environmental standards by being more conscientious with their purchasing dollars. Meanwhile, a broader effort is driving companies to be more transparent about their operations and investments and devote more financial resources to ESG investing. Beyond ESG, Mr. Arnold speaks about the rise of green energy’s affordability, the “divest from fossil fuels” movement, and the international energy scene.

This interview with Mr. Arnold recorded in March and was the last in-person interview we did on campus. Mr. Arnold has so many interesting stories to tell, and I hope you’ll enjoy this interview that can be an introduction to ESG, energy, geopolitics and much more that you may continue to learn more about in future podcasts as part of our energy segment.

Brad Setser is the Steven A. Tanenbaum Senior Fellow for International Economics at the Council on Foreign Relations. He previously served as the deputy assistant secretary for international economic analysis in the U.S. Treasury from 2011 to 2015.

In this interview, Dr. Setser discusses how tax avoidance schemes by corporations could distort conventional understanding of cross-national capital flows, and how such capital flows through shell companies are driving international balance of payments. He argues we should pay more attention to external debt, particularly on exports and debt in foreign currency, rather than solely focusing on the government debt alone. He highlights the puzzling debt histories of two countries in particular: Japan, which should be in trouble but is not; and Argentina, which gets into trouble no matter what.

We also touch on the important topics of progressive tax policies and how it’s entirely realistic to close down international tax loopholes. It’s noteworthy that Dr. Setser appears in the first chapter of Adam Tooze’s book of “Crashed: How a Decade of Financial Crises Changed the World” by Adam Tooze, whom we interviewed last spring. It’s very unfortunate that this is a relatively short interview, but we hope it can be an introduction to a vast and important field of issues that you may continue to learn about afterwards.

This interview was recorded in March at the 2020 annual conference of the Julis-Rabinowitz Center for Public Policy and Finance, and the theme was “Development Finance in Fragile States.” You may read more about Dr. Setser’s conference presentation on our webpage, and you can subscribe to his blog and newsletter “Follow the Money” on the webpage of Council on Foreign Relations.

Quantum computing is the latest “buzz-word” in the tech industry – with over $450 million of private funding investments made between 2017 and 2018 – but what are quantum computers and how will they spark the quantum revolution? Do they truly live up to the “hype” or are the challenges facing them not resolvable in the near future?

In this episode, Tiger and aspiring physicist Harsh Babla interview Prof. Steven Girvin to learn about his cutting-edge research in the field, his perspective on Google’s recent quantum supremacy claim, venture capital investments in the field, national security concerns raised by quantum computers, the philosophical implications behind quantum computing, and more. This might not be your one-stop shop for understanding quantum physics, but it should provide you with the appropriate technical and theoretical background to understand many of the current debates.

Steven Girvin is the Eugene Higgins Professor of Physics at Yale University. He’s a theoretical physicist known for his founding role in developing Circuit QED – an architecture now used by Google, IBM, Rigetti, and many other companies to build quantum computers. Prof. Girvin is a strong advocate for the “Second Quantum Revolution.” He explains to us that the first quantum revolution, in the early 1900s, gave us a unique understanding of the world, explaining the strange behavior of atoms and molecules. This kicked off a spree of innovation, revolutionizing information processing with the transistor, atomic clock, and laser.

The past couple of decades have established a new technological era. While first suggested in the early 1980s, quantum computers are finally being physically realized and made commercially available. These devices use the laws of quantum mechanics to solve problems that would otherwise take classical computers exponentially longer to work out. As such, they’ve emerged as a natural paradigm to accelerate breakthroughs in drug development to save lives, innovative materials for renewable energy generation, financial strategies to live comfortably in retirement, cryptography techniques to ensure provably secure communication, and machine learning methods to supercharge hardware.

While quantum computers might seem like the panacea for many society’s challenges, most quantum computers today aren’t always able to return correct answers for even the most modest calculations. Prof. Girvin explains that this is because current quantum systems are plagued by several pervasive physical constraints: a significant susceptibility to environmental errors, an inability to control multiple qubits simultaneously, a lack of robust error correction schemes, to mention a few. These constraints gradually scramble the information stored in the quantum bits (qubits), limiting the qubits’ lifetimes to only a few microseconds.

Prof. Girvin is very hopeful for the industry to overcome these hurdles, but he’s worried that there’s currently a tremendous shortage of engineers and experts in the field. He believes the education system is overdue for important changes, to get young minds excited about working on quantum computing, without necessarily pursuing a Ph.D. in Physics.

The perhaps slightly technical conversation with Prof. Girvin covers a wide range of topics, from quantum mechanics to education and investing in technologies with far-reaching international consequences. But our curiosity certainly does not stop there, and we end the interview with a short but deep discussion on philosophy. Mathematician Alan Turing was famous for publishing philosophy journals and debating with Wittgenstein. It seems that there’s much overlap between the scientifically and metaphysically unanswerable questions, so we ask Prof. Girvin how science has helped him reason through philosophical questions.

Robert Frank is the H. J. Louis Professor of Management and Economics at Cornell University. His newest book “Under the Influence, Putting Peer Pressure to Work” discusses how social environments profoundly shape our behaviors and how we can unlock the power of social influence – through fascinating ideas from behavioral contagion to consumption taxation. 



In this interview, Prof. Frank explains the core ideas of his book in detail: how individuals are constantly “under the influence” of others’ behaviors and thus do not always make the most rational decisions; how Adam Smith’s concept of “Invisible Hand” has been greatly misconstrued and overblown by free marketers; why we have a powerful and legitimate public policy interest in encouraging socially beneficial memes and discouraging socially harmful ones…

We also discuss Prof. Frank’s progressive consumption tax proposal. It may sound surprising to many, but imposing higher tax rates for the rich might not hurt their purchase power because the prices for the scarce goods they pursue will come down correspondingly. However, by taxing lavish spending behaviors, we can discourage competitive biddings that do not improve society’s overall welfare. On the other hand, a progressive consumption tax would encourage saving and investment in ways that income taxes cannot, and a carbon tax will be effective in disincentivizing environmentally unfriendly activities.

The deeper part of the conversation is towards the end, when Prof. Frank and Tiger talk about whether the field of economics needs a somewhat complete reworking – not to simply include more behavioral economists’ opinions, but even rethink the ways we teach about supply & demand and uproot fundamental theorems. It matters because economics is not an objective science, and it is built upon a set of assumptions that often do not hold true in reality when irrational agents come together. We talk about the “mis-valuing” of essential workers during Covid-19 to the glaring naïveté of free-marketeer Capitalism underpinned by UChicago-styled economists from the 80s…

Robert H. Frank is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell's Johnson Graduate School of Management and a Distinguished Senior Fellow at Demos. For more than a decade, his "Economic View" column appeared monthly in The New York Times. His books have been translated into 23 languages, including ”Choosing the Right Pond,“ ”Passions Within Reason,“ ”Microeconomics and Behavior,“ ”Principles of Economics“ (with Ben Bernanke), ”Luxury Fever,“ ”What Price the Moral High Ground?,“ ”Falling Behind,“ ”The Economic Naturalist,“ ”The Darwin Economy,“ and ”Success and Luck.“ “The Winner-Take-All Society,” co-authored with Philip Cook, received a Critic's Choice Award, was named a Notable Book of the Year by The New York Times, and was included in Business Week's list of the ten best books of 1995. Frank is a co-recipient of the 2004 Leontief Prize for Advancing the Frontiers of Economic Thought.

IBM Chief Economist Martin Fleming discusses Covid-19’s immediate impacts on labor markets and the long-term trends for the future of work – from automation to artificial intelligence. Given how millions of people have to work from home today, there have been countless research reports springing up talking about “the end of work as we know it.” Some of us at Policy Punchline have always been skeptical about those futuristic claims that portray an utopian image filled with tech innovations but do not seek to present any concrete path on how to get there. If you have the same skepticism, hopefully some of that can be answered by Dr. Fleming.

IBM has long been known for spearheading corporate research and offering forefront business solutions in technology and beyond. Dr. Fleming tells us about the creation of IBM’s Watson, its unique partnership with MIT to jointly research artificial intelligence, as well as other recent innovations in cognitive systems and machine learning meant to aid human decision-making. We talk about IBM’s long history in funding and leading in fundamental science and tech research, and how Dr. Fleming fits in this grand picture as a PhD economist.

Given the rising importance of artificial intelligence and data science, the world of major tech corporations has seen the “rise of data scientists.” Satya Nadella at Microsoft, Sundar Pichai at Alphabet, Shantanu Narayen at Adobe — and just recently from April 2020 onwards, Arvind Krishna at IBM… These are four Indian-born executives who were trained as engineers and rose through the ranks in technical positions. Their backgrounds are very much different from the stereotypical corporate America managers’ background – in sales and general management after receiving MBA degrees – such as Ginni Rometty, IBM’s previous CEO for the last eight years. Dr. Fleming talks about such fundamental sea change across companies, as well as how young students can take advantage of data science education as early as high school.

The disruptions to labor markets by Covid-19 have been dramatic, but most major changes don’t happen overnight. Dr. Fleming cautions us to separate long-term trends in AI from recent changes ushered in by the fear for viruses. We dig deeper into the economic impacts of automation – how its negative impacts on low-income workers might not be necessarily even across the world. Developing countries, in particular, are the most susceptible to losing areas of the work that have been popular in the past, like call centers. On the other hand, middle-tier workers are the most affected in the U.S., while high and low income workers have seen the most robust growth in job opportunities.

Dr. Fleming has paid close attention to how digital currencies are taking form in many countries around the world – Singapore, China, Canada, and notably Facebook’s Libra, though many of these moves have not been successful. The notion that the Federal Reserve could release their own digital currency is becoming increasingly plausible. Digital currencies, however, are different from cryptocurrencies like Bitcoin. One practical reason for this transformation to digital currency is how the act of making payments has become inefficient, compared to the immediacy of other tasks, like sending emails or ordering a product. This is a growing danger that if such inefficiencies persist, the international dominance of the dollar could be reduced. However, with such a technological push, Dr. Fleming emphasizes the potential risks and how it could affect financial institutions that derive their income from controlling payment processes.

Made popular by Nobel Laureate and economist Paul Romer, charter city is a new vision for building prosperous cities that can unlock economic potentials and solve common issues in urbanization and poverty for their citizens and countries they are part of. In this episode, Dr. Mark Lutter, Founder of the Charter Cities Institute, discusses what charter cities are, why they are unique compared to special economic zones (SZE), how they can promote progress and growth within a country by reducing regulatory barriers, and how successful examples like Shenzhen and Dubai embody both their advantages and drawbacks.

Due to rapid increases of urban population, many governments in the developing world have shown to be ill-equipped to provide the necessary infrastructure to support the cities. Dr. Lutter has long called into question the conventional and popular idea that urbanization leads to increased productivity and economic growth, and he believes that charter cities could be a bold solution to poorly managed urbanization and global poverty. Our conversation goes over how charter cities can address the pent-up demand for urbanization in developing countries while creating opportunities for all the stakeholders involved, from locals to the governments of host countries. In doing so, we also analyze how new projects arise from private partnerships and how they can integrate with the goals of their host countries and communities.

While charter cities can address the needs of developing countries, they are also worth exploring in mature economies. Allowing people to build new cities in the US or Europe can provide an alternative to existing cities while creating an incentive for regulatory arbitrage, which can trickle down to the rest of the country. The model of charter city offers a blank slate in commercial law, can be developed on greenfield sites (untouched land with no current residents), and can allow for deep governance reforms to be enacted with minimal interference or resistance because of the lack of existing interest groups. Charter cities may be the perfect place to experiment new governance structures proposed by “techno-utopians” from Silicon Valley to around the world.

Dr. Lutter also addresses criticisms for charter cities, such as the possible need for strong central governments during the establishment of charter cities and their incentives to reap the benefits and interfere with organic growth. We also go over a famous charter city blunder in Honduras and the concerns that it would entrench the local elite while limiting freedom of locals. In this context, we also discuss how charter cities can be built so local can actually share the fruits of the progress enabled by the city, as well as how political ideologies intertwine with charter cities and their economic success.

Dr. Mark Lutter is the Founder and Executive Director of the Charter Cities Institute, as well as the host of the Charter Cities Podcast. He is on the Board of Directors of Explorer Academy, a Zambian education platform. He is an advisor to and has a financial interest in the Victoria Harbor Group, a firm that is building a new Hong Kong. He has a PhD in economics from George Mason University where his research focused on charter cities. Prior to launching the Institute, he was Lead Economist for NeWAY Capital, an asset management firm which made early stage investments in charter cities. He has been published in several newspapers and magazines including the Chicago Tribune, City Journal, CityAM, and Cato Unbound.

Currently, Dr. Mark Lutter is involved with several charter city projects. In this episode we discuss his recent work in Zambia, Nigeria, and with the Hong Kong-based Victoria Harbor Group. We also go over how the Charter Cities Institute was formed and what the next steps are for this nonprofit.

Nicholas Lemann’s recent book, “Transaction Man,” is an account of the United States economy in the 20th and 21st century, how it has transformed over time, and the impacts of such transformation on all of us. Specifically, Prof. Lemann examines three remarkable economic and social thinkers who he calls, “Institution/Organization Man,” “Transaction Man,” and “Network Man,” who epitomized and helped create the three main eras of American economy.


In this interview, Prof. Lemann explains these three eras in detail, why none of these models has successfully brought sustainable prosperity to the American people, and how his vision of pluralism might provide a synthesis and possible solutions to today’s urgent social problems.

“Institution Man” = Adolf Berle, Franklin Delano Roosevelt’s chief theorist of the economy, who imagined a society dominated by large corporations, which a newly powerful federal government had forced to become benign and stable institutions, contributing to the public good by offering stable employment and generous pensions. 

“Transaction Man” = Michael Jenson. By the 1970s, the corporations’ large stockholders grew restive under this regime, and their chief theoretician, Harvard Business School’s Michael Jensen, insisted that firms should maximize shareholder value, whatever the consequences may be. This narrative took place very much under the backdrop of “financialization” and heavy deregulations starting in the 1970s, which allowed capital providers and fund managers to suddenly play the role of textbook capitalist.

“Network Man” = Reid Hoffman. Today, Silicon Valley titans like LinkedIn co-founder and venture capitalist Reid Hoffman hope “networks” can reknit our social fabric and efficient startups like Uber and Airbnb can replace much of the existing infrastructure. 

Bio: Professor Nicholas Lemann is a veteran American journalist and author of six books, including his latest "Transaction Man: The Rise of the Deal and the Decline of the American Dream." He is the Joseph Pulitzer II and Edith Pulitzer Moore Professor of Journalism and Dean Emeritus at the Columbia Journalism School. Previously, he has worked at The Atlantic Monthly, The Washington Monthly, The Washington Post, and a variety of other newspaper and magazine companies, writing about politics, education, business, social policy, and other topics.