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Washington serves as classroom for economics students

 

Clemson University economics students gather in front of the flags where cabinet members are sworn in.

Economics students gather in front of the flags where cabinet members are sworn in.

What better way to grasp an understanding of economic policy than to rub shoulders with those who influence it at the highest levels of government? That was the mindset of the family of the late John Harris ’74 when they created an endowment that allows for senior economics majors to visit economic policymakers in Washington, D.C., each spring.

Fourteen College of Business students from the John E. Walker Department of Economics recently returned from the nation’s capital, where they met with high-level economists in government and think tanks as part of the Senior Seminar in Economics.

“The course is built around policy discussions and the economic policies of the current administration,” said Raymond “Skip” Sauer, an economics professor who accompanied students on the trip. “Students spent two days in Washington and met with some very influential policymakers, including some Clemson alums.”

Students met and asked questions of Mark Calabria, chief economist for Vice President Mike Pence in the Eisenhower Executive Office Building adjacent to the White House. In addition, the students visited the Federal Communications Commission where they met Craig Stroup, a senior economist at the FCC and a ’96 Ph.D. graduate of Clemson.

Lani Czarniecki, deputy assistant to the vice president for external affairs, gave Clemson economics students lessons on the VP’s flag and other historical artifacts.

Lani Czarniecki, deputy assistant to the vice president for external affairs, gave Clemson economics students lessons on the VP’s flag and other historical artifacts.

David Spearman said the trip to Washington gave him better insights into the day-to-day responsibilities of an economist. “You learn so much in class, but it’s not obvious what it’s going to look like when you apply it in a real-world setting,” he said. “It was also helpful getting advice from people working in the profession’s highest levels about things like what hard and soft skills they found beneficial in helping them succeed.”

The group also visited the Brookings Institution and had a meeting with Will Ensor ’15 who studied economics at Clemson and is a research assistant at the American Enterprise Institute think tank. While at AEI, students attended a discussion, “Improving Economic Opportunity in America,” featuring renowned Stanford University economist Raj Chetty and Jason Furman, chair of the Council of Economic Advisors in the Obama administration.

“It’s fitting that the endowment John Harris’ family created would provide Clemson students with such a rich learning opportunity,” Sauer said. “John began his career in Washington as an analyst with the Overseas Private Investment Corporation, a self-sustaining government agency that helps American businesses invest in emerging markets. He subsequently became deeply involved in South Carolina real estate investment and management. His own experience helped him perceive the opportunity for students to visit Washington and engage in policy discussions as a potential game-changer for their careers. This gift to generations of students is a great tribute to him and a life filled with major achievements.”

Students flex fiscal muscles to win national competition

InTheseHills-Raymond-SauerA proposal by economics students on how to stabilize the nation’s debt-to-gross-domestic-product ratio won first place at the national collegiate Fiscal Challenge on Capitol Hill this spring. The Fiscal Challenge is a competition among college teams to create a plan putting the U.S. on a sustainable fiscal path.

“Our team put a tremendous amount of work into developing their budget proposal,” said Raymond “Skip” Sauer, the John E. Walker Department of Economics chair and team adviser. “They’ve been meeting three days a week since January and the collaboration of all five of them gave them the ability to attack the budget challenge on all possible fronts. What they did on Capitol Hill was impressive and very hard to replicate in a classroom.”

Judging was conducted by a group of four federal budget experts associated with major Washington think tanks and government organizations. Mike Aguilar, national coordinator, said the winning proposal “struck a nice balance between spending cuts and tax increases. One thing that set Clemson apart was their advocacy of supply-side changes to stimulate growth and their support for structural reforms to the budget process itself.”

An Economic Overview of Ukraine at a Critical Juncture

Nationalism often has been a force of political deadlock and economic stagnation. In a place like Quebec, it is possible for voters to decide they are wearisome of separatism and it is time their elected officials focus on economic growth and job creation. In Ukraine, things are much more complicated. One third of Ukrainian exports go to Russia, and the country depends on Russian energy to produce most of its goods. Decades of dependence have nurtured a wasteful and tangled economy, and now Russia is doing everything in its power to undermine the new Ukrainian government.

Unnatural Natural Gas Wars

Ukraine’s energy infrastructure is inefficient and wasteful, making gas imports crucial to economic production. Half of these imports come from Russia. Ukraine’s economy has been built on subsidized gas, as Russia has been discounting sales by a third of market price. Putin claimed that “during the past four years, Russia has been subsidizing Ukraine’s economy by offering slashed natural gas prices worth 35.4 billion U.S. dollars.” Years of discounted gas prices have left its industry with a large and unquenchable thirst. In Ukraine’s current state, industrial production requires twice as much energy as an advanced industrial nation.

Furthermore, the subsidies have led to an energy sector riddled with debilitating corruption. Oligarchs have made billions as middlemen, buying up cheap gas intended for families and reselling it to industrial producers. The lack of industrial innovation, accountability and transparency has led to a ballooning energy debt, with no one willing to risk investment in a solution.

Problems in the energy sector have compounded, and the currency has spun downwards. Ukraine’s currency, the hryvnia, was pegged against the dollar until February to control the cost of imports. The Central Bank of Ukraine decided to float the currency, making its goods cheaper to other countries, in an effort to boost exports. The value of the currency has fallen 27 percent this year, making it the worst performer globally. Cheap currency makes Ukrainian agricultural and industrial products more appealing abroad, but it makes debt obligations hard to stomach.

Ukraine has $35 billion in sovereign debt that will become due over the next two years, one billion of which is due on June 4. As a part of the International Monetary Fund reform program, the international community will contribute $27 billion over the next two years. Of that amount, the IMF will put forward $14-18 billion, depending on the amounts of bilateral and multilateral support.

The main contingency of the IMF loan is to eliminate subsidies and corruption. The IMF stated in a press release that “the program will focus also on improving the transparency of Naftogaz’s [Ukrainian state-owned gas supplier] accounts and restructuring of the company to reduce its costs and raise efficiency.” If history is any indication, this will be much easier said than done. The IMF has helped Ukraine twice before with similar loans, but both programs resulted in failure. Eliminating subsidies requires raising the cost of gas for families, a very unpopular move politically.

Even with the IMF bailout, Russia has been making it all but impossible for the Ukrainian economy to survive. Ukrainian Naftogaz owes Russian Gazprom $2.2 billion, and last month Russia aggressively raised its price 80 percent. Additionally, Putin issued a letter to European leaders stating, “Gazprom is compelled to switch over to advance payment for gas deliveries.” He added that in order to deter Ukraine from syphoning off gas intended for Europe, Russia would require Ukraine to pay $5 billion up front for 11.5 billion cubic meters to hold in reserve. Putin is setting Ukraine up for financial failure at every opportunity.

After news of the IMF package to loan up to $18 billion to Ukraine, Russian Prime Minister Dmitry Medvedev announced a total energy debt of $16.6 billion. If Russian demands are not met, it may cut gas supplies to both Ukraine and Europe. Europe gets a quarter of its gas from Russia, half of which travels through pipes in the Ukraine. If Russia cuts off Ukraine, it would reduce the flow through Ukraine to ensure none goes missing along the way. It has been a mild spring, and gas reserves remain high, but Europe would face significant challenges if its energy supplies were suddenly cut.

On The Brink

Russia is demanding Ukrainian federalization. It wants Ukraine to adopt a new constitution that decentralizes the government, shifting power to each region. Each region would be able to choose its own economic policy, retain tax revenue and determine which foreign relations to strengthen. Federalization, assigning federal status to territories, could be successful, but it requires a strong central government to bind the regions together with political and economic purpose.

Federalization may sound like a small price to pay for peace, but granting more autonomy to regions would also exacerbate the already present instability and divisions. The government is in political shambles, the Ukrainian economy is on the verge of economic collapse, and Russian troops wait for an excuse to invade. Federalization would only encourage regions in Eastern Ukraine to gravitate to Russia’s larger and more stable economic body. Eastern Ukraine is already heavily dependent on Russia, and granting autonomy will only facilitate Russian annexation.

Kiev has scheduled presidential elections for May 25, and parliamentary elections will take place soon after. Participation by all regions in the elections is necessary to lend legitimacy to the fledgling government. Putin is expected to exert economic, military and political pressure to ensure failure for the Ukrainian government. Chaos will escalate during this next month leading up to the elections, but if a unified Ukraine stands under a central governing body, it could emerge from this crisis with a stronger national identity and the will to untangle economic dependencies.