Friday, June 29, 2007

Plus Ca Changes...

. Friday, June 29, 2007
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Newly-released statistics reveal that French unemployment fell to its lowest level in 25 years last month, reducing the economy-wide unemployment rate to 8.1%. That's right, the unemployment rate in France has not been below 8% since the mid-term election of the first Reagan administration. Thatcher had been in office for about three years. The Berlin Wall was a solid barrier rather than an historical oddity. Roger Dietzel was half-way through his twenty-year (unsuccessful) wait for a shiny new Trabant. Through all of the dramatic changes that have occurred since 1982, the one constant appears to be rigid French labor market institutions.

Sarkozy promised action this summer; as he has now elected a friendly legislature and selected a government, perhaps he will begin? Or maybe the recent stellar labor market performance--best in 25 years--means that he need not bother?

Thursday, June 28, 2007

Global Supply Chains and Trade Balances

. Thursday, June 28, 2007
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Hal Varian has a great piece in the Times about where the Ipod is made. Turns out, because it contains components manufactured all over the world, it's hard to tell where it is made.

"This value added calculation illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

Ultimately, there is no simple answer to who makes the iPod or where it is made. The iPod, like many other products, is made in several countries by dozens of companies, with each stage of production contributing a different amount to the final value.

The real value of the iPod doesn’t lie in its parts or even in putting those parts together. The bulk of the iPod’s value is in the conception and design of the iPod. That is why Apple gets $80 for each of these video iPods it sells, which is by far the largest piece of value added in the entire supply chain."

Waiting Lists for Cool Cars

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This would be funny were it not so sad. I covet the new BMW 335i, which one can order from the factory in Germany and wait the three months or so for it to be built, transported and delivered. That three month wait seems ridiculously long to many who are waiting. Yet, it pales in comparison to what used to be the waiting time in the "other Germany" for their pride of auto technology, the Trabant. “Roger Dietzel, 52, ...recalls registering his name on a waiting list for a new Trabant in 1973 and never getting one. The wall fell, Germany was reunified, and production of the Trabant ceased in 1991 before his car was ready." That's a long wait...

Thursday, June 21, 2007

Passing the Buck, I Mean Renminbi

. Thursday, June 21, 2007
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The IMF this week announced new guidelines for how it will evaluate exchange rate policies.

"Rato said the new rule "gives clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not."

Treasury Secretary Henry Paulson said in a statement that it would send "a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance going forward."

Unclear, however, is what the IMF can do to encourage changes for those governments whose policies the "international community" find unacceptable. Strikes me that the Bush administration found a nice way to deflect pressure from Congress--they can now say, "the IMF has authority on these issues." And, they can say, "the IMF failed to find that China is manipulating its currency."

To wit, Paulson testified in front of Congress this week:

Mr. Paulson asked Congress to support the International Monetary Fund and the World Bank, as the IMF works on a package of institutional reforms and the bank replenishes its trust fund for poor countries. "The [international financial institutions] are indispensable to promoting the U.S.'s global economic interests, which cannot be effectively pursued through bilateral means alone," he said.

Mr. Paulson said reforms adopted by the IMF last week to its economic surveillance policies elevated the importance of exchange rate policies. "A multilateral approach places exchange rate issues in a broader, less politically charged context where the win-win aspects of reform can be more persuasively emphasized," he said.

China seems less sanguine. "The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries" and urged the IMF not to cave to American pressure on exchange rate issues.

Thursday, June 14, 2007

Currency Conundrums

. Thursday, June 14, 2007
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Here's a good political economy puzzle...

A bipartisan congressional bloc yesterday unveiled the latest effort to encourage change in China's exchange rate. "U.S. Senators Max Baucus (D-Mont.), Chuck Grassley (R-Iowa), Charles Schumer (D-N.Y.), and Lindsey Graham (R-S.C.) today introduced major legislation to deal with foreign currency concerns threatening the U.S. economy. The Currency Exchange Rate Oversight Reform Act of 2007 establishes a new approach to examining world currencies, requiring new consultations with offending nations and imposing new consequences for inaction. When currencies are so undervalued that they become fundamentally misaligned with the U.S. dollar, they can put American manufacturers and wage-earners at a significant disadvantage in the global economy. The bill unveiled today is the result of the four Senators’2006 commitment to draft new, vigorous, and WTO-consistent legislation to address currency misalignments."

Simultaneously (and not coincidentally so), the Treasury released its Semiannual Report in which it again declined the opportunity to label China a "currency manipulator."


The puzzle: How do we explain the fact that the two dominant policymaking branches of the US government have diametrically opposed China Currency policies?

Wednesday, June 6, 2007

Millennium Villages: an Evaluation

. Wednesday, June 6, 2007
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The Wilson Quarterly has an excellent piece in which Sam Rich recounts his visit to Sauri, Kenya, one of Sachs' Millennium Villages. He highlights the achievements and shortcomings of the effort, and I am struck by how the politics of development aid at the village level mimic the politics of development aid at the national level. Sachs never struck me as particularly atuned to politics, and I can't say I am surprised that parts of the MV project are falling prey to fairly predictable political dynamics.

I also found political dynamics of a different sort quite interesting. Rich could not get any of the UN staff or other "outsiders" involved with the MV project to speak about the project on the record. "Many UN officials I spoke to criticized the Sauri project, but none would speak openly. It was clear that dissenting voices were not welcomed, as an ­e-­mail I received from one made plain: “Unfortunately I’m already in a lot of trouble for talking about what every good scientist should be talking about. The current environment is one in which scientists can no longer speak openly and expect to keep their jobs.”

The two political dynamics are a sure recipe for failure--if the MVs are not working out, those who see this and know why must be encouraged to talk--not forced to be silent.

Back from Break

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Took an end of the school year break. I'm back and will try to post a couple times a week through the rest of the summer.

International Political Economy at the University of North Carolina: June 2007
 

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