David Harvey, Professor of Anthropology at the City University of New York, has been on a tour promoting his work -- from a Marxist perspective -- on how the Great Decession reveals the necessity for moving to an anti-capitalist system. I don't agree, but this animated video of one of his lectures is wonderfully entertaining. And I think he's right about one thing: there are a bunch of competing market-oriented narratives about how and why the crisis occurred, and none of them are especially convincing. That doesn't mean the more radical take is correct, but it is worth remembering.
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Wednesday, June 30, 2010
David Harvey, Professor of Anthropology at the City University of New York, has been on a tour promoting his work -- from a Marxist perspective -- on how the Great Decession reveals the necessity for moving to an anti-capitalist system. I don't agree, but this animated video of one of his lectures is wonderfully entertaining. And I think he's right about one thing: there are a bunch of competing market-oriented narratives about how and why the crisis occurred, and none of them are especially convincing. That doesn't mean the more radical take is correct, but it is worth remembering.
Tuesday, June 29, 2010
I knew it was gonna be awesome when Medvedev started a Twitter account. Even better when he started an English version. Is this lost in translation, or just perfection of politicians' pablum?
Improvements due to a high oil price could lead to unjustified tranquility.We have seen this before. We must not allow this to happen again.
Yes. We must be very careful to avoid "unjustified tranquility". We cannot let ourselves be tranquil again. We have seen this before.
Snark aside, Russia cannot depend on oil revenues forever. This is true, and Medvedev's whole thing on this North American trip has been about boosting information technology (and hamburgers?) in Russia. Just a funny way to say it is all.
Oh, and spies.
Monday, June 28, 2010
I'm looking forward to reading DeLong's long-in-the-works Slouching Towards Utopia whenever it ends up coming out:
Is macroeconomics hard in this sense? I confess that I do not think so. I think that macro is pretty easy...
What, exactly, the excess demand was in financial markets became a subject of dispute, with different economists placing the cause of the "general glut" that was excess supply of newly-produced goods and of labor at the door of different parts of the financial system. We have:
1. Fisher-Friedman: monetarism: a depression is the result of an excess demand for money--for those liquid assets generally accepted as means of payment that people hold in their portfolios to grease their market transactions. You fix a depression by having the central bank boost the money stock. Eliminating the excess demand for money also brings the goods and labor markets into balance and out of excess supply.
2. Wicksell-Keynes (Keynes of the Treatise on Money, that is): a depression happens when there is an excess demand for bonds--for ways of moving purchasing power from the present into the future. The workings of the banking system lead the market rate of interest to be above the natural rate of interest which balances the supply of funds saved and the demand for funds to finance business investment. You fix a depression by either reducing the market rate of interest (via expansionary monetary policy) or raising the natural rate of interest (via expansionary fiscal policy) in order to bring them back into equality. Then, with no more excess demand for bonds, the goods and labor markets will also be back in balance and out of excess supply.
3. Bagehot-Minsky-Kindleberger: a depression happens because of a panic and a flight to quality, as everybody tries to sell their risky assets and cuts back on their spending in order to try to shift their portfolio in the direction of safe, high-quality assets--which, of course, everybody cannot all do at the same time. The excess demand is an excess demand for high-quality AAA assets in particular, not of money (although outside money and some inside money are AAA assets) and not of bonds (some of which are AAA assets, but not all). You fix a depression by restoring market confidence and so shrinking demand for AAA assets and by increasing the supply of AAA assets. Eliminating the excess demand for high-quality assets is eliminated will bring the goods and labor markets out of excess supply and back into balance.
From the perspective of this Malthus-Say-Mill framework Keynes's General Theory is a not entirely consistent mixture of (1), (2), and (3)...
[I]t is not rocket science. It is, however, cutting-edge economics--beyond the cutting edge, in fact--for 1829.
The whole thing is word reading. Keep in mind that this discussion ends before it begins. It's not just interesting what governments could do in a perfect world with no constraints, but what governments can do (and do do) in the real world with lots of constraints. Someone else will have to write that book. Still, interesting stuff.
Sunday, June 27, 2010
Wow. Paul Krugman almost had a Eureka! moment:
A number of commenters have pointed out that unemployment has been falling in Germany over the past few months. Um, yes — but not in the eurozone as a whole. And that is what we’re talking about here, aren’t we? Or is European monetary and fiscal policy to be run solely based on how things are going in one country?
Um, that is exactly what we're talking about here, Professor, where "that" refers to "Who controls monetary and fiscal policy in Europe". That's what all of this is about. Up until now, monetary policy was controlled by one country -- Germany -- and fiscal policy was supposed be to restricted by the Maastricht criteria. But since the Euro isn't an optimal currency area and poorer countries in southern Europe didn't control monetary policy, they had to use rely more on fiscal policy to satisfy domestic demands, which left them all in debt and effectively broke Maastricht. This is what all of this is about.
Somehow Krugman still misses it, tho:
The point is that what amounts to a regional development within an ailing European economy doesn’t signify much.
It does when that region is the one that controls monetary policy for the rest of the Europe.
Does Krugman really not know what this is about? What has he been talking about for the past few months?
Remember when I wondered where the anti-globalization protesters went? Turns out they migrated to Canada. It's hard to find clear reporting on the numbers of protesters or their specific activities, but apparently about 180 have been arrested so far. Still nothing like the Battle in Seattle, but it's not nothing.
Saturday, June 26, 2010
Some commenters on my most recent post questioning the logic of Krugman's "Make War, Not Peace" attitude towards China raised some good points that I'd like to address. Ultimately, though, I think that Krugman and those who are sympathetic to him are just not sure about what they want to get out of a confrontation with China over its exchange rates. I'll explain what I mean as I go.
First, Wise Bass and Anonymous questioned the importance of China for funding U.S. deficit spending. Wise Bass was correct to point out a (slight) error in my post, which is that I said that China was the largest purchaser of U.S. debt. This is not strictly true (anymore) if you include the Federal Reserve or all private buyers as a single group. Clearly, however, China is a very large purchaser of U.S. debt, as Krugman is quick to point out ("$1 billion a day"). In fact, if China wasn't an important buyer of U.S. debt, Krugman's point becomes even more wrong, because a change in Chinese policy would then have little effect on the U.S. But I think Krugman is right about this much, so if China exited the market for U.S. Treasuries it would certainly have a noticeable effect on interest rates.
Or would it? Commenter Adam thinks it may not:
It might actually be a good time to lean on China to absorb some of the re balancing costs that its current account surplus pushes exclusively to the US.
Capital is fleeing Europe at a massive rate, and there's no reason to think that the US is going to have a failed auction any time soon. China is the single largest holder of US debt, and a few years ago it really was buying a majority of new US issuance. But it is only a marginal player now. A Chinese strike on new issuance would have a small, short term effect on US interest rates, but the resulting "flight to safety" should ensure that it's a very small and very short lived.
So the PBoC could dump its holdings, but then the PBoC's technical insolvency (it earns about 1% on its reserves, but once the RMB appreciates, it will earn negative returns) will become a liquidity crisis. The ministry of finance would have to step in to recapitalize the central bank, which is something the central bankers dread more than anything else right now as we go into the 2012 political cycle.
The other option is a trade war, which nobody can win from but the US would loose a lot less than China. The deficit country might be forced to pay higher prices, get some inflation (not a problem right now for US), and consume less. But the surplus country takes a demand a supply hit, and growth will slow much more in China than in the US.
It's not perfect, but it's a reasonable card to threaten right now because there's a realistic chance that the US can take the hit. China needs to step up and correct its twin surpluses much more quickly than they have shown any interest in doing. Krugman is mostly right on this, IMHO.
There are a few parts to this, but before I jump in I'd like to point out that while Adam's advice makes some sense on its own, it is answering a different question than the one Krugman is asking. Adam is answering the question "How can we get China to pay for its share of a (needed) global macro re-alignment?" Krugman is asking the question "How can we make fiscal stimulus in the U.S. more effective right now?" Adam's answer would not help reduce American unemployment in the short run; it would likely exacerbate it, for reasons I'll get into in a bit. But then again, so would Krugman's.
First, I'm not sure that China's current account surplus shifts all of the costs of global macro re-alignment onto the U.S., for the basic reason that China's persistent current account surplus indicates that global macro re-alignment isn't happening. It is probably true that persistent imbalances have damaged the U.S. economy over the past decade, and it may be true that they will continue to damage the U.S. over the next decade. (Although the economists' favorite question -- "Compared to what?" -- is certainly applicable here.) Not all of this can be blamed on China, however, and taking a "we broke it, you fix it" attitude towards a still very poor country would be heartless as well as combative.
More to the point: in terms of fighting the current recession using a Keynesian framework, how could picking a fight with China help in the short run? In other words, Krugman is hoping for a situation in which China suffers lower growth and the U.S. incurs higher inflation and greater borrowing costs, because he thinks that will make U.S. fiscal stimulus more effective. Are we sure that would be good for either economy? Are we sure that a large RMB appreciation -- which would benefit U.S. exporters but hurt U.S. importers and consumers -- would really stimulate the U.S. economy? What makes us so sure that the gains to exporters and non-tradable producers will out-weigh the costs to importers and consumers? What makes us so sure that this gain will be larger than the loss from an interest rate increase that must occur when a larger supplier of funds exits a market? These are the questions that Krugman and his supporters should be answering.
The presence of a large current account deficit would seemingly indicate the opposite, because more of the American economy currently depends on imports than exports. The job losses the U.S. has recently seen have been largely in non-tradable sectors like construction, less-tradable services like finance, and less-skilled labor in retail and services. Those aren't going to come back if the RMB appreciates 10% against the dollar. Let's also remember that economic recoveries are often encouraged by more trade, even if these run up imbalances, rather than less. That is certainly one lesson to take from the interwar and Bretton Woods periods.
If the goal is to shrink the current account deficit, we can do that easily enough by importing fewer goods, thus making ourselves poorer. If the goal is to spur employment in exporting sectors, we can pursue beggar-thy-neighbor policies to make that happen. But if the goal is to raise our standards of living and boost overall employment, then cutting off imports seems completely counter-productive.
Second, suppose that what I just wrote was irrelevant. In other words, suppose short-run economic recovery was not our policy goal. Then Adam's advice starts to become a bit more logical. If we were ever going to strike at China to reshape our medium run outlook, now might be the time to do it. The world's demand for highly liquid, AAA assets is very high, and the U.S. remains in a very unique position to provide them. I still disagree that China is a "marginal player" in those markets now, and that argument violates the most basic assumption in Krugman's logic (which Adam says he agrees with), but picking a fight when the U.S. is strongest (i.e. less reliant on Chinese funds) might still make sense if the goal is to punish China.
That is, it might make sense if American political constituencies were interested in sacrificing employment and standards of living for the pleasure of knocking China down a few pegs, or scoring some short run relative gains, or correcting the trade imbalance for its own sake. It might even make sense if the American leadership was interested in any of those things. But neither is true. The American polity wants a quick economic turnaround, and the leadership wants a China that is integrated into the global economy, and more willing to take a responsible role in maintaining security and stability in Asia over the medium to long run. Neither of those things are likely to happen under the scenario that Krugman (or Adam) outlines.
The point I was trying to make in my previous post is that Krugman has confused his purposes. Confronting the Chinese right now along the lines Krugman wants might increase American relative power (or might not), but it will not help spur an economic recovery in the short run, which he has made clear is his ultimate goal. Nor will it help maintain order in the global political economy, which should be the ultimate goal of policymakers. It's a convoluted policy, with no clear goals and no reasonable expectations.
I had intended more regular World Cup blogging, but I've been busy enough with other things that I haven't gotten around to it. But here are a few quick thoughts on the American and Ghanian teams leading up to today's match, which could reasonably be called the biggest in both nations' histories.
-- The Robert Green mess-up masked the fact that the U.S. was just as
good mediocre as England in the first game. Quite frankly, the U.S. was fortunate to escape with a point, not just because of Green's fumble -- I think the U.S. would have pressed much more in the 2nd half if the score wasn't tied, and may have found an equalizer anyway -- but because of the general listlessness of England's game. Then again, England was fortunate to escape with a point as well. Other than the botched covering that led to Gerrard's gimme goal, England had no offensive momentum at all. (This continued through the Algeria game in which they didn't score and even into the Slovenia game in which they only scored once. That said, before the tourney started all the talk about England focused on their slow, old, battered defense and the question marks in goal. They only conceded once in the group stage, and that was a fluke, despite starting four different center backs.)
-- The two quick goals conceded to Slovenia revealed the U.S.'s major weakness: there is often space in between the central midfield and the central defense that can be exploited. This is nothing new: Slovenia's first goal was pretty similar to the goal scored by Giuseppe Rossi in the Confederation's Cup last summer. It also demonstrated that Gooch Onyewu simply isn't up to snuff, because of injuries or otherwise. He's great in the air, but he's too slow right now, and his reads are not sharp. Two of the three goals conceded by the U.S. were partially or fully his fault. The problem is that Clarence Goodson is probably not ready for prime time (and the knock-out stages isn't the time to experiment) and Bornstein is a ticking time bomb if he plays on the left and pushes Bocanegra into CB where he really belongs. (Credit where it's due: Bornstein was pretty good against Algeria, but then again Algeria is not a very good team, and did not attack down Bornstein's flank at all.) Bocanegra lacks the pace to be truly effective as a left back, although he makes up for it somewhat with intelligence. The U.S. doesn't have great options here, and eventually it will cost them. It nearly cost them escape from the group stages.
-- On the plus side, the U.S. has a lot more attacking power than most give them credit for, and it hasn't been fully unleashed yet. Consider this: the U.S. has scored
four six four goals so far, and none of them have been by a striker. We know that Altidore can score in international play; he was fantastic in qualifying and scored a great goal against Spain in Confederation's Cup. And Buddle demonstrated that he can knock them in with his brace against Australia the week before the tournament began. Findley + Jabulani = Unmitigated Goal-Missing Disaster, but Gomez can also score, especially in his best role as 2nd half energy sub. But Dempsey should have three or four or even five goals by now rather than his one, Donovan is always dangerous and never seems to miss easy chances, and Bradley has demonstrated more than once that he is capable of coming up big. If the strikers get going, the U.S. can win a goal-fest even if the defense isn't the best. Not to mention, the U.S. has recently been known for scoring off of set-pieces, and have had no goals in those situations yet except for the mysteriously disallowed Edu goal. These chances are often created by good hold-up play by the forwards that lead to fouls, so Altidore and whoever pairs him will be very important moving forward. The U.S. should have scored three or four in the Algeria game (e.g. Dempsey's unfairly disallowed goal, Dempsey hitting the post then missing a wide-open net on the rebound, Altidore's miss from point-black, Buddle's header straight at the keeper, etc.), but they are usually pretty economical. The more comfortable and confident they get, the more likely those chances are not wasted.
-- The U.S. midfield is unsettled, and always has been. Michael Bradley is a mainstay and has been phenomenal, but he's been partnered at different times by Clark, Torres, Edu, and Feilhaber. None have especially impressed. Feilhaber has arguably been the best, but his first instinct is to join the attack, as is Bradley's. Given the concerns about the back four, one of the two central midfielders has to stay home. That's not Torres' role, as was clearly demonstrated in the first half against Slovenia. Clark might be the best candidate for that role, but his distribution and general presence on the ball is horrible and always has been. Costly turnovers and failed and missed passes are practically his calling card. Plus, his ball-watching nearly cost the U.S. dearly by handing Gerrard a goal. Edu hasn't been bad... but he hasn't been great either. If the U.S. had a solid holding midfielder that could support the defense, distribute well, and ignite the attack -- think Xabi Alonso or Javier Mascherano -- they would be a much better team. Then again, who wouldn't?
-- Ghana have scored two goals so far in this tournament, both on penalties. They've also conceded two. Their so-called forwards and attacking midfielders seem to have no finishing ability whatsoever, and this is not a new phenomenon: they haven't scored more than one goal in something like their last 14 matches. Nevertheless, they have advanced through the group stage in a very tough group (including Germany, Serbia, and Australia) after going to the semi-finals of the Africa Cup six months ago. In short, they know how to win close matches. They will be comfortable if the score is 0-0 in the 88th minute. They will be comfortable if the game is tied and goes into extra time. If it goes to penalties, well, all bets are always off, but Tim Howard (the U.S. keeper) is notorious for coming up big in those situations. Still, it wouldn't be surprising to see Ghana play a very defensive game, and try to strike on counterattacks and set-pieces.
-- That said, Ghana's strengths are the U.S.'s weaknesses. They have a very strong central midfield, and the wingplay of the U.S. isn't their greatest asset. Ghana is very fast, and could thus exploit the shaky LB position of the U.S. -- It's shaky no matter who plays there, frankly -- and the slow, foul-prone CBs. They are also very strong, thus negating the one advantage the U.S. often has in central defense. At different times, Onyewu, Bornstein, and DeMerit have all shown proclivities for conceding penalties. So far, Ghana has been able to draw them. If Ghana gets one and converts, they may be able to defend a one goal lead no matter what the U.S. throws at them. In fact, this was exactly how the U.S. was eliminate from the last World Cup: Ghana was granted a penalty on a
dubious horrible call against Onyewu, and won the game 2-1. This is the U.S.'s biggest danger. They have to be quick, decisive, and careful in defense. That has never been this group's strong suit. The importance of strong defensive central midfield play cannot be overstated here. The U.S. also has a nasty habit of attracting red cards in important international games. Some of this has been poor refereeing in the past, but it has to be avoided today.
If it were up to me I'd play this line-up, including Bornstein because I just can't trust Onyewu to not blow an assignment or concede a penalty right now, and pray that he (Bornstein) doesn't combust just yet:
That line-up is the best for the counterattack, hold-up, and wingplay, which should be the U.S.'s offensive strategy. To begin the game, at least. That, and getting a goal from set-pieces. The U.S. need to score first, for two reasons. First, because otherwise they may get impatient and leave open spaces that Ghana can exploit; Second, because if Ghana scores first they are a good enough defensive team to keep a clean sheet. They aren't likely to concede multiple second-half goals like Slovenia did.
This is a winnable game for both teams, and I'm looking forward to it. Let's just hope it isn't decided by poor calls from the officials.
FWIW, 538 has the game at 50-50 odds, mostly because of a continental advantage for Ghana. Discarding that, the U.S. are favored to avenge 2006. As we've seen, home-continent advantage has been pretty inconspicuous so far in this tournament. The U.S. can only hope it remains that way.
Friday, June 25, 2010
If Krugman wants another massive fiscal stimulus package funded by additional deficits, and he does, and he wants the Chinese to stop depressing the value of their currency by buying American debt, and he does, then where does he expect the funds for fiscal stimulus spending to come from? More precisely, if Krugman succeeds in removing the largest purchaser of American debt from the supply side of the funds equation ("$1 billion a day"), then why wouldn't he expect the cost of borrowing to increase massively? And why does he think this will be good for the national accounts?
Then there's this conclusion to his most recent column:
China needs to stop giving us the runaround and deliver real change. And if it refuses, it’s time to talk about trade sanctions.
Is it good for economic recovery to pay more to borrow than we have to, pay more for imports than we have to, and shut off access to a very large and growing market for our exporters by triggering a trade war? Of course not.
Usually when I disagree with anyone, especially someone as intelligent as Krugman, I can at least see where they're coming from. Not this time. I really cannot reconcile his anti-China invective with his pro-Keynes dogma. It just makes no sense.
Thursday, June 24, 2010
Citing costs induced by six decades of American hostility, Jong-Il has rummaged up his calculator, revived his old grudges, and delivered a tab to the U.S. to the tune of $65 trillion -- plus tax.
KCNA, North Korea's official state-run news agency, has asserted North Korea's "justifiable right" to collect financial compensation from the U.S. for an alleged six decades worth of antagonism -- one trillion dollars for every year since the Korean peninsula was divided in 1945.
The check's in the mail, Dear Leader. While you wait for it, why don't you not send the DPRK's soccer team to the gulag? That would be dumb.
Wednesday, June 23, 2010
Drezner's been hinting about his zombies-and-IR-theory research program for about a year now, and the first sign of where he's headed with it appears in this Foreign Policy excerpt from his forthcoming book:
The specter of an uprising of reanimated corpses also poses a significant challenge to interpreters of international relations and the theories they use to understand the world. If the dead begin to rise from the grave and attack the living, what thinking would -- or should -- guide the human response? How would all those theories hold up under the pressure of a zombie assault? When should humans decide that hiding and hoarding is the right idea? ...
What follows is an attempt to satiate the ever-growing hunger for knowledge about how zombies will influence the future shape of the world. But this is a difficult exercise: Looking at the state of international relations theory, one quickly realizes the absence of consensus about the best way to think about global politics. There are multiple paradigms that attempt to explain international relations, and each has a different take on how political actors can be expected to respond to the living dead.
The whole thing is entertaining, as one might expect, and Drezner offered some further context on his blog. He clearly intends this as a teaching tool, and like a somewhat-similar Godfather-and-IR-theory tract from a few years back, I am sure it will be useful for teaching. I look forward to reading the book version when it comes out in December. But Drezner hints that he may want this to be something more:
The Atlantic's Max Fisher gets what I'm going for here, noting that:Zombie theory sounds an awful lot like counterterrorism or cybsersecurity theory, to give just two example. But the beauty of zombie theory is that it applies too all sorts of emerging trans-national security threats, including those we have yet to anticipate or imagine.
These could include pandemics, environmental catastrophes, immigration flows, etc. In other words, almost any international threat other than traditional state vs. state controversies. While these are certainly interesting issues, much current IR theory is focused on international interactions like those he describes. The book's table of contents seems to indicate that his goal may be to survey the theoretical literature on these questions in a way that is understandable and accessible to students who know more about popular culture than IR theory. That is a worthwhile exercise on its own, but it isn't clear whether he intends to add to previously-existing theory or merely seek to summarize and apply it.
In either case I am sure it will be a great read.
Monday, June 21, 2010
I am quoting his entire post, not to rip him off but because the post is short and unexcerptable. But DD is always worth reading. Please add him to your RSS.
Gahhhh, economics, my greatest pleasure but the source of all my frustrations. Today I am mostly being irritated by the theory of optimal currency areas.
Look guys. It is true that the USA has somewhat higher internal labour mobility than the Euro area. It is not true!!!!!1! that this internal labour mobility equilibrates regional economic differences to any economically significant extent. The Rust Belt happened. Michigan is how it is. The oil states have oil booms and oil busts. Florida is procyclical because of tourism. California had a tech boom and bust.
In actual fact, regional fluctuations in the USA are smoothed out by transfers from central government and by countercyclical monetary policy at the federal level. The USA is NOT an optimal currency area, or even close to being one.
Also not an optimal currency area: Canada. And Germany.
Exactly right. So why do econotechnocratic dreams go awry? Politics. Yes, politics. Politics in the U.S., politics in the EMU, politics in Canada and Germany even. So let's start paying serious attention to politics, eh? (I.e., if Ben Nelson doesn't vote for another stimulus package, maybe it's not because he's an evil person who knows nothing about economics, but rather because he's a self-interested person who knows something about being re-elected.)
This should be a recurring theme on this blog over the next few weeks (and probably months), so I'll keep this short for now. But I'd like to leave this open to readers: is there such a thing as an "optimal currency area", expanding the definition to include political as well as economic jurisdictions? If so, what would it look like?
Saturday, June 19, 2010
The sort-of sarcastic title above is in reference to this:
At 7am this morning US East Coast time, the People's Bank of China published an announcement on its website that appears to signal the change everyone has been expecting. Chinese version here, with a posting date two minutes earlier. It begins:
Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility
In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
What does "enhance the RMB exchange rate flexibility" mean? Beats me, but we should hear more details before the upcoming G20 meetings:
The statement, from a bank spokesman, gave no details of when China would allow its currency to appreciate and by how much. But the timing of its release, just before the leaders of the world's largest economies gather for a G20 meeting in Toronto, appeared clearly aimed at taking pressure off Beijing over the issue. Many countries, including the United States, have criticized China's fixed exchange rate, which critics say was keeping the value of Chinese exports artificially low. ...(bold added)
The move was immediately welcomed by the White House, which saw it as a vindication of President Obama's nonconfrontational policy of trying to quietly negotiate over the exchange rate.
In other words, the Obama administration is saying "Shut up, Krugman". (This is also a small vindication for those of us who have opposed Krugman's China-bashing over and over again.)
But the statement from the People's Bank is purposefully vague, and there are basically no details of what China is and is not prepared to do. "Enhance flexibility" would seemingly indicate that China's "managed float" will be a bit less managed, and this will lead to some appreciation of the RMB relative to the dollar and euro. The proof of that will be in the pudding, so before we come to any judgments it will be better to see just what sort of "flexibility" Beijing has in mind, and how they end up implementing it.
Still, this could be significant news.
I just finished watching In the Loop... it's fantastic. I'd been wanting to see it since well before it came out last year, and finally got the chance. Well recommended for people who enjoy somewhat vulgar British humor, foreign policy bureaucratic inanity, and blogging. Blogging has nothing to do with the plot, but it does have something to do with the genesis of it, since foreign policy blogger extraordinaire Spencer Ackerman was a consultant on the film, as he recalls in this memorable Comment Is Free piece. It didn't catch on much in the States, probably because of the way it portrays the Washington/London "special relationship" in the run-up to an unnamed (but undisguised) war in the Middle East, but that may as well be worn as a badge of honor.
I'm no film critic so I won't try to parse it any further, but if it sounds like the sort of thing you might like, you probably will.
Friday, June 18, 2010
Mark Copelovitch writes about Spain and the IMF, and how his own research sheds some light on these issues, in a guest post at Menzie Chinn's place:
As the Fund's largest quota contributors, the "G-5" countries (the US, Germany, Japan, UK, and France) exercise de facto control over IMF lending decisions. At the same time, the G-5 countries are also home to the largest private creditors in global markets, including the world's largest commercial banks. Consequently, G-5 bank exposure heavily influences these governments' preferences over IMF lending policies. In particular, I find that IMF loan size and conditionality vary widely based on the intensity and heterogeneity of G-5 governments' domestic financial ties to a particular borrower country. When private lenders throughout the G-5 countries are highly exposed to a borrower country, G-5 governments collectively have intense preferences and are more likely to approve larger IMF loans with relatively limited conditionality. In contrast, when G-5 private creditors' exposure to a country is smaller or more unevenly distributed, G-5 governments' interests are weaker and less cohesive, and the Fund approves smaller loans with more extensive conditionality. ...
So, what are the implications for a future EU/IMF bailout of Spain (or Portugal, or Ireland)? Despite the heated rhetoric by Angela Merkel, Nicolas Sarkozy, and others about the need for the PIGS to put their own house in order by imposing staunch austerity measures, we are quite likely to see even stronger support for Spain (and Ireland), given its importance for the profitability and solvency of French and German banks. Portugal, in contrast, is likely to fare worse than Greece, given its limited importance for the major eurozone (and G-5) banking sectors. At the same time, we are also likely to see tensions within the IMF over the size and terms of any contribution to future PIGS rescue packages, given that American and Japanese views about the importance of eurozone bailouts are colored by their own, less extensive, financial interests in these countries. Ultimately, whether the "core" countries in the EU and the IMF view a rescue package as a "bailout" or a worthy endeavor depends not only on whether the borrower in question has been "profligate," but also on their own domestic financial interests and the vulnerability of their own commercial banks to a potential financial crisis.
We've covered similar themes for quite some time on this blog (see, e.g., here), and the way in which domestic political constraints influence the actions of international institutions has been a major theme in IPE for quite some time. It's good to see it get more play in bigger outlets. It's too bad to see Tyler Cowen refer to it as "public choice" rather than IPE, but hopefully this sort of analysis will catch on with bigger blogs and other media outlets, and the profile of the discipline will be raised a bit.
Copelovitch's soon-to-be-released book expands on these themes, and certainly appears to be worthwhile reading.
"German deficit hawkery ... has nothing to do with fiscal realism. Instead, it’s about moralizing and posturing. Germans tend to think of running deficits as being morally wrong, while balancing budgets is considered virtuous, never mind the circumstances or economic logic."
Bonds worth about €3 billion are now being purchased on every trading day [by the European Central Bank], with €2 billion of the bonds coming from Athens. At the moment, there is no improvement of the situation in sight.
This policy effectively makes the ECB a so-called "bad bank" (a bank that buys up toxic assets as a means of helping out other institutions), all protestations of its president to the contrary. The pile of junk bonds on the ECB's balance sheet continues to grow. The fact that the ECB is keeping prices artificially high is downright encouraging banks to unload their risky assets onto the central bank.
But in pursuing the policy, the ECB has backed itself into a corner. What will happen if it stops supporting the market? Will the prices of the bonds of highly indebted countries then hit rock bottom?
[Many] German central bankers [say that] by deciding to [purchase bonds]...the ECB has lost its status as an independent central bank -- and, along with it, so has the Bundesbank.
Maybe German austerity, therefore, reflects the German response to the struggle over monetary policy in monetary union. German policymakers view austerity in the PIIGS as the only way to end ECB bond purchases, and they view the end of bond purchases as necessary to restore independence to the ECB. Germany is in a much better position to push austerity on the PIIGS if it accepts austerity at home. Hence, Germany embraces austerity in order to get the ECB out of sovereign debt markets and get politics out of the ECB.
More broadly, the outcome of this struggle likely determines how the ECB and monetary union will function in the future. German policymakers are saying: "we will not accept a soft money union." Of course, German policymakers have always said this. But until now, such statements have been cheap talk. Making the German commitment to a hard money union credible requires German policymakers to demonstrate their willingness to pay costs (and to force others to do the same). Germany is now demonstrating its willingness to do so by embracing austerity in the face of a recession and debt crisis.
In short, maybe German policymakers have embraced fiscal austerity because they believe they are in a struggle for their monetary future. Is this good policy? Probably not in so far as the focus is on short run economic performance. In the long, though, is the EU better off with a soft or a hard monetary union?
Thursday, June 17, 2010
"OK, I haven’t looked into the cases of the Netherlands and Finland; but given the track record so far, I’ll bet that they don’t really support the argument either...It’s hard to escape the sense that people ... will grab hold of any rationale they can think of."
(and yes, Dead Man's Party is the much better Oingo Boingo song)
Wednesday, June 16, 2010
What would the shareholders of the big two banks have done if management had refused to get involved in highly profitable development lending in the lead up to 2007? What would politicians – government and opposition – have done if regulators had moved to curb credit expansion and prick a suspected property bubble? What would voters have done if the government had moved to tighten fiscal policy while running budget surpluses? There is a bit too much wisdom after the fact.
John McHale, reviewing Raghuram Rajan's new book Fault Lines, writing about the political economy in Ireland. Needless to say, it is equally true of the U.S. and many other countries. Remember that limiting credit flows has distributional consequences, and will probably exacerbate inequalities even if Wall Street bonuses are lowered. It also means that talk about bringing private incentives in line with public goals must actually begin with government and the polity, not with the bankers. A bit too much wisdom after the fact, yes, but also a bit too much optimism; we can't expect a consumer protection agency, or limits on CEO pay, to make much of a difference if everything else stays the same.
(via Henry Farrell's shared Google Reader feed.)
Here. The title refers to commenters on recent previous posts.
Check out the CDS spread, the market is now more worried about a Spanish government default than a default from either Banco Santander or a major telecom company.
And yet we are told there are no market signals that European governments are spending too much. We are also told that the Spanish government can do OK with its halfhearted austerity plan or maybe they should even be spending more. Those discussions usually stop at the mention of a single interest rate or perhaps an unemployment figure.
In case you were wondering, Banco Santander and major telecom companies are in big trouble. I've been reading Marginal Revolution every day for six or seven years, and that has to be the most hysterical that I've ever seen Cowen. And while this post is not addressed to Krugman, it is certainly directed at him. Quite frankly, there is so much nuance in this discussion that I'm not sure who is right on the economics. But I do know who is wrong on politics -- the detailed answer is in posts from earlier this week, but psst: it's Krugman!! -- and I know that those wrong views about politics are influencing the economic advice that Krugman is giving. Which makes me think that even if Krugman is right on the economics given his assumptions, his assumptions do not hold in this case, and therefore he is also wrong on the economics.
But maybe not.
George Clooney, on being given a lifetime membership to the Council on Foreign Relations:
I'm honored to have been nominated.
No joke. About any of the above.
Tuesday, June 15, 2010
Maria Farrell tells us that the World Bank (her current employer) is stupid:
Upward-trending ideas in the World Bank include ‘the multi-polar world’, the not exactly revolutionary concept that after the global financial crisis, the US and Europe can no longer dictate economic terms to, for example, the BRICs. Another idea that’s bubbled up in the past couple of years is the notion of ‘political economy’.
The term has a peculiar meaning within the Bank. Here, political economy is shorthand for the notion that big loans to governments take place in a local political environment, and this can be counter-productive and even lead to graft. It’s amazing to a contractor like me that this presumably heretofore unacknowledged fact of life requires the prosecution of a managerial and intellectual agenda by some very talented and committed people to introduce it explicitly into the decision-making calculus. But in an institution where ‘reform’ still means ‘Wolfowitz’, the currency of a perfectly good idea can be of the kind you carry around in wheelbarrows.
It's not exactly a secret that the World Bank is often behind the times, ideas-wise. Nor is it a recent development that "reform" might mean something like "Wolfowitz". (And a political economist shouldn't be surprised by either.) But this... this... this is not good news.
Monday, June 14, 2010
Alex posted last night about the rich mineral deposits in Afghanistan, and what implications that could have for political stability and economic development in Afghanistan. Since his post, it has come out that this is not exactly a new find (it's been known since at least 2007), and the timing of the NY Times article is a bit suspect. All of which is true, but doesn't really change what the important questions are, such as what effect will these resources have on Afghanistan's political and economic development? Alex highlighted many of them, as did Andrew Exum:
I have been reading Paul Collier's The Bottom Billion in between editing chapters of my dissertation (which is tough enough to do when my local coffee shop has the World Cup on all its televisions), and Collier describes the characteristics that "trap" countries in cycles of civil conflict: low income, slow growth, and dependence on primary commodity exports. I don't need to tell you Afghanistan has the first and third characteristics in spades, and you may have noticed that Afghanistan has already been in a pretty miserable cycle of civil conflict since the PDPA coup in 1978. Does this resource find make civil war more or less likely? The statistics, I'm afraid, suggest the former.
Somewhat ironically, Collier's research methods are exactly those that Exum disapproved of in our dispute from a few months back. But I'm glad that Exum is broadening his horizons in this case, and even though I don't think Collier's book is perfect, there are still a lot of lessons to be learned from it.
The wild card in Collier's work, and in this particular case of Afghanistan, is the presence of an external military in the state with resources. Collier argues in later chapters of his book that the presence of an outside intervener can change the "trap" dynamics that many poor countries find themselves in. (In fact, he's been criticized fairly strongly for this "colonialist" aspect of his work, and for the statistical methods he uses to reach his conclusions. I told you it was ironic that Exum was praising it, given his previous stances.) So while the combination of "ethnic/tribal/ideological rivalries + poverty + natural resources = conflict + economic stagnation" most of the time, adding "external intervention" to the left-hand side of the equation can, in some circumstances, change the right-hand side quite dramatically.
It's impossible to know from Collier's work alone whether that can happen in Afghanistan's case or not. But given that these resources are in Afghanistan no matter what the U.S. does, it's probably better for Afghans that we're there. Of course, if that's true than it also true that it would be disastrous for the U.S. to withdraw from Afghanistan any time soon.
The NYTimes is reporting that American geologists have found massive untapped mineral deposits, estimated at upwards of $1 trillion, throughout Afghanistan.
The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.Last year, I highlighted that over half of the world's current lithium reserves are located in Bolivia, a country whose current political leadership isn't particularly high on our list of best friends. The Times is reporting that the geologists initial analysis of one location in Afghanistan's Ghazni province showed the potential for lithium deposits of about the same size as those in Bolivia, which can potentially be a game-changer in and of itself for the Afghan government and the US-led war in Afghanistan. As I noted last year, lithium powers virtually every single battery that we use in our daily lives, from our cell phones and laptops to our iPods and even new battery-powered electric cars.
Sunday, June 13, 2010
Not so much, according to new research from the OECD:
This research deals with the question of sovereign wealth funds’ investments from a comparative perspective. Based on a unique holding-level data for a group of sovereign funds and mutual funds, it shows that the differences in equity investments between SWFs and other institutional investors are less pronounced than suspected. This is illustrated by comparing the geographical/sector allocation and the targeted firms’ profile. A new dimension of analysis is introduced: the political regime in the sending and recipient countries. Evidence suggests that SWFs and mutual funds’ investments converge when looking at the political profile of targeted countries.
These results point towards some policy implications. First, in line with the OECD viewpoint, double standards for institutional investments should be avoided. Sovereign wealth funds exhibit more similarities than differences to other institutional investors. Second, taking mutual funds as a financial-oriented benchmark, SWFs are investing in countries that are financially rewarding, regardless of the political regime. Third, allocation disclosure is an important step towards transparency, but should not only be a requirement for sovereign wealth managers, but also for other institutional investors, either public or private.
Full paper at the link above.
My previous post got a lot of attention from a series of anonymous commenters (or just one, with nothing better to do than keep missing the point over and over), and a drive-by from Brad DeLong. The post had two purposes: first, to say why I think Krugman and his fellow economic hawks are wrong. I'll try to expand on that point later in this post. Second was to mimic the style of Krugman and his friends in the blogosphere, which goes basically like this: isolate an argument that you disagree with, refer to an old and classic bit of literature that also disagrees, then express shock that the lesson hasn't been absorbed ("we learned these lessons decades ago"). The specific language I used -- saying that not even undergrads should make that mistake, quickly and dismissively summarizing why you think the writer is wrong, being intentionally "shrill" -- was intended to obviously ape the Krugman/DeLong style of addressing one's interlocutors. The commenters missed the reference, which probably means that I didn't make it obvious enough. Mea culpa, I guess.
Thomas captured most of what I meant in his follow-up, and then took more anonymous abuse for bothering to comment on his own blog. What I really wanted to stress can be summed as follows: Krugman seems to think that if the U.S. just exerts a little pressure on China and Germany that they'll capitulate and do whatever we want*. I don't think Krugman's strategy is very likely to work. Perhaps more importantly, I haven't read a single international relations scholar who thinks it will, and there are no clear patterns from history of something like this working. There are no models of politics in which one side make an obviously non-credible threat and the other side backs down. On the other hand, we do have examples of what happens when leading powers pursue nationalistic, beggar-thy-neighbor policies during a global economic slump. The result isn't pretty: worsening economies and political instability, which has often led to conflict. Of course I'm not saying that if the U.S. slaps a "currency tariff" on China it will lead to World War III, but it would certainly make dealing with the Korean peninsula more difficult, as well as maintaining security in the Middle East and Africa. It will also make economic recovery more difficult.
There is a reason I called that post "The World in Decession" and started it with a reference to Kindleberger, an economist. The reason is that Krugman's argument directly contradicts Kindleberger's, using almost mirror-opposite language. It really is uncanny. But I could just as easily have titled it "Krugman Eschews Keynesianism". Keynes certainly understood that economic warfare was not good for economic growth or political stability, and he pushed strongly for multilateralism and cooperation in the post-war settlement. While Keynes might not approve of either Germany's austerity program or China's management of exchange rates (the latter is less clear), he certainly would not have approved of U.S. brinksmanship and unilateralism in the middle of a global downturn, when cooperation is most required. Krugman seems to consider himself Keynes' dauphin, so it is very strange that he has not internalized this lesson.
One anonymous commenter referenced U.S. policy toward Japan and Germany in 1980s as a possible model. But the U.S. was not able to bully Japan very successfully in the 1980s, and the trade imbalance between the two countries persists to this day (and increased in nominal terms since the 1980s before the financial crisis hit). Japan's economic rise was not halted by U.S. intervention (as if that was ever the goal), but by a financial crisis that led to 15 years of negligible growth. Moreover, U.S.-Japanese and U.S.-German relations in the 1980s were rooted in a Cold War context that included U.S. security guarantees. We had much more leverage over Japan in the 1980s than we have over China today, and we still weren't able to force them to cater policy to our wishes. But even if the U.S. was able to successfully play chicken with Japan in the 1980s, the relationship between the U.S. and "Chermany" today is just not analogous.
Another commenter said that I should not criticize a respected academic like Krugman in the way I did. Perhaps, perhaps not. But in the field of international politics Krugman is not an academic; he's a pundit, and in this case he's making amateurish arguments. His comments on international politics carry no special weight just because he is an economist. The same commenter suggested he would stick to reading Marginal Revolution from now on; unfortunately for him/her, Tyler Cowen attacked Krugman along similar lines as me the very next day:
On another front, Germany is finding itself unable to much control the fiscal policies of Greece and they have entered in a common political union with a (supposedly) binding fiscal rule. Germany also has numerous European countries on its side in its struggle with Greece and is much larger, relative to Greece, than the United States is to Germany. If Germany can't control the fiscal policy of Greece, how much can we control Germany?
This is one "get tough" program that is headed nowhere fast.
I planned on writing a post offering my suggestions for how to address macro political and economic problems. This post is getting long, so I'll have to save that for later. But in sum, Krugman really has no leg to stand on here. No theory, no history, no internal logic, nothing.
*I'm not the first one to notice that Krugman sounds amazingly like a Bush-era neocon when he gets going like this, using language like "time to get tough" and "doing nothing is not an acceptable option" and "the United States has to take steps to protect itself" that include pre-emptive, unilateral action.
Saturday, June 12, 2010
While Brad de Long (and everyone else) beats up on Will, let me say what Will would have said had he not been wasting his time watching soccer games that fail to produce either goals or victors.
Paul Krugman took a break from his bicycle tour to voice concern about the direction of global economic policy and the global economic recovery. His post raises three distinct issues:
- The nascent global recovery is stalling.
(the EU generally) is playing a beggar-thy-neighbor (BTN) strategy, counting on US as consumer of last resort to offset the negative impulse of fiscal consolidation. Germany is playing a BTN strategy by manipulating its currency. China
Krugman suggests that the
- This policy is more likely to generate an outcome we do not want than an outcome we do want.
- Would following through on the threat make the
worse off or better off than the status quo? A world in which the United States protects and everyone else contracts is the 1930s. This seems worse than the status quo. US
- Would the
USthreat to impose AD duties be credible, given that implementing the threat would make the worse off than the status quo? I think the answer here is “No.” US
- If the threat is not credible, would
Germanyand change policy in response? No, they would not change policy in response (see point 3 below for elaboration). China
- Do we want the
USto follow through on its threat, thereby worsening an already bad situation when it fails to induce policy change in Germanyand ? I do not want this. China
- Thus, a threat to impose protection seems unlikely to generate a good outcome and quite likely to generate a bad outcome. Hence, I don’t think this is a good policy option.
- Although it is not a good option, it may still be the best option. So, does a better option exist?
- Can the
ease the magnitude of the slowdown in the EU’s economic recovery by acting as consumer of last resort? Why yes, it can. US
USconsumption from the EU help sustain economic recovery in the ? I believe the logic of circular flow would suggest that it does. Maybe I am mistaken. United States
- If exports generate growth, would EU governments become more or less concerned about their fiscal position? I believe they would be less concerned.
- Does playing consumer of last resort cost the
anything? The interest rate on the debt from the marginal current account deficit. Maybe there are other costs? Perhaps we lose jobs that might otherwise have been created in a world in which US Germanyexpands and revalues. But that world does not exist and cannot be brought into existence (see “1” above) and thus isn’t a relevant point of comparison. We lose the opportunity to establish a commitment to no longer be the consumer of last resort? China
- Why do German politics generate an obsession with austerity that makes it highly unlikely that threats will induce policy change?
- History—hyperinflation, great depression, political instability, Hitler.
- Postwar success rested on the single-minded focus on what is right for
Germany(see 1978/79 (Bonn Summit); macroeconomic policy coordination during the late 1980s (remember October 1987?); the 1991-92 EMScrisis; etc.). These episodes have revealed to be quite skeptical of American policy coordination initiatives. Germany risked its postwar achievements by pooling monetary authority and is now discovering that legal prohibitions on fiscal bailouts in EMU are not credible. Germany
- Recognizing that
Germany’s implied fiscal burden is Greece+ Spain+ Portugal+ Italy+ + …. Ireland
- Given this, what is the probability that
changes its mind in response to the threat to impose AD duties? Zero. Germany
Would it be nice to have a coordinated global fiscal stimulus? Sure, but trying to bring this about by threatening to blow up the world and then being put into a position where you have to choose between actually blowing up the world and backing down seems ill-considered.
Friday, June 11, 2010
You know the answer, don’t you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.
... and ramps up the beggar-thy-neighborisms, like that's always worked before:
This is not going to work — and the United States has to take steps to protect itself.
For someone who claims to know a lot about the 1930s, or Bretton Woods, or the 1990s for that matter, this is an unbelievably stupid statement to make. Like, "Fail your first-year students" stupid. WAY stupider statement than a Nobel prize winner should ever, ever, ever, ever make, even if it's well beyond their area of expertise, which it is not. It is stupid whether you are thinking about economics or politics or both. Etc.
Quickly: when the world is in depression/decession, it is a really bad thing for national governments to pursue nationalist/isolationist policies. That is true for all, but it is especially true for those in position of global leadership, as the U.S. still undoubtedly is. This may seem obvious, but as Orwell said (reviewing Betrand Russell), "We have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men."
Anybody want to make a bet whether or not Brad DeLong -- recent commenter on international politics -- gives Krugman the same "we learned these lessons in the Great Depression and you're wrong" treatment that he gives every dissenting economist not named "Brad DeLong", "Paul Krugman", or "Mark Thoma"?
No? Too bad.
I'd step into the breach, but I'm busy re-orienting my schedule to Johannesburg time for the World Cup (work in progress), and working on several other projects, and am exhausted. But it does strike me that no one is reminding others of basic macro international political economy theory, and that this is a needed corrective to this sort of silliness coming from many corners of the blogosphere/punditry. Even from relatively intelligent folks who should really know better. I guess this blog is somewhat well-placed to do that, even though few read it except on those days when bigger fish link to it. So maybe over the coming days/weeks/months I'll discuss some of these basic fallacies, how they come about, why they are wrong, and how we can think better about the global political economy. And if it turns out well, maybe some of the bigger fish will link to it.
ADDENDUM: I am serious about every substantive point made in this post. As to the tone/hyperbole... I'm aping some of those in the blogosphere who are SHOCKED! SHOCKED! to discover that other intelligent people disagree with them. I hope to spend my time more on the substance than the tone in the future, but as they say: what goes around comes around.
Thursday, June 10, 2010
Just this week, two prominent clerics proposed an innovative -- and downright bizarre -- strategy for loosening the prohibition against gender mixing among unrelated men and women. In a newly released fatwa, they urged Saudi women to distribute their breast milk to adult males. That's right: for drinking. According to Islamic law, women can mix unveiled in the presence of men they have breast-fed (because nursing precludes future sexual relations). By donating their milk, women in essence "adopt" their male acquaintances, opening the door for greater, not to mention more modern, interaction.
Does this belong in "Markets in everything" or "Politics everywhere"?
Drew Conway has a post up arguing that more grad students should blog. In fact, he sees nearly no downside to it; he has 10 points in favor and none against. I am in broad agreement of course, and made many similar points during the roundtable on blogging at this year's ISA conference. I especially agree with Conway's points #1-4, 6-7, and 10. As for point #5... I think different peoples' mileage varies. Some departments seem to be nonplussed or even encouraging of blogging by faculty and grad students. Others are downright hostile.
I can speak best about my own experience. Obviously the Poli-Sci faculty at UNC is not uniformly against grad students blogging, since this blog was founded by a faculty member. That doesn't mean that all of them are excited by the idea either. While I've never had a faculty member tell me that I shouldn't blog, I have had a few express reservations. An academic's stock-in-trade is intellectual reputation, and faculty members get nervous that thinking dumb thoughts out loud can have deleterious effects on their students' job prospects. While this is also a risk in conference presentations, job interviews, and other settings, those situations can often be controlled more easily. When you blog, you are exposed in public and are especially vulnerable to criticism. As I said at ISA, and as Conway indicates (#6), this can be viewed as a very good thing. But not everyone sees it that way, and that view has to be respected as well. In a worst-case scenario, public stupidity from their grad students could even have a negative effect on their reputations as intellectual mentors. At least, one line of thinking runs this way.
I don't necessarily think that more grad students should blog, although I do think it provides a valuable medium for thinking about theory and scholarship in a different context than we get in seminars, conferences, and brown-bag lunches. However, I do think that more grad students should have the option to blog without fear of repercussions, so long as it does not have an adverse effect on their other work. And I think that those critical of grad students (or faculty members) blogging should articulate their concerns in a public, coherent way, and be willing to hear counter-arguments. Ironically, a cross-blog conversation would be a great way to have that conversation, but putting those concerns out in the open in any way would be beneficial to everyone. I think people who are concerned that there is a bias against blogging in some corners of the academy are probably right, but I don't think the reasons why are very well articulated. I also don't find them very persuasive, which is why I still blog, but that could just be because no one has ever presented the case to me.
In short, like Conway I have found the experience of blogging to be positive almost without reservation. It has provided me with academic opportunities that I would not otherwise have had, and allowed me to network with other grad students and faculty that I would have been hard-pressed to know otherwise. The only downside has been a (relatively modest) time commitment, but even that time is not lost; it is spent applying the tools my discipline provides for understanding the world to try to... understand the world. Sometimes I get things wrong, I know, but that's okay too. It's part of learning and growing. Isn't that what grad school is supposed to be about?
Wednesday, June 9, 2010
Note: The following is a guest post by Christopher Dittmeier, a fellow grad student at UNC.
The UN Security Council has passed a new round of economic sanctions against Iran, touted by the White House as a major ramping-up of pressure against Tehran's nuclear weapons program. However, despite the press surrounding the negotiations, pre-negotiations, and side deals involved in today's UNSC vote, can we expect the new round of sanctions to effect progress in the nuclear-program negotiations? I think not.
The theoretical backing to sanctions is to translate economic damage (the interdiction of trade and financial activity) to political damage (weakening the target's support among its winning coalition sufficiently to induce a change in policy). While the US has laid out its coercive program quite clearly over the fourteen years of the nuclear- and terrorism-oriented sanctions, both previous sanctions as well as today's new round fail to connect the political ends to the economic means: any effective sanctions regime must place pressure on the support structure for Iran's leadership, namely the Iranian Revolutionary Guard Corps (IRGC).
Today's UNSC resolution fails to achieve that. There is no comprehensive ban on financial or military dealings with the IRGC, and the asset freeze / travel ban list, which was expanded today, has proven ineffective against the most basic use of shell companies. If the US is unable to interdict the economic activities of the IRGC, there is no economic pressure, and therefore no political impetus for a change in policy. Assuming an optimistic outlook for the effectiveness of sanctions as coercive tools (a position which has its own detractors) the new round will fail to reach even the first objective of economic coercion, and can be relegated to the category of noise.
Not that noise is entirely without purpose in this respect. Sanctions are also considered to be signals of resolve (en route to the ultimate means of military conflict to correct the undesired policy). However, this can best be used to signal resolve not to Iran (which has seen these signals for fourteen years, and is well-informed of the US lack of resolve for militarized conflict) but to the American public, which wants its officials to "do something" about the Iranian threat. Paradoxically enough, the best way to accomplish this is to do nothing (and not even to do it that well). While the new round of sanctions may placate moderates in the American congress, it will not prevent the Iranian nuclear program from moving forward, nor will it induce any favorable changes in the Iranian government's near-term feelings for the United States.
This video has been bouncing all over the net lately, and with good reason: it's excellent. So here it is again, for those who haven't seen it.
Paul Krugman somehow has a cameo in Get Him to the Greek:
This has to be the first time a Nobelist has appeared in a dumb comedy, yes?
Congrats to Edward Hugh, who has long been one of my favorite bloggers (at A Fistful of Euros) and the go-to source for commentary on the European economies, on this NY Times write-up. Everyone should read the article, but more importantly, the blog.
Monday, June 7, 2010
It has been fashionable over the past few years to examine historical events looking for parallels to the current financial crisis. For obvious reasons the most cited periods have been the 1930s in the U.S. and the 1990s in Japan. (I've pushed back a bit on relying too much on historical narratives here.) But if I were a member of the ECB, or any other policymaker responsible for maintaining the EMU, I'd be begging Sebastian Mallaby's publisher for an advance copy of his new book, More Money Than God: Hedge Funds and the Making of a New Elite. The Atlantic has an excerpt, describing how George Soros and others brought down the British pound in 1992 and ruined any chances of the U.K. joining the Euro. Here's how it went down:
Schlesinger had made it obvious that the Bundesbank was not going to help the pound cling onto its position inside the exchange-rate mechanism by cutting German interest rates. The devaluation of sterling was now all but inevitable.
True to form, European leaders have been hesitant to do much to prevent similar devaluations in the eurozone during this crisis. Interest rate cuts at the ECB have mostly been small and late, and the $1tn bailout fund is only enough to buy time for European banks to repair their damage sheets in advance of a default in Greece (and probably elsewhere). Now we see that Germany is planning austerity measures at home, which will make it far less likely to subsidize other EMU members, while concerns about the debt of Spain, Italy, and even France are steadily mounting.
There is a tipping point, and while we may not be there yet we are getting closer to it every day. When markets become convinced that a devaluation is inevitable they "go for the jugular", to use Soros' language, and it becomes a self-fulfilling prophecy. That happened in 1992, but U.K. officials weren't very quick on the uptake; they cost their citizens hundreds of billions by postponing necessary actions. The same thing may be happening right now. As Mallaby concludes in that excerpt:
The markets had won, and the government had at last recognized it.
In terms of recognizing the inevitable, the sooner the better. But has that lesson been learnt?
UPDATE: Tyler Cowen says things are coming to a head in Spain.
Friday, June 4, 2010
Posts will be slow over the next few days as I am on vacation and the rest of the IPE@UNC bloggers continue to be derelict in their duty.
But we'll be back next week.
Tuesday, June 1, 2010
This isn't really my area of expertise, but I think George Packer has it right:
The flotilla was bait, and Israel took it—a classic triumph of civil disobedience over state power.
Even if not illegal, and it probably wasn't, Israel's response was incredibly stupid.
Somewhat surprisingly, I haven't yet read anybody say that this could end up being a good thing for the Mideast peace process because it's bad for Israel. If Packer's analogy is right -- he also references the K-9 units used in Birmingham -- this could provide a wedge in the Palestine stalemate, perhaps eventually leading to greater concessions from Israel and a peace agreement. Drezner seems to almost get to this point when he says that Israel shares some things in common with North Korea:
[B]oth countries are diplomatically isolated except for their ties to a great power benefactor. Both countries are pursuing autarkic policies that immiserate millions of people. The majority of the population in both countries seem blithely unaware of what the rest of the world thinks. Both countries face hostile regional environments. Both countries keep getting referred to the United Nations. And, in the past month, the great power benefactor is finding it more and more difficult to defend their behavior to the rest of the world.
If the "great power benefactor" decides to reduce its support for the regime, it may have little choice but to accept some sort of bargain that it would have rejected previously. I'm not saying it's going to happen, but the odds of that have gone up, not down. Avoidable tragedy that the flotilla attack is, it could possibly end up serving a greater purpose.
(Just so we're clear, I'm not suggesting moral equivalence between Israel and American segregationists, or Israel and North Korea, or anything else. I'm thinking in purely strategic terms here.)