Link Dump

-- How Obama's trip to Egypt was viewed by Egyptians.

-- Thomas Paine encouraged three revolutions, participated in two, and died an embittered man 200 years ago.

-- Many Hong Kongs, via wunderkind Matthew Rognlie.

-- Migration flows are reversing in Europe and America. This is not a good thing.

-- Regulating microfinance: what are the benefits and costs?

-- Latvia must decide: devalue now, or devalue later? And which adjustment mechanism to choose? There's a lot of good IPE literature on this. See, e.g., Who Adjusts? by Beth Simmons.

Lingua Americana

Two esteemed Foreign Policy bloggers have different takes on the spread of the English language and what that means for foreign diplomacy. First, Ali Wyne:

But for those who claim that the post-American world is a fait accompli, there is one big problem: The English language is winning hearts and minds faster than politics ever can. With the June 10 addition of "noob" (a pejorative description of a newcomer to a particular task or group) to its lexicon, English will boast one million words - twice as many as Cantonese, four times as many as Spanish, and 10 times as many as French. Half the world's people are projected to be speaking English by 2015. And so long as English is on track to become the world's unofficial language, the United States will likely be center stage. ...

Whether it's Latin during the first century or French in the 18th, great powers and global lingua francas tend to go together. So while the unipolar moment may be over, the growing influence of English will ensure that the United States doesn't fade into the sunset anytime soon.

Then Stephen Walt:

Americans sometimes view the dominant position of English as another component of America's "soft power," but that view is simplistic chauvinism. With English becoming a "universal" language, no single country will own it or be able to regulate its content. Instead, it will continue to evolve as most languages do, incorporating new words, spellings, and grammatical practices from an wide variety of sources. If they haven't started already, American xenophobes are going to start complaining soon about the corruption of "standard English" by all these foreign influences.

I score this one for Walt. The dominance of the English language in international settings is an effect of current (and past) power structures, not a cause, so arguing that the spread of the language will prolong American dominance is a major over-statement. After all, the United States was not even the country that initiated the spread of English to all parts of the world. That honor, of course, belongs to the British, on whose empire the sun never set. Without the reach of the British Empire to India and Hong Kong, would we expect so much penetration of the language into Chindia? Indeed, the economic center of the world for centuries was London, not New York, and much of the current use of English in Asia and Africa can be attributed to the Brits. However, despite the persistent prevalence of their language, the actual influence of the British has declined steadily over the past half-century.

This is not to say that the entrenchment of English as the global language does not convey some advantages for America, but it is very easy to over-state them. The French have long pushed the adoption of their language as the global standard, and have even had some successes -- French is one of the official languages of many international institutions, including the U.N. and the Olympics -- but these successes have done little to maintain France's influence in the world (or the adoption of the language). Many Americans are choosing to learn Spanish to better accommodate demographic shifts in the country (and thus improve economic opportunities), but it would be silly to argue that that signals a rise in the influence of Spain (or even Mexico) over American politics. It would be similarly silly to argue that America's influence would markedly fade if Esperanto was spoken in the U.N.

The concept of "soft power" is quite often useful for explaining the relations of states in the international system. But it is easy to make too much of something that isn't really there.

P.S. For more discussion, Walt recommends this roundtable hosted by the Freakonomics blog.

How to Avoid Unemployment? Move to the O.C.

Not that O.C. Definitely not. This O.C.

Mish points out that the towns and cities with the lowest unemployment numbers are university towns and state capitals:

If you are looking for work, get the hell out of Detroit, Portland, and many California cities and move to places like Johnson County, Iowa; Albany County, Wyoming; Riley County, Kansas; and Los Alamos County, New Mexico, all with unemployment rates under 4%.

He points to this wire story showing some counties that have been hit least hard by the recession (at least in terms of unemployment). Among them is Orange County, NC, home to our fair university and close to the state capital. So how do we do it?

The government employs over one-quarter of all residents in the county -- including all four IPE@UNC bloggers -- good for second-most on the list (behind Los Alamos, NM, home of the famous national laboratory). Many more are students, and therefore technically "employed" even if they do not work. And there are many jobs in services industries catering to university workers and students.

So if you're job searching, and you have white-collar skills, move to where the government is. Those jobs are always secure.

Research versus Teaching

Lee Sigelman over at The Monkey Cage asks why Universities incentivize research over teaching in the Humanities and Social Sciences. Lee points to a recent paper (NBER abstract here; summary here), on the question, concluding:

"I find their paper interesting not so much for the answers they provide, but rather because they’ve laid out a question whose answer so many of us take for granted — that research is simply a Good Thing that needs to be encouraged — that we don’t take the trouble to think it through."

One commenter on the post notes, "Young scholars in the making do not decide to attend graduate school because they want to teach; once there, they are not trained to teach; after receiving their degrees, they are not hired on the basis of their ability to teach." I wonder if this is true.

Is Europe Shifting to the Right?

The Wall Street Journal takes a bemused look at political trends in Western Europe, and wonders why left parties are struggling:

The economic recession should have meant easy votes for Europe's left-wing movements, longtime critics of unchecked capitalism.

Yet as Europe goes to the polls, left-leaning parties across the continent are looking likely to falter. That's true both for those in government, such as in the U.K. and Spain, and in the opposition -- such as France, Germany and Italy.

There are three possible explanations given: first, that right-of-center parties in Europe have generally moved left during the crisis; second, that the left-of-center parties are in a general disarray; third, that economic hardships foster nationalism, and nationalism is the traditional domain of right parties.

While there are probably elements of truth in all three, there is another possibility that has nothing to do with "Europe" (which, in any case, includes more than five countries). All politics is local, as they say, and each of the countries discussed in the article are faced with different domestic concerns. In the U.K. the criticisms of the government well run beyond the current financial crisis (which occurred on Labour's watch) and include the wars in Iraq and Afghanistan, corruption, and fiscal imprudence that was well underway before the financial meltdown. In Germany, Merkel's coalition includes the left-of-center Social Democrats, does not have to apologize for foreign military adventurism, is able to lay the blame for the economic collapse at the feet of the U.S., and has remained dedicated to a strong welfare state and fiscal discipline. In Italy, Berlusconi just came to power last year (so blame for the current crisis can be deflected) and is thought as the best option for economic reform, while the left showed its inability to govern well in the last government. Zapatero's rule in Spain has always been tenuous, and his re-election early last year (before the economic collapse) followed years of solid economic growth. And I think it would be difficult to argue that Sarkozy is more popular now than when he took office.

Of course there are many other possibilities. But when looking at the political state of play, context is everything. The Journal has done a poor job of providing that context to its readers.

Paying your debt with shit (literally)

From Paul Kedrosky over at Infectious Greed, by way of Marginal Revolution:

While we worry about the U.S. inflating away its debts, that wouldn't be so bad, historically speaking. Back in the late 19th century Peru was repaying its debt obligation in guano proceeds -- shit in short. Mind you, its shit was high quality and in real demand, unlike our shit.

Here is an excerpt from a new paper:

Peru’s experience with sovereign debt during the guano boom is one of the most remarkable in the nineteenth century. Despite the country’s ongoing political instability and poor capital market reputation, the price of Peruvian bonds soared shortly after settlement in 1849, and the country enjoyed relatively low credit risk until the 1870s. The paper discusses the incentives Peru and its creditors faced, and explains how Peru’s extraordinary performance was founded on its credible commitment to service its debt with the guano proceeds.

If you can repay debt in shit then you can repay it in anything. Words to live by.

Source: Vizcarra, C. Guano, Credible Commitments, and Sovereign Debt Repayment in Nineteenth-Century Peru. The Journal of Economic History 69, 358-387(2009).

Saving us From Ourselves

At the IMF's request, Barry Eichengreen has produced 8 "out of the box" proposals to reform the international financial system (full paper).

• 1) Replenish the IMF’s bankroll annually. [Governments] should fork over enough money every year to assure that the IMF’s lending kitty grows around 3% annually after accounting for inflation, so it has plenty of money to fight global downturns.
• 2) IMF taxes on surplus countries. Countries that run steep current account surpluses or build vast currency reserves — and thus throw the international financial system out of whack — would face an IMF-imposed tax.
• 3) Make SDRs a global currency. Mr. Eichengreen would ...commercialize SDRs to turn them “into a true international currency.”
• 4) Global Glass-Steagall Act. The financial crisis was caused, in part, by regulated banks taking risky flyers on new financial instruments. Why not reimpose the Glass-Steagall Act, which separated commercial banking from investment banking — but make the rule global.
• 5) Global risk insurance. Require banks to purchase catastrophic risk insurance. They would do this by issuing financial catastrophic bonds — Cat bonds –which would make large payouts in the event of systemic failures.
• 6) International bankruptcy court. “International Court of Insolvency” comparable to the International Court of Justice. The bankruptcy court would be a “universal venue where cross-border insolvencies of internationally active financial institutions can be administered.”
• 7) World Financial Organization. The WFO would establish principles of financial supervision and resolves cases where countries violate the principles.
• 8) Remake the IMF. Scrap the 24-member executive board, which acts slowly and ineffectively, and give IMF management a much freer hand “in the manner of a monetary policy committee of a central bank,” Mr. Eichengreen suggests. Management would be overseen by a higher level council that meets periodically and could fire top officials.

I have great respect for Professor Eichengreen. Yet, I struggle to see which of these proposals has even a remote chance of adoption. Full adoption would mean: governments create independent international organizations (6, 7, and 8) capable of intervening in national economic policy (8 and 3) and taxing national governments (2), create a mechanism whereby they automatically fund this international body annually (1), and then cede almost all regulatory authority to these bodies (4 and 5).

How many governments are likely to buy into this?

Angela Merkel seems not to understand what it means for the central bank to be independent. She said, "Unconventional monetary policies being pursued by the world’s main central banks could aggravate rather than ease the economic crisis...We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time.” She then continued, “Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds.”

The implication of course, is that she wishes the ECB would adopt a different policy and is willing to speak publicly to pressure it to do so (and thereby subordinate ECB independence to her more immediate concern). This is atypical: "Ms Merkel’s decision to ignore one of the cardinal rules of German politics – an unwritten ban on commenting on monetary policy out of respect for central bank independence – suggested Berlin is far more concerned about the ECB’s approach than has so far been apparent."

Which suggests that Merkel (and other German elite, perhaps) is happy to have an independent ECB as long as it follows her ideal monetary policy. Once the ECB's commitment to that policy appears less secure, she, like her French counterparts, is less keen on the idea of letting the ECB make its decisions independently. This isn't really a commitment to central bank independence, and it hints at the deeper underlying problem in EMU. It is nice to see, however, that the French and Germans aren't that different after all.

Markets in Everything: Dates edition - 35th of May

One of my favorite running features on MarginalRevolution.com, an economics and culture blog run by George Mason University professors Tyler Cowen and Alex Tabarrok, is "Markets in Everything" where they discuss the presence of markets for random and typically pretty insane things. I'm stealing the concept for one quick post:

As Will posted earlier, today is the 20th anniversary of the Tiananmen Square protests and massacre that took place on June 4th, 1989. However, in China, all references to the Tiananmen Square massacre and today's date June 4th, have been censored throughout the country. Any reference to this date on the internet in China is being blocked (I'm sure this blog is already blocked in China now that we have posted twice about the massacre).

Chinese bloggers and internet users, however, have created a clever little way to evade this censorship by using May 35th, instead of June 4th, as a reference to the massacre when seeking to write about this major incident. Just goes to show the ingenuity of these bloggers and the rise of a market for a 35th day in the month of May. 

Obama, Cuba and the OAS

Many know of my general disdain for staff editorials published in American newspapers (mostly because the majority of them are useless and poorly written, take up space that could be used by experts to publish their own opinions, and do not list the author). However, I was pleasantly surprised to see this staff op-ed in yesterday's NY Times. Especially these lines:

For 50 years, the Cuban people have suffered under Fidel Castro’s, and now Raúl Castro’s, repressive rule. But Washington’s embargo — a cold war anachronism kept alive by Florida politics — has not lessened that suffering and has given the Castros a far-too-convenient excuse to maintain their iron grip on power.

So we are encouraged to see President Obama’s tentative efforts to ease the embargo and reach out to the Cuban people. At the same time, we are absolutely puzzled and dismayed by this week’s frenzied push by many Latin American countries to readmit Cuba to the Organization of American States.

The more contacts Cubans have with the outside world — and the more they learn about the freedoms just 90 miles away — the more likely they are to question the privations of their one-family rule.

The White House also has offered to negotiate the first direct-mail service in decades and to resume talks with the Cuban government on migration, which were suspended by the Bush administration in 2003 along with most avenues of regular communication. This week, Havana agreed to the talks on migration and mail service as well as to possible cooperation on counterterrorism, drug interdiction and hurricane relief.

This is not a reward for the Castro government. Eliciting Cuba’s cooperation is in this country’s clear interest. We also suspect that if Cuban officials talk to their American counterparts regularly, then they, too, may end up questioning their political allegiances.

It is obvious that the 50 year old embargo has not worked. The op-ed calls for engagement with the Cuban government, an engagement economically, politically and socially that would allow the United States to directly speak to the Cuban people and help establish connections between the two countries. These economic, political and social connections, it is argued, are critical in bringing greater political freedom and economic prosperity to the island. The belief is that engagement and connections will begin to foment internal dissent, and economic prosperity will further that dissent to the point where democratic reforms are possible. (I tend to agree with this position and the belief that integration between these two countries would only be good for political freedom on the island.) There are two models for transition: 1) The Eastern European model of quick and direct transition from authoritarian socialism to democratic capitalism and 2) The Chinese model of creeping economic liberty with the hopes of political liberty as economic liberty increases. I hope that model #1 is the answer, but realize that in reality, we are most likely to see model #2 play out under Raul Castro's Cuban government, unless something unanticipated happens like a coup. 

The op-ed also calls for tearing down a key piece of propaganda that the Cuban government repeatedly uses with its domestic audience as well as sympathetic leaders throughout Latin America and the world. The Cuban government repeatedly argues that the embargo, placed by the dominant and imperialist American government, is the reason that its people are under-nourished and the cause of its slumping economic position, even though Cuba is allowed to trade with the other 191 countries in the world. Removing the embargo would weaken this line of argument.

But, of course there are reasons why the embargo is still in place, and the crux of these reasons lie in the important Cuban-American voting bloc based mostly in South Florida and the greater New York/New Jersey region (where both sitting Cuban-American U.S. Senators, Bob Menendez and Mel Martinez hail from). But, things-are-a-changing here too. As the older, very conservative and pro-embargo Cuban-American population begins to die out, a new, more liberal, anti-embargo, and more pragmatic younger generation of Cuban-Americans is coming to the fore. The movement of the Cuban-American community closer to the political center will be key to the removal of the embargo.